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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 24, 1996
--------------------
SANTA ANITA REALTY
ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
- -------------------------------------- --------------------------------------
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
Delaware Delaware
- -------------------------------------- --------------------------------------
(State or other jurisdiction (State or other jurisdiction
of incorporation) of incorporation)
95-3520818 95-3419438
- -------------------------------------- --------------------------------------
(IRS Employer Identification No.) (IRS Employer Identification No.)
0-9109 0-9110
- -------------------------------------- --------------------------------------
(Commission File Number) (Commission File Number)
301 West Huntington Drive, Suite 405 285 West Huntington Drive
Arcadia, CA 91007 Arcadia, CA 91007
- -------------------------------------- --------------------------------------
(Address of principal executive (Address of principal executive
offices including zip code) offices including zip code)
(818) 574-5550 (818) 574-7223
- -------------------------------------- --------------------------------------
(Registrant's telephone number (Registrant's telephone number
including area code) including area code)
- -------------------------------------- --------------------------------------
(Former name or former address, (Former name or former address,
if changed since last report) if changed since last report)
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ITEM 5. OTHER EVENTS
On October 9, 1996, Santa Anita Realty Enterprises, Inc. and Santa Anita
Operating Company (collectively, "The Companies") received an unsolicited letter
from Koll Arcadia Investors, LLC ("KAI") in which KAI states that "we are
providing an alternative recapitalization plan for the Board's consideration."
On October 21, 1996, The Companies received another unsolicited letter from KAI.
Copies of these unsolicited letters are included herein as Exhibits 99.1 and
99.2, respectively. On October 27, 1996, The Companies sent KAI the letter and
issued the press release included herein as Exhibit 99.3.
On October 24, 1996, the Board of Directors of the Companies approved an
Amended and Restated Formation Agreement, dated as of October 24, 1996, between
The Companies and Colony Investors II, L.P. ("Colony"), a copy of which is
included herein as Exhibit 2.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits Description
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2 Form of Amended and Restated Formation Agreement, dated as
of October 24, 1996, between The Companies and Colony
99.1 Letter, dated October 9, 1996, from KAI to The Companies
99.2 Letter, dated October 21, 1996, from KAI to The Companies
99.3 Press Release of The Companies, issued October 27, 1996,
including letter, dated October 27, 1996, from The Companies
to KAI
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
SANTA ANITA REALTY ENTERPRISES, INC. SANTA ANITA OPERATING COMPANY
By: BRIAN L. FLEMING By: WILLIAM C. BAKER
-------------------------- -------------------------------
Brian L. Fleming William C. Baker
Acting President and Chief Chairman of the Board, President
Executive Officer and Chief Executive Officer
Date: October 28, 1996 Date: October 28, 1996
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EXHIBIT 2
AMENDED AND RESTATED
FORMATION AGREEMENT
AMONG
SANTA ANITA REALTY ENTERPRISES, INC.
SANTA ANITA OPERATING COMPANY
AND
COLONY INVESTORS II, L.P.
----------------
DATED AS OF OCTOBER 24, 1996
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TABLE OF CONTENTS
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ARTICLE 1
FORMATION AND CLOSING
Section 1.1. Formation.................................................. 1
Section 1.2. Purchase of Paired Shares.................................. 1
Section 1.3. Closing Date............................................... 2
Section 1.4. Closing Date Deliveries.................................... 2
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF REALTY
Section 2.1. Organization of Realty..................................... 2
Section 2.2. Capitalization............................................. 3
Section 2.3. Authority.................................................. 3
Section 2.4. Litigation................................................. 4
Section 2.5. Financial Statements....................................... 4
Section 2.6. Absence of Changes......................................... 4
Section 2.7. No Undisclosed Liabilities................................. 4
Section 2.8. SEC Documents.............................................. 5
Section 2.9. Certain Matters............................................ 5
Section 2.10. Environmental Matters...................................... 5
Section 2.11. Compliance with Laws and Orders............................ 5
Section 2.12. Real Property.............................................. 5
Section 2.13. Indebtedness............................................... 5
Section 2.14. No Finder.................................................. 5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF OPERATING
Section 3.1. Organization of Operating.................................. 5
Section 3.2. Operating Subsidiaries..................................... 6
Section 3.3. Capitalization............................................. 6
Section 3.4. Authority.................................................. 6
Section 3.5. Litigation................................................. 7
Section 3.6. Financial Statements....................................... 7
Section 3.7. Absence of Changes......................................... 7
Section 3.8. No Undisclosed Liabilities................................. 8
Section 3.9. SEC Documents.............................................. 8
Section 3.10. Certain Matters............................................ 8
Section 3.11. Environmental Matters...................................... 8
Section 3.12. Compliance with Laws and Orders............................ 8
Section 3.13. Department of Labor Regulations............................ 8
Section 3.14. Real Property.............................................. 8
Section 3.15. Indebtedness............................................... 8
Section 3.16. No Finder.................................................. 8
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Section 4.1. Organization of Investor................................. 9
Section 4.2. Authority................................................ 9
Section 4.3. Investment Representations............................... 9
Section 4.4. Litigation............................................... 10
Section 4.5. Proxy Statement.......................................... 10
Section 4.6. 1940 Act................................................. 10
Section 4.7. REIT Requirements........................................ 10
Section 4.8. No Finder................................................ 10
ARTICLE 5
ACTIONS PRIOR TO THE CLOSING DATE
Section 5.1. Proxy Statement.......................................... 10
Section 5.2. Action by Realty, Operating, Stockholders of Realty and
Stockholders of Operating................................ 11
Section 5.3. Board Representation..................................... 11
Section 5.4. Investigation............................................ 12
Section 5.5. Lawsuits, Proceedings, Etc............................... 12
Section 5.6. Conduct of Business by Realty and Operating Pending the
Closing.................................................. 12
Section 5.7. Mutual Cooperation; Best Efforts......................... 13
Section 5.8. No Public Announcement................................... 13
Section 5.9. Other Proposals.......................................... 13
Section 5.10. Amendment of Rights Agreement............................ 14
Section 5.11. Appointment of Officers.................................. 14
Section 5.12. Use of Proceeds.......................................... 14
Section 5.13. Title and Environmental Reports.......................... 14
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
Section 6.1. Indemnification of Directors and Officers................ 15
Section 6.2. Participation Rights..................................... 15
Section 6.3. Investor Nominees........................................ 16
Section 6.4. Presentation of Future Investment Opportunities.......... 17
Section 6.5. President and CEO of Realty.............................. 18
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF REALTY AND OPERATING
Section 7.1. No Misrepresentation or Breach of Covenants and
Warranties............................................... 18
Section 7.2. Opinion of Counsel for Investor.......................... 18
Section 7.3. No Injunctions or Restraints............................. 18
Section 7.4. Necessary Governmental Approvals......................... 18
Section 7.5. Necessary Consents....................................... 18
Section 7.6. Transaction Agreements................................... 19
Section 7.7. Stockholder Action....................................... 19
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ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF INVESTOR
Section 8.1. No Misrepresentation or Breach of Covenants and
Warranties.............................................. 19
Section 8.2. No Material Adverse Effect.............................. 19
Section 8.3. Opinion of Counsel for Realty and Operating............. 19
Section 8.4. No Injunctions or Restraints............................ 19
Section 8.5. Necessary Governmental Approvals........................ 19
Section 8.6. Necessary Consents...................................... 20
Section 8.7. Transaction Agreements.................................. 20
Section 8.8. Stockholder Action...................................... 20
Section 8.9. Rights.................................................. 20
Section 8.10. Department of Labor Regulations......................... 20
Section 8.11. Contribution of Excluded Assets......................... 20
ARTICLE 9
INDEMNIFICATION; SURVIVAL
Section 9.1. Indemnification by Realty and Operating................. 20
Section 9.2. Indemnification by Investor............................. 20
Section 9.3. Notice of Claims........................................ 21
Section 9.4. Third Party Claims...................................... 21
Section 9.5. Survival of Representations and Warranties.............. 22
ARTICLE 10
TERMINATION
Section 10.1. Termination............................................. 22
ARTICLE 11
OTHER PROVISIONS
Section 11.1. Confidential Nature of Information...................... 23
Section 11.2. Fees and Expenses....................................... 23
Section 11.3. Notices................................................. 24
Section 11.4. Definitions............................................. 25
Section 11.5. Information Rights...................................... 27
Section 11.6. Partial Invalidity...................................... 27
Section 11.7. Successors and Assigns.................................. 27
Section 11.8. Execution in Counterparts............................... 27
Section 11.9. Titles and Headings..................................... 27
Section 11.10. Schedules and Exhibits.................................. 27
Section 11.11. Entire Agreement; Amendments and Waivers; Assignment.... 28
Section 11.12. Governing Law........................................... 28
Section 11.13. No Third-Party Beneficiaries............................ 28
Section 11.14. Submission to Jurisdiction.............................. 28
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EXHIBITS TO FORMATION AGREEMENT
Exhibit A Form of Realty Limited Liability Company Agreement
Exhibit B Form of Operating Limited Liability Company Agreement
Exhibit C Form of Exchange Rights Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Contribution Agreement
Exhibit F Form of Services Agreement
Exhibit G Form of Charter Amendment of Realty
Exhibit H Form of Charter Amendment of Operating
Exhibit I Form of Rogers & Wells Opinion
Exhibit J Form of O'Melveny & Myers LLP Opinion
Exhibit K [Reserved]
Exhibit L Standstill Provisions
Exhibit M Special Registration Rights
Exhibit N Certificate of Designations of Series A Redeemable Preferred Stock
of Realty
Exhibit O Certificate of Designations of Series A Redeemable Preferred Stock
of Operating
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AMENDED AND RESTATED FORMATION AGREEMENT
AMENDED AND RESTATED FORMATION AGREEMENT, dated as of October 24, 1996 (this
"Agreement"), among Santa Anita Realty Enterprises, Inc., a real estate
investment trust organized as a corporation under the laws of the State of
Delaware ("Realty"), Santa Anita Operating Company, a corporation organized
under the laws of the State of Delaware ("Operating") (Realty and Operating
each being herein referred to as a "Public Company," and together the "Public
Companies"), and Colony Investors II, L.P., a limited partnership organized
under the laws of the State of Delaware ("Investor"). Unless otherwise
indicated, certain terms used herein are used as defined in Section 11.4
hereof.
RECITALS
1. Realty, Operating and Investor entered into a Formation Agreement, dated
as of August 17, 1996, as amended and restated as of September 5, 1996, which
the parties desire to amend and restate as set forth in this Agreement;
2. Realty and Investor desire to, among other things, provide for the
formation, capitalization and operation of a limited liability company (the
"Realty JV") under the Delaware Limited Liability Company Act (as amended and
restated from time to time, the "Delaware Act") on the terms and conditions
set forth herein and Operating and Investor desire to, among other things,
provide for the formation, capitalization and operation of a limited liability
company (the "Operating JV" and, together with the Realty JV, the "JVs") under
the Delaware Act on the terms and conditions set forth herein; and
3. Realty, Operating and Investor desire to make certain representations,
warranties and agreements in connection with the transactions contemplated by
this Agreement and also to prescribe various conditions to the consummation of
such transactions.
AGREEMENT
The parties hereto agree as follows:
ARTICLE 1
Formation and Closing
Section 1.1. Formation. Upon the terms and subject to the conditions set
forth in this Agreement, on the Closing Date (as defined in Section 1.3) (a)
Realty and Investor shall execute and deliver the Amended and Restated Limited
Liability Company Agreement for the Realty JV in substantially the form
attached to this Agreement as Exhibit A (the "Realty JV Agreement"), (b)
Operating, certain subsidiaries of Operating and Investor shall execute and
deliver the Amended and Restated Limited Liability Company Agreement for the
Operating JV in substantially the form attached to this Agreement as Exhibit B
(the "Operating JV Agreement" and, together with the Realty JV Agreement, the
"JV Agreements"), (c) Investor hereby agrees to acquire the Units of each of
the JVs to be acquired by it pursuant to the JV Agreements and (d) Realty,
Operating and Investor shall take or cause to be taken all other actions
contemplated herein to be taken on the Closing Date.
Section 1.2. Purchase of Paired Shares. Prior to execution and delivery of
this Agreement, Realty and Operating will have sold to Investor, and Investor
will have purchased from Realty and Operating, 112,700 Common Paired Shares
and 867,343 Preferred Paired Shares (collectively, the "Purchased Shares") at
a price of $12.975 per Purchased Share. Such Preferred Paired Shares shall
have the rights and preferences set forth in the Certificate of Designations
of Realty substantially in the form attached to this Agreement as Exhibit N
and in the Certificate of Designations of Operating substantially in the form
attached to this Agreement as Exhibit O (together, the "Certificates of
Designations"). To consummate the purchase of the Purchased Shares, (i) Realty
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and Operating will have delivered to Investor certificates representing the
Purchased Shares, (ii) Investor will have paid to Realty and Operating the
aggregate purchase price for the Purchased Shares in cash by wire transfer to
an account previously specified by Realty and Operating to Investor and (iii)
Investor will have delivered to Realty and Operating a letter acknowledging
that Investor is acquiring the Purchased Shares for investment, and not with a
view to their resale and distribution, and that acquisition of the Purchased
Shares will not adversely affect the paired share status of the Paired Shares
or, to the best knowledge of Investor, otherwise cause Realty to fail to
satisfy the REIT Requirements.
Section 1.3. Closing Date. Upon the terms and subject to the conditions set
forth in this Agreement, the transactions contemplated by this Agreement shall
be consummated (the "Closing") at 10:00 a.m., local time, on the third
business day after the meetings of the stockholders of Realty and the
stockholders of Operating provided in Section 5.2, or such other date as may
be agreed upon by Realty, Operating and Investor, at the offices of O'Melveny
& Myers LLP, 400 South Hope Street, Los Angeles, California 90071, or at such
other place or at such other time as shall be agreed upon by Realty, Operating
and Investor (such date and time being herein called the "Closing Date").
Section 1.4. Closing Date Deliveries. On the Closing Date, Realty,
Operating, and Investor, as appropriate, shall execute and deliver or cause
the Realty JV or the Operating JV to execute and deliver the following
documents: (a) the JV Agreements, (b) a Contribution Agreement between Realty
and the Realty JV in a form to be agreed upon between Realty and Investor and
containing terms and conditions consistent with the terms of this Agreement
(the "Realty Contribution Agreement"), pursuant to which, among other things,
Realty will convey to the Realty JV on the Closing Date (or on a date or dates
mutually agreed on by Realty and Investor after the Closing Date) all of the
assets and properties of Realty (the "Realty Properties") and the Realty JV
will assume all of the liabilities and obligations of Realty (other than the
liabilities and obligations of Realty pursuant to this Agreement and the
Transaction Agreements (as defined below), (c) a Contribution Agreement
between Operating and the Operating JV in a form to be agreed upon between
Operating and Investor and containing terms and conditions consistent with the
terms of this Agreement (the "Operating Contribution Agreement"), pursuant to
which, among other things, Operating will convey or cause to be conveyed to
the Operating JV on the Closing Date (or on a date or dates mutually agreed on
by Operating and Investor after the Closing Date) all of the assets and
properties of Operating and its subsidiaries, including the stock of Los
Angeles Turf Club, Incorporated ("LATC"), and cause its subsidiaries other
than LATC to contribute all of their respective assets and properties (the
"Operating Properties") and the Operating JV will assume all of the
liabilities and obligations of Operating (other than the liabilities and
obligations of Operating and its subsidiaries pursuant to this Agreement and
the Transaction Agreements), (d) the Exchange Rights Agreement among the
Realty JV, the Operating JV, Realty, Operating and Investor in substantially
the form attached to this Agreement as Exhibit C (the "Exchange Agreement"),
(e) the Registration Rights Agreement among Realty, Operating and Investor in
substantially the form attached to this Agreement as Exhibit D (the
"Registration Rights Agreement"), (f) the Contribution Agreement among Realty,
Operating and the JVs in substantially the form attached to this Agreement as
Exhibit E, (g) the Services Agreement among Realty, Operating and Investor in
substantially the form attached to this Agreement as Exhibit F (the "Services
Agreement", (h) the Standstill Agreement among Realty, Operating and Investor
in substantially the form attached to this Agreement as Exhibit L (the
"Standstill Agreement") and, with the agreements referred to in subsections
1.4(a) through 1.4(g), the "Transaction Agreements") and (i) all of the
documents, instruments and opinions required to be delivered pursuant to
Articles VII and VIII or required to be delivered on the Closing Date pursuant
to the Transaction Agreements.
ARTICLE 2
Representations and Warranties of Realty
As an inducement to Investor to enter into this Agreement and to consummate
the transactions contemplated hereby, Realty represents and warrants to
Investor and each of the JVs and agrees as follows:
Section 2.1. Organization of Realty. Realty is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Realty is duly qualified to transact business and is in good
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standing in each of the jurisdictions in which the ownership or leasing of the
properties used in its business or the conduct of its business requires such
qualification (each of which is listed in the Realty Disclosure Schedule),
other than in such jurisdictions where the failure to be so qualified and in
good standing would not have a Material Adverse Effect on Realty and its
subsidiaries (taken as a whole). Realty has all requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as now conducted. Realty has delivered to Investor complete and
correct copies of the Certificate of Incorporation (the "Realty Certificate")
and by-laws (the "Realty By-laws") of Realty, in each case as amended and in
effect on the date hereof. Realty has no subsidiaries other than Realty JV.
Section 2.2. Capitalization. On the date hereof, the authorized capital of
Realty consists of 6,000,000 shares of preferred stock, $.10 par value (the
"Realty Preferred Shares"), and 19,000,000 shares of common stock, $.10 par
value (the "Realty Common Shares" and together with the Realty Preferred
Shares, the "Realty Shares"), of which no Realty Preferred Shares and
11,383,000 Realty Common Shares are validly issued and outstanding and are
fully paid and nonassessable and of which none is reserved for any purpose,
except those Realty Shares issuable upon exercise of the Realty Options and
the Rights (each as hereinafter defined). Realty has granted options to
purchase an aggregate of 522,021 Realty Common Shares (the "Realty Options")
pursuant to option plans of Realty and Operating. Except for the Realty
Options and the Rights, and except as contemplated by this Agreement, there
are no options, warrants or other rights to acquire, or agreements or
commitments pursuant to which Realty is obligated to issue, sell, purchase or
redeem shares of capital stock of Realty. Realty has issued no restricted
Realty Common Shares pursuant to Realty's 1995 Share Award Plan. The Purchased
Shares have been duly authorized and validly issued and are fully paid and
nonassessable and the issuance of the Purchased Shares is not subject to any
preemptive right.
Section 2.3. Authority. (a) Realty has full corporate power and authority to
enter into this Agreement and each other Transaction Agreement to which Realty
is or will be a party and, subject to the approval by the stockholders of
Realty of the Realty Stockholder Matters as defined in Section 5.2, to
consummate the transactions contemplated hereby and thereby.
(b) The execution, delivery and performance by Realty of this Agreement and
each other Transaction Agreement to which Realty is or will be a party and the
consummation by Realty of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on the part of
Realty, subject to the approval by the stockholders of Realty of the Realty
Stockholder Matters. This Agreement is, and each other Transaction Agreement
to which Realty is or will be a party when executed and delivered will be, the
legal, valid and binding agreement of Realty, enforceable against Realty in
accordance with its terms.
(c) The execution or delivery by Realty of this Agreement, and any other
Transaction Agreement to which Realty will be a party, and consummation of the
transactions contemplated hereby and thereby or compliance with or fulfillment
of the terms and provisions hereof or thereof by Realty, will not (i) conflict
with, result in a breach of the terms, conditions or provisions of, or
constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights, or result in
the creation or imposition of any encumbrance upon any of the assets of
Realty, under the Realty Certificate, the Realty By-laws, the private letter
rulings issued by the Internal Revenue Service to Realty dated October 16,
1979 and January 11, 1980 (the "Private Letter Rulings"), the Pairing
Agreement dated December 20, 1979 (the "Pairing Agreement") between Realty and
Operating, or any other instrument or agreement to which Realty is a party or
any of its properties is subject or by which it is bound or any statute, other
law or regulatory provision affecting it, (ii) require the approval, consent
or authorization of, or the making of any declaration, filing or registration
with, any third party or any foreign, federal, state or local court,
governmental authority or regulatory body, by or on behalf of Realty, or (iii)
adversely affect the qualification of Realty as a "real estate investment
trust," as defined in Section 856 of the Code ("REIT"), for each taxable year
ending on or after the date of this Agreement or adversely affect the ability
of Realty to retain its status as grandfathered from the application of
Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of the Deficit
Reduction Act of 1984, except for (A) the filing of appropriate documents with
the Securities and Exchange Commission (the "SEC") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), (B) approval by the
stockholders of Realty of the Realty Stockholder
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Matters, (C) those matters set forth in the Realty Disclosure Schedule and (D)
such conflicts, breaches, defaults, events, creations, impositions, approvals,
consents, declarations, filings or authorizations which would not reasonably
be expected to either (x) have a Material Adverse Effect on Realty or, in
addition, after the Closing, on the Realty JV or (y) prevent or hinder the
consummation of the transactions contemplated hereby.
(d) At all times since February 5, 1980, Realty has been and will continue
to be organized and operated in conformity with the REIT Requirements, and its
proposed method of operation will enable it to continue to meet the REIT
Requirements. The Pairing Agreement was duly and validly authorized and is a
valid and binding agreement, enforceable against Realty in accordance with its
terms. The Realty Common Shares are paired with the Operating Common Shares
(as defined in Section 3.3) pursuant to the Pairing Agreement and such pairing
is grandfathered from the application of Section 269B(a)(3) of the Code
pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984.
Section 2.4. Litigation. To the knowledge of Realty, except as disclosed in
the Realty Disclosure Schedule or in the SEC Documents (as defined in Section
2.8), there are no actions, suits or proceedings or court orders or decrees
pending or threatened to which Realty is a party or any of its properties is
subject or by which it is bound before or by any court or governmental agency,
which if determined adversely to the interests of Realty, would reasonably be
expected to either (x) have a Material Adverse Effect on Realty or, in
addition, after the Closing, on the Realty JV or (y) prevent or hinder the
consummation of the transactions contemplated hereby.
Section 2.5. Financial Statements. Prior to the execution of this Agreement,
Realty has delivered to Investor true and complete copies of the following
financial statements:
(a) the audited balance sheets of Realty as of December 31, 1995, 1994 and
1993, and the related audited statements of operations, shareholders' equity
and cash flows for each of the fiscal years then ended, together with a true
and correct copy of the report on such audited information by Kenneth
Leventhal & Co (for the 1993 and 1994 fiscal years) and Ernst & Young LLP (for
the 1995 fiscal year), and all letters from such accountants with respect to
the results of such audits; and
(b) the unaudited balance sheets of Realty as of March 31 and June 30, 1996
and 1995, and the related unaudited statements of operations and cash flows
for the portion of the fiscal year then ended.
Except as set forth in the notes thereto, all such financial statements were
prepared in accordance with GAAP and fairly present the financial condition
and results of operations of Realty as of the respective dates thereof and for
the respective periods covered thereby except, in the case of the unaudited
financial statements, for the absence of footnotes and normal year-end
adjustments which an audit would reveal.
Section 2.6. Absence of Changes. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on the
Closing Date, since December 31, 1995, except as disclosed in the Realty
Disclosure Schedule, there has not been any material adverse change, or any
event or development which, individually or together with other such events,
could reasonably be expected to result in a material adverse change, in the
business, condition (financial or otherwise), results of operations, assets,
properties and prospects of Realty or, in addition, after the Closing, on the
Realty JV and its subsidiaries (taken as a whole).
Section 2.7. No Undisclosed Liabilities. Except as reflected or reserved
against in the balance sheet included in Realty's audited financial statements
for the year ended December 31, 1995 or in the notes thereto or as disclosed
in the Realty Disclosure Schedule, there are no liabilities against, relating
to or affecting Realty or any of its assets and properties, known, unknown,
fixed or contingent, other than liabilities incurred in the ordinary course of
business consistent with past practice and such other liabilities which in the
aggregate would not reasonably be expected to be material to the business,
condition (financial or otherwise), results of operations, assets, properties
and prospects of Realty or, in addition, after the Closing, to the Realty JV.
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Section 2.8. SEC Documents. Realty has previously delivered or made
available to Investor complete and correct copies of all reports and
statements jointly filed by Realty and Operating with the SEC under the
Exchange Act since January 1, 1993 (the "SEC Documents"). As of their
respective dates, none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Section 2.9. Certain Matters. To the knowledge of Realty, except as
disclosed in the Realty Disclosure Schedule, the SEC Documents, or in reports
of consultants or title companies delivered to Investor prior to the date of
this Agreement, there are no structural, mechanical, HVAC, zoning or title
conditions relating to the Realty Properties which would reasonably be
expected to have a Material Adverse Effect on Realty or, in addition, after
the Closing, on the Realty JV.
Section 2.10. Environmental Matters. Realty has obtained all licenses which
are required in respect of its business, operations, assets and properties
under applicable environmental laws, except those which the failure to obtain
would not reasonably be expected to have a Material Adverse Effect on Realty
or, in addition, after the Closing, on the Realty JV. Realty is in compliance
in all material respects with the terms and conditions of all such licenses
and, to the best of its knowledge, with any applicable environmental law.
Section 2.11. Compliance with Laws and Orders. Except as disclosed in the
Realty Disclosure Schedule, Realty is not, nor has Realty at any time within
the last five years been, or received any notice that it is or has at any time
within the last five years been, in violation of or in default under any law
or order applicable to Realty or any of its assets and properties, which
violation or default would reasonably be expected to have a Material Adverse
Effect on Realty or, in addition, after the Closing, on the Realty JV.
Section 2.12. Real Property. The Realty Disclosure Schedule contains a true
and complete list of all real property, including office space, owned or
leased by Realty, showing as to each property whether it is owned or leased
and, if it is leased, the identity of the lessor and the date of the lease. As
to real property which is owned, to the best of its knowledge, Realty owns
full title to the real property, free and clear of any liens or other
encumbrances, except the liens and encumbrances disclosed in the Realty
Disclosure Schedule or which would not have a Material Adverse Effect on
Realty or, in addition, after the Closing, on the Realty JV.
Section 2.13. Indebtedness. The Realty Disclosure Schedule contains a true
and complete list of all indebtedness of Realty for borrowed money and a
description of the principal collateral for such indebtedness.
Section 2.14. No Finder. Neither Realty nor any party acting on behalf of
Realty has paid or become obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement other than to Morgan Stanley & Co.
Incorporated, whose fees and expenses, to the extent payable, shall be paid by
the Realty JV and the Operating JV after the Closing.
ARTICLE 3
Representations and Warranties of Operating
As an inducement to Investor to enter into this Agreement and to consummate
the transactions contemplated hereby, Operating represents and warrants to
Investor and each of the JVs and agrees as follows:
Section 3.1. Organization of Operating. Operating is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware. Operating and its subsidiaries are each duly qualified to
transact business and are each in good standing in each of the jurisdictions
in which the ownership or leasing of the properties used in its business or
the conduct of its business requires such qualification (each of which is
listed in the Operating Disclosure Schedule), other than in such jurisdictions
where the failure to be so qualified and in good standing would not have a
Material Adverse Effect on Operating and its subsidiaries (taken as a whole).
Operating has all requisite corporate power and authority to own or lease and
operate its properties
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and to carry on its business as now conducted. Operating has delivered to
Investor complete and correct copies of the Certificate of Incorporation (the
"Operating Certificate") and by-laws (the "Operating By-laws") of Operating,
in each case as amended and in effect on the date hereof.
Section 3.2. Operating Subsidiaries. The Operating Disclosure Schedule
accurately and completely sets forth as to (a) each subsidiary of Operating
which is a corporation, its name, the jurisdiction of its incorporation, the
number of shares of its capital stock of each class outstanding and the number
of such outstanding shares owned by Operating and its other subsidiaries and
(b) as to each subsidiary of Operating which is not a corporation, its name,
the jurisdiction of its organization or formation and a detailed description
of its capital structure which indicates the direct or indirect interest of
Operating in such subsidiary. Each subsidiary of Operating is a trust,
corporation, limited liability company or partnership duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation and has all requisite power and authority to own or lease and
operate its properties, and to carry on its business as now conducted. All of
the issued and outstanding shares of capital stock or other equity interests
in each subsidiary of Operating are validly issued, fully paid and
nonassessable and owned beneficially by Operating, free and clear of any liens
or other encumbrances, and there are no options, warrants or other rights to
acquire, or agreements or commitments pursuant to which any such subsidiary is
obligated to issue, sell, purchase or redeem shares of capital stock or other
equity interests in such subsidiary.
Section 3.3. Capitalization. On the date hereof, the authorized capital of
Operating consists of 6,000,000 shares of preferred stock, $.10 par value (the
"Operating Preferred Shares"), and 19,000,000 shares of common stock, $.10 par
value (the "Operating Common Shares" and together with the Operating Preferred
Shares, the "Operating Shares"), of which no Operating Preferred Shares and
11,270,500 Operating Common Shares are validly issued and outstanding and are
fully paid and nonassessable and of which none is reserved for any purpose,
except those Operating Shares issuable upon exercise of the Operating Options
(as hereinafter defined). Operating has granted options to purchase an
aggregate of 453,700 Operating Common Shares (the "Operating Options")
pursuant to option plans of Realty and Operating. Except for the Operating
Options, and except as contemplated by this Agreement, there are no options,
warrants or other rights to acquire, or agreements or commitments pursuant to
which Operating is obligated to issue, sell, purchase or redeem shares of
capital stock of Operating. Operating has issued 59,291 unvested restricted
Operating Shares pursuant to Operating's 1995 Share Award Plan. The Purchased
Shares have been duly authorized and validly issued and are fully paid and
nonassessable and the issuance of the Purchased Shares is not subject to any
preemptive right.
Section 3.4. Authority. (a) Operating has full corporate power and authority
to enter into this Agreement and each other Transaction Agreement to which
Operating is or will be a party and, subject to the approval by the
stockholders of Operating of the Operating Stockholder Matters as defined in
Section 5.2, to consummate the transactions contemplated hereby and thereby.
(b) The execution, delivery and performance by Operating of this Agreement
and each other Transaction Agreement to which Operating is or will be a party,
and the consummation by Operating of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the
part of Operating, subject to the approval by the stockholders of Operating of
the Operating Stockholder Matters. This Agreement is, and each other
Transaction Agreement to which Operating is or will be a party when executed
and delivered will be, the legal, valid and binding agreement of Operating,
enforceable against Operating in accordance with its respective terms.
(c) The execution or delivery by Operating of this Agreement and each other
Transaction Agreement to which Operating is or will be a party, and
consummation of the transactions contemplated hereby or thereby or compliance
with or fulfillment of the terms and provisions hereof or thereof by
Operating, will not (i) conflict with, result in a breach of the terms,
conditions or provisions of, or constitute a default, an event of default or
an event creating rights of acceleration, termination or cancellation or a
loss of rights, or result in the creation or imposition of any encumbrance
upon any of the assets of Operating or any of its subsidiaries, under the
Operating Certificate, the Operating By-laws, the organizational documents of
any subsidiary of Operating, the Pairing
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Agreement or any other instrument or agreement to which Operating or any of
its subsidiaries is a party or any of their respective properties is subject
or by which any of them is bound or any statute, other law or regulatory
provision affecting any of them, or (ii) require the approval, consent or
authorization of, or the making of any declaration, filing or registration
with, any third party or any foreign, federal, state or local court,
governmental authority or regulatory body, by or on behalf of Operating or any
of its subsidiaries, except for (A) the filing of appropriate documents with
the SEC under the Exchange Act, (B) approval by the stockholders of Operating
of the Operating Stockholder Matters, (C) those matters set forth in the
Operating Disclosure Schedule and (D) such conflicts, breaches, defaults,
events, creations, impositions, approvals, consents, declarations, filings or
authorizations, which would not reasonably be expected to either (x) have a
Material Adverse Effect on Operating and its subsidiaries (taken as a whole)
or, in addition, after the Closing, on the Operating JV and its subsidiaries
(taken as a whole) or (y) prevent or hinder the consummation of the
transactions contemplated hereby.
(d) The Pairing Agreement is duly and validly authorized and is a valid and
binding agreement, enforceable against Operating in accordance with its terms.
The Operating Common Shares are paired with the Realty Common Shares pursuant
to the Pairing Agreement and such pairing is not prohibited pursuant to
Section 136(c)(3) of the Deficit Reduction Act of 1984.
Section 3.5. Litigation. To the knowledge of Operating, except as disclosed
in the Operating Disclosure Schedule or in the SEC Documents, there are no
actions, suits or proceedings or court orders or decrees pending or threatened
to which Operating is a party or any of its properties is subject or by which
it is bound before or by any court or governmental agency, which if determined
adversely to the interests of Operating, would reasonably be expected to
either (x) have a Material Adverse Effect on Operating and its subsidiaries
(taken as a whole) or, in addition, after the Closing, on the Operating JV and
its subsidiaries (taken as a whole) or (y) prevent or hinder the consummation
of the transactions contemplated hereby.
Section 3.6. Financial Statements. Prior to the execution of this Agreement,
Operating has delivered to Investor true and complete copies of the following
financial statements:
(a) the audited consolidated balance sheets of Operating and its
subsidiaries as of December 31, 1995, 1994 and 1993, and the related audited
consolidated statements of operations, shareholders' equity and cash flows for
each of the fiscal years then ended, together with a true and correct copy of
the report on such audited information by Kenneth Leventhal & Co. (for the
1993 and 1994 fiscal years) and Ernst & Young LLP (for the 1995 fiscal year),
and all letters from such accountants with respect to the results of such
audits; and
(b) the unaudited consolidated balance sheets of Operating and its
subsidiaries as of March 31 and June 30, 1996 and 1995, and the related
unaudited consolidated statements of operations and cash flows for the portion
of the fiscal year then ended.
Except as set forth in the notes thereto, all such financial statements were
prepared in accordance with GAAP and fairly present the consolidated financial
condition and results of operations of Operating and its consolidated
subsidiaries as of the respective dates thereof and for the respective periods
covered thereby, except, in the case of the unaudited financial statements,
for the absence of footnotes and normal year-end adjustments which an audit
would reveal.
Section 3.7. Absence of Changes. Except for the execution and delivery of
this Agreement and the transactions to take place pursuant hereto on the
Closing Date, and except as disclosed in the Operating Disclosure Schedule,
since December 31, 1995, there has not been any material adverse change, or
any event or development which, individually or together with other such
events, could reasonably be expected to result in a material adverse change,
in the business, condition (financial or otherwise), results of operations,
assets, properties and prospects of Operating and its subsidiaries (taken as a
whole) or, in addition, after the Closing, on the Operating JV and its
subsidiaries (taken as a whole).
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Section 3.8. No Undisclosed Liabilities. Except as reflected or reserved
against in the consolidated balance sheet included in Operating's audited
financial statements for the year ended December 31, 1995 or in the notes
thereto or as disclosed in the Operating Disclosure Schedule, there are no
liabilities against, relating to or affecting Operating or any of its assets
and properties, known, unknown, fixed or contingent, other than liabilities
incurred in the ordinary course of business consistent with past practice and
such other liabilities which in the aggregate would not reasonably be expected
to be material to the business, condition (financial or otherwise), results of
operations, assets, properties and prospects of Operating and its subsidiaries
(taken as a whole) or, in addition, after the Closing, to the Operating JV and
its subsidiaries (taken as a whole).
Section 3.9. SEC Documents. Operating has previously delivered or made
available to Investor complete and correct copies of the SEC Documents. As of
their respective dates, none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
Section 3.10. Certain Matters. To the knowledge of Operating, except as
disclosed in the SEC Documents, the Operating Disclosure Schedule or in
reports of consultants or title companies delivered to Investor prior to the
date of this Agreement, there are no structural, mechanical, HVAC, zoning or
title conditions relating to the Operating Properties which would reasonably
be expected to have a Material Adverse Effect on Operating and its
subsidiaries (taken as a whole) or, in addition, after the Closing, on the
Operating JV and its subsidiaries (taken as a whole).
Section 3.11. Environmental Matters. Operating has obtained all licenses
which are required in respect of its business, operations, assets and
properties under applicable environmental laws, except those which the failure
to obtain would not reasonably be expected to have a Material Adverse Effect
on Operating and its subsidiaries (taken as a whole) or, in addition, after
the Closing, on the Operating JV and its subsidiaries (taken as a whole).
Operating is in compliance in all material respects with the terms and
conditions of all such licenses and, to the best of its knowledge, with any
applicable environmental law.
Section 3.12. Compliance with Laws and Orders. Except as disclosed in the
Operating Disclosure Schedule, none of Operating and its subsidiaries is, nor
has any of Operating and its subsidiaries at any time within the last five
years been, or received any notice that it is or has at any time within the
last five years been, in violation of or in default under, in any material
respect, any law or order applicable to Operating and its subsidiaries or any
of their assets and properties.
Section 3.13. Department of Labor Regulations. Operating is an "operating
company" within the meaning of the first sentence of Section 2510.3-101(c) of
the DOL Regulations.
Section 3.14. Real Property. The Operating Disclosure Schedule contains a
true and complete list of all real property, including office space, owned or
leased by Operating, showing as to each property whether it is owned or leased
and, if it is leased, the identity of the lessor and the date of the lease. As
to real property which is owned, to the best of its knowledge, Operating owns
full title to the real property, free and clear of any liens or other
encumbrances, except the liens and encumbrances disclosed in the Operating
Disclosure Schedule or which would not have a Material Adverse Effect on
Operating or, in addition, after the Closing, on the Operating JV.
Section 3.15. Indebtedness. The Operating Disclosure Schedule contains a
true and complete list of all indebtedness of Operating for borrowed money and
a description of the principal collateral for such indebtedness.
Section 3.16. No Finder. Neither Operating nor any party acting on behalf of
Operating has paid or become obligated to pay any fee or commission to any
broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement, other than to Morgan Stanley & Co.
Incorporated, whose fees and expenses, to the extent payable, shall be paid by
the Realty JV and the Operating JV after the Closing.
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ARTICLE 4
Representations and Warranties of Investor
As an inducement to each of Realty and Operating to enter into this
Agreement and to consummate the transactions contemplated hereby, Investor
represents and warrants to each of Realty and Operating and each of the JVs
and agrees as follows:
Section 4.1. Organization of Investor. Investor is a limited partnership
duly formed and validly existing under the law of the State of Delaware.
Investor is duly qualified to transact business in each of the jurisdictions
in which the ownership or leasing of the properties used in its business or
the conduct of its business requires such qualification (each of which is
listed in the Investor Disclosure Schedule), other than in such jurisdictions
where the failure to be so qualified and in good standing would not have a
Material Adverse Effect on Investor. Investor has all requisite partnership
power and authority to own or lease and operate its properties and to carry on
its business as now conducted.
Section 4.2. Authority. (a) Investor has full power and authority to enter
into this Agreement and the other Transaction Agreements to which it is or
will be a party and to consummate the transactions contemplated hereby and
thereby.
(b) The execution, delivery and performance by Investor of this Agreement
and each other Transaction Agreement to which it is or will be a party, and
the consummation by Investor of the transactions contemplated hereby and
thereby have been duly authorized by all necessary partnership action on the
part of Investor. This Agreement is, and each other Transaction Agreement to
which it is or will be a party, when executed and delivered will be, the
legal, valid and binding agreement of Investor, enforceable against Investor
in accordance with its respective terms.
(c) The execution and delivery by Investor of this Agreement or any other
Transaction Agreement to which it is or will be a party and consummation of
the transactions contemplated hereby or thereby or compliance with or
fulfillment of the terms and provisions hereof or thereof by Investor will not
(i) conflict with, result in a breach of the terms, conditions or provisions
of, or constitute a default, an event of default or an event creating rights
of acceleration, termination or cancellation or a loss of rights under the
agreement of limited partnership of Investor, any instrument or agreement to
which Investor is a party or any of its properties is subject or by which any
of them is bound or any statute, other law or regulatory provision affecting
any of them, or (ii) require the approval, consent or authorization of, or the
making of any declaration, filing or registration with, any third party or any
foreign, federal, state or local court, governmental authority or regulatory
body, by or on behalf of Investor, except for (A) those matters set forth in
the Investor Disclosure Schedule and (B) such conflicts, breaches, defaults,
events, creations, impositions, approvals, consents, declarations, filings or
authorizations which would not reasonably be expected to either (x) have a
Material Adverse Effect on Investor or, in addition, after the Closing, on the
Realty JV and its subsidiaries (taken as a whole) or the Operating JV and its
subsidiaries (taken as a whole) or (y) prevent or hinder the consummation of
the transactions contemplated hereby.
Section 4.3. Investment Representations. Investor is an "accredited
investor" within the meaning of Rule 501 under the Securities Act of 1933, as
amended (the "Securities Act") and was not organized for the purpose of
acquiring Units in the JVs and the Purchased Shares. Investor has sufficient
knowledge and experience in financial and business matters and in investing in
entities similar to Realty, Operating, the Realty JV and the Operating JV so
as to be able to evaluate the risks and merits of its investment in the Realty
JV and the Operating JV and the Purchased Shares and it is financially able to
bear the risks thereof. Investor has had an opportunity to discuss the
business, management and financial affairs of Realty, Operating and the Realty
JV and the Operating JV with the management of Realty and Operating. The Units
of the Realty JV and the Operating JV and the Purchased Shares are being
acquired by Investor for its own account for the purpose of investment and not
with a view to or for sale in connection with any distribution thereof.
Investor understands that (i) the Units of the Realty JV and the Operating JV
and the Purchased Shares have not been registered under
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the Securities Act by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof or Rule 505 or 506 promulgated under the Securities Act, and (ii) such
Units and, upon any issuance of Realty Shares and Operating Shares pursuant to
the Exchange Agreement, such Realty Shares and Operating Shares and the
Purchased Shares must be held indefinitely unless such Shares are registered
upon receipt thereof, or unless a subsequent disposition thereof is registered
under the Securities Act and applicable state securities laws or is exempt
from such registration.
Section 4.4. Litigation. To the knowledge of Investor, except as disclosed
in the Investor Disclosure Schedule, there are no actions, suits or
proceedings or court orders or decrees pending or threatened to which Investor
is a party or any of its properties is subject or by which it is bound before
or by any court or governmental agency, which if determined adversely to the
interests of Investor, would reasonably be expected to either (x) have a
Material Adverse Effect on Investor or, in addition, after the Closing, on the
Realty JV and its subsidiaries (taken as a whole) or the Operating JV and its
subsidiaries (taken as a whole), or (y) prevent or hinder the consummation of
the transactions contemplated hereby.
Section 4.5. Proxy Statement. None of the information supplied or to be
supplied by Investor or any of its representatives for inclusion in the Proxy
Statement (as defined in Section 5.1) will, at the time of the mailing of the
Proxy Statement to the stockholders of Realty and Operating be incorrect in
any material respect.
Section 4.6. 1940 Act. Investor is not, and Investor is not controlled by
and does not control any Person who is, required to be registered under the
Investment Company Act of 1940, as amended.
Section 4.7. REIT Requirements. To the best of its knowledge, the
consummation by Investor of the purchase of the Purchased Shares will not
cause Realty to fail to satisfy the REIT Requirements.
Section 4.8. No Finder. Neither Investor nor any party acting on its behalf
has paid or become obligated to pay any fee or any commission to any broker,
finder or intermediary for or on account of the transactions contemplated by
this Agreement, other than to Merrill Lynch & Co., whose fees and expenses, to
the extent payable, shall be paid by the Realty JV and the Operating JV after
the Closing.
ARTICLE 5
Actions Prior to the Closing Date
Realty, Operating, and Investor covenant and agree to take the following
respective actions between the date hereof and the Closing Date:
Section 5.1. Proxy Statement. (a) Investor shall, and shall cause its
affiliates and representatives to, furnish Realty and Operating all
information concerning itself and reasonably required for use in the Proxy
Statement.
(b) Realty and Operating shall prepare and file with the SEC a joint proxy
statement to solicit proxies in connection with the meetings of the
stockholders of Realty and the stockholders of Operating referred to in
Section 5.2 (the form of such joint proxy statement, together with any
amendments thereof or supplements thereto, mailed to the stockholders of
Realty and the stockholders of Operating in connection with such meetings is
herein referred to as the "Proxy Statement"). Realty and Operating will cause
the Proxy Statement to comply as to form in all material respects with the
applicable requirements of the Exchange Act and the respective rules and
regulations thereunder and will cause the Proxy Statement, at the time of its
mailing or delivery to the stockholders of Realty and the stockholders of
Operating and at the time of the meetings referred to above, to not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state
a material fact was made by Realty or Operating in reliance upon and in
conformity with information concerning Investor and its affiliates or
representatives furnished to Realty or Operating by Investor or its affiliates
or representatives for inclusion in the Proxy Statement, as set forth in the
Proxy Statement Letter.
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(c) Prior to the mailing of the Proxy Statement, Realty, Operating and
Investor shall enter into a letter agreement specifying those portions of the
Proxy Statement which were supplied by Investor (the "Proxy Statement
Letter").
(d) If, at any time prior to the Closing Date, any event should occur which
is required to be described in an amendment of, or a supplement to, the Proxy
Statement, Realty and Operating will cause such event to be so described, and
such amendment shall be promptly filed with the SEC and, as required by law,
disseminated to any stockholders of Realty or any stockholders of Operating.
Investor will cooperate fully in connection with such amendment or supplement,
including supplying any and all information with respect to Investor (or its
affiliates and representatives) which is necessary to prepare any such
amendment or supplement.
Section 5.2. Action by Realty, Operating, Stockholders of Realty and
Stockholders of Operating. (a) Realty shall, as soon as practicable after the
Proxy Statement is cleared by the SEC, duly call, give notice of, convene and
hold a meeting of the stockholders of Realty for the purpose of electing
directors to the Board of Directors of Realty (including the nominees
designated by Investor pursuant to Section 5.3) and approving (i) Realty
becoming an approximately 59.8% Unitholder of the Realty JV and the
contribution to the Realty JV of the Realty Properties, (ii) the issuance of
Realty Shares pursuant to the Exchange Agreement, (iii) the amendments to
Articles Fourth and Eighth of the Realty Certificate substantially in the form
attached to this Agreement as Exhibit G, (iv) the amendment by Realty of its
1995 Share Award Plan to increase the number of shares available for grants
under such plan so that the number of shares available for grants under such
plan, together with the number of shares available for grants under
Operating's 1995 Share Award Plan is equal to 9.50% of the outstanding Paired
Shares, assuming full conversion of all Units which Colony is obligated to
purchase under the Realty JV Agreement, and (v) any other matter required to
be approved by such stockholders pursuant to this Agreement and the
transactions contemplated hereby (collectively, together with the election to
the Board of Directors of Realty of the nominees designated by Investor
pursuant to Section 5.3, the "Realty Stockholder Matters"). Operating shall,
as soon as practicable after such clearance, duly call, give notice of,
convene and hold a meeting of the stockholders of Operating for the purpose of
electing directors to the Board of Directors of Operating (including the
nominees designated by Investor pursuant to Section 5.3) and approving (i)
Operating becoming an approximately 59.8% Unitholder of the Operating JV and
the contribution to the Operating JV of the Operating Properties, (ii) the
issuance of Operating Shares pursuant to the Exchange Agreement, (iii) the
amendments to Articles Fourth and Eighth of the Operating Certificate in the
form attached to this Agreement as Exhibit H, (iv) the amendment by Operating
of its 1995 Share Award Plan to increase the number of shares available for
grants under such plan so that the number of shares available for grants under
such plan, together with the number of shares available for grants under
Realty's 1995 Share Award Plan is equal to 9.50% of the outstanding Paired
Shares, assuming full conversion of all Units which Colony is obligated to
purchase under the Operating JV Agreement, and (v) any other matter required
to be approved by such stockholders pursuant to this Agreement and the
transactions contemplated hereby (collectively, together with the election to
the Board of Directors of the nominees designated by Investor pursuant to
Section 5.3, the "Operating Stockholder Matters"). Subject to Section 5.9, the
Board of Directors of each of Realty and Operating will recommend to its
stockholders approval of the Realty Stockholder Matters or Operating
Stockholder Matters, as applicable. With respect to the Realty Stockholder
Matters and the Operating Stockholder Matters, Investor shall vote the
Purchased Shares in proportion to the votes cast by other stockholders.
(b) In addition to the Realty Stockholder Matters and the Operating
Stockholder Matters, at the stockholders meetings referred to in Section
5.2(a), Realty and Operating shall propose for approval by their respective
stockholders the issuance of 867,343 common shares which are Paired Shares
upon exchange of the Preferred Paired Shares that are Purchased Shares.
Section 5.3. Board Representation. Realty shall cause the Board of Directors
of Realty initially to consist of 12 directors and Investor will be entitled
to designate 3 individuals to be nominated in the Proxy Statement by the Board
of Directors of Realty (the "Investor Realty Nominees"), such nominees to take
office
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effective upon their election at the meeting of stockholders of Realty
referred to in Section 5.2. Operating shall cause the Board of Directors of
Operating initially to consist of 12 directors and Investor will be entitled
to designate 3 individuals to be nominated in the Proxy Statement by the Board
of Directors of Operating (the "Investor Operating Nominees"), such nominees
to take office effective upon their election at the meeting of stockholders of
Operating referred to in Section 5.2. One of the Investor Realty Nominees
shall be nominated to each of the classes of directors whose terms expire at
the annual stockholders meeting of Realty to be held in 1997, 1998 and 1999.
One of the Investor Operating Nominees shall be nominated to each of the
classes of directors whose terms expire at the annual stockholders meetings of
Operating to be held in 1997, 1998 and 1999.
Section 5.4. Investigation. Each of the parties hereto shall afford to the
officers, employees and authorized representatives of each other party hereto
(including, without limitation, independent public accountants, attorneys,
environmental consultants and financial advisors thereof), reasonable access
during normal business hours to its offices, properties, employees and
business and financial records to the extent such party shall deem necessary
or desirable, and shall furnish to each such other party or such other party's
authorized representatives such additional information concerning the
operations, properties and businesses as may be reasonably requested in
writing, to enable such party or such party's authorized representatives to
verify the accuracy of the representations and warranties contained in this
Agreement, and to determine whether the conditions set forth in Articles VIII
and IX have been satisfied. Each of the parties hereto agrees that such
investigations shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of any other party. No
investigation made by any party or such party's authorized representatives
hereunder shall affect the representations and warranties of the parties
hereunder.
Section 5.5. Lawsuits, Proceedings, Etc. Each party hereto shall notify each
of the other parties hereto promptly upon becoming aware of any lawsuit,
proceeding, claim or investigation that may be threatened, brought, asserted
or commenced against it (a) involving in any way the transactions contemplated
by this Agreement or (b) that would have been listed or specified as an
exception to Section 2.4, 3.5 or 4.4, as the case may be, if such lawsuit,
proceeding, claim or investigation had arisen prior to the date hereof.
Section 5.6. Conduct of Business by Realty and Operating Pending the
Closing. (a) During the period from the date of this Agreement through the
Closing Date, except as expressly contemplated by this Agreement, (i) Realty
shall carry on its business in, and not enter into any material transaction
other than in accordance with, the ordinary course, and (ii) Operating shall
carry on its business in, and not enter into any material transaction other
than in accordance with, the ordinary course (except, in each case, with
respect to Realty or Operating, with the prior written consent of Investor).
(b) Without limiting the generality of the foregoing, and except as
expressly contemplated by this Agreement, during the period from the date of
this Agreement through the Closing Date, neither Realty nor Operating shall,
without the prior written consent of Investor (not to be unreasonably
withheld):
(i) take any action or omit to take any action that would cause Realty to
be disqualified as a REIT or which would result in a loss of Realty's
status as grandfathered from the application of Section 269B(a)(3) of the
Code pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984;
(ii) voluntarily sell, transfer or dispose of any real property or any
other material portion of the Realty Properties or of the Operating
Properties, other than sales of properties listed in the Realty Disclosure
Schedule and the Operating Disclosure Schedule on terms substantially
similar to the currently proposed terms of those sales described in the
Realty and Operating Disclosure Schedules;
(iii) incur any unsecured debt or lease obligations or purchase money
financing obligations, other than, in each case, in the ordinary course of
business (for example, trade payables);
(iv) acquire any additional real estate or other assets (other than
receipt of cash or investments of cash in cash-equivalents in connection
with permitted sales of assets);
(v) (x) enter into any contracts or agreements with respect to Realty's
proposed entertainment center development in Arcadia, California and (y)
enter into any other contracts or agreements or terminate any existing
contracts or agreements other than in the ordinary course of business;
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(vi) issue or enter into any executory agreement to issue any debt
securities;
(vii) issue or enter into any executory agreement to issue any new equity
securities other than (A) common shares issued in replacement of lost,
stolen or transferred outstanding shares, or (B) common shares to be issued
upon exercise of options or warrants outstanding prior to April 1, 1996 and
referenced in public filings relating to periods prior to such date, or (C)
common shares to be issued upon exchange of Preferred Paired Shares that
are Purchased Shares; or
(viii) declare and pay any dividends or make other distributions to
holders of Realty Shares in excess of $.20 per Realty Share per quarter or
such dividends as are otherwise necessary for Realty to satisfy the REIT
Requirements, or repay indebtedness except pursuant to the terms of such
indebtedness.
Section 5.7. Mutual Cooperation; Best Efforts. The parties hereto shall
cooperate with each other, and shall use their respective best efforts to
cause the fulfillment of the conditions to the parties' obligations hereunder
and to obtain as promptly as possible all consents, authorizations, orders or
approvals from each and every third party, whether private or governmental,
required in connection with the transactions contemplated by this Agreement;
provided, however, that the foregoing shall not require Investor, Realty,
Operating, the Realty JV or the Operating JV to make any divestiture or
consent to any divestiture in order to obtain any waiver, consent or approval.
Subject to their fiduciary duties, the Board of each Public Company will
recommend that such Public Company's stockholders approve the transactions
contemplated by this Agreement. Investor agrees that prior to the earliest of
(i) receipt by Investor of an Alternative Transaction Notice, (ii) termination
of this Agreement or (iii) the Closing, Investor will not exercise its option
to cause the Public Companies to redeem the Preferred Paired Shares that are
Purchased Shares.
Section 5.8. No Public Announcement. None of the parties hereto shall,
without the approval of the other parties hereto (which may not be
unreasonably withheld), make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except as and to
the extent that such party shall be so obligated by law, in which case each of
such other parties hereto shall be advised in advance of any such disclosure
and the parties hereto shall use their reasonable best efforts to cause a
mutually agreeable release or announcement to be issued.
Section 5.9. Other Proposals. (a) From the date of this Agreement until the
Closing Date, neither Realty nor Operating nor any of their respective
subsidiaries (including the JVs after they are formed) will, and each of
Realty and Operating will use their best efforts to cause their respective
directors and any other persons acting, or purporting to act, on their behalf
(including, but not limited to, their officers, employees, investment bankers,
financial advisors, attorneys or accountants) not to, initiate any contact
with, solicit, encourage or enter into or continue any discussions,
negotiations, understandings or agreements with, anyone other than Investor (a
"Third Party") with respect to, or furnish or disclose any non-public
information regarding Realty, Operating or their subsidiaries, including the
JVs, to any Third Party in connection with, any Competing Transaction
Proposal. Notwithstanding the foregoing, to the extent the Boards of Realty
and Operating could be required by their fiduciary duties as determined in
good faith on the advice of the Public Companies' outside counsel, at any time
prior to approval by the Realty and Operating stockholders of the Realty
Stockholder Matters and the Operating Stockholder Matters, (i) Realty and
Operating may, in response to an unsolicited request, furnish non-public
information with respect to Realty and Operating or their subsidiaries to any
Third Party pursuant to a customary confidentiality and standstill agreement
and discuss that information (but not a Competing Transaction Proposal) with
the Third Party and (ii) upon receipt by Realty or Operating of a Competing
Transaction Proposal from a Third Party, if the Board of each of Realty and
Operating has reasonably determined that the transaction contemplated by the
Competing Transaction Proposal, if consummated, would constitute an
Alternative Transaction, then Realty and Operating may participate in
discussions and negotiations with the Third Party regarding the Competing
Transaction Proposal.
(b) At least five business days prior to entering into definitive agreements
with respect to an Alternative Transaction, Realty and Operating will deliver
an Alternative Transaction Notice to Investor advising it of the determination
by the Boards of Directors that the transaction contemplated by the Competing
Transaction
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Proposal would constitute an Alternative Transaction, which notice will
include a summary of the Alternative Transaction. During such five business
day period, Investor may propose an improved transaction to the Public
Companies.
(c) If prior to the approval by the stockholders of Realty and Operating of
the Realty Stockholder Matters and the Operating Stockholder Matters (i)
Realty and Operating have delivered an Alternative Transaction Notice to
Investor in accordance with Section 5.9(b), (ii) the terms of the Alternative
Transaction are not modified in a manner adverse to Realty or Operating and
(iii) Realty and Operating have paid the Termination Fee to Investor and
reimbursed Investor's Transaction Expenses up to $500,000, then Realty and
Operating may terminate this Agreement and enter into an agreement with the
Qualified Third Party with respect to the Alternative Transaction described in
the Alternative Transaction Notice that Realty and Operating gave to Investor.
(d) Neither Realty nor Operating will modify, or release any third party
from, any confidentiality or standstill agreement to which either of them is a
party.
(e) The following terms have the following meanings when they are used in
this Section 5.9:
(i) "Alternative Transaction" means a transaction which is the subject of
a Competing Transaction Proposal with a Qualified Third Party which the
Boards of Directors of Realty and Operating in good faith on the advice of
a nationally recognized financial advisor determine could provide greater
value to the Public Companies' shareholders than the transactions
contemplated by the Transaction Agreements.
(ii) "Alternative Transaction Notice" means a notice of the determination
of the Boards of Directors of Realty and Operating that the transaction
contemplated by a Competing Transaction Proposal would be an Alternative
Transaction, which notice contains the information described in Paragraph
5.9(b).
(iii) "Competing Transaction Proposal" means a bona fide proposal from a
Third Party relating to any recapitalization, business combination, joint
venture or other transaction which would be inconsistent with the
transactions which are the subject of the Transaction Agreements.
(iv) "Qualified Third Party" means a Third Party which the Boards of
Directors of Realty and Operating reasonably determine has the financial
ability (including, to the extent external financing will be required,
binding commitments for that financing) to complete an Alternative
Transaction.
(v) "Termination Fee" has the meaning set forth in Section 11.4(ll).
(vi) "Transaction Expenses" has the meaning set forth in Section 11.2(a).
Section 5.10. Amendment of Rights Agreement. Each of Realty and Operating
agrees that promptly after the date hereof, and in any event within five days
of the date hereof, it will amend, to the extent necessary, its Rights
Agreement, dated as of June 15, 1989, among Realty, Operating and Union Bank,
as Rights Agent (the "Rights Agreement"), to permit the commencement and
closing of the transactions which are the subject of the Transaction
Agreements without any such event or the passage of time resulting in the
occurrence of the Distribution Date (as defined in the Rights Agreement).
Section 5.11. Appointment of Officers. Each of Realty and Operating
covenants that effective upon the Closing, Kelvin L. Davis will be the
President and Chief Executive Officer of Realty and William C. Baker will be
the President and Chief Executive Officer of Operating. Investor will make
Kelvin L. Davis available to serve as the President and Chief Executive
Officer of Realty.
Section 5.12. Use of Proceeds. The Public Companies will mutually agree on
the use of the proceeds from the issuance of the Purchased Shares. Pending
application of such proceeds, they will be invested in interest-bearing
accounts and short-term, interest-bearing securities, which are consistent
with Realty's status as a real estate investment trust.
Section 5.13. Title and Environmental Reports. The Public Companies will
deliver to Investor copies of preliminary title reports and Phase One
environmental assessments with respect to the Towson, Maryland shopping
center, Fashion Park property and the Santa Anita Racetrack which Realty
either owns or in which it has an interest.
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ARTICLE 6
Additional Covenants and Agreements
Section 6.1. Indemnification of Directors and Officers. From and after the
Closing Date, each of Realty and Operating shall indemnify, defend and hold
harmless the respective present officers, directors and employees of Realty
and Operating and any of their respective subsidiaries against all losses,
expenses, claims, damages or liabilities arising out of actions or omissions
occurring on or prior to the Closing Date (including, without limitation, the
transactions contemplated by this Agreement) to the full extent permitted or
required under applicable law (and shall also advance expenses as incurred to
the fullest extent permitted under applicable law, provided that the person to
whom expenses are advanced provides an undertaking to repay such advances if
it is ultimately determined that such person is not entitled to
indemnification). Each of Realty and Operating agrees that all rights to
indemnification, including provisions relating to advances of expenses
incurred in defense of any action or suit, existing in favor of the present
directors, officers and employees of Realty and Operating or any of their
respective subsidiaries (collectively, the "Indemnified Parties") as provided
in the Realty Certificate or Realty By-laws and the Operating Certificate or
Operating By-laws or pursuant to other agreements, as in effect as of the date
hereof, shall survive the Closing and shall continue in full force and effect.
Each of Realty and Operating shall maintain in effect for not less than seven
years the current policies (or comparable policies) of directors' and
officers' liability insurance maintained by Realty and Operating with respect
to matters occurring prior to the Closing Date, so long as the cost of such
insurance is not economically prohibitive. This Section 6.1 is intended to
benefit the Indemnified Parties.
Section 6.2. Participation Rights.
(a) Right to Participate. From and after the date hereof until the date on
which Investor's interest in the Public Companies and the JVs is reduced to
below 10% of the combined equity interests of the Public Companies and the JVs
on a fully diluted basis, Investor shall be entitled to a participation right
to purchase or subscribe for Investor's Pro Rata Share of the total number of
any additional Paired Shares to be issued or sold by either of the Public
Companies or their subsidiaries (other than shares issued pursuant to benefit
plans, upon the exercise of stock options and upon the exchange of Preferred
Paired Shares that are Purchased Shares).
(b) Notice. In the event that either of the Public Companies or their
subsidiaries propose to issue or sell any Paired Shares in a transaction
giving rise to the participation rights provided for in this Section 6.2, the
Public Companies shall send a written notice (the "Participation Notice") to
Investor setting forth the number of Paired Shares which either of the Public
Companies or their subsidiaries propose to sell or issue, the price (before
any commission or discount) at which such Paired Shares are proposed to be
issued (or, in the case of an underwritten or privately placed offering in
which the price is not known at the time the Participation Notice is given,
the method of determining such price and an estimate thereof), and all other
relevant information as to such proposed transaction as may be necessary for
Investor to determine whether or not to exercise the rights granted in this
Section 6.2. At any time within 21 days after its receipt of the Participation
Notice, Investor may exercise its participation rights to purchase or
subscribe for Paired Shares, as provided for in this Section 6.2, by so
informing the Public Companies in writing (the "Exercise Notice"). Each
Exercise Notice shall state the percentage of the proposed sale or issuance
that Investor elects to purchase. Each Exercise Notice shall be irrevocable,
subject to the conditions to the closing of the transaction giving rise to the
participation right provided for in this Section 6.2.
(c) Abandonment of Sale or Issuance. The issuer or seller of such Paired
Shares shall have the right, in its sole discretion, at all times prior to
consummation of any proposed sale or issuance giving rise to the participation
right granted by this Section 6.2, to abandon, rescind, annul, withdraw or
otherwise terminate such sale or issuance, whereupon all participation rights
in respect of such proposed sale or issuance pursuant to this Section 6.2
shall become null and void, and such issuer or seller shall have no liability
or obligation to Investor with respect thereto by virtue of such abandonment,
rescission, annulment, withdrawal or termination.
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(d) Terms of Sale. The purchase or subscription by Investor pursuant to this
Section 6.2 shall be for cash, at the same price and on the same terms and
conditions, as are applicable to the purchasers or subscribers of the
additional Paired Shares whose purchases or subscriptions give rise to the
participation rights, which price and other terms and conditions shall be
substantially as stated in the relevant Participation Notice (which standard
shall be satisfied if the price, in the case of a negotiated transaction, is
not greater than 110% of the estimated price set forth in the relevant
Participation Notice or, in the case of an underwritten or privately placed
offering, is not greater than the greater of (i) 110% of the estimated price
set forth in the relevant Participation Notice or (ii) 105% of the most recent
closing price on or prior to the date of the pricing of the offering);
provided, however, that (A) the date of Investor's purchase pursuant to this
Section 6.2 shall be the later of (1) 21 days after the date Investor delivers
the Exercise Notice or (2) the date of the sale to the other purchasers of the
additional Paired Shares and (B) in the event the consideration to be received
by the issuer or seller of such Paired Shares, in connection with the issuance
of Paired Shares giving rise to participation rights hereunder is other than
cash or cash equivalents, the price per Paired Share at which the
participation rights may be exercised shall be the price per Paired Share set
forth in the Participation Notice or determined in the manner set forth in the
Participation Notice (which shall in either event be the price as set forth in
the agreement pursuant to which such Paired Shares are to be issued, provided
that the consideration to be received therefor is valued based upon the fair
market value thereof); and provided, further, that in the event the purchases
or subscriptions giving rise to the participation rights are effected by an
offering of securities registered under the 1933 Act and in which offering it
is not legally permissible for the securities to be purchased by Investor to
be included, such securities to be purchased by Investor will be purchased in
a concurrent private placement. At the time of the closing of each purchase by
Investor of Paired Shares pursuant to this Section 6.2, Investor will deliver
to the Public Companies an officer's certificate stating that to its knowledge
following such purchase Investor will not own, directly or constructively,
more than 9.9% of the Paired Shares.
(e) Timing of Sale. If, with respect to any Participation Notice, Investor
fails to deliver an Exercise Notice within the requisite time period, the
issuer or seller of such Paired Shares shall have 120 days after the
expiration of the time in which the Exercise Notice is required to be
delivered in which to sell or issue not more than the number of Paired Shares
described in the Participation Notice at a price equal to not less than 90% of
the price set forth in the Participation Notice. If, at the end of 120 days
following the expiration of the time in which the Exercise Notice is required
to be delivered, such issuer or seller has not completed the issuance or sale
of such Paired Shares, as the case may be, in accordance with the terms
described in the Participation Notice (or at a price which is at least 90% of
the estimated price set forth in the Participation Notice), such issuer or
seller shall again be obligated to comply with the provisions of this Section
6.2 with respect to, and provide the opportunity to participate in, any
proposed sale or issuance of Paired Shares.
Section 6.3. Investor Nominees. (a) So long as Investor's combined equity
interest in the Public Companies and the JVs exceeds 10%, (i) at each annual
or special meeting (or the taking of action by written consent) of the
stockholders of the Public Companies for the four years after the Closing Date
at which any directors of either of the Public Companies are to be elected,
each Public Company will, at the request of Investor, cause the nomination for
election to such Board of Directors of that number of directors which, when
added to the number of directors who are then Investor Nominees and who will
continue to serve as directors without regard to the outcome of the election
at such meeting or by such consent, will equal a minimum of three directors;
provided that in no event will more than 45% of the directors at any time be
affiliated with Investor, (ii) at least one designee of Investor shall sit on
each committee of directors for each of the Public Companies; provided,
however, that Investor's designees, if any, on the compensation committees of
the Public Companies will not vote on matters pertaining to the compensation
of persons affiliated with Investor and that Investor shall designate
individuals to serve on the audit committees of the Public Companies in a
manner consistent with policies of the New York Stock Exchange so long as any
security of the Public Companies is listed on such exchange, (iii) each Public
Company shall maintain a finance committee of its Board of Directors with the
authority to recommend and/or approve, subject to applicable law and the
Public Companies' charter documents, capital raising transactions, the
incurrence of indebtedness, dividend policy, and related matters, and (iv) a
designee of Investor shall be appointed as chairman of each Public Company's
finance committee.
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(b) Investor will not name any person as an Investor Nominee if (i) such
person is not reasonably experienced in business, financial or real estate
matters; (ii) such person has been convicted of, or has pled nolo contendere
to, a felony; (iii) the election of such person would violate any law or
prevent Realty, Operating, the Realty JV or the Operating JV from complying
with any applicable licensing requirements; (iv) any event required to be
disclosed pursuant to Item 401(f) of Regulation S-K of the Exchange Act has
occurred with respect to such person; or (v) the nominating committees of the
Public Companies in the exercise of their reasonable discretion disapprove of
such person.
(c) Each of the Public Companies will support the nomination of, and each of
the Public Companies' respective nominating committees (or any other committee
exercising a similar function) shall recommend to the respective Boards, the
election of each Investor Nominee to the respective Boards, and each of the
Public Companies will exercise all authority under applicable law to cause
each Investor Nominee to be elected to the respective Boards. Without limiting
the generality of the foregoing, with respect to each meeting of stockholders
of each of the Public Companies at which directors are to be elected, each of
the Public Companies shall use its reasonable efforts to solicit from the
stockholders of the respective Public Companies eligible to vote in the
election of directors proxies in favor of any Investor Nominees.
(d) In the event that any Investor Nominee shall cease to serve as a
Director for any reason other than the fact that Investor no longer has a
right to nominate a director, as provided in Section 6.3, the vacancy
resulting thereby shall be filled by an Investor Nominee designated by
Investor; provided, however, that any Investor Nominee so designated shall
satisfy the qualification requirements set forth in Section 6.3(b).
(e) The Public Companies will reduce the size of their respective Boards of
Directors from twelve to no more than eleven by December 31, 1997.
Section 6.4. Presentation of Future Investment Opportunities. Subject to the
provisions of the following sentence, from and after the Closing Date until
the earlier of (i) the date on which Investor's right to designate
representatives to the Member Board of each of the JVs is reduced from the
right to designate two representatives to the right to designate one or (ii)
the later of (x) investment by the JVs of all of the funds contributed by
Investor and (y) three years after the closing of the transactions
contemplated by this Agreement; provided that if the JVs have rejected
investment opportunities sufficient, together with investments made or
committed, to invest all of the funds contributed by Investor, the provisions
of (x) shall no longer apply (the "Restriction Termination Date"), Investor
and its affiliates (each, an "Investor Restricted Person") shall not, directly
or indirectly, own, purchase or otherwise acquire, directly or indirectly, any
equity interest in real estate ownership intensive businesses in the United
States whose principal activities relate to any of the following: (A) horse
racing, (B) golf courses, (C) amusement parks, (D) family entertainment
centers (i.e., entertainment centers whose revenues are principally derived
from one or more of the following: batting cages, arcades, miniature golf
courses and roller coasters) and (E) until the investment by the JVs of all of
the funds contributed by Investor, gaming (collectively, "Target
Acquisitions"), unless (a) Investor first presents such investment opportunity
to the JVs, together with a reasonably detailed description of the investment
opportunity to enable the Member Boards to adequately consider the investment
opportunity, and (b) the Member Board of each of the JVs, acting by the
affirmative vote of a majority of the non-Investor representatives within 15
business days after receipt of Investor's presentation of the investment
opportunity, determines not to pursue such business opportunity.
Notwithstanding the foregoing, any Investor Restricted Person may make such an
investment without first presenting the opportunity to the Member Board of
each of the JVs if the investment in the Target Acquisitions is incidental to
an investment that is not primarily related to Target Acquisitions (i.e. where
30% or less of the aggregate value of the investment relates to the uses
described in subclauses (A) through (E) of this Section 6.4) or where the
investment is valued at less than $20 million. In addition, an Investor
Restricted Person may have passive investments in a person engaged in the
ownership, acquisition and development of Target Acquisitions, so long as such
investment does not exceed more than 10% of the voting power of such person
and the Investor Restricted Person is not an officer or director of such
person.
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Section 6.5. President and CEO of Realty. During the term of the Services
Agreement, Kelvin L. Davis, or, after the first annual meeting of Realty
stockholders after the Closing Date, another person designated by Investor and
approved by the Board of Directors of Realty, will serve as the President and
CEO of Realty. Mr. Davis' compensation for his services as President and Chief
Executive Officer of Realty will be determined by the Realty Board of
Directors, acting in their reasonable discretion.
ARTICLE 7
Conditions Precedent to Obligations of Realty and Operating
The obligations of each of Realty and Operating under this Agreement to
consummate the transactions contemplated hereby to be consummated at the
Closing shall, at the option of each of Realty and Operating, be subject to
the satisfaction, on or prior to the Closing Date, of the following
conditions:
Section 7.1. No Misrepresentation or Breach of Covenants and
Warranties. There shall have been no material breach by Investor in the
performance of its covenants and agreements herein to be performed at or prior
to the Closing Date; on the Closing Date each of the representations and
warranties of Investor that is qualified as to materiality shall be true and
correct as though made on the Closing Date, except for changes therein
specifically permitted by this Agreement (including the Investor Disclosure
Schedule) or resulting from any transaction expressly consented to in writing
by Realty and Operating or entered into in connection with the consummation of
the transactions contemplated hereby; on the Closing Date each of the
representations and warranties of Investor that is not so qualified as to
materiality shall be true and correct in all material respects as though made
on the Closing Date, except for changes therein specifically permitted by this
Agreement or resulting from any transaction expressly consented to in writing
by Realty and Operating or entered into in connection with the consummation of
the transactions contemplated hereby; and there shall have been delivered to
Realty and Operating a certificate or certificates to the foregoing effect,
dated the Closing Date, signed on behalf of Investor.
Section 7.2. Opinion of Counsel for Investor. Realty and Operating shall
have received from Rogers & Wells, counsel for Investor, an opinion, dated the
Closing Date, in the form attached to this Agreement as Exhibit H.
Section 7.3. No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect;
provided, however, that each of the parties shall have used its best efforts
to prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
Section 7.4. Necessary Governmental Approvals. The parties hereto shall have
received all governmental and regulatory approvals and actions reasonably
necessary to consummate the transactions contemplated hereby, which are either
required to be obtained prior to the Closing Date by applicable law or
regulation or are necessary to prevent a Material Adverse Effect on Realty and
its subsidiaries (taken as a whole), or Operating and its subsidiaries (taken
as a whole) or, in addition, after the Closing, on the Realty JV and its
subsidiaries (taken as a whole) or the Operating JV and its subsidiaries
(taken as a whole).
Section 7.5. Necessary Consents. The parties hereto shall have received
consents, in form and substance reasonably satisfactory to Realty and
Operating, to the transactions contemplated hereby from the other parties to
all material contracts, leases, agreements and permits to which Investor is a
party or by which any of them is affected and which require such consent prior
to the Closing and are necessary to prevent a Material Adverse Effect on
Investor or, in addition, after the Closing, on the Realty JV and its
subsidiaries (taken as a whole) or the Operating JV and its subsidiaries
(taken as a whole).
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Section 7.6. Transaction Agreements. Each of the parties (other than Realty,
Operating or their subsidiaries) to each of the Transaction Agreements shall
have entered into such Transaction Agreements substantially in the forms
attached hereto as exhibits or, if not so attached, as agreed to by the
parties.
Section 7.7. Stockholder Action. The Realty Stockholder Matters shall have
been approved by the Requisite Vote of the holders of Realty Shares. The
Operating Stockholder Matters shall have been approved by the Requisite Vote
of the holders of Operating Shares.
ARTICLE 8
Conditions Precedent to Obligations of Investor
The obligations of Investor under this Agreement to consummate the
transactions contemplated hereby to be consummated at the Closing shall, at
the option of Investor, be subject to the satisfaction, on or prior to the
Closing Date, of the following conditions:
Section 8.1. No Misrepresentation or Breach of Covenants and
Warranties. There shall have been no material breach by Realty or Operating in
the performance of their respective covenants and agreements herein to be
performed at or prior to the Closing Date; on the Closing Date each of the
representations and warranties of Realty and Operating that is qualified as to
materiality shall be true and correct as though made on the Closing Date,
except for changes therein specifically permitted by this Agreement (including
the Realty and Operating Disclosure Schedules) or resulting from any
transaction expressly consented to in writing by Investor, permitted by
Section 5.6 (including, without limitation, transactions in the ordinary
course of business) or entered into in connection with the consummation of the
transactions contemplated hereby; on the Closing Date each of the
representations and warranties of Realty and Operating that is not so
qualified as to materiality shall be true and correct in all material respects
as though made on the Closing Date, except for changes therein specifically
permitted by this Agreement or resulting from any transaction expressly
consented to in writing by Investor, permitted by Section 5.6 (including,
without limitation, transactions in the ordinary course of business) or
entered into in connection with the consummation of the transactions
contemplated hereby; and there shall have been delivered to Investor a
certificate or certificates to the foregoing effect, dated the Closing Date,
signed on behalf of Realty and Operating; provided that the conditions set
forth in this Section 8.1 may be appropriately modified after giving effect to
the operation of the covenants and agreements contained in Section 5.6.
Section 8.2. No Material Adverse Effect. Between the date hereof and the
Closing Date, there shall have been no Material Adverse Effect on Realty or
Operating and its subsidiaries (taken as a whole); and there shall have been
delivered to Investor a certificate with respect to Realty and a certificate
with respect to Operating, each to such effect, dated the Closing Date, signed
on behalf of Realty and Operating; provided that the condition set forth in
this Section 8.2 may be appropriately modified after giving effect to the
operation of the covenants and agreements contained in Section 5.6.
Section 8.3. Opinion of Counsel for Realty and Operating. Investor shall
have received from O'Melveny & Myers LLP, counsel for Realty and Operating, an
opinion, dated the Closing Date, in the form attached to this Agreement as
Exhibit J.
Section 8.4. No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect;
provided, however, that each of the parties shall have used its best efforts
to prevent the entry of any such injunction or other order and to appeal as
promptly as possible any injunction or other order that may be entered.
Section 8.5. Necessary Governmental Approvals. The parties hereto shall have
received all governmental and regulatory approvals and actions reasonably
necessary to consummate the transactions contemplated hereby, which are either
required to be obtained prior to the Closing Date by applicable law or
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regulation or are necessary to prevent a Material Adverse Effect on Realty, or
Operating and its subsidiaries (taken as a whole), or, in addition, after the
Closing, on the Realty JV and its subsidiaries (taken as a whole), or the
Operating JV and its subsidiaries (taken as a whole).
Section 8.6. Necessary Consents. The parties hereto shall have received
consents, in form and substance reasonably satisfactory to Investor, to the
transactions contemplated hereby from the other parties to all material
contracts, leases, agreements and permits to which Realty or Operating is a
party or by which any of them is affected and which require such consent prior
to the Closing and are necessary to prevent a Material Adverse Effect on
Realty, or Operating and its subsidiaries (taken as a whole) or, in addition,
after the Closing, on the Realty JV and its subsidiaries (taken as a whole) or
the Operating JV and its subsidiaries (taken as a whole).
Section 8.7. Transaction Agreements. Each of the parties (other than
Investor) to each of the Transaction Agreements shall have entered into such
Transaction Agreements substantially in the forms attached hereto as exhibits
or, if not so attached, as agreed to by the parties.
Section 8.8. Stockholder Action. The Realty Stockholder Matters shall have
been approved by the Requisite Vote of the holders of Realty Shares. The
Operating Stockholder Matters shall have been approved by the Requisite Vote
of the holders of Operating Shares.
Section 8.9. Rights. The Rights under the Rights Agreement shall not have
become exercisable.
Section 8.10. Department of Labor Regulations. Investor, acting in good
faith, shall be satisfied that, immediately after the Closing, Operating and
the Operating JV will qualify as "operating companies" within the meaning of
the first sentence of Section 2510.3-101(c) of the DOL Regulations, and the
Realty JV will qualify as a "real estate operating company" within the meaning
of Section 2510.3-101(e) of the DOL Regulations.
Section 8.11. Contribution of Excluded Assets. If Investor and Realty shall
not have agreed on a mutually satisfactory arrangement for the contribution by
Realty of the economic attributes of the Excluded Assets, then Realty shall
have agreed to contribute the Excluded Assets to the Realty JV.
ARTICLE 9
Indemnification; Survival
Section 9.1. Indemnification by Realty and Operating. Effective as of the
Closing Date, Realty and Operating shall indemnify and hold harmless Investor,
the Realty JV, the Operating JV and their respective subsidiaries, affiliates,
officers, parties, employees, agents and successors from and against any and
all (x) liabilities, losses or damages ("Loss") and (y) reasonable out-of-
pocket expenses ("Expense") incurred by Investor, the Realty JV, the Operating
JV or their respective subsidiaries, affiliates and successors in connection
with or arising from (a) any breach or failure to perform by Realty or
Operating of any of its agreements, covenants or obligations in this Agreement
or any Transaction Agreement, and (b) any breach of any warranty or the
inaccuracy of any representation of Realty or Operating contained in this
Agreement, any Transaction Agreement or in any certificate delivered by or on
behalf of Realty or Operating pursuant hereto or thereto; provided, however,
that Realty and/or Operating, as applicable, shall be required to indemnify
and hold harmless under this Section 9.1 only to the extent that the aggregate
amount of Loss and Expense referred to above in this Section 9.1 exceeds
$250,000.
Section 9.2. Indemnification by Investor. Effective as of the Closing Date,
Investor shall indemnify and hold harmless Realty, Operating, the Realty JV
and the Operating JV and their respective subsidiaries, affiliates and
successors from and against any and all Loss and Expense incurred by Realty,
Operating, the Realty JV or the Operating JV or their respective subsidiaries,
affiliates, directors, officers, employees, agents and successors
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in connection with or arising from (a) any breach or failure to perform by
Investor of any of its agreements, covenants or obligations in this Agreement
or any Transaction Agreement and (b) any breach of any warranty or the
inaccuracy of any representation of Investor contained in this Agreement, any
Transaction Agreement or in any certificate delivered by or on behalf of
Investor pursuant hereto or thereto; provided, however, that Investor shall be
required to indemnify and hold harmless under this Section 9.2 only to the
extent that the sum of the aggregate amount of Loss and Expense referred to
above in this Section 9.2 exceeds $250,000.
Section 9.3. Notice of Claims. If a party believes that any of the persons
entitled to indemnification under this Article IX has suffered or incurred any
Loss or incurred any Expense, whether or not the applicable dollar limitation
specified by Sections 9.1 or 9.2 has been exceeded, such party shall notify
the indemnifying party promptly in writing describing such Loss or Expense,
the amount thereof, if known, and the method of computation of such Loss or
Expense, all with reasonable particularity and containing a reference to the
provisions of this Agreement, any Transaction Agreement or any certificate
delivered pursuant hereto in respect of which such Loss or Expense shall have
occurred; provided, however, that the omission by such indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
indemnification obligation under this Article IX except to the extent that
such indemnifying party is materially damaged as a result of such failure to
give notice. If any action at law or suit in equity is instituted by or
against a third party with respect to which any of the persons entitled to
indemnification under this Article IX intends to claim any liability or
expense as Loss or Expense under this Article IX, any such person shall
promptly notify the indemnifying party of such actin or suit as specified in
this Section 9.3 and Section 9.4. Any party entitled to indemnification
hereunder shall use reasonable efforts to minimize any Loss or Expense for
which indemnification is sought hereunder.
Section 9.4. Third Party Claims. In the event of any claim for
indemnification hereunder resulting from or in connection with any claim or
legal proceeding by a third party, the indemnified persons shall give such
notice thereof to the indemnifying party not later than twenty business days
prior to the time any response to the asserted claim is required, if possible,
and in any event within fifteen days following the date such indemnified
person has actual knowledge thereof; provided, however, that the omission by
such indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its indemnification obligation under this Article IX
except to the extent that such indemnifying party is materially damaged as a
result of such failure to give notice. In the event of any such claim for
indemnification resulting from or in connection with a claim or legal
proceeding by a third party, the indemnifying party may, at its sole cost and
expense, assume the defense thereof; provided, however, that counsel for the
indemnifying party, who shall conduct the defense of such claim or legal
proceeding, shall be reasonably satisfactory to the indemnified party; and
provided further that if the defendants in any such actions include both the
indemnified persons and the indemnifying party and the indemnified persons
shall have reasonably concluded that there may be legal defenses or rights
available to them which have not been waived and are in actual or potential
conflict with those available to the indemnifying party, the indemnified
persons shall have the right to select one law firm reasonably acceptable to
the indemnifying party to act as separate counsel, on behalf of such
indemnified persons, at the expense of the indemnifying party. Unless the
indemnified persons are represented by separate counsel pursuant to the second
proviso of the immediately preceding sentence, if an indemnifying party
assumes the defense of any such claim or legal proceeding, such indemnifying
party shall not consent to entry of any judgment, or enter into any
settlement, that (a) is not subject to indemnification in accordance with the
provisions in this Article IX, (b) provides for injunctive or other non-
monetary relief affecting the indemnified persons or (c) does not include as
an unconditional term thereof the giving by each claimant or plaintiff to such
indemnified persons of a release from all liability with respect to such claim
or legal proceeding, without the prior written consent of the indemnified
persons (which consent, in the case of clauses (b) and (c), shall not be
unreasonably withheld); and provided further that unless the indemnified
persons are represented by separate counsel pursuant to the second proviso of
the immediately preceding sentence, the indemnified persons may, at their own
expense, participate in any such proceeding with the counsel of their choice
without any right or control thereof. So long as the indemnifying party is in
good faith defending such claim or proceeding, the indemnified persons shall
not compromise or settle such claim or proceeding without the prior written
consent of the indemnifying party, which consent shall not be unreasonably
withheld. If the indemnifying party does not assume the defense of any such
claim or litigation in
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accordance with the terms hereof, the indemnified persons may defend against
such claim or litigation in such manner as they may deem appropriate,
including, without limitation, settling such claim or litigation (after giving
prior written notice of the same to the indemnifying party and obtaining the
prior written consent of the indemnifying party, which consent shall not be
unreasonably withheld) on such terms as the indemnified persons may deem
appropriate, and the indemnifying party will promptly indemnify the
indemnified persons in accordance with the provisions of this Section 9.4.
Section 9.5. Survival of Representations and Warranties. Subject to Article
X, all representations and warranties contained in this Agreement shall
survive until the first anniversary of the filing by Realty and Operating with
the SEC of their Annual Reports on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 10-K") (except for the representation of Realty
pursuant to Section 2.3(d), which shall survive until the second anniversary
of the filing by Realty with the SEC of its 1997 10-K), at which time such
representations and warranties will terminate and be of no force and effect.
Any claim under this Article IX for Loss or Expense in respect of any
representations and warranties must be asserted in writing prior to the first
anniversary of the filing by Realty and Operating with the SEC of their 1997
10-K except for such a claim in respect of the representation of Realty
pursuant to Section 2.3(d), which must be asserted in writing prior to the
second anniversary of the filing by Realty with the SEC of its 1997 10-K.
Notwithstanding the foregoing, if a claim of a breach of a representation or
warranty under this Article IX is asserted in writing prior to the applicable
time period set forth above in this Section 9.5, then such representation or
warranty, as it relates to such claim, shall survive until the Loss or Expense
in respect thereof, if any, is finally determined and paid by the indemnifying
party.
ARTICLE 10
Termination
Section 10.1. Termination. Anything contained in this Agreement to the
contrary notwithstanding, this Agreement may be terminated at any time prior
to the Closing Date:
(a) by the mutual consent of Realty, Operating and Investor;
(b) by Realty or Operating upon any material breach by Investor of any of
its representations, warranties or covenants contained in this Agreement;
provided that Investor shall have been given a reasonable opportunity to cure
such breach;
(c) by Investor upon any material breach by Realty or Operating of any of
its representations, warranties or covenants contained in this Agreement;
provided that Realty or Operating, as the case may be, shall have been given a
reasonable opportunity to cure such breach;
(d) by Investor, Realty or Operating in the event that meetings of the
stockholders of the Public Companies are duly called and held for the purpose
of voting on the Realty Stockholder Matters and the Operating Stockholder
Matters, but the Realty stockholders do not approve the Realty Stockholder
Matters by the Requisite Vote or the Operating stockholders do not approve the
Operating Stockholder Matters by the Requisite Vote;
(e) by Realty or Operating or Investor if the Closing shall not have been
consummated on or before the Final Termination Date;
(f) by Investor if five business days have elapsed after the delivery by
Realty or Operating of an Alternative Transaction Notice to Investor, unless
Realty and Operating shall have notified Investor in writing prior to such
time that it has irrevocably determined not to participate in any further
discussions or negotiations with any Qualified Third Party with respect to the
Alternative Transaction that was the subject of such notice;
(g) by Investor if the Board of Directors of Realty or Operating shall have
withdrawn, modified or failed to make or refrained from making its
recommendation of the Realty Stockholder Matters or the Operating
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Stockholder Matters or if the Board of Directors of Realty or Operating at any
time refuses to reaffirm, at Investor's request, such recommendation or its
determination to make such recommendation to the stockholders of the Public
Companies, except in each case as a result of a material breach of this
Agreement by Investor;
(h) by Realty or Operating if the conditions of Section 5.9(c) have been
satisfied; or
(i) by Investor, within 15 days after receipt of the title and environmental
reports to be delivered pursuant to Section 5.13, if Investor reasonably
determines that any of such reports reveals a deficiency which has a material
and adverse effect on the use or value of the subject property.
In the event that this Agreement shall be terminated pursuant to this
Section 10.1, Investor will be entitled to the benefits of the Special
Registration Rights set forth in Exhibit M hereto, but all other further
obligations of the parties under this Agreement (other than the provisions of
Article IX (but only to the extent that such other provisions relate to a
breach which forms the basis for such termination) and Sections 11.1, 11.2 and
11.1), shall terminate without further liability of any party to the others;
provided, however, that nothing herein shall relieve any party from liability
for its nonperformance or breach of any provision of this Agreement if
performance of or compliance with such provision was within its reasonable
control.
ARTICLE 11
Other Provisions
Section 11.1. Confidential Nature of Information. Each party agrees that it
will treat in strict confidence all documents, materials and other information
which it obtains regarding the other parties during the course of the
negotiations leading to the consummation of the transactions provided for
herein and the preparation of this Agreement unless such documents, materials
and information (i) are already in the possession of, or become available to,
a party from a source other than the other party or a representative of the
other party, so long as such information was or is lawfully obtained and is
not known by the receiving party to be subject to a confidentiality agreement
with another person, or (ii) become generally available to the public other
than directly or indirectly as a result of a disclosure by the receiving party
or any of its representatives. If for any reason whatsoever the transactions
contemplated by this Agreement shall not be consummated, each party shall
return to the other party all copies or non-public documents and materials
which have been furnished or acquired in connection therewith and shall not
use or disseminate such documents, materials or other information for any
purpose whatsoever. If any party to this Agreement is requested or required by
applicable law (by interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) to disclose any
confidential material such party will provide the other parties with immediate
notice of such request or requirement so that the other parties may consider
seeking a protective order. If in the absence of a protective order or the
receipt of a waiver hereunder, any party hereto is nonetheless, in the written
opinion of independent counsel of recognized national reputation, compelled to
disclose any confidential material to any tribunal or any other person or else
stand liable for contempt or suffer other material censure or penalty, that
party may disclose the required information to the requesting tribunal or
other party without liability hereunder. The agreements contained in this
Section 11.1 shall supersede the Confidentiality Letter Agreement, dated July
17, 1996 among the Public Companies and Colony Capital, Inc.; provided that
Paragraphs 7, 8 and 9 thereof shall survive until the earlier of (i) the
Closing Date and (ii) the expiration of such Paragraphs as set forth therein.
Section 11.2. Fees and Expenses. (a) Except as otherwise provided in this
Section 11.2, each of the parties hereto shall bear its own costs and expenses
(including, without limitation, fees and disbursements of its counsel,
accountants and other financial, legal, accounting or other advisors and out-
of-pocket expenses) incurred by it in connection with the preparation,
negotiation, execution and delivery of this Agreement, each of the other
documents and instruments executed in connection with or contemplated by this
Agreement and the consummation of the transactions contemplated hereby and
thereby (collectively, "Transaction Expenses").
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(b) In the event that the Closing occurs, then Realty and Operating will
cause the JVs to reimburse Investor for its reasonable Transaction Expenses,
upon receipt by the JVs of reasonable documentation therefor. In the event
this Agreement is terminated for any reason other than a termination pursuant
to Section 10.1(b), then Realty and Operating will reimburse Investor for its
reasonable Transaction Expenses up to $500,000, upon receipt by the JVs of
reasonable documentation therefor.
(c) If the Closing Date does not occur on or before the Final Termination
Date for any reason (including a termination by Realty and Operating pursuant
to Section 5.9(c)) other than because this Agreement is terminated pursuant to
Sections 10.1(a), 10.1(b), 10.1(i), or at a time when no Competing Transaction
Proposal is or has, prior to such time, been proposed, pursuant to Section
10.1(d), then Realty and Operating shall pay to Investor the Termination Fee.
(d) All Termination Fee payments shall be paid to Investor no later than one
business day after the date of termination of this Agreement by wire transfer
of immediately available funds to such account as Investor shall designate in
a written notice delivered to Realty and Operating.
Section 11.3. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or by overnight mail, facsimile with telephone confirmation of
receipt or four days after being mailed (by registered mail, return receipt
requested) to a party at the following address (or to such other address as
such party may have specified by notice given to the other parties pursuant to
this provision):
If to Realty to:
Santa Anita Realty Enterprises, Inc.
301 West Huntington Drive, Suite 405
Arcadia, California 91066-6014
Facsimile No. (818) 574-5997
Attention: Brian L. Fleming
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Facsimile No. (213) 669-6407
Attention: Frederick B. McLane, Esq.
If to Operating to:
Santa Anita Operating Company
285 West Huntington Drive,
Arcadia, California 91066
Facsimile No. (818) 574-6687
Attention: Kathryn J. McMahon, Esq.
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Facsimile No. (213) 669-6407
Attention: Frederick B. McLane, Esq.
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If to Investor to:
Colony Investors II, L.P.
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
Facsimile No. (310) 282-8813
Attention: Kelvin L. Davis
with a copy to:
Colony Investors II, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Facsimile No. (817) 871-4088
Attention: Rick Ekleberry, Esq.
Rogers & Wells
200 Park Avenue
New York, New York 10166
Facsimile No. (212) 878-8375
Attn: Robert E. King, Jr., Esq.
Section 11.4. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person.
(b) "Agreement" means this Formation Agreement, as the same shall be amended
from time to time.
(c) "Alternative Transaction" has the meaning set forth in Section
5.9(e)(i).
(d) "Alternative Transaction Notice" has the meaning set forth in Section
5.9(e)(ii).
(e) an "associate" of any Person means (i) a corporation or organization of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of a class of equity securities, (ii)
any trust or other estate in which such Person has substantial beneficial
interest or as to which such Person serves as trustee or in the similar
capacity and (iii) any relative or spouse of such Person, or any relative of
such spouse, who has the same home as such Person or who is a director or
officer of the Person or any of its parents or subsidiaries.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Common Paired Shares" means Realty Common Shares and Operating Common
Shares which are Paired Shares.
(h) "Competing Transaction Proposal" has the meaning set forth in Section
5.9(e)(iii).
(i) "Delaware Act" has the meaning set forth in Recital No. 2.
(j) [Reserved]
(k) "Final Termination Date" means the later of (i) March 31, 1997 or (ii)
if the Transaction has not occurred by March 31, 1997 solely because required
regulatory approvals and licenses have not been received, nine months after
the date of this Agreement. However, if the Transaction is terminated as a
result of a definitive agreement being entered into regarding an Alternative
Transaction, the "Final Termination Date" shall mean the date such definitive
agreement is entered into.
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(l) "Investor" has the meaning set forth in the Preamble.
(m) "Investor Disclosure Schedule" means the disclosure letter dated the
date hereof delivered by Investor to Realty and Operating and relating to this
Agreement.
(n) "Investor Nominee" means a Person designated by Investor and proposed
for nomination to the Boards of Directors of the Public Companies.
(o) "JVs" has the meaning set forth in Recital No. 2.
(p) the "knowledge of Investor" means the actual knowledge of the persons
listed in the Investor Disclosure Schedule.
(q) the "knowledge of Operating" means the actual knowledge of the persons
listed in the Operating Disclosure Schedule.
(r) the "knowledge of Realty" means the actual knowledge of the persons
listed in the Realty Disclosure Schedule.
(s) "Material Adverse Effect" means any change or effect (or any development
that, insofar as can reasonably be foreseen, would result in any change or
effect) that is materially adverse to the business, properties, assets,
condition (financial or otherwise), prospects or results of operations of the
applicable person or persons.
(t) "Operating" has the meaning set forth in the Preamble.
(u) "Operating Disclosure Schedule" means the disclosure letter dated the
date hereof delivered by Operating to Investor and relating to this Agreement.
(v) "Operating JV" has the meaning set forth in Recital No. 2.
(w) "Operating Shares" has the meaning set forth in Section 3.3.
(x) "Paired Shares" means the pairing of the Realty Shares and the Operating
Shares pursuant to the Pairing Agreement or the Certificates of Designations.
(y) "Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
entity.
(z) "Preferred Paired Shares" means Realty Preferred Shares and Operating
Preferred Shares which are Paired Shares.
(aa) "Private Letter Rulings" has the meaning set forth in Section 2.3(c).
(bb) "Pro Rata Share" means the quotient of the number of Paired Shares
owned by Investor immediately before the issuance of additional Paired Shares,
divided by the total number of Paired Shares outstanding.
(cc) "Public Companies" has the meaning set forth in the Preamble.
(dd) "Qualified Third Party" has the meaning set forth in Section
5.9(e)(iv).
(ee) "Realty" has the meaning set forth in the Preamble.
(ff) "Realty Disclosure Schedule" means the disclosure letter dated the date
hereof delivered by Realty to Investor and relating to this Agreement.
(gg) "Realty JV" has the meaning set forth in Recital No. 2.
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(hh) "Realty Shares" has the meaning set forth in Section 2.2.
(ii) "REIT Requirements" shall mean the requirements for Realty to (i)
qualify as a REIT under the Code, (ii) avoid any federal income or excise tax
liability, (iii) retain its status as grandfathered from the application of
Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of the Deficit
Reduction Act of 1984, and (iv) retain the benefits of the Private Letter
Rulings.
(jj) "Requisite Vote" means, with respect to each of Realty and Operating,
the affirmative vote of a majority of the combined outstanding common stock
and preferred stock of such Company.
(kk) "subsidiary" shall mean, with respect to any person, any other person
of which more than 50% of the outstanding voting power is owned, directly or
indirectly, by such first person or by one or more subsidiaries of such first
person.
(ll) "Termination Fee" means four million dollars ($4,000,000).
(mm) "Transaction Expenses" has the meaning set forth in Section 11.2(a).
Section 11.5. Information Rights. (a) From the date hereof, the Public
Companies will afford Investor, its counsel, financial advisors and
accountants, during normal business hours, reasonable access to the books,
records and other data relating to the business or condition of the Public
Companies in its possession with respect to periods prior to the Closing and
the right to make copies and extracts therefrom, to the extent that such
access may be reasonably required by Investor in connection with (i) the
preparation of tax returns, (ii) the determination or enforcement of rights
and obligations and the compliance with representations, warranties and
covenants under this Agreement, (iii) compliance with the requirements of any
governmental or regulatory authority, (iv) the determination or enforcement of
the rights and obligations of any indemnified party or (v) in connection with
any actual or threatened action or proceeding.
(b) Notwithstanding anything to the contrary contained in this Section, if
the parties are in an adversarial relationship in litigation or arbitration,
the furnishing of information, documents or records in accordance with any
provision of this Section shall be subject to applicable rules relating to
discovery and privilege.
Section 11.6. Partial Invalidity. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein unless the deletion of such
provision or provisions would result in such a material change as to cause
completion of the transactions contemplated hereby to be unreasonable.
Section 11.7. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective permitted
successors or assigns.
Section 11.8. Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be considered an original
counterpart, and shall become a binding agreement when Realty, Operating and
Investor shall have each executed one counterpart.
Section 11.9. Titles and Headings. Titles and headings to Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
Section 11.10. Schedules and Exhibits. The schedules (including, without
limitation, the Realty Disclosure Schedule, the Operating Disclosure Schedule
and the Investor Disclosure Schedule) and exhibits referred to in this
Agreement shall be construed with and as an integral part of this Agreement to
the same extent as if the same had been set forth verbatim herein.
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Section 11.11. Entire Agreement; Amendments and Waivers; Assignment. This
Agreement contains the entire understanding of the parties hereto with regard
to the subject matter contained herein. The parties hereto, by mutual
agreement in writing, may amend, modify and supplement this Agreement. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right
of such party thereafter to enforce each and every such provision. No waiver
of any breach of this Agreement shall be held to constitute a waiver of any
other or subsequent breach. Except as expressly provided herein, the rights
and obligations of the parties under this Agreement may not be assigned or
transferred by any party hereto without the prior written consent of the other
parties hereto.
Section 11.12. Governing Law. Except to the extent that Delaware law is made
applicable to the Transaction Agreements by agreement of the parties or is
mandatorily applicable to the rights and obligations of the stockholders of
Realty and the stockholders of Operating and to the rights and obligations of
the members of Realty JV and Operating JV, this Agreement, and the application
or interpretation thereof, shall be exclusively governed by its terms and by
the internal laws of the State of California, without regard to principles of
conflicts of laws thereof.
Section 11.13. No Third-Party Beneficiaries. Except for Article IX, nothing
in this Agreement, expressed or implied, is intended or shall be construed to
confer upon any person other than the parties hereto and successors and
assigns permitted by Section 11.7 any right, remedy or claim under or by
reason of this Agreement.
Section 11.14. Submission to Jurisdiction. Each of the parties hereto
irrevocably submits and consents to the nonexclusive jurisdiction of the
United States District Court for the Central District of California or the
Superior Court of the County of Los Angeles in connection with any action or
proceeding arising out of or relating to this Agreement or any Transaction
Document and the transactions contemplated hereby and thereby, and irrevocably
waives any immunity from jurisdiction thereof and any claim of improper venue,
forum non conveniens or any similar basis to which it might otherwise be
entitled in any such action or proceeding.
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In Witness Whereof, this Agreement has been duly executed and delivered by
the parties hereto or by their duly authorized officers, all as of the date
first above written.
Santa Anita Realty Enterprises, Inc.
By:__________________________________
Name:
Title:
Santa Anita Operating Company
By:__________________________________
Name:
Title:
Colony Investors II, L.P.
By: Colony Capital, L.P.,
its general partner
By: ColonyGP II, Inc.,
its general partner
By:________________________________
Name:
Title:
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EXHIBIT A
THE UNITS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. REFERENCE IS
MADE TO ARTICLE VIII OF THIS AGREEMENT FOR PROVISIONS RELATING TO VARIOUS
RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS.
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SANTA ANITA REALTY LLC
1. On , 1996, Santa Anita Realty Enterprises, Inc., a Delaware
corporation ("Realty"), caused to be formed Santa Anita Realty LLC.
2. Realty and Colony Investors II, L.P. ("Investor"), a Delaware limited
partnership, desire to enter into this Amended and Restated Limited Liability
Company Agreement of Santa Anita Realty LLC dated , 1996, pursuant to
which Investor will become a member of Santa Anita Realty LLC.
ARTICLE 1
Definitions
1.1 For the purposes of this Agreement:
"ACCOUNTANTS" means the national firm or firms of independent certified
public accountants selected by the Member Board to audit the books and records
of the Company and to prepare related statements and reports.
"ACT" means the Delaware Limited Liability Company Act, 6 Del. C. (S) 18-101
et seq., as in effect from time to time, or any successor.
"ADDITIONAL INVESTOR CONTRIBUTION" has the meaning set forth in Paragraph
3.1(a).
"ADDITIONAL INVESTOR UNITS" has the meaning set forth in Paragraph 3.1(a).
"ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
any relevant fiscal year and after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such holder is
obligated or treated as obligated to restore with respect to any deficit
balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of
the Regulations, or is deemed to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences of Sections 1.704-
2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect
contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
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"ADMINISTRATIVE EXPENSES" shall mean: (a) all administrative and operating
costs and expenses of the Company; (b) those administrative costs and expenses
of Realty, including, but not limited to, salaries and other remunerations
paid to directors, officers and employees of Realty and accounting and legal
expenses undertaken by Realty on behalf or for the benefit of the Company; and
(c) to the extent not included in clause (b) above, REIT Expenses.
"AFFILIATE" shall mean, with respect to any Member (or as to any other
Person the Affiliates of whom are relevant for purposes of any of the
provisions of this Agreement): (a) any member of the Immediate Family of such
Member or Person; (b) any trustee or beneficiary of a Member which is a trust;
(c) any trust for the benefit of any Person referred to in the preceding
clauses (a) and (b); or (d) any Entity which directly or indirectly through
one or more intermediaries, Controls, is Controlled by, or is under common
Control with, any Member or Person referred to in the preceding clauses (a)
through (c).
"AGREEMENT" means this Amended and Restated Limited Liability Company
Agreement of the Company, as it may be amended or restated from time to time.
"AUDITED FINANCIAL STATEMENTS" shall mean financial statements (balance
sheet, statement of income, statement of partners equity and statement of cash
flows) prepared in accordance with GAAP and accompanied by an independent
auditor's report containing an opinion thereon.
"BANKRUPTCY" shall mean, with respect to any Person: (a) the commencement by
such Person of any petition, case or proceeding seeking relief under any
provision or chapter of the federal Bankruptcy Code or any other federal or
state law relating to insolvency, bankruptcy or reorganization; (b) an
adjudication that such Person is insolvent or bankrupt; (c) the entry of an
order for relief under the federal Bankruptcy Code with respect to such
Person; (d) the filing of any such petition or the commencement of any such
case or proceeding against such Person, unless such petition and the case or
proceeding initiated thereby are dismissed within ninety (90) days from the
date of such filing; or (e) the filing of an answer by such Person admitting
the allegations of any such petition.
"BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or a day on
which banking institutions in the State of California or New York are
authorized or obligated by law or executive order to close.
"CAPITAL ACCOUNT" shall mean, as to any Member, a book account maintained in
accordance with the following provisions:
(a) to each Member's Capital Account there shall be credited the amount
of cash contributed by the Member, the initial Gross Asset Value of any
other asset contributed by such Member to the capital of the Company (net
of liabilities secured by contributed property that the Company assumes or
takes subject to), such Member's or holder's distributive share of Net
Income and any other items of income or gain allocated to such Member, the
amount of any Company liabilities assumed by the Member or secured by
distributed assets that such Member takes subject to and any other items in
the nature of income or gain that are allocated to such Member pursuant to
Paragraph 5.1 hereof; and
(b) to each Member's Capital Account there shall be debited the amount of
cash distributed to the Member, the Gross Asset Value of any Company asset
distributed to such Member pursuant to any provision of this Agreement,
such Member's distributive share of Net Losses and any other items in the
nature of expenses or losses that are allocated to such Member pursuant to
Paragraph 5.1 hereof.
In the event that a Unit or portion thereof is transferred within the
meaning of Section 1.704-1(b)(2)(iv)(f) of the Regulations, the transferee
shall succeed to the Capital Account of the transferor to the extent that it
relates to the Unit or portion thereof so transferred. In the event that the
Gross Asset Values of Company assets are adjusted, as contemplated in
paragraph (b) or (c) of the definition of "Gross Asset Value," the Capital
Accounts
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of the Members shall be adjusted to reflect the aggregate net adjustments as
if the Company sold all of its properties for their fair market values and
recognized gain or loss for federal income tax purposes equal to the amount of
such aggregate net adjustment. This definition of Capital Accounts is intended
to comply with the maintenance of capital account provisions of Sections
514(c)(9) and 704(b) of the Code and the Regulations thereunder and shall be
interpreted and applied in a manner consistent therewith.
"CAPITAL CONTRIBUTION" shall mean, with respect to any Member, the amount of
cash and the initial Gross Asset Value of any Contributed Property (net of
liabilities to which such property is subject).
"CLASS A MEMBER" means a Member who holds Class A Units.
"CLASS A REPRESENTATIVE" means a member of the Member Board selected by the
holders of the Class A Units.
"CLASS A UNIT" means a Unit having the special rights and preferences
provided in this Agreement. Initially, there are Class A Units, each of
which is held by Realty.
"CLASS B MEMBER" means a Member who holds Class B Units.
"CLASS B REPRESENTATIVE" means a member of the Member Board selected by the
holders of the Class B Units.
"CLASS B UNIT" means a Unit having the special rights and preferences
provided in this Agreement. Initially, there are [# of shares on Closing Date]
Class B Units, each of which is held by Investor.
"CLASS C UNIT" means a Unit having no voting rights. Initially there are no
Class C Units outstanding.
"CO-SALE NOTICE" shall have the meaning set forth in Paragraph 11.2.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor law.
"COMPANY" means Santa Anita Realty LLC, the Delaware limited liability
company heretofore formed and continued pursuant to this Agreement.
"COMPANY MINIMUM GAIN" shall have the meaning set forth in Section 1.704-
2(b)(2) of the Regulations and the amount of Company Minimum Gain (and any net
increase or decrease thereof) for a fiscal year or other period shall be
determined in accordance with the rules of Section 1.704-2(d) of the
Regulations.
"COMPANY RECORD DATE" means the record date established by the Member Board
for distribution of Net Cash Flow pursuant to Paragraph 5.2, which record date
shall be the same as the record date established by Realty for distribution to
its stockholders of some or all of its portion of such distribution.
"CONTRIBUTED PROPERTY" shall mean any property or other asset listed on
Exhibit A (as such exhibit may be amended from time to time), in such form as
may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Company with respect to the Units held by each Member.
"CONTROL" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation, to select the managing
partner of a partnership, to select the managing member of a limited liability
company, to select a majority of the representatives of a member board of a
limited liability company, or otherwise to select, or have the power to remove
and then select, a majority of those persons exercising governing authority
over an entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall
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be deemed to have control of such partnership and, in the case of a trust, any
trustee thereof or any Person having the right to select any such trustee
shall be deemed to have control of such trust.
"DEPRECIATION" shall mean, with respect to any asset of the Company for any
fiscal year or other period, the depreciation or amortization, as the case may
be, allowed or allowable for federal income tax purposes in respect of such
asset for such fiscal year or other period, except that if the Gross Asset
Value of an asset differs from its adjusted tax basis for federal income tax
purposes at the beginning of such fiscal year or other period, Depreciation
shall be an amount that bears the same ratio to such beginning book value as
the federal income tax depreciation, amortization or other cost recovery
deduction for such fiscal year or other period bears to such beginning
adjusted tax basis and if such adjusted tax basis is zero, the Depreciation
shall be based on the method of depreciation, amortization or the cost
recovery deduction utilized in preparing the financial statements of the
Company; provided, however, that if the Company adopts the remedial method
described in Section 1.704-3(d) of the Regulations with respect to any items
of Company property, then Depreciation for such property shall be computed in
the manner set forth in such Section.
"DISSOLUTION EVENTS" has the meaning set forth in Paragraph 12.1.
"EBITDA" shall mean earnings before income taxes, depreciation and
amortization.
"ENTITY" shall mean any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust, real
estate investment trust or association.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and as interpreted by the applicable regulations
thereunder (or any corresponding provisions of succeeding laws and
regulations).
"EXCHANGE RIGHTS AGREEMENT" shall mean that certain Exchange Rights
Agreement by and among Realty, Operating, the Company, Operating JV and
Investor and dated as of the date hereof and any amendments or modifications
thereof.
"FISCAL YEAR" means, until the Board determines otherwise, the one-year
period (or shorter period beginning on the date the Company is formed) ending
on a December 31.
"FORMATION AGREEMENT" shall mean that certain Formation Agreement by and
among Realty, Operating and Investor and dated as of August 17, 1996, and any
amendments, restatements or modifications thereof.
"GAAP" means generally accepted United States accounting principles as in
effect from time to time.
"GROSS ASSET VALUE" shall mean, with respect to any asset of the Company,
such asset's adjusted basis for federal income tax purposes, except as
follows:
(a) the initial Gross Asset Value of any asset contributed by a Member to
the Company shall be the gross fair market value of such asset at the time of
its contribution as reasonably determined by the Member Board;
(b) the Gross Asset Values of all Company assets shall be adjusted to equal
their respective gross fair market values, as reasonably determined by the
Member Board, immediately prior to the following events;
(i) a Capital Contribution (other than a de minimis Capital Contribution)
to the Company by a new or existing Member as consideration for Units;
(ii) the distribution by the Company to a Member of more than a de
minimis amount of Company property as consideration for the redemption of
Units;
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(iii) the liquidation of the Company within the meaning of Section 1.704-
1(b)(2)(ii)(g) of the Regulations; and
(iv) any other event as to which the Member Board reasonably determines
that an adjustment is necessary or appropriate in accordance with the
Regulations to reflect the relative economic interests of the Members;
(c) the Gross Asset Values of Company assets distributed to any Member shall
be the gross fair market values of such assets as reasonably determined by the
Member Board as of the date of distribution; and
(d) the Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts
pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations.
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Company's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Company
property shall require an adjustment to the Capital Accounts.
"IMMEDIATE FAMILY" shall mean, with respect to any Person, such Person's
spouse (then current or former), parents, parents-in-law, descendants,
brothers and sisters (whether by whole or half-blood), first cousins,
brothers-in-law and sisters-in-law (whether by whole or half-blood), ancestors
and lineal descendants.
"INVESTOR" means Colony Investors II, L.P., a Delaware limited partnership.
"IRS" means the Internal Revenue Service.
"MEMBER" means Realty and Investor, and any other person who becomes a
member of the Company as provided in Paragraph 10.1.
"MEMBER BOARD" means the Board of Member Representatives described in
Article VI.
"MEMBER NONRECOURSE DEBT" shall have the meaning set forth in Section 1.704-
2(b)(4) of the Regulations.
"MEMBER NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Section
1.704-2(i)(2) of the Regulations and the amount of Member Nonrecourse
Deductions with respect to a Member Nonrecourse Debt shall be determined in
accordance with the rules of Section 1.704-2(i) of the Regulations.
"MINIMUM GAIN ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT" shall mean partner
nonrecourse debt minimum gain" as determined in accordance with Section 1.704-
2(i)(2) of the Regulations.
"NET INCOME" or "NET LOSS" shall mean, for each Fiscal Year or other
applicable period, an amount equal to the Company's net income or loss for
such year or period as determined for federal income tax purposes by the
Accountants, 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) of the Code shall be included in
taxable income or loss), with the following adjustments: (a) by including as
an item of gross income any tax-exempt income received by the Company; (b) by
treating as a deductible expense any expenditure of the Company described in
Section 705(a)(2)(B) of the Code (including amounts paid or incurred to
organize the Company (unless an election is made pursuant to Section 709(b) of
the Code) or to promote the sale of interests in the Company and by treating
deductions for any losses incurred in connection with the sale or exchange of
Company property disallowed pursuant to Section 267(a)(1) or Section 707(b) of
the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c)
in lieu of depreciation, depletion, amortization and other cost recovery
deductions taken into account in computing total income or loss, there shall
be taken into account Depreciation; (d) gain or loss resulting from any
disposition of Company property with respect to which gain or
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loss is recognized for federal income tax purposes shall be computed by
reference to the Gross Asset Value of such property rather than its adjusted
tax basis; (e) in the event of an adjustment of the Gross Asset Value of any
Company asset which requires that the Capital Accounts of the Company be
adjusted pursuant to Sections 1.704-1(b)(2)(iv)(e), (f) and (m) of the
Regulations, the amount of such adjustment is to be taken into account as
additional Net Income or Net Loss pursuant to Paragraph 5.1 hereof; and (f)
excluding any items specially allocated pursuant to Paragraph 5.1(b) hereof.
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Sections 1.704-
2(b)(1) and (c) of the Regulations and shall be determined in accordance with
Section 1.704-2(c) of the Regulations.
"NONRECOURSE LIABILITIES" shall have the meaning set forth in Section 1.704-
2(b)(3) of the Regulations.
"OFFICER" means the President, any Vice President, the Secretary, and the
Treasurer of the Company, and any other officer of the Company elected as
provided in Article VII.
"OPERATING" means Santa Anita Operating Company, a Delaware corporation.
"OPERATING JV" means Santa Anita Operating LLC, a Delaware limited liability
company.
"PAIRED SHARES" shall mean one Realty Share and one share of common stock of
Operating that are subject to a Pairing Agreement between Realty and Operating
dated December 20, 1979 and one share of Series A Redeemable Preferred Stock
of Realty and one share of Series A Redeemable Preferred Stock of Operating
that are paired pursuant to the Certificates of Designations of such
securities.
"PARTICIPATION NOTICE" has the meaning set forth in Paragraph 11.1.
"PERCENTAGE INTEREST" shall have the meaning set forth in Paragraph 3.2.
"PROPERTY" means any property acquired by or contributed to the Company or
any property owned by an entity in which the Company has an ownership
interest.
"PRO RATA SHARE" means the quotient of the number of Units owned by such
Member, divided by the total number of Units outstanding.
"PURCHASE RIGHTS" shall have the meaning set forth in Paragraph 3.3 hereof.
"REALTY" means Santa Anita Realty Enterprises, Inc., a Delaware corporation.
"REALTY SHARES" shall mean the shares of common stock, par value $0.10 per
share, of Realty.
"REGISTRATION RIGHTS AGREEMENT" shall mean that certain Registration Rights
Agreement by and among Realty, Operating, the Company, Operating JV and
Investor, and dated as of the date hereof, and any amendments or modifications
thereof.
"REGULATIONS" shall mean the income tax regulations promulgated under the
Code, as those regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set forth in Paragraph
5.1(b)(viii) hereof.
"REIT" shall mean a real estate investment trust as defined in Section 856
of the Code.
"REIT EXPENSES" shall mean all expenses which the Company hereby assumes and
agrees to pay as incurred for the benefit of the Company, including (a) costs
and expenses relating to the formation and
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continuation of the Company and continuity of existence of Realty, including
taxes (other than Realty's federal and state income and franchise taxes, if
any), fees and assessments associated therewith, any and all costs, expenses
or fees payable to or on behalf of any director of Realty, (b) to the extent
funded by Realty for payment by the Company, costs and expenses relating to
any offer or registration of securities by Realty the net proceeds of which
are to be contributed or loaned to the Company and all statements, reports,
fees and expenses incidental thereto, including underwriting discounts and
selling commissions applicable to any such offer of securities, (c) costs and
expenses associated with the preparation and filing of any periodic reports by
Realty under federal, state or local laws or regulations, including filings
with the SEC, (d) costs and expenses associated with compliance by Realty with
laws, rules and regulations promulgated by any regulatory body, including the
SEC and (e) all other costs of Realty incurred in the course of its business
on behalf of the Company, including, without limitation, any financial
obligations of Realty under the Formation Agreement or any of the agreements
attached thereto as exhibits.
"REIT REQUIREMENTS" shall mean the requirements for Realty to: (a) qualify
as a REIT under the Code and Regulations; (b) avoid any federal income or
excise tax liability; (c) retain its status as grandfathered from the
application of Section 269B(a)(3) pursuant to Section 136(c)(3) of the Deficit
Reduction Act of 1984 and (d) retain the benefits of those certain private
letter rulings issued by the IRS to Realty dated as of October 16, 1979 as
supplemented January 11, 1980.
"REPRESENTATIVE" means a Class A Representative or a Class B Representative
or a Representative elected by majority vote of all Units pursuant to
Paragraph 6.2. A Representative shall not be deemed to be a "manager" within
the meaning of the Act.
"RESTRICTED ENTITY" shall mean any "employee benefit plan" as defined in and
subject to ERISA, any "plan" as defined in and subject to Section 4975 of the
Code, or any entity any portion or all of the assets of which are deemed
pursuant to United States Department of Labor Regulation Section 2510.3-101 or
otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or
Section 4975 of the Code, assets of any such "employee benefit plan" or "plan"
which invests in such entity.
"RIGHTS" shall mean the rights of Members set forth in the Exchange Rights
Agreement or the Registration Rights Agreement. No provision of this Agreement
shall be interpreted as granting any Member any Rights or any rights or
interest in or to the Exchange Rights Agreement or the Registration Rights
Agreement.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECTION 704(C) TAX ITEMS" shall have the meaning set forth in Paragraph
5.1(c)(ii).
"TAG-ALONG NOTICE" shall have the meaning set forth in Paragraph 11.2.
"TAXABLE INCOME" or "TAX LOSS" means for a Fiscal Year, a Fiscal Quarter or
another period, an amount equal to the income or loss of the Company for that
Fiscal Year, Fiscal Quarter or other period, determined in the manner in which
income or loss is determined for Federal income tax purposes, including
Section 703(a) of the Code (for this purpose all items of income, gain, loss
or deduction required under Section 703(a)(1) of the Code to be stated
separately will be included in Taxable Income or Tax Loss).
"TAX ITEMS" shall have the meaning set forth in Paragraph 5.1(c)(i) hereof.
"TAX MATTERS MEMBER" has the meaning set forth in Paragraph 5.6 hereof.
"TAX PAYMENT LOAN" shall have the meaning set forth in Paragraph 5.7(a)
hereof.
"TOTAL REVENUES" means consolidated revenues of the Company and its
subsidiaries for a period calculated in the same manner in which they are
calculated in determining Net Income for that period.
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"UNIT" means a Class A Unit, a Class B Unit, a Class C Unit, or a unit of
any other class which the Company may at any time be authorized by this
Agreement to issue, which represents a limited liability company interest in
the Company.
"WITHHOLDING TAX ACT" shall have the meaning set forth in Paragraph 5.7(a)
hereof.
Other terms which are defined in this Agreement will have the meanings given
to them where they are defined. Accounting terms which are defined under GAAP
will, unless they are specifically defined in another manner in this
Agreement, have the meanings given to them under GAAP from time to time.
ARTICLE 2
Organization
2.1 Name of the Company. The name of the Company is "Santa Anita Realty
LLC".
2.2 Formation.
(a) The Members hereby agree that the rights, duties and liabilities of the
Members shall be as provided in the Act, except as otherwise provided herein.
(b) Upon the execution and delivery of this Agreement or a counterpart of
this Agreement, Investor shall be deemed admitted as a Member of the Company
and Realty shall continue to be a member of the Company.
(c) The name and mailing address of each Member, the agreed value of the
amount contributed to the capital of the Company, the number of Units and the
Percentage Interest of each Member shall be as listed on Exhibit A attached
hereto. The Secretary shall be required to update Exhibit A from time to time
as necessary to accurately reflect the information therein. Any amendment or
revision to Exhibit A made in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this Agreement to
Exhibit A shall be deemed to be a reference to the Exhibit A as in effect from
time to time.
(d) , as an authorized person within the meaning of the Act, has
executed, delivered and filed a Certificate of Formation of the Company with
the Secretary of State of the State of Delaware.
(e) The Representatives shall cause the Company to be qualified, formed or
registered in any jurisdiction in which the Company transacts business. The
Secretary, as an authorized person within the meaning of the Act, shall
execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.
2.3 Registered Office and Agent. The registered office of the Company in the
State of Delaware, and its registered agent for service of process in that
State, will be as set forth in the Certificate of Formation of the Company, as
it is initially filed with the Secretary of State of Delaware, and as it may
be amended from time to time.
2.4 Offices. The Company may have offices and places of business at such
locations, whether within or outside of the State of Delaware, as the Member
Board may from time to time determine or the business of the Company may
require.
2.5 Purposes. The purpose of the Company will be to engage in any lawful act
or activity for which limited liability companies may be organized under the
Act. Without limiting what is stated in the preceding sentence, the initial
principal purposes of the Company will include to acquire, hold, own, develop,
re-develop, construct, improve, maintain, operate, manage, sell, lease, rent,
transfer, encumber, mortgage, convey, exchange
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and otherwise dispose of or deal with the Properties and any other real or
personal property of all kinds, to invest in equity investments, mortgages and
other real estate interests and to invest in the securities of other real
estate companies, including for the purpose of exercising control over such
entities.
2.6 Term. The term of the Company will continue until it is dissolved as
provided in Article XII. The existence of the Company as a separate legal
entity shall continue until the cancellation of the Certificate of Formation
of the Company in the manner required by the Act.
2.7 Execution of Initial Agreements. The Company, and the President on
behalf of the Company, may enter into and perform the Exchange Rights
Agreement, the Registration Rights Agreement, the Contribution Agreement dated
concurrently herewith between Realty and the Company and the Services
Agreement dated concurrently herewith among, Realty, Operating, the Company,
Operating JV and Investor without any further act, vote or approval or any
Member or Representative, notwithstanding any other provision of this
Agreement, the Act or other applicable law, rule or regulation. The Company is
hereby authorized to enter into the agreements described in the preceding
sentence, but such authorization shall not be deemed a restriction on the
power of the Company to enter into other agreements.
ARTICLE 3
Capital Contributions; Units
3.1 Capital Contributions: Units.
(a) The initial Members shall make or cause to be made the Capital
Contributions described in Exhibit A hereto on the date of this Agreement and
shall receive initially the number of Class A Units or Class B Units provided
therein. In addition, within 20 Business Days after a call issued from time to
time from the date of this Agreement until October 1, 1998, by delivery of
notice from the Company to Investor, Investor shall make additional cash
Capital Contributions to the Company up to an aggregate amount of $115,631,770
(the "Additional Investor Contribution"), provided that no single additional
capital call on Investor, when combined with any related additional capital
call on Investor made pursuant to Section 3.1 of the amended and restated
limited liability company agreement of Operating JV, shall be for less than
$10 million. At such time as the Company has called 95% of the Additional
Investor Contribution, Investor shall have the right to contribute the balance
of the Additional Investor Contribution. Any amount of the Additional Investor
Contribution which has not been called by the Company for contribution prior
to October 1, 1998 will be contributed by Investor to the Company on October
1, 1998. Investor will receive an aggregate of 8,241,275 Class B Units (the
"Additional Investor Units") in exchange for the Additional Investor
Contribution. Additional Investor Units shall be issued to Investor as
Additional Investor Contributions are made at a price of $14.0308 per
Additional Investor Unit; provided that, the price per Additional Investor
Unit for any unissued Additional Investor Units will be reduced by an amount,
expressed on a per Unit basis, equal to (x) all distributions, prior to the
date such Additional Investor Units are issued, of the proceeds from sales of
capital assets and (y) any regular quarterly distributions, prior to the date
such Additional Investor Units are issued, in excess of $.20 per Unit, less
the per unit amount of any regular quarterly distribution paid on units of
Operating JV. It is intended that, pursuant to each Additional Investor
Contribution, any adjustments made to the Gross Asset Values of Company assets
shall be made in a manner such that each Member's Capital Account will reflect
its Percentage Interest immediately after such contribution. The Members shall
have the initial Percentage Interests in the Company as set forth in Exhibit
B, which Percentage Interests shall be adjusted to the extent necessary to
reflect properly exchanges, redemptions or conversions of Units, Capital
Contributions, the Additional Investor Contribution, the issuance of
additional Units or any other event having an effect on a Member's Percentage
Interest, in each case to the extent permitted by and in accordance with this
Agreement. Except for the Additional Investor Contribution, the Members shall
have no obligation to make any additional Capital Contributions or loans to
the Company, even if the failure to do so could result in the Bankruptcy or
insolvency of the Company or any other adverse consequence to the Company.
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In the event that Investor fails to contribute to the Company all or any
portion of an Additional Capital Contribution within five days after the date
scheduled for such contribution (a "Contribution Default"), Realty may at its
option, exercisable within five days after the end of such five-day period,
(a) advance to the Company, on a fully recourse basis to the Company, for the
account of Investor the amount of such deficiency or (b) make a contribution
to the Company equal to, and in lieu of, Investor's delinquent Additional
Capital Contribution. If the option referred to in clause (a) is exercised,
the amount advanced by Realty on behalf of Investor shall hereinafter be
referred to as a "Deficiency Advance." The Deficiency Advance shall be deemed
a fully recourse loan by Realty to Investor and, on and after the date that is
six months from the date of the Deficiency Advance, shall be payable upon
Realty's demand. The Deficiency Advance shall be deemed an Additional Capital
Contribution of Investor. Interest at a rate per annum equal to the lesser of
(i) the prime commercial lending rate or base lending rate published from time
to time in the national edition of The Wall Street Journal plus five (5)
percent per annum and (ii) the maximum rate allowed by law shall be payable on
any Deficiency Advance by Investor to Realty monthly in arrears, commencing on
the first day of the calendar month immediately following the date of the
Deficiency Advance. Notwithstanding any other provision of this Agreement,
Realty shall have a security interest in and shall receive from the Company
all Company distributions which would otherwise by payable to Investor, until
all accrued and unpaid interest on and the principal balance of all Deficiency
Advances made by Realty for the benefit of Investor shall have been paid.
If a Contribution Default occurs and Realty does not make a Deficiency
Advance, the following actions will occur:
(1) The Company may enforce, by court action, Investor's obligation to
make the Additional Capital Contribution which caused the Contribution
Default, including the payment of interest on the unpaid amount at a rate
per annum equal to the lesser of (i) the prime commercial lending rate or
base lending rate published from time to time in the national edition of
The Wall Street Journal plus five (5) percent per annum and (ii) the
maximum rate allowed by law from the date such Additional Capital
Contribution was payable. Investor shall pay all costs of the suit
including, without limitation, reasonable attorneys' fees, and all expenses
incurred in recovering the amounts (including interest) due. This provision
shall not limit the Company's right to recover other losses, damages or
expenses resulting from Investor's failure to make such Additional Capital
Contributions.
(2) Until such time as the Additional Capital Contribution which caused
the Contribution Default (plus interest thereon as provided in clause (1)
above) is paid in full to the Company (i) the provisions of Article VI
shall be applied as if no Class B Units are outstanding, (ii) the Company
shall retain all distributions under Paragraph 5.2 otherwise payable to
Investor and such amounts will be applied first to the payment of interest
on the Additional Capital Contribution which caused the Contribution
Default and then to the Additional Capital Contribution which caused the
Contribution Default, (iii) Investor shall not be entitled to exercise any
of the rights set forth in Article XI, and (iv) Investor shall not be
entitled to exercise any of the Rights.
(3) Realty may, as it option, purchase all the Units held by Investor at
a price per Unit equal to 80% of the closing price of the Paired Shares on
the New York Stock Exchange on the NYSE trading day immediately preceding
the date of such purchase.
(b) The limited liability company interest of a Member (or an assignee of a
Member) in capital, allocations of Net Income, Net Losses and distributions
shall be evidenced by the issuance to such Member (or assignee) of one or more
Units. The Company will be authorized to issue up to Units, of which not
more than Units may be Class A Units, not more than Units may be Class
B Units, and not more than Units may be Class C Units. The aggregate total
of all Units outstanding and the ownership of Units by each Member, as of the
date of this Agreement, are as set forth on Exhibit A hereto.
(c) From time to time, subject to Section 6.5 (c), the Company may issue
additional Units of the class previously issued to existing Members and their
transferees and Class C Units to newly-admitted Members in exchange for
additional Capital Contributions. When Realty contributes to the Company the
net proceeds to
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Realty from any offering or sale of Paired Shares (including, without
limitation, any issuance of Paired Shares pursuant to the exercise of options,
warrants, convertible securities, or similar rights to acquire Paired Shares),
the Company shall issue to Realty Class A Units equal in number to the number
of Paired Shares issued in such Offering. In the event that Realty receives
Class A Units pursuant to this Paragraph, Investor shall have the right, but
not the obligation, to make additional Capital Contributions in exchange for
its Pro Rata Share of Class B Units pursuant to Paragraph 11.1.
(d) Subject to Section 6.5 (c), the Company is hereby authorized to issue to
Realty Units 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 then-existing Units, as shall be determined by the
Company, including (i) the allocation of items of Company income, gain, loss,
deduction and credit to each such class or series of Units and (ii) the rights
of each such class or series of Units to share in Company distributions
(including liquidating distributions); provided, however, that no such
additional Units shall be issued to Realty unless (x) additional Units are
issued in connection with an issuance of shares of Realty, which shares have
designations, preferences and other rights, all such that the economic
interests of such shares are substantially similar to the designations,
preferences and other rights of the additional Units issued to Realty in
accordance with this Paragraph 3.1(d) and (y) Realty contributes to the
Company an amount equal to the net proceeds received by Realty in connection
with the issuance of such shares. Notwithstanding the foregoing, the Company
shall not issue any Class B Units to any Person other than Investor.
(e) In the event of any change in the outstanding number of Paired Shares by
reason of any share dividend, split, reverse split, recapitalization, merger,
consolidation or combination, the number of Units held by each Member (or
assignee) shall be proportionately adjusted such that, to the extent possible,
one Unit remains the equivalent of one Share without dilution. It is the
intent of the Members that, to the extent possible, the number of Units held
by Realty shall at all times equal the number of issued and outstanding Paired
Shares.
(f) No fractional Units shall remain outstanding. Any fractional Units that,
but for this Paragraph 3.1(f), would otherwise be outstanding shall be
redeemed by the Company for cash equal to the fair market value of such
fractional Unit.
3.2 Percentage Interests. The Percentage Interest of a Member shall be
equal, as of any date, to the percentage obtained by dividing (a) the number
of Units held by such Member (including Units held by assignees of such Member
who have not been admitted as Members) on such date by (b) the total number of
issued and outstanding Units on such date.
3.3 Purchase Rights. If Realty grants, issues or sells any options,
convertible securities or rights to purchase shares, warrants, or other
property pro rata to the record holders of Realty Shares (collectively,
"Purchase Rights"), then the Members shall, to the extent practicable and
consistent with the other provisions of this Agreement, be entitled to acquire
from the Company interests in the Company that are substantially similar in
amount, tone and tenor to the Purchase Rights to which such Members would be
entitled if such Members had converted their Units into Paired Shares
immediately prior to the grant, issue or sale of the Purchase Rights.
3.4 Redemption. If Realty shall redeem any of its outstanding Realty Shares,
the Company shall concurrently therewith redeem an equal number of Units held
by Realty for the same price as paid by Realty for the redemption of such
Realty Shares. Similar redemptions of interests of Realty in the Company shall
occur if any other outstanding securities of Realty which have counterpart
securities of the Company, as contemplated by Paragraph 3.1(d), are redeemed
or otherwise retired. Notwithstanding the foregoing, Realty shall not redeem
any Realty Shares or counterpart securities without the prior written consent
of the Company.
3.5 No Third-Party Beneficiaries. No creditor or other third party shall
have the right to enforce any right or obligation of any Member to make
Capital Contributions or loans or to pursue any other right or remedy
hereunder or at law or in equity, it being understood and agreed that the
provisions of this Agreement shall be
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solely for the benefit of, and may be enforced solely by, the parties hereto
and their respective successors and assigns. None of the rights or obligations
of the Members herein set forth to make Capital Contributions or loans to the
Company shall be deemed an asset of the Company for any purpose by any
creditor or other third party, nor may such rights or obligations be sold,
transferred or assigned by the Company or pledged or encumbered by the Company
to secure any debt or other obligation of the Company or of any of the
Members.
3.6 No Interest on or Return of Capital Contribution. No Member shall be
entitled to interest on its Capital Contribution or Capital Account. Except as
provided herein or by law, no Member shall have any right to demand or receive
the return of its Capital Contribution.
ARTICLE 4
Meetings; Voting
4.1 Meetings.
(a) An annual meeting of Members of each class will be held on the first
Monday of May in each year, or if that is a legal holiday in the place where
the Company has its principal office, on the next following business day in
that place. If, pursuant to Paragraph 4.2, the Members of two or more classes
vote as a single class with regard to any matters brought before their annual
meetings, the annual meetings in that year of the holders of those classes of
Units will be combined into a single meeting (but with separate voting with
regard to any matters as to which they vote as separate classes).
(b) Special meetings of Members of a class may be called at any time for any
purpose by a majority of the Members of that class, or by the Members holding
a majority of the Units of that class, or by the President or the Secretary of
the Company.
(c) Notice of each meeting of the Members of any class, stating the date,
time and place of the meeting and the matters to be voted upon at it, must be
given not less than ten nor more than sixty days before the date of the
meeting to each Member entitled to vote at the meeting.
4.2 Voting.
(a) Except as otherwise provided in this Agreement, the Members of all
classes will vote together as though the Units were of a single class. At any
meeting of Members, each Member having the right to vote may vote at that
meeting in person or by proxy. Each Member entitled to vote at a meeting will
be entitled to one vote for each Unit of the class regarding which the Member
is entitled to vote at the meeting registered in the Member's name on the
books of the Company. The Members agree that because Investor is obligated to
make the Additional Investor Contribution, Investor will be entitled to vote
the total number of Additional Investor Units from and after the date of this
Agreement.
(b) The presence in person or by proxy of holders of a majority of the Units
of each class entitled to vote at the meeting shall constitute a quorum for
the transaction of business at the meeting.
(c) The selection of Class A Representatives and Class B Representatives
will be determined by plurality vote of the class entitled to vote. Except as
otherwise provided in this Agreement, any other matter will be determined by
the vote of a majority of the Units which are voted with regard to it.
(d) Whenever the vote of Members at a meeting is required or permitted in
connection with any action by the Company, the meeting and vote may be
dispensed with if the action is consented to in writing by Members having at
least the minimum number of votes required to authorize the action at a
meeting at which the holders of all Units entitled to vote are present and
voted.
(e) Class C Units shall have no voting rights.
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4.3 Unit Register. The Company will maintain a Unit register in which it
will record the names, addresses and taxpayer identification numbers of the
owners of Units and the number of Units of each class owned by each of them.
Upon notification that Units have been transferred (or, if Units are
represented by certificates, upon receipt of certificates representing Units
with appropriate documents of assignment attached) and receipt by the Company
of evidence satisfactory to the Company that the transfer was permitted by
Article VIII, the Company will record the transfer in the Unit register. The
Company may for all purposes treat the person shown in the Unit register as
the owner of the Units shown in the Unit register, even if the Company has
notice that the Units have been transferred to another person. Any reference
in this Agreement to information about Units or holders or owners of Units
shown on the books of the Company will refer to information shown in the Unit
register.
4.4 No Authority to Bind. Except as otherwise expressly provided herein, no
Member has the authority to bind the Company.
ARTICLE 5
Allocations, Distributions and Other Tax and Accounting Matters
5.1 Allocations. The Net Income, Net Loss and other Company items shall be
allocated pursuant to the provisions of this Paragraph 5.1.
(a) Allocation of Net Income and Net Loss.
(i) Net Income. Except as otherwise provided herein, Net Income for each
Fiscal Year or other applicable period shall be allocated to the Members in
accordance with their respective Percentage Interests.
(ii) Net Loss. Except as otherwise provided herein, Net Loss of the
Company for each Fiscal Year or other applicable period shall be allocated
to the holders of Units in accordance with their respective Percentage
Interests.
(b) Special Allocations. Notwithstanding any provisions of Paragraph 5.1(a)
hereof, the following special allocations shall be made in the following
order:
(i) Minimum Gain Chargeback. Notwithstanding any other Provision of this
Article V, if there is a net decrease in Company Minimum Gain for any
Fiscal Year (except as a result of conversion or refinancing of Company
indebtedness, certain capital contributions or revaluation of the Company
property as further outlined in Section 1.704-2(f) of the Regulations),
each holder of Units shall be specially allocated items of Company income
and gain for such year (and, if necessary, subsequent years) in an amount
equal to that holder's share of the net decrease in Company Minimum Gain as
determined under Section 1.704-2(g) of the Regulations. The items to be so
allocated shall be determined in accordance with Section 1.704-2(f) of the
Regulations. This clause (i) is intended to comply with the minimum gain
chargeback requirement in said section of the Regulations and shall be
interpreted consistently therewith.
(ii) Minimum Gain Chargeback Attributable to Member Nonrecourse
Debt. Notwithstanding any other provision of this Article V, if there is a
net decrease in Minimum Gain Attributable to Member Nonrecourse Debt during
any Fiscal Year (other than due to the conversion, refinancing or other
change in the debt instrument causing it to become partially or wholly
nonrecourse, certain capital contributions, or certain revaluations of
Company property (as further outlined in Section 1.704-2(i)(4) of the
Regulations), each holder of Units shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent years)
in an amount equal to the holder's share of the net decrease in the Minimum
Gain Attributable to Member Nonrecourse Debt as determined under Section
1.704-2(i) of the Regulations. The items to be so allocated shall be
determined in accordance with Sections 1.704-2(i)(4) and (j)(2) of the
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Regulations. This clause (ii) is intended to comply with the minimum gain
chargeback requirement with respect to Member Nonrecourse Debt contained in
said section of the Regulations and shall be interpreted consistently
therewith.
(iii) Qualified Income Offset. In the event a holder of Units
unexpectedly receives any adjustments, allocations or distributions
described in Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the
Regulations, and such holder has an Adjusted Capital Account Deficit, items
of Company income and gain shall be specially allocated to such holder in
an amount and manner sufficient to eliminate the Adjusted Capital Account
Deficit as quickly as possible, provided that an allocation pursuant to
this Paragraph 5.1(b)(iii) shall be made only if and to the extent that
such holder would have Adjusted Capital Account Deficit after all other
allocations provided for in this Article V have been tentatively made as if
this Paragraph 5.1(b)(iii) were not in the Agreement. This clause (iii) is
intended to constitute a "qualified income offset" under Section 1.704-
1(b)(2)(ii) (d) of the Regulations and shall be interpreted consistently
therewith.
(iv) Gross Income Allocation. In the event any holder of Units has a
deficit Capital Account at the end of a Fiscal Year which is in excess of
the sum of (x) the amount such holder is obligated to restore pursuant to
any provision of this Agreement, and (y) the amount such holder is deemed
to be obligated to restore pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such
holder shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Paragraph 5.1(b)(iv) shall be made only if and to the
extent that such holder would have a Capital Account Deficit in excess of
such sum after all other allocations provided for in this Article V have
been made as if Paragraph 5.1(b)(iii) hereof and this Paragraph 5.1(b)(iv)
were not in the Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year or
other applicable period shall be allocated to the holders of Units in
accordance with their respective Percentage Interests. For purposes of
Section 1.752-3(a)(3) of the Regulations, "excess nonrecourse liabilities"
shall be allocated among the holders of Units in proportion to their
respective Percentage Interests.
(vi) Member Nonrecourse Deductions. Member Nonrecourse Deductions for any
Fiscal Year or other applicable period shall be specially allocated to the
holder of Units that bears the economic risk of loss with respect to the
Member Nonrecourse Debt of which such Member Nonrecourse Deductions are
attributable (as determined by Sections 1.704-2(b) (4) and (i) (1) of the
Regulations).
(vii) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Section 734(b) or
Section 743(b) of the Code is required, pursuant to Section 1.704-
1(b)(2)(iv)(m)(2) or Section 1.704-1 (b)(2)(iv)(m)(4) of the Regulations,
to be taken into account in determining Capital Accounts, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to
holders of Units in accordance with their interests in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such sections of the Regulations.
(viii) Curative Allocations. The Regulatory Allocations shall be taken
into account in allocating other items of income, gain, loss, and deduction
among the holders of Units so that, to the extent possible, the cumulative
net amount of allocations of Company items under Paragraphs 5.1(a) and (b)
hereof shall be equal to the net amount that would have been allocated to
each holder of Units if the Regulatory Allocations had not occurred. This
subparagraph (viii) is intended to minimize to the extent possible and to
the extent necessary any economic distortions which may result from
application of the Regulatory Allocations and shall be interpreted in a
manner consistent therewith. For purposes hereof, "Regulatory Allocations"
shall mean the allocations provided under this Paragraph 5.1(b) (other than
this subparagraph).
(ix) Code (S)514(c)(9)(B)(vi) Limitation. Notwithstanding the foregoing,
if any special allocation otherwise required pursuant to this Paragraph
5.1(b) or, if a deduction to a guaranteed payment to a Member, would cause
the Company's allocations to violate Code (S)514(c)(9)(B)(vi) (taking into
account its
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incorporation by reference of the "substantial economic effect"
requirements of Code (S)704(b)(2)) and the applicable Regulations, then
such special allocation or deduction shall not be made until such time as
permitted under such Code section and Regulations, provided that the
cumulative results of such allocations permits the Capital Accounts of the
Members to be in proportion to the distributions that would occur if
liquidating distributions were made in accordance with Paragraph 5.2 of
this Agreement.
(x) Varying Interests. In the event a Member's Percentage Interest during
a Fiscal Year changes, the allocations pursuant to this Article V shall be
made by the Company to take such varying interests into account in any
reasonable manner permitted under the Code and the Regulations.
(c) Tax Allocations.
(i) Generally. Subject to clauses (ii) and (iii) hereof, items of income,
gain, loss, deduction and credit to be allocated for income tax purposes
(collectively, "Tax Items") shall be allocated among the holders of Units
on the same basis as their respective book items.
(ii) Allocations Respecting Section 704(c) of the Code and
Revaluations. Property contributed to the Company shall be subject to
Section 704(c) of the Code and the Regulations thereunder so that,
notwithstanding paragraph (b) hereof, taxable gain from disposition,
taxable loss from disposition and tax depreciation with respect to Company
property that is subject to Section 704(c) of the Code and/or Section
1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section 704(c) Tax
Items") shall be allocated on a property by property basis in accordance
with said Code Section and/or the Regulations thereunder, as the case may
be. The allocation of Section 704(c) Tax Items shall be made pursuant to
the traditional method of Section 1.704-3(b) of the Regulations.
Allocations pursuant to this Paragraph 5.1(c)(ii) are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be
taken into account in computing, the Capital Account or share of Net
Income, Net Loss, other items, or distributions of an holder of Units
pursuant to any provision of this Agreement.
(iii) Tax Credits and Other Items. Tax credits and other items shall be
allocated in accordance with the holdings of Units to the extent permitted
under Section 1.704-1(b)(4)(ii) of the Regulations or other applicable
provision of the Code and Regulations and otherwise in accordance with such
provisions.
5.2 Distributions. The Company shall make such distributions as it may in
its reasonable discretion determine to the holders of Units who are holders on
the Company Record Date with respect to such distribution. All such
distributions shall be made pro rata in accordance with the holders'
respective Percentage Interests. Notwithstanding the foregoing, the Company
shall distribute sufficient amounts, pro rata according to Percentage
Interests, to enable Realty to pay shareholder dividends that will satisfy the
REIT Requirements and avoid any federal income or excise tax. Notwithstanding
the provisions of this Paragraph 5.2 to the contrary, all distributions to be
made after the dissolution of the Company shall be made in accordance with
Article XII. Notwithstanding any provision to the contrary contained in this
Agreement, the Company, and the Representatives on behalf of the Company,
shall not be required to make a distribution to any Member on account of its
Units or its interest in the Company if such distribution would violate
Section 18-607 of the Act or other applicable law.
5.3 Books of Account. At all times the Company shall maintain or cause to be
maintained full, true, complete and correct books of account in accordance
with GAAP, using the calendar year as the fiscal and taxable year of the
Company. In addition, the Company shall keep all records required to be kept
pursuant to the Act.
5.4 Reports. The Company shall send to the Members promptly after receipt of
the same from the Accountants and in no event later than 105 days after the
close of each Fiscal Year of the Company, copies of Audited Financial
Statements for the Company, or of Realty if such statements are prepared
solely on a consolidated basis with Realty, for the immediately preceding
Fiscal Year of the Company. The Company shall also cause to be prepared such
reports and/or information as are necessary for Realty to determine its
qualification as a REIT and its compliance with REIT Requirements.
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5.5 Tax Elections and Returns. All elections required or permitted to be
made by the Company under any applicable tax law shall be made by the Company
in its sole and absolute discretion, except that the Company shall, if
requested by a Member, file an election on behalf of the Company pursuant to
Section 754 of the Code to adjust the basis of the Company property in the
case of a transfer of a Unit or distribution from the Company, including
transfers made in connection with the exercise of the Rights, made in
accordance with the provisions of the Agreement. The Company shall consult in
good faith with the Representatives regarding any proposed modifications to
the tax returns of the Company. The Company shall be responsible for preparing
and filing all federal and state tax returns for the Company and furnishing
copies thereof to the Members, together with required Company schedules
showing allocations of tax items, copies of all within the period of time
prescribed by law. The Company shall use reasonable efforts to make available
to the holders of Units final K-1's not later than September 15 of each year.
5.6 Tax Matters Member. Realty is hereby designated as the Tax Matters
Member within the meaning of Section 6231(a)(7) of the Code (and any
corresponding provisions of state and local law) for the Company; provided,
however, that (a) in exercising its authority as Tax Matters Member, shall be
limited by the provisions of this Agreement affecting tax aspects of the
Company; (b) Realty shall consult in good faith with the Representatives
regarding the filing of an administrative adjustment request with respect to
the Company before filing such request, it being understood, however, that the
provisions hereof shall not be construed to limit the ability of any Member,
including Realty, to file an administrative adjustment request on its own
behalf pursuant to Section 6227(a) of the Code; (c) Realty shall consult in
good faith with the Representatives regarding the filing of a petition for
judicial review of an administrative adjustment request under Section 6228 of
the Code, or a petition for judicial review of a final administrative judgment
under Section 6226 of the Code relating to the Company before filing such
petition; (d) Realty shall give prompt notice to the Representatives and any
notice partners under Section 6231 of the Code of the receipt of any written
notice that the IRS intends to examine or audit Company income tax returns for
any year, receipt of written notice of the beginning of an administrative
proceeding at the Company level relating to the Company under Section 6223 of
the Code, receipt of written notice of the final Company administrative
adjustment relating to the Company pursuant to Section 6223 of the Code, and
receipt of any request from the IRS for waiver of any applicable statute of
limitations with respect to the filing of any tax return by the Company; and
(e) Realty shall promptly notify the Representatives if Realty does not intend
to file for judicial review with respect to the Company. Similar provisions
shall apply in the case of any audit or examination by a state or local taxing
authority.
5.7 Withholding Payments Required By Law.
(a) Unless treated as a Tax Payment Loan (as hereinafter defined), any
amount paid by the Company for or with respect to any holder of Units on
account of any withholding tax or other tax payable with respect to the
income, profits or distributions of the Company pursuant to the Code, the
Regulations, or any state or local statute, regulation, notice, ruling or
ordinance requiring such payment (a "Withholding Tax Act") shall be treated
as a distribution to such holder for all purposes of this Agreement,
consistent with the character or source of the income, profits or cash
which gave rise to the payment or withholding obligation. To the extent
that the amount required to be remitted by the Company under the
Withholding Tax Act exceeds the amount then otherwise distributable to such
holder, unless and to the extent that funds shall have been provided by
such holder pursuant to the last sentence of this Paragraph 5.7(a), the
excess shall constitute a loan from the Company to such holder (a "Tax
Payment Loan") which shall be payable upon demand and shall bear interest,
from the date that the Company makes the payment to the relevant taxing
authority, at the prime commercial lending rate or base lending rate
published from time to time in the national edition of The Wall Street
Journal, plus four (4) percent per annum, compounded monthly (but in no
event higher than the highest interest rate permitted by applicable law).
So long as any Tax Payment Loan to any holder of Units or the interest
thereon remains unpaid, the Company shall make future distributions due to
such holder under this Agreement by applying the amount of any such
distributions first to the payment of any unpaid interest on such Tax
Payment Loan and then to the repayment of the principal thereof, and no
such distributions shall be paid to such holder until all of such principal
and interest has been paid in full. If the
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amount required to be remitted by the Company under the Withholding Tax Act
exceeds the amount then otherwise distributable to a holder of Units, the
Company shall notify such holder at least five (5) Business Days in advance
of the date upon which the Company would be required to make a Tax Payment
Loan under this Paragraph 5.7(a) (the "Tax Payment Loan Date") and provide
such holder the opportunity to pay to the Company, on or before the Tax
Payment Loan Date, all or a portion of such deficit.
(b) The Company will take all actions necessary to comply with the
provisions of any Withholding Tax Act applicable to the Company and to carry
out the provisions of this Paragraph 5.7. Nothing in this Paragraph 5.7 shall
create any obligation on any holder of Units to advance funds to the Company
or to borrow funds from third parties in order to make any payments on account
of any liability of the Company under a Withholding Tax Act.
(c) In the event that a Tax Payment Loan is not paid by a holder of Units
within thirty (30) days after written demand therefor is made by the Company,
the Company may cause all distributions that would otherwise be made to such
holder to be retained by the Company, or sell such holder's Units for sale
proceeds, in each case up to the amount necessary to repay such Tax Payment
Loan, including all accrued and unpaid interest therein, and such retained
distributions or sale proceeds shall be applied against, first, the accrued
interest on and, second, the principal of, such Tax Payment Loan.
ARTICLE 6
Member Board
6.1 Management by Members. The management of the Company is fully reserved
to the Members, and the Company will not have "managers," as that term is used
in the Act. The powers of the Company will be exercised by or under the
authority of, and the business and affairs of the Company will be managed
under the direction of, the Members, who will make all decisions and take all
actions for the Company, as described in this Article VI. Notwithstanding
anything herein to the contrary, the Company shall not take any action which
(or fail to take any action, the omission of which), in the opinion of counsel
to Realty (i) could adversely affect the ability of Realty to qualify or
continue to qualify as a REIT, (ii) could subject Realty to any additional
taxes under Section 857 or Section 4981 of the Code or other potentially
adverse consequences under the Code, (iii) could otherwise violate the REIT
Requirements or (iv) could violate any law or regulation of any governmental
body or agency having jurisdiction over Realty or its securities, unless such
action (or inaction) shall have been specifically consented to by Realty in
writing.
6.2 The Member Board. In managing the Company, the Members will act through
the Member Board, or through such Committees as the Member Board may
establish. The Member Board will consist of three Class A Representatives and
two Class B Representatives; provided that if, at any time after October 15,
1998 (i) Investor or its Affiliates no longer collectively own at least 40% of
the Additional Investor Units or (ii) the number of Class B Units held of
record by Investor and its Affiliates in the aggregate at any time is reduced
to less than 10% of the aggregate number of Units then outstanding, then from
and after the date of such reduction, the Member Board will consist of 4 Class
A Representatives and 1 Class B Representative. If there are no Class B Units
outstanding, then the Member Board will consist of 5 Representatives elected
by a majority vote of the Class A Units eligible to vote thereon. Except as
otherwise expressly provided in this Agreement, any act (including any vote or
consent) of the Class A Representatives will be the act of all the holders of
Class A Units and any act (including any vote or consent) of the Class B
Representatives will be the act of all the holders of Class B Units.
6.3 Selection and Terms of Representatives. The Representatives of each
class will be selected in accordance with Paragraph 4.2(c) by the holders of
the applicable class of Units at each annual meeting of those holders. Except
as otherwise provided in this Agreement, each Representative will serve at the
pleasure of the class of Members that the Representative represents. To the
fullest extent permitted by law, each Representative shall be deemed an agent
of the Member which appointed such Person a Representative, and, such
Representative
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shall not be deemed to be an agent or a sub-agent of the Company or the other
Members and shall have no duty (fiduciary or otherwise) to the Company or the
other Members. Each Member, by execution of this Agreement, agrees to,
consents to, and acknowledges the delegation of powers and authority to such
Representatives, and to the actions and decisions of such Representatives
within the scope of such Representatives' authority as provided herein.
6.4 Meetings.
(a) Meetings of the Member Board may be called by any Representative on at
least five days' notice to each other Representative.
(b) One Representative of each class will constitute a quorum at a meeting
of the Member Board.
(c) A Representative participating in a meeting by conference telephone or
similar communications equipment by which all persons present at the meeting
can hear each other will be deemed present at the meeting and all acts taken
by the Representative during his or her participation will be deemed taken at
the meeting.
6.5 Voting.
(a) The Class A Representatives, as a class, will at any time be entitled to
a number of votes equal to the then number of Class A Representatives, and the
Class B Representatives, as a class, will be entitled to a number of votes
equal to the number of Class B Representatives, on all matters. If there is
only one Member of a class, all the votes of the Representatives of that class
will be cast in the same manner. If there is more than one Member of a given
class, the Representatives of that class may decide among themselves whether
to cast all the votes to which they, as a class, are entitled in the same
manner or whether to allocate those votes among Representatives of the class.
The action of at least one Representative in casting the votes of the class of
Members that Representative represents will, unless there is more than one
Member of the class and the other Representatives of that class object at the
time the vote is cast, constitute the vote of the Representatives of that
class, even if the other Representatives of that class are not present when
the votes are cast.
(b) Except as provided in Paragraph 6.5(c), a majority of the votes cast
with respect to a matter at a meeting at which a quorum is present will be the
act of the Member Board.
(c) Notwithstanding anything to the contrary contained in this Agreement,
the affirmative votes of four Representatives will be required for any of the
following actions:
(i) except as otherwise provided in this Agreement, any change in the
number or classes of Units the Company is authorized to issue, any issuance
by the Company of Units of any class, any issuance by the Company of
options, rights or convertible or exchangeable securities which may entitle
the holder to acquire Units of any class, or the Company's entering into
any other type of agreement under which the Company is, or upon the passage
of time, the payment of money or the occurrence of any other event may
become, required to issue Units of any class;
(ii) the acquisition by the Company, whether by merger, consolidation,
purchase of stock or assets (or group of assets) or other business
combination, of any business or assets (or group of assets) having a value
in excess of $10,000,000, and the incurrence of expenditures for capital or
development projects in excess of $10,000,000;
(iii) the sale or disposal of the Santa Anita Racetrack and its adjacent
land, the Company's interest in the Towson, Maryland shopping center or the
Company's interest in the Joppa property (other than a sale of such Towson
and Joppa interests substantially on the terms set forth in the Realty
Disclosure Schedule to the Formation Agreement which occurs prior to June
30, 1997); or the sale or disposal of any assets (or group of assets)
acquired by the Company after the date of this Agreement, whether by
merger,
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consolidation, sale of stock or assets (or group of assets) or other
business combination having a value in excess of $10,000,000 or which
contributed 10% or more of the EBITDA of the Company in the prior four
fiscal quarters;
(iv) the incurrence or issuance of indebtedness, the entering into a
guaranty, or the engagement in any other financing arrangement in excess of
$10,000,000 in the aggregate;
(v) the selection, retention, removal, replacement and compensation of
senior executive officers of the Company;
(vi) approval of the Company's annual operations budget; provided that if
a proposed annual operations budget is not approved prior to the beginning
of the related operating period, the annual operations budget for the then-
current fiscal year plus an increase of % of such budget shall be the
operations budget of the Company for the upcoming fiscal year until such
time as the Member Board approves an operating budget for such period;
(vii) The dissolution of the Company in accordance with Paragraph 12.1;
and
(viii) The institution of any proceedings in Bankruptcy on behalf of the
Company.
6.6 Action by Written Consent. Any action of the Member Board may be taken
without a meeting if written consent to the action is signed by a sufficient
number of Representatives to approve the action.
6.7 Committees. The Member Board may designate from among its members an
Executive Committee and other committees, each consisting of at least the same
proportion of Class A Representatives and Class B Representatives as the
numbers of Class A Representatives bears to the number of Class B
Representatives then serving on the Member Board. The Executive Committee will
have all the authority of the Member Board, except (i) as the Member Board
otherwise provides, and (ii) that the Executive Committee may not take any
action which, under Paragraph 6.5(c), must receive at least the votes of four
Representatives. Other committees will have such authority as the Member Board
grants them. The Member Board will have the right at any time to remove and
replace members of committees, to change the size of committees and to change
the membership of committees (subject to the requirement in the first sentence
of this Paragraph). At any meeting of any committee, the Class A
Representatives on the committee, as a class, and the Class B Representatives
on the committee, as a class, will be entitled to the same number of votes as
the Class A and B Representatives are then entitled to on the Member Board,
unless the Member Board unanimously determines that the Class A
Representatives on the committee or the Class B Representatives on the
committee, as a class, will be entitled to a different number of votes.
6.8 Operation in Accordance with REIT and ERISA Requirements.
(a) The Members acknowledge and agree the Company has the authority to and
shall operate in a manner that will enable Realty to (i) satisfy the REIT
Requirements and (ii) avoid the imposition of any federal income or excise tax
liability on Realty. The Company has the authority to and shall avoid taking
any action which would result in Realty ceasing to satisfy the REIT
Requirements or would result in the imposition of any federal income or excise
tax liability on Realty.
(b) Without the prior consent of the Member Board, no Member or holder of
Units or any Affiliate shall take any action, including acquiring, directly or
indirectly, an interest in any tenant of a Property (including, but not
limited to, Operating or its Affiliates), which would have, through the actual
or constructive ownership of any tenant of any Property, the effect of causing
the percentage of gross income of Realty that fails to be treated as "rents
from real Property" within the meaning of Section 856(d)(2) of the Code to
exceed such percentage on the date hereof. Each Member shall use its best
efforts to notify the Company on a timely basis of any direct or indirect
acquisition or potential direct or indirect acquisition of Paired Shares by
such Member or any Affiliate or direct or indirect owner of an interest in
such Member that could reasonably be expected to have such effect.
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(c) For so long as Investor owns Class B Units, unless otherwise consented
to by Investor and Realty, the Company shall use its best efforts to conduct
its affairs in compliance with the exception for "real estate operating
companies" under the regulations contained in 29 CFR (S) 2510-3.101 or any
successor regulations (the "Plan Assets Regulations"). Without limiting the
generality of the foregoing, if Investor or Realty provides to the Company and
the Member Board an opinion of counsel to the effect that there is a material
likelihood that the Company will cease to be a "real estate operating company"
under the Plan Assets Regulations, then the Company and the Member Board shall
take such actions as may be reasonably requested by Investor or Realty to
cause the Company not to be adversely affected with respect to its status as a
"real estate operating company." The Company will deliver to Investor and
Realty, no later than the last day of each "annual valuation period" (as
defined in the Plan Assets Regulations) of the Company, a certificate
reasonably acceptable to Investor setting forth with reasonable specificity
facts pertinent to the Company's status as a "real estate operating company,"
provided that Realty shall have prior notice of the form of the certificate a
reasonable time prior to its issuance.
ARTICLE 7
Officers
7.1 Required and Permitted Officers. The Company will have a President, a
Secretary and a Treasurer. The Member Board may also elect a Chairman of the
Board, one or more Vice Presidents (one or more of whom may be designated an
Executive Vice President or a Senior Vice President), one or more Assistant
Secretaries or Assistant Treasurers, and such other officers as it may from
time to time deem advisable. The same person may hold two or more offices. No
officer except the Chairman of the Board, if there is one, need be a
Representative.
7.2 Election and Terms of Office. Kelvin L. Davis will serve as the initial
President of the Company. Each successor to Mr. Davis and each other officer
will be elected by the Member Board and will hold office for such term, if
any, as the Member Board determines. Any officer may be removed at any time,
either with or without cause, by the Member Board.
7.3 Duties of Officers.
(a) The Chairman of the Board, if any, will preside at all meetings of the
Member Board and will have any other duties which from time to time may be
prescribed by the Member Board.
(b) The President will be the Chief Executive Officer of the Company, will
report to the Member Board and will see to it that all directives of the
Member Board are carried into effect. The President will preside at any
meeting of the Member Board at which the Chairman of the Board is not present.
(c) The officers, other than the Chairman of the Board and the President,
will have such powers and perform such duties, in each case subject to the
control of the Member Board and the President, as generally pertain to their
respective offices, as if the Company were a business corporation governed by
the General Corporation Law of the State of Delaware, as well as such powers
and duties as from time to time may be prescribed by the Member Board.
(d) Notwithstanding any other provision of this Agreement, each officer will
participate only in the day-to-day operations of the Company's business. No
officer will, in such capacity, determine any management policy or make any
management decision, all of which will be made by the Members, as provided in
Article VI.
7.4 Reliance by Third Parties. Any person or entity dealing with the Company
may rely upon a certificate signed by any officer of the Company as the
persons who are authorized to execute and deliver any instrument or document
of, or on behalf of, the Company and as to any other matter whatsoever
involving the Company.
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ARTICLE 8
Transfer
8.1 Realty. Realty shall not sell, assign, pledge, encumber or otherwise
dispose of all or any portion of its Units without the prior written approval
of a majority in interest of the other Members and the approval of the Member
Board, which approval may be granted or withheld in each party's sole and
absolute discretion. Upon any transfer of a Unit in accordance with the
provisions of this Paragraph 8.1, the transferee of Realty shall become vested
with the powers and rights of Realty, and shall be liable for all obligations
and responsible for all duties of Realty, once such transferee has executed
such instruments as may be necessary to effectuate such admission and to
confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Unit so acquired. It shall be
a condition to any transfer otherwise permitted hereunder that the transferee
assumes by express agreement (or pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of Realty are assumed by
a successor trust or corporation by operation of law) all of the obligations
of Realty under this Agreement with respect to such transferred Unit and no
such transfer (other than pursuant to a statutory merger or consolidation
wherein all obligations and liabilities of Realty are assumed by a successor
trust or corporation by operation of law) shall relieve Realty of its
obligations under this Agreement without the approval of the Member Board.
Notwithstanding any provision to the contrary in this Paragraph 8.1, no
transferee of all or any portion of Realty's Units may be admitted as a Member
until each of the conditions of Paragraph 10.1 has been satisfied.
8.2 Transfers by Members Other Than Realty.
(a) No Unit shall be transferred, in whole or in part, without the prior
written approval of a majority in interest of the other Members and the
approval of the Member Board, which approval may be granted or withheld in
each party's sole and absolute discretion. Notwithstanding the foregoing, the
following transfers are hereby approved in advance, provided that such
transfer otherwise complies with all other requirements of this Article VIII:
(i) transfers of Units to Realty pursuant to the exercise of Rights, (ii)
pledges to secure bona fide indebtedness, (iii) transfers to a Member's
Immediate Family, (iv) transfers to Affiliates and (v) transfers to the
partners of any Member which is a partnership.
(b) It shall be a condition to any transfer (contingent upon foreclosure, in
the case of a pledge, encumbrance, hypothecation or mortgage) that the
transferee assume by operation of law or express agreement all of the
obligations of the transferor under this Agreement (including, without
limitation, under Article VIII hereof) with respect to such transferred Units
and no such transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor are
assumed by a successor corporation by operation of law) shall relieve the
transferor of its obligations under this Agreement without the approval of the
Member Board, in its reasonable discretion (it being understood that a
transferor shall be deemed relieved from such obligations, without the
necessity of any such approval, in respect of Units transferred to Realty or
the Company pursuant to the Exchange Rights Agreement). Upon such transfer,
the transferee of a Unit shall not be admitted as a Member and shall not
succeed to any of the rights and obligations of the transferor Member under
this Agreement until each of the conditions of Paragraph 10.1 has been
satisfied.
(c) In addition to any other restrictions on transfer provided herein, no
Units shall be transferable unless the transferor gives written notice of the
proposed transfer which notice shall state, to the best of its knowledge, that
such transfer will not violate any of the restrictions set forth in Paragraph
8.3 hereof.
(d) The Members acknowledge that the Units have not been registered under
any federal or state securities laws and, as a result thereof, they may not be
sold or otherwise transferred, except in compliance with such laws.
Notwithstanding anything to the contrary contained in this Agreement, no Units
may be sold or otherwise transferred unless such transfer is exempt from
registration under any applicable securities laws or such transfer is
registered under such laws, it being acknowledged that the Company has no
obligation to take any action which would cause any Units to be registered.
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8.3 Certain Restrictions on Transfer. In addition to any other restrictions
on transfer herein contained, except with the approval of the Member Board, in
no event may any transfer of a Unit by any Person be made (a) to any person or
Entity that lacks the legal right, power or capacity to own Units; (b) in the
event such transfer would cause Realty to cease to comply with the REIT
Requirements; (c) if such transfer would, in the opinion of counsel to the
Company, cause the Company to cease to be classified as a partnership for
federal income tax purposes; (e) if such transfer would result in the Company
being treated as a "publicly traded partnership" or is effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code; (f) in
violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (g) if
the Member Board reasonably believes that such transfer may (i) cause any
portion or all of the assets of the Company to be deemed pursuant to United
States Department of Labor Regulation Section 2510.3-101 or otherwise pursuant
to ERISA or the Code to be for any purpose of ERISA or Section 4975 of the
Code assets of any Restricted Entity, or (ii) cause a "prohibited transaction"
(as defined in Section 4975(c) of the Code or within the meaning of Section
406 of ERISA) to occur, or (iii) cause the Company to become with respect to
any Restricted Entity a "party in interest" (as defined in Section 3(14) of
ERISA) or a "disqualified person" (as defined in Section 4975(e) of the Code),
or (iv) cause the Company to be jointly and severally liable for any
obligation arising under ERISA or the Code with respect to any "employee
benefit plan" as defined in and subject to ERISA or any "plan" as defined in
Section 4975 of the Code, or (v) cause any Nonrecourse Liability of the
Company to be reclassified as Members Nonrecourse Debt because the
contemplated transferee (or any person or Entity which is related to such
transferee within the meaning of Section 1.752-4(b) of the Regulations) is a
lender with respect to such Nonrecourse Liability; or (h) if the intended
transferee is a Restricted Entity.
8.4 Effective Dates of Transfers.
(a) Transfers pursuant to this Article VIII may be made on any day, but for
purposes of this Agreement, the effective date of any such transfer shall be
(i) the first day of the month in which such transfer occurred if such
transfer occurred on or prior to the fifteenth calendar day of a month, or
(ii) the first day of the month immediately following the month in which such
transfer occurred, if such transfer occurred after the fifteenth calendar day
of a month, or such other date determined by the Member Board pursuant to such
convention as may be administratively feasible and consistent with applicable
law.
(b) If any Unit is transferred or assigned in compliance with the provisions
of this Article VIII, all distributions pursuant to Paragraph 5.2 hereof
attributable to such transferred Units (A) with respect to which the Company
Record Date is before the effective date of such transfer (other than a
pledge, encumbrance, hypothecation or mortgage) shall be made to the
transferor, and (B) all distributions after those described in (A) shall be
made to the transferee.
8.5 Transfer.
(a) The term "transfer," when used in this Article VIII with respect to a
Unit, shall be deemed to refer to a transaction by which a Person purports to
assign its Units to another Person, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange, merger, disposition of
marital property pursuant to court order, any transfer by death or any other
disposition by law or otherwise.
(b) The Member Board is hereby authorized on behalf of each of the Members
to amend this Agreement (including the schedules hereto) to reflect the
admission of any transferee of a Unit as a substituted Member in accordance
with the provisions of this Article 8 without the vote or approval of any
Member.
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ARTICLE 9
Information
9.1 Right to Information about the Company. Subject to Paragraph 9.2, any
Member will be entitled at any time during normal business hours to have
access to the properties, books and records of the Company and its
subsidiaries for any purpose reasonably related to its interest in the
Company.
9.2 Confidentiality. Each Member will, and will cause its representatives
to, hold all information it receives as a result of its access to the
properties, books and records of the Company or its subsidiaries in
confidence, except to the extent that information (i) is or becomes available
to the public (other than through a breach of this Agreement), (ii) becomes
available to the Member from a third party which, insofar as the Member is
aware, is not under an obligation to the Company or to a subsidiary to keep
the information confidential, (iii) was known to the Member before it was made
available to the Member or its representative by the Company or a subsidiary,
or (iv) otherwise is independently developed by the Member.
9.3 Ownership of Paired Shares.
(a) Each Member hereby agrees to provide the Company within fifteen (15)
days of any written request therefor, a statement, to the best of its
knowledge, describing the number of Paired Shares actually or constructively
owned by such Member and all direct and indirect Owners of such Member for
purposes of the REIT Requirements as determined under Section 318(a) of the
Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the
Code, as modified by Section 856(h) of the Code.
(b) (i) Each Member other than Realty hereby covenants that, without the
prior written consent of the Company (except pursuant to options and other
rights granted with the knowledge and approval of the Company) it will not and
will use all reasonable efforts to cause its direct or indirect owners not to
acquire any Paired Shares or any rights to acquire Paired Shares and (ii) each
Member, except to the extent that the Company provides prior written consent,
hereby represents, warrants and covenants that (I) it is not and will not
become a Restricted Entity, (II) no "prohibited transaction" (as defined in
Section 4975(c) of the Code or within the meaning of Section 406 of ERISA) has
occurred or will occur that would not have occurred or occur if the Member and
its Affiliates were not Members, (III) the Company has not become and will not
become with respect to any Restricted Entity a "party in interest" (as defined
in Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(e) of the Code) which the Company would not have become or be if the
Member and its Affiliates were not Members, and (IV) the Company has not and
will not become jointly and severally liable for any obligations arising under
ERISA or the Code with respect to any "employee benefit plan" as defined in
and subject to ERISA or any "plan" as defined in the Code for which the
Company has not become or would not be liable if the Member and its Affiliate
were not Members.
ARTICLE 10
Members
10.1 Admission to the Company. No person will become a Member unless that
person is shown as an owner of Units on the books of the Company. No person
may resign as a Member of a class while that Member holds Units of that class.
A person which acquires Units from the Company will become a Member when the
person acquires those Units and executes a copy of this Agreement. A person
will cease being a Member when that person disposes of all the Units owned by
the person and the disposition of those Units is registered on the books of
the Company. No person to whom Units are transferred by a Member will become a
Member (i) unless the transfer was made as permitted by Article IX, (ii) until
the transfer is recorded on the books of the Company, and (iii) until the
person to whom the Units are transferred agrees to be bound by all the
provisions of this Agreement which were applicable to such person's transferor
and either executes a copy of this Agreement or
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executes and delivers to the Company a separate document in which the person
agrees to be bound by all those provisions of this Agreement to the same
extent as though the person had executed this Agreement and (iv) unless a
majority in interest of the non-transferring Members and the Member Board have
each approved in writing the admission of the person to whom the Units are
transferred as a substituted Member, which approval may be granted or withheld
in each party's sole and absolute discretion.
10.2 Voting Limited to Members. Notwithstanding anything in Article III, (i)
Units shown on the books of the Company as being owned by a person which is
not a Member may not be voted unless and until the registered owner becomes a
Member as provided in Paragraph 10.1 or the Units are transferred to a Member
or to a person who becomes a Member as provided in Paragraph 10.1 and (ii) in
determining the number of outstanding Units of a class for the purpose of
determining whether matters voted upon by the holders of Units have been
approved, Units shown on the books of the Company as being owned by persons
who are not Members will not be treated as being outstanding.
ARTICLE 11
Participation Rights and Tag-Along Rights
11.1 Participation Rights.
(a) Right to Participate. From and after the date hereof, until such time as
Investor's interest in the Company, Operating JV, Operating and Realty is
reduced to less than 10% of the combined equity interests of the Company,
Operating JV, Operating and Realty, on a fully diluted basis, each Class B
Member shall be entitled to a participation right to purchase or subscribe for
such Class B Member's Pro Rata Share of the total number of any additional
Units to be issued or sold by the Company, in the event that the Company
issues or sells any Units (other than Units issued pursuant to benefit plans
and upon the exercise of Unit options.)
(b) Notice. In the event the Company proposes to issue or sell any Units in
a transaction giving rise to the participation rights provided for in this
Article, the Company shall send a written notice (the "Participation Notice")
to each Class B Member setting forth the number of Units which the Company
proposes to sell or issue, the price (before any commission or discount) at
which such Units are proposed to be issued (or, in the case of an underwritten
or privately placed offering of Units or Realty Shares in which the price is
not known at the time the Participation Notice is given, the method of
determining such price and an estimate thereof), and all other relevant
information as to such proposed transaction as may be necessary for the Class
B Members to determine whether or not to exercise the rights granted in this
Article. At any time within 21 days after its receipt of the Participation
Notice, each Class B Member may exercise its participation rights to purchase
or subscribe for Units, as provided for in this Article, by so informing the
Company in writing (an "Exercise Notice"). Each Exercise Notice shall state
the percentage of the proposed sale or issuance that the Class B Members
elects to purchase. Each Exercise Notice shall be irrevocable, subject to the
conditions to the closing of the transaction giving rise to the participation
right provided for in this Article.
(c) Abandonment of Sale or Issuance. The Company shall have the right, in
its sole discretion, at all times prior to consummation of any proposed sale
or issuance giving rise to the participation right granted by this Article, to
abandon, rescind, annul, withdraw or otherwise terminate such sale or
issuance, whereupon all participation rights in respect of such proposed sale
or issuance pursuant to this Article shall become null and void, and the
Company shall have no liability or obligation to the Class B Members with
respect thereto by virtue of such abandonment, recession, annulment,
withdrawal or termination.
(d) Terms of Sale. The purchase or subscription by a Class B Member pursuant
to this Article shall be on the same price and other terms and conditions,
including the date of sale or issuance, as are applicable to the purchasers or
subscribers of the additional Units, whose purchases or subscriptions give
rise to the participation
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rights, which price and other terms and conditions shall be substantially as
stated in the relevant Participation Notice (which standard shall be satisfied
if the price, in the case of a negotiated transaction, is not greater than
110% of the estimated price set forth in the relevant Participation Notice or,
in the case of an underwritten or privately placed offering, is not greater
than the greater of (i) 110% of the estimated price set forth in the relevant
Participation Notice or (ii) 105% of the most recent closing price on or prior
to the date of the pricing of the offering); provided, however, that (A) the
date of Investor's purchase pursuant to this Section 11.1(d) shall be the
later of (1) 21 days after the date Investor delivers the Exercise Notice or
(2) the date of the sale to the other purchasers of the additional Units and
(B) in the event the consideration to be received by the Company, in
connection with the issuance of Units giving rise to participation rights
hereunder is other than cash or cash equivalents, the price per Unit at which
the participation rights may be exercised shall be the price per Unit set
forth in the Participation Notice or determined in the manner set forth in the
Participation Notice (which shall in either event be the price as set forth in
the agreement pursuant to which such Units are to be issued, provided that the
consideration to be received therefor is valued based upon the fair market
value thereof); provided, further, that in the event the purchases or
subscriptions giving rise to the participation rights are effected by an
offering of securities registered under the 1933 Act and in which offering it
is not legally permissible for the securities to be purchased by a Class B
Member to be included, such securities to be purchased by Investor will be
purchased in a concurrent private placement. At the time of the closing of
each purchase by a Class B Member of Units pursuant to this Section 11.1(d),
such Class B Member will deliver to the Company an officer's certificate
stating that to its knowledge following such purchase such Class B Member will
not own, directly or constructively, more than 9.9% of the Paired Shares.
(e) Timing of Sale. If, with respect to any Participation Notice, a Class B
Member fails to deliver an Exercise Notice within the requisite time period,
the Company shall have 120 days after the expiration of the time in which the
Exercise Notice is required to be delivered in which to sell or issue not more
than the number of Units described in the Participation Notice at a price
equal to not less than 90% of the price set forth in the Participation Notice.
If, at the end of 120 days following the expiration of the time in which the
Exercise Notice is required to be delivered, the Company has not completed the
sale or issuance of Units, as the case may be, in accordance with the terms
described in the Participation Notice (or at a price which is at least 90% of
the estimated price set forth in the Participation Notice), the Company shall
again be obligated to comply with the provisions of this Article with respect
to, and provide the opportunity to participate in, any proposed sale or
issuance of Units.
11.2 Tag-Along Rights. (i) If at any time after the date of this Agreement
Realty proposes to sell or otherwise transfer Units to any person other than
an Affiliate of Realty, then at least 30 days prior to the closing of such
transfer or sale, Realty shall deliver a written notice (the "Co-Sale Notice")
to Investor, offering Investor the option to participate in such proposed
transfer and to sell to the transferee a percentage of the Units then held by
Investor equal to the percentage of the total number of Units then outstanding
which are proposed to be sold or otherwise transferred by Realty to the
prospective transferee. Such Co-Sale Notice shall specify in reasonable detail
the identity of the prospective transferee(s) and the terms and conditions of
the transfer or sale (including, without limitation, the number of Units to be
sold or otherwise transferred by Realty and the per Unit price offered for
such Units).
(ii) Investor may, within 20 days after receipt of a Co-Sale Notice, give
written notice (each, a "Tag-Along Notice") to Realty that Investor wishes
to participate in such proposed transfer, and such notice shall also
specify the number of Units Investor desires to include in such proposed
transfer.
(iii) Subject to Section 8.1, if Investor does not give Realty a timely
Tag-Along Notice with respect to the transfer proposed in the Co-Sale
Notice, Realty may thereafter transfer the Units specified in the Co-Sale
Notice on substantially the same terms and conditions set forth in the Co-
Sale Notice. If Investor gives Realty a timely Tag-Along Notice, then
Realty shall use all reasonable efforts to cause each prospective
transferee to agree to acquire all Units identified in all Co-Sale Notices
that are timely given to Realty, upon the same terms and conditions as
applicable to Realty's Units. If such prospective transferee is unwilling
or
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unable to acquire all of such additional Units upon such terms, then Realty
shall elect either to cancel such proposed transfer or to allocate the
maximum number of Units that each prospective transferee is willing to
purchase among Realty and Investor in proportion to their proportionate
share of such Units.
ARTICLE 12
Termination
12.1 Events of Dissolution. The Company shall be dissolved and its affairs
wound up upon the occurrence of any of the following events ("Dissolution
Events"):
(a) the Members vote for dissolution in accordance with Paragraph
6.5(c)(vii); or
(b) the withdrawal of Realty or Investor as a Member or the Bankruptcy of
any Member, unless within 90 days thereafter, not less than a majority in
interest of the remaining Members (as determined under Revenue Procedure 94-
46, 1994-2 CB 688) elect to continue the Company without dissolution; or
(c) the entry of a decree of judicial dissolution under Section 18-802 of
the Act.
12.2 Liquidation. Upon the occurrence of a Dissolution Event, the Company
shall be liquidated and its affairs shall be wound up. All proceeds from such
liquidation shall be distributed as follows (except as otherwise required by
Section 18-804 of the Act):
(a) First, to the payment (or the making of reasonable provision for payment
thereof) of debts and liabilities of the Company and the expenses of
liquidation, including the establishment of any reserves which the Member
Board deems reasonably necessary with regard to contingent, conditional or
unmatured liabilities or obligations of the Company. That reserve may be paid
to a liquidating trustee to be applied to the payment of those obligations and
liabilities and, to the extent not required for that purpose, to be
distributed to the Members.
(b) Second, in accordance with the positive Capital Account balance of all
Members, as determined after taking into account all capital account
adjustments for the Fiscal Year during which such liquidation occurs. All
distributions required by this Paragraph 12.2(c) shall be made by the end of
such Fiscal Year, or, if later, within 90 days after the date of such
liquidation.
12.3 Final Accounting. In the event of the dissolution of the Company, prior
to any liquidation, a proper accounting shall be made to the Members from the
date of the last previous accounting to the date of dissolution.
12.4 Certificate of Cancellation. Upon the completion of the distribution of
the Company's assets, the Company will be terminated, all Units will be
cancelled, and the Members shall cause an authorized person to execute and
file a Certificate of Cancellation in accordance with Section 18-203 of the
Act.
12.5 No Liability for Return of Capital Contributions. No Member will be
personally liable for the return of the Capital Contribution of any other
Member. The only right of a Member upon dissolution of the Company will be to
receive distributions under this Article XIII.
12.6 Non-Dissolution Events. Except as provided in Section 12.1(b), the
death, retirement, resignation, expulsion, bankruptcy or dissolution of a
Member, or the occurrence of any other event which terminates the continued
membership of a Member in the Company, shall not cause the Company to be
dissolved and its affairs wound up, and upon the occurrence of any such event,
the business of the Company shall be continued without dissolution.
26
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ARTICLE 13
Indemnification
13.1 Indemnity. Subject to the provisions of Paragraph 13.4, the Company
shall, to the fullest extent permitted by law, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, except an action by or in the right of the Company, by
reason of the fact that the person is or was a Member, a Representative, an
employee or an agent of the Company, or is or was serving at the request of
the Company as a director, executive, officer, employee or agent of another
enterprise, against expenses including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good
faith and in a manner which the person reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to a criminal
action or proceeding, had no reasonable cause to believe the person's conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
13.2 Indemnity for Actions By or In the Right of the Company. Subject to the
provisions of Paragraph 13.4, the Company shall, to the fullest extent
permitted by law, indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the rights of the Company to procure a judgment in its favor by reason
of the fact that the person is or was a Member, a Representative, an employee
or an agent of the Company, or is or was serving at the request of the Company
as a director, executive, officer, employee or agent of another enterprise,
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by the person in connection with the defense
or settlement of the actions or suit if the person acted in good faith and in
a manner which the person reasonably believed to be in or not opposed to the
best interests of the Company. Indemnification may not be made for any claim,
issue or matter as to which such person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the Company or for amounts paid in settlement to the Company, unless
and only to the extent that the court in which the action or suit was brought
or other court of competent jurisdiction determines upon application that in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
13.3 Indemnity if Successful. The Company shall indemnify a Member, a
Representative, an employee or an agent of the Company against expenses,
including attorneys' fees, actually and reasonably incurred by the person in
connection with the defense of any action, suit or proceeding referred to in
Paragraphs 13.1 and 13.2 or in defense of any claim, issue or matter therein,
to the extent that such person or entity has been successful on the merits.
13.4 Expenses. Any indemnification under Paragraphs 13.1 and 13.2, as well
as the advance payment of expenses permitted under Paragraph 13.5, unless
ordered by a court or advanced pursuant to Paragraph 13.5 below, must be made
by the Company only as authorized in the specific case upon a determination
that indemnification of the Member, the Representative, the employee or the
agent is proper in the circumstances under this Article XIII. The
determination must be made:
(a) by the vote of the Member Board excluding Representatives who are
parties to the action, suit or proceeding and constituting a quorum;
(b) if a quorum of the Member Board is not obtainable, by independent legal
counsel in a written opinion; or
(c) by the Members who were not parties to the action, suit or proceeding.
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13.5 Advance Payment of Expenses. The expenses of Members, Representatives,
employees or agents incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Company as they are incurred and in advance of
the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Member, Representative, employee or agent
to repay the amount if it is ultimately determined by a court of competent
jurisdiction that the person is not entitled to be indemnified by the Company.
The provisions of this subsection do not affect any rights to advancement of
expenses to which personnel other than Members or Representatives may be
entitled under any contract or otherwise by law.
13.6 Other Arrangements Not Excluded. The indemnification and advancement of
expenses authorized in or ordered by a court pursuant to this Article XIII:
(a) does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any
agreement, vote of Members, Representatives or otherwise, for either an action
in the person's official capacity or an action in another capacity while
holding the person's office, except that indemnification, unless ordered by a
court, may not be made to or on behalf of any Member, Representative, employee
or agent if a final adjudication established that the person's acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action; and
(b) continues for a person who has ceased to be a Member, Representative,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person; and
(c) does not preclude the Member Board from advancing expenses to employees
of the Company in its sole discretion.
13.7 Liability. No Representative, employee or agent of the Company, or any
person who is serving or was serving at the request of the Company as a
director, executive, officer, employee, or agent of another enterprise, shall
have any personal liability to the Company or the Members for monetary damages
for breach of fiduciary duty in such capacity, provided that this Paragraph
13.7 will not eliminate the liability of any such Person (i) for any breach of
such Person's duty of loyalty to the Company or a class of its Members, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or (iii) for any transaction from
which such Person derived an improper personal benefit.
ARTICLE 14
General
14.1 Reimbursement of Realty
(a) Except as provided in this Section 14.1 and elsewhere in this Agreement
(including the provisions of Articles V, XII and XIII hereof regarding
distributions, payments and allocations to which it may be entitled), Realty
shall not receive payments from or be compensated for its services to the
Company.
(b) Realty shall be reimbursed on a monthly basis, or such other basis as
the Member Board and Realty may determine, after consultation with Investor,
for all expenses it incurs relating to the ownership and operation of, or for
the benefit of, the Company, including, without limitation, the Administrative
Expenses. Such reimbursements shall be in addition to any reimbursement to
Realty as a result of indemnification pursuant to Article XIII hereof.
(c) Realty shall also be reimbursed for all expenses it incurs relating to
the organization and formation of the Company, Realty's share of public
offerings of Paired Shares by Realty to the extent included in REIT Expenses,
and any other issuance of additional Units.
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14.2 Outside Activities of Realty. Realty shall not directly or indirectly
enter into or conduct any business other than the ownership, acquisition and
disposition of Units, and such activities as are incidental thereto. All
future acquisitions by Realty shall be made through and for the benefit of the
Company. Realty agrees that the net proceeds of all offerings of securities by
Realty shall be contributed to the Company (in the case of equity offerings)
or loaned to the Company (in the case of debt offerings).
14.3 Waiver of Fiduciary Duty. Each Member hereby waives, to the maximum
extent permitted under law (including Section 18-1101(c) of the Act), any and
all fiduciary duties of Realty to each, all or any combination of them and
hereby agrees that Realty may, but is under no obligation to, take their
interests into account in performing or refraining from performing any act
permitted under this Agreement.
14.4 Payment of Investment Banking Fees; Reimbursement of Investor.
(a) The Company shall pay the fees contemplated to be paid by it and
Operating JV pursuant to Sections 2.14, 3.16 and 4.8 of the Formation
Agreement.
(b) The Company shall reimburse Investor for its reasonable Transaction
Expenses (as such term is defined in the Formation Agreement) under the
circumstances described in Section 11.2(b) of the Formation Agreement.
14.5 Amendments. This Agreement may only be amended by both (i) the vote of
the Member Board which, if applicable, will be the vote required by paragraph
6.5(c), and (ii) the vote of holders of a majority of each class of Units.
14.6 Notices. Any notice or other communication required or permitted to be
given under this Agreement must be in writing and will be deemed given when
delivered in person or sent by facsimile (with proof of receipt at the number
to which it is required to be sent), or on the third business day after the
day on which mailed by certified mail return receipt requested from within the
United States of America, if to the Company, addressed to the principal office
of the Company, and if to a holder of Units, addressed to that holder at the
address shown on the Unit register maintained by the Company.
14.7 Captions. The captions of the articles and paragraphs of this Agreement
are for convenience only and do not affect the meaning or interpretation of
this Agreement.
14.8 Governing Law. This Agreement will be governed by, and construed under,
the laws of the State of Delaware, and all rights and remedies shall be
governed by such laws without regard to principles of conflicts of laws.
14.9 Jurisdiction. Any action or proceeding relating to this Agreement or
any matters arising out of or in connection with this Agreement, and any
action for enforcement of any judgment in respect thereof, shall be brought
exclusively in either (i) the Superior Court of the County of Los Angeles or
of the United States of America for the Central District of California, or
(ii) the courts of the State of Delaware, the courts of the United States of
America for the District of Delaware and appellate courts from any thereof
and, by execution and delivery of this Agreement, each Member each hereby
accepts for itself and in respect of its property, generally and
unconditionally, the exclusive jurisdiction of the aforesaid courts and
appellate courts thereof. To the fullest extent permitted by law, each Member
irrevocably consents to service of process out of any of the aforementioned
courts in any such action or proceeding by notice given in accordance with
Paragraph 14.6. Each Member that is owned by non-United States interests will
designate a corporate agent or law firm located in the City of Los Angeles and
the State of Delaware, as agent for service of process (which, in the case of
any agent which is not the initial agent, must be upon 30-days prior written
notice to [ ]). Each Member hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceeding arising out of or in connection with this Agreement, and
for enforcement of a judgment in respect thereof, in the courts referred to
above and hereby further irrevocably waives and agrees, to the extent
permitted by applicable law, not to plead or claim that such an action or
proceeding brought in any such court has been brought in an inconvenient
forum. Nothing herein shall affect the right of any party hereto to serve
process in any other manner permitted by law.
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14.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Limited Liability Company Agreement as of the day shown on the first page.
Santa Anita Realty Enterprises, Inc.
By___________________________________
Name:
Title:
Colony Investors II, L.P.
By___________________________________
Name:
Title:
By: Colony Capital, L.P.
its general partner
By: ColonyGP II, Inc.
its general partner
By___________________________________
Name:
Title:
30
<PAGE>
EXHIBIT A
TO AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT
SANTA ANITA REALTY LLC
<TABLE>
<CAPTION>
INITIAL CAPITAL NUMBER/CLASS
MEMBER CONTRIBUTION OF UNITS
------ --------------- ------------
<S> <C> <C>
Total
</TABLE>
31
<PAGE>
EXHIBIT B
THE UNITS REFERRED TO IN THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. REFERENCE IS
MADE TO ARTICLE VIII OF THIS AGREEMENT FOR PROVISIONS RELATING TO VARIOUS
RESTRICTIONS ON THE SALE OR OTHER TRANSFER OF THESE INTERESTS.
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
SANTA ANITA OPERATING LLC
1. On , 1996, Santa Anita Operating Company, a Delaware corporation
("Operating"), caused to be formed Santa Anita Operating LLC.
2. Operating and Colony Investors II, L.P. ("Investor"), a Delaware limited
partnership, desire to enter into this Amended and Restated Limited Liability
Company Agreement of Santa Anita Operating LLC dated , 1996, pursuant to
which Investor will become a member of Santa Anita Operating LLC.
ARTICLE 1
Definitions
1.1 For the purposes of this Agreement:
"ACCOUNTANTS" means the national firm or firms of independent certified
public accountants selected by the Member Board to audit the books and records
of the Company and to prepare related statements and reports.
"ACT" means the Delaware Limited Liability Company Act, 6 Del. C. (S) 18-101
et seq., as in effect from time to time, or any successor.
"ADDITIONAL INVESTOR CONTRIBUTION" has the meaning set forth in Paragraph
3.1(a).
"ADDITIONAL INVESTOR UNITS" has the meaning set forth in Paragraph 3.1(a).
"ADJUSTED CAPITAL ACCOUNT DEFICIT" shall mean, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
any relevant fiscal year and after giving effect to the following adjustments:
(a) credit to such Capital Account any amounts which such holder is
obligated or treated as obligated to restore with respect to any deficit
balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of
the Regulations, or is deemed to be obligated to restore with respect to any
deficit balance pursuant to the penultimate sentences of Sections 1.704-
2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(b) debit to such Capital Account the items described in Sections 1.704-
1(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the requirements of the alternate test for economic effect
contained in Section 1.704-1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
<PAGE>
"ADMINISTRATIVE EXPENSES" shall mean: (a) all administrative and operating
costs and expenses of the Company; (b) those administrative costs and expenses
of Operating, including, but not limited to, salaries and other remunerations
paid to directors, officers and employees of Operating and accounting and
legal expenses undertaken by Operating on behalf or for the benefit of the
Company; and (c) all expenses which the Company hereby assumes and agrees to
pay as incurred for the benefit of the Company; including (a) costs and
expenses relating to the formation and continuation of the Company and
continuity of existence of Operating, including taxes (other than Operating's
federal and state income and franchise taxes, if any), fees and assessments
associated therewith, any and all costs, expenses or fees payable to or on
behalf of any director of Operating, (b) to the extent funded by Operating for
payment by the Company, costs and expenses relating to any offer or
registration of securities by Operating the net proceeds of which are to be
contributed or loaned to the Company and all statements, reports, fees and
expenses incidental thereto, including underwriting discounts and selling
commissions applicable to any such offer of securities, (c) costs and expenses
associated with the preparation and filing of any periodic reports by
Operating under federal, state or local laws or regulations, including filings
with the SEC, (d) costs and expenses associated with compliance by Operating
with laws, rules and regulations promulgated by any regulatory body, including
the SEC and (e) all other costs of Operating incurred in the course of its
business on behalf of the Company, including, without limitation, any
financial obligations of Operating under the Formation Agreement or any of the
agreements attached thereto as exhibits.
"AFFILIATE" shall mean, with respect to any Member (or as to any other
Person the Affiliates of whom are relevant for purposes of any of the
provisions of this Agreement): (a) any member of the Immediate Family of such
Member or Person; (b) any trustee or beneficiary of a Member which is a trust;
(c) any trust for the benefit of any Person referred to in the preceding
clauses (a) and (b); or (d) any Entity which directly or indirectly through
one or more intermediaries, Controls, is Controlled by, or is under common
Control with, any Member or Person referred to in the preceding clauses (a)
through (c).
"AGREEMENT" means this Amended and Restated Limited Liability Company
Agreement of the Company, as it may be amended or restated from time to time.
"AUDITED FINANCIAL STATEMENTS" shall mean financial statements (balance
sheet, statement of income, statement of partners equity and statement of cash
flows) prepared in accordance with GAAP and accompanied by an independent
auditor's report containing an opinion thereon.
"BANKRUPTCY" shall mean, with respect to any Person: (a) the commencement by
such Person of any petition, case or proceeding seeking relief under any
provision or chapter of the federal Bankruptcy Code or any other federal or
state law relating to insolvency, bankruptcy or reorganization; (b) an
adjudication that such Person is insolvent or bankrupt; (c) the entry of an
order for relief under the federal Bankruptcy Code with respect to such
Person; (d) the filing of any such petition or the commencement of any such
case or proceeding against such Person, unless such petition and the case or
proceeding initiated thereby are dismissed within ninety (90) days from the
date of such filing; or (e) the filing of an answer by such Person admitting
the allegations of any such petition.
"BUSINESS DAY" shall mean any day that is not a Saturday, Sunday or a day on
which banking institutions in the State of California or New York are
authorized or obligated by law or executive order to close.
"CAPITAL ACCOUNT" shall mean, as to any Member, a book account maintained in
accordance with the following provisions:
(a) to each Member's Capital Account there shall be credited the amount of
cash contributed by the Member, the initial Gross Asset Value of any other
asset contributed by such Member to the capital of the Company (net of
liabilities secured by contributed property that the Company assumes or takes
subject to), such Member's or holder's distributive share of Net Income and
any other items of income or gain allocated to such Member, the amount of any
Company liabilities assumed by the Member or secured by distributed assets
that
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<PAGE>
such Member takes subject to and any other items in the nature of income or
gain that are allocated to such Member pursuant to Paragraph 5.1 hereof; and
(b) to each Member's Capital Account there shall be debited the amount of
cash distributed to the Member, the Gross Asset Value of any Company asset
distributed to such Member pursuant to any provision of this Agreement, such
Member's distributive share of Net Losses and any other items in the nature of
expenses or losses that are allocated to such Member pursuant to Paragraph 5.1
hereof.
In the event that a Unit or portion thereof is transferred within the
meaning of Section 1.704-1(b)(2)(iv)(f) of the Regulations, the transferee
shall succeed to the Capital Account of the transferor to the extent that it
relates to the Unit or portion thereof so transferred. In the event that the
Gross Asset Values of Company assets are adjusted, as contemplated in
paragraph (b) or (c) of the definition of "Gross Asset Value," the Capital
Accounts of the Members shall be adjusted to reflect the aggregate net
adjustments as if the Company sold all of its properties for their fair market
values and recognized gain or loss for federal income tax purposes equal to
the amount of such aggregate net adjustment. This definition of Capital
Accounts is intended to comply with the maintenance of capital account
provisions of Section 1.704-1(b) of the Regulations and shall be interpreted
and applied in a manner consistent therewith.
"CAPITAL CONTRIBUTION" shall mean, with respect to any Member, the amount of
cash and the initial Gross Asset Value of any Contributed Property (net of
liabilities to which such property is subject).
"CLASS A MEMBER" means a Member who holds Class A Units.
"CLASS A REPRESENTATIVE" means a member of the Member Board selected by the
holders of the Class A Units.
"CLASS A UNIT" means a Unit having the special rights and preferences
provided in this Agreement. Initially, there are Class A Units, each of
which is held by Operating.
"CLASS B MEMBER" means a Member who holds Class B Units.
"CLASS B REPRESENTATIVE" means a member of the Member Board selected by the
holders of the Class B Units.
"CLASS B UNIT" means a Unit having the special rights and preferences
provided in this Agreement. Initially, there are Class B Units, each of
which is held by Investor.
"CLASS C UNIT" means a Unit having no voting rights. Initially there are no
Class C Units outstanding.
"CO-SALE NOTICE" shall have the meaning set forth in Paragraph 11.2.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor law.
"COMPANY" means Santa Anita Operating LLC, the Delaware limited liability
company heretofore formed and continued pursuant to this Agreement.
"COMPANY MINIMUM GAIN" shall have the meaning set forth in Section 1.704-
2(b)(2) of the Regulations and the amount of Company Minimum Gain (and any net
increase or decrease thereof) for a fiscal year or other period shall be
determined in accordance with the rules of Section 1.704-2(d) of the
Regulations.
"COMPANY RECORD DATE" means the record date established by the Member Board
for distribution of Net Cash Flow pursuant to Paragraph 5.2, which record date
shall be the same as the record date established by Operating for distribution
to its stockholders of some or all of its portion of such distribution.
3
<PAGE>
"CONTRIBUTED PROPERTY" shall mean any property or other asset listed on
Exhibit A (as such exhibit may be amended from time to time), in such form as
may be permitted by the Act, but excluding cash, contributed or deemed
contributed to the Company with respect to the Units held by each Member.
"CONTROL" shall mean the ability, whether by the direct or indirect
ownership of shares or other equity interests, by contract or otherwise, to
elect a majority of the directors of a corporation, to select the managing
partner of a partnership, to select the managing member of a limited liability
company, to select a majority of the representatives of a member board of a
limited liability company, or otherwise to select, or have the power to remove
and then select, a majority of those persons exercising governing authority
over an entity. In the case of a limited partnership, the sole general
partner, all of the general partners to the extent each has equal management
control and authority, or the managing general partner or managing general
partners thereof shall be deemed to have control of such partnership and, in
the case of a trust, any trustee thereof or any Person having the right to
select any such trustee shall be deemed to have control of such trust.
"DEPRECIATION" shall mean, with respect to any asset of the Company for any
fiscal year or other period, the depreciation or amortization, as the case may
be, allowed or allowable for federal income tax purposes in respect of such
asset for such fiscal year or other period, except that if the Gross Asset
Value of an asset differs from its adjusted tax basis for federal income tax
purposes at the beginning of such fiscal year or other period, Depreciation
shall be an amount that bears the same ratio to such beginning book value as
the federal income tax depreciation, amortization or other cost recovery
deduction for such fiscal year or other period bears to such beginning
adjusted tax basis and if such adjusted tax basis is zero, the Depreciation
shall be based on the method of depreciation, amortization or the cost
recovery deduction utilized in preparing the financial statements of the
Company; provided, however, that if the Company adopts the remedial method
described in Section 1.704-3(d) of the Regulations with respect to any items
of Company property, then Depreciation for such property shall be computed in
the manner set forth in such Section.
"DISSOLUTION EVENTS" has the meaning set forth in Paragraph 12.1.
"EBITDA" shall mean earnings before income taxes, depreciation and
amortization.
"ENTITY" shall mean any general partnership, limited partnership, limited
liability company, corporation, joint venture, trust, business trust, real
estate investment trust or association.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and as interpreted by the applicable regulations
thereunder (or any corresponding provisions of succeeding laws and
regulations).
"EXCHANGE RIGHTS AGREEMENT" shall mean that certain Exchange Rights
Agreement by and among Realty, Operating, the Company, Realty JV and Investor
and dated as of the date hereof and any amendments or modifications thereof.
"FISCAL YEAR" means, until the Board determines otherwise, the one-year
period (or shorter period beginning on the date the Company is formed) ending
on a December 31.
"FORMATION AGREEMENT" shall mean that certain Formation Agreement by and
among Realty, Operating and Investor and dated as of August 17, 1996, and any
amendments, restatements or modifications thereof.
"GAAP" means generally accepted United States accounting principles as in
effect from time to time.
4
<PAGE>
"GROSS ASSET VALUE" shall mean, with respect to any asset of the Company,
such asset's adjusted basis for federal income tax purposes, except as
follows:
(a) the initial Gross Asset Value of any asset contributed by a Member to
the Company shall be the gross fair market value of such asset at the time of
its contribution as reasonably determined by the Member Board;
(b) the Gross Asset Values of all Company assets shall be adjusted to equal
their respective gross fair market values, as reasonably determined by the
Member Board, immediately prior to the following events;
(i) a Capital Contribution (other than a de minimis Capital Contribution)
to the Company by a new or existing Member as consideration for Units;
(ii) the distribution by the Company to a Member of more than a de
minimis amount of Company property as consideration for the redemption of
Units;
(iii) the liquidation of the Company within the meaning of Section 1.704-
1(b)(2)(ii)(g) of the Regulations; and
(iv) any other event as to which the Member Board reasonably determines
that an adjustment is necessary or appropriate in accordance with the
Regulations to reflect the relative economic interests of the Members;
(c) the Gross Asset Values of Company assets distributed to any Member shall
be the gross fair market values of such assets as reasonably determined by the
Member Board as of the date of distribution; and
(d) the Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Sections 734(b) or 743(b) of the Code, but only to the extent that
such adjustments are taken into account in determining Capital Accounts
pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations.
At all times, Gross Asset Values shall be adjusted by any Depreciation taken
into account with respect to the Company's assets for purposes of computing
Net Income and Net Loss. Any adjustment to the Gross Asset Values of Company
property shall require an adjustment to the Capital Accounts.
"IMMEDIATE FAMILY" shall mean, with respect to any Person, such Person's
spouse (then current or former), parents, parents-in-law, descendants,
brothers and sisters (whether by whole or half-blood), first cousins,
brothers-in-law and sisters-in-law (whether by whole or half-blood), ancestors
and lineal descendants.
"INVESTOR" means Colony Investors II, L.P., a Delaware limited partnership.
"IRS" means the Internal Revenue Service.
"MEMBER" means Operating and Investor, and any other person who becomes a
member of the Company as provided in Paragraph 10.1.
"MEMBER BOARD" means the Board of Member Representatives described in
Article VI.
"MEMBER NONRECOURSE DEBT" shall have the meaning set forth in Section 1.704-
2(b)(4) of the Regulations.
"MEMBER NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Section
1.704-2(i)(2) of the Regulations and the amount of Member Nonrecourse
Deductions with respect to a Member Nonrecourse Debt shall be determined in
accordance with the rules of Section 1.704-2(i) of the Regulations.
"MINIMUM GAIN ATTRIBUTABLE TO MEMBER NONRECOURSE DEBT" shall mean partner
nonrecourse debt minimum gain as determined in accordance with Section 1.704-
2(i)(2) of the Regulations.
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"NET INCOME" or "NET LOSS" shall mean, for each Fiscal Year or other
applicable period, an amount equal to the Company's net income or loss for
such year or period as determined for federal income tax purposes by the
Accountants, 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) of the Code shall be included in
taxable income or loss), with the following adjustments: (a) by including as
an item of gross income any tax-exempt income received by the Company; (b) by
treating as a deductible expense any expenditure of the Company described in
Section 705(a)(2)(B) of the Code (including amounts paid or incurred to
organize the Company (unless an election is made pursuant to Section 709(b) of
the Code) or to promote the sale of interests in the Company and by treating
deductions for any losses incurred in connection with the sale or exchange of
Company property disallowed pursuant to Section 267(a)(1) or Section 707(b) of
the Code as expenditures described in Section 705(a)(2)(B) of the Code); (c)
in lieu of depreciation, depletion, amortization and other cost recovery
deductions taken into account in computing total income or loss, there shall
be taken into account Depreciation; (d) gain or loss resulting from any
disposition of Company property with respect to which gain or loss is
recognized for federal income tax purposes shall be computed by reference to
the Gross Asset Value of such property rather than its adjusted tax basis; (e)
in the event of an adjustment of the Gross Asset Value of any Company asset
which requires that the Capital Accounts of the Company be adjusted pursuant
to Sections 1.704-1(b)(2)(iv)(e), (f) and (m) of the Regulations, the amount
of such adjustment is to be taken into account as additional Net Income or Net
Loss pursuant to Paragraph 5.1 hereof; and (f) excluding any items specially
allocated pursuant to Paragraph 5.1(b) hereof.
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in Sections 1.704-
2(b)(1) and (c) of the Regulations and shall be determined in accordance with
Section 1.704-2(c) of the Regulations.
"NONRECOURSE LIABILITIES" shall have the meaning set forth in Section 1.704-
2(b)(3) of the Regulations.
"OFFICER" means the President, any Vice President, the Secretary, and the
Treasurer of the Company, and any other officer of the Company elected as
provided in Article VII.
"OPERATING" means Santa Anita Operating Company, a Delaware corporation.
"OPERATING SHARES" shall mean the shares of common stock, par value $0.10
per share, of Operating.
"PAIRED SHARES" shall mean one Operating Share and one share of common stock
of Realty that are subject to a Pairing Agreement between Realty and Operating
dated December 20, 1979 and one share of Series A Redeemable Preferred Stock
of Operating and one share of Series A Redeemable Preferred Stock of Realty
that are paired pursuant to the Certificates of Designations of such
securities.
"PARTICIPATION NOTICE" has the meaning set forth in Paragraph 11.1.
"PERCENTAGE INTEREST" shall have the meaning set forth in Paragraph 3.2.
"PROPERTY" means any property acquired by or contributed to the Company or
any property owned by an entity in which the Company has an ownership
interest.
"PRO RATA SHARE" means the quotient of the number of Units owned by such
Member, divided by the total number of Units outstanding.
"PURCHASE RIGHTS" shall have the meaning set forth in Paragraph 3.3 hereof.
"REALTY" means Santa Anita Realty Enterprises, Inc., a Delaware corporation.
"REALTY JV" means Santa Anita Realty LLC, a Delaware limited liability
company.
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"REGISTRATION RIGHTS AGREEMENT" shall mean that certain Registration Rights
Agreement by and among Realty, Operating, the Company, Realty JV and Investor,
and dated as of the date hereof, and any amendments or modifications thereof.
"REGULATIONS" shall mean the income tax regulations promulgated under the
Code, as those regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REGULATORY ALLOCATIONS" shall have the meaning set forth in Paragraph
5.1(b)(viii) hereof.
"REIT" shall mean a real estate investment trust as defined in Section 856
of the Code.
"REIT REQUIREMENTS" shall mean the requirements for Realty to: (a) qualify
as a REIT under the Code and Regulations; (b) avoid any federal income or
excise tax liability; (c) retain its status as grandfathered from the
application of Section 269B(a)(3) pursuant to Section 132(c)(3) of the Deficit
Reduction Act of 1984 and (d) retain the benefits of those certain private
letter rulings issued by the IRS to Realty dated as of October 16, 1979 as
supplemented January 11, 1980.
"REPRESENTATIVE" means a Class A Representative or a Class B Representative
or a Representative elected by majority vote of all Units pursuant to
Paragraph 6.2. A Representative shall not be deemed to be a "manager" within
the meaning of the Act.
"RESTRICTED ENTITY" shall mean any "employee benefit plan" as defined in and
subject to ERISA, any "plan" as defined in and subject to Section 4975 of the
Code, or any entity any portion or all of the assets of which are deemed
pursuant to United States Department of Labor Regulation Section 2510.3-101 or
otherwise pursuant to ERISA or the Code to be, for any purpose of ERISA or
Section 4975 of the Code, assets of any such "employee benefit plan" or "plan"
which invests in such entity.
"RIGHTS" shall mean the rights of Members set forth in the Exchange Rights
Agreement or the Registration Rights Agreement. No provision of this Agreement
shall be interpreted as granting any Member any Rights or any rights or
interest in or to the Exchange Rights Agreement or the Registration Rights
Agreement.
"SEC" shall mean the United States Securities and Exchange Commission.
"SECTION 704(C) TAX ITEMS" shall have the meaning set forth in Paragraph
5.1(c)(ii).
"TAG-ALONG NOTICE" shall have the meaning set forth in Paragraph 11.2.
"TAXABLE INCOME" or "TAX LOSS" means for a Fiscal Year, a Fiscal Quarter or
another period, an amount equal to the income or loss of the Company for that
Fiscal Year, Fiscal Quarter or other period, determined in the manner in which
income or loss is determined for Federal income tax purposes, including
Section 703(a) of the Code (for this purpose all items of income, gain, loss
or deduction required under Section 703(a)(1) of the Code to be stated
separately will be included in Taxable Income or Tax Loss).
"TAX ITEMS" shall have the meaning set forth in Paragraph 5.1(c)(i) hereof.
"TAX MATTERS MEMBER" has the meaning set forth in Paragraph 5.6 hereof.
"TAX PAYMENT LOAN" shall have the meaning set forth in Paragraph 5.7(a)
hereof.
"TOTAL REVENUES" means consolidated revenues of the Company and its
subsidiaries for a period calculated in the same manner in which they are
calculated in determining Net Income for that period.
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"UNIT" means a Class A Unit, a Class B Unit, a Class C Unit, or a unit of
any other class which the Company may at any time be authorized by this
Agreement to issue, which represents a limited liability company interest in
the Company.
"WITHHOLDING TAX ACT" shall have the meaning set forth in Paragraph 5.7(a)
hereof.
Other terms which are defined in this Agreement will have the meanings given
to them where they are defined. Accounting terms which are defined under GAAP
will, unless they are specifically defined in another manner in this
Agreement, have the meanings given to them under GAAP from time to time.
ARTICLE 2
Organization
2.1 Name of the Company. The name of the Company is "Santa Anita Operating
LLC".
2.2 Formation.
(a) The Members hereby agree that the rights, duties and liabilities of the
Members shall be as provided in the Act, except as otherwise provided herein.
(b) Upon the execution and delivery of this Agreement or a counterpart of
this Agreement, Investor shall be deemed admitted as a Member of the Company
and Operating shall continue to be a member of the Company.
(c) The name and mailing address of each Member, the agreed value of the
amount contributed to the capital of the Company, the number of Units and the
Percentage Interest of each Member shall be as listed on Exhibit A attached
hereto. The Secretary shall be required to update Exhibit A from time to time
as necessary to accurately reflect the information therein. Any amendment or
revision to Exhibit A made in accordance with this Agreement shall not be
deemed an amendment to this Agreement. Any reference in this Agreement to
Exhibit A shall be deemed to be a reference to the Exhibit A as in effect from
time to time.
(d) , as an authorized person within the meaning of the Act, has
executed, delivered and filed a Certificate of Formation of the Company with
the Secretary of State of the State of Delaware.
(e) The Representatives shall cause the Company to be qualified, formed or
registered in any jurisdiction in which the Company transacts business. The
Secretary, as an authorized person within the meaning of the Act, shall
execute, deliver and file any certificates (and any amendments and/or
restatements thereof) necessary for the Company to qualify to do business in a
jurisdiction in which the Company may wish to conduct business.
2.3 Registered Office and Agent. The registered office of the Company in the
State of Delaware, and its registered agent for service of process in that
State, will be as set forth in the Certificate of Formation of the Company, as
it is initially filed with the Secretary of State of Delaware, and as it may
be amended from time to time.
2.4 Offices. The Company may have offices and places of business at such
locations, whether within or outside of the State of Delaware, as the Member
Board may from time to time determine or the business of the Company may
require.
2.5 Purposes. The purpose of the Company will be to engage in any lawful act
or activity for which limited liability companies may be organized under the
Act. Without limiting what is stated in the preceding sentence, the initial
principal purposes of the Company will include to acquire, hold, own, develop,
re-develop, construct, improve, maintain, operate, manage, sell, lease, rent,
transfer, encumber, mortgage, convey, exchange
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and otherwise dispose of or deal with the Properties and any other real or
personal property of all kinds, to invest in equity investments, mortgages and
other real estate interests and to invest in the securities of other real
estate companies, including for the purpose of exercising control over such
entities.
2.6 Term. The term of the Company will continue until it is dissolved as
provided in Article XII. The existence of the Company as a separate legal
entity shall continue until the cancellation of the Certificate of Formation
of the Company in the manner required by the Act.
2.7 Execution of Initial Agreements. The Company, and the President on
behalf of the Company, may enter into and perform the Exchange Rights
Agreement, the Registration Rights Agreement, the Contribution Agreement dated
concurrently herewith between Operating and the Company and the Services
Agreement dated concurrently herewith among, Realty, Operating, the Company,
Realty JV and Investor without any further act, vote or approval or any Member
or Representative, notwithstanding any other provision of this Agreement, the
Act or other applicable law, rule or regulation. The Company is hereby
authorized to enter into the agreements described in the preceding sentence,
but such authorization shall not be deemed a restriction on the power of the
Company to enter into other agreements.
ARTICLE 3
Capital Contributions; Units
3.1 Capital Contributions: Units.
(a) The initial Members shall make or cause to be made the Capital
Contributions described in Exhibit A hereto on the date of this Agreement and
shall receive initially the number of Class A Units or Class B Units provided
therein. In addition, within 20 Business Days after a call issued from time to
time from the date of this Agreement until October 1, 1998, by delivery of
notice from the Company to Investor, Investor shall make additional cash
Capital Contributions to the Company up to an aggregate amount of $9,971,943
(the "Additional Investor Contribution"), provided that no single additional
capital call on Investor, when combined with any related additional capital
call on Investor made pursuant to Section 3.1 of the amended and restated
limited liability company agreement of Realty JV, shall be for less than $10
million. At such time as the Company has called 95% of the Additional Investor
Contribution, Investor shall have the right to contribute the balance of the
Additional Investor Contribution. Any amount of the Additional Investor
Contribution which has not been called by the Company for contribution prior
to October 1, 1998 will be contributed by Investor to the Company on October
1, 1998. Investor will receive an aggregate of 8,241,275 Class B Units (the
"Additional Investor Units") in exchange for the Additional Investor
Contribution. Additional Investor Units shall be issued to Investor as
Additional Investor Contributions are made at a price of $1.21 per Additional
Investor Unit; provided that, the price per Additional Investor Unit for any
unissued Additional Investor Units will be reduced by an amount, expressed on
a per Unit basis, equal to (x) all distributions, prior to the date such
Additional Investor Units are issued, of the proceeds from sales of capital
assets and (y) any regular quarterly distributions, prior to the date such
Additional Investor Units are issued, in excess of $.20 per Unit, less the per
unit amount of any regular quarterly distribution paid on units of Realty JV.
It is intended that, pursuant to each Additional Investor Contribution, any
adjustments made to the Gross Asset Values of Company assets shall be made in
a manner such that each Member's Capital Account will reflect its Percentage
Interest immediately after such contribution. The Members shall have the
initial Percentage Interests in the Company as set forth in Exhibit B, which
Percentage Interests shall be adjusted to the extent necessary to reflect
properly exchanges, redemptions or conversions of Units, Capital
Contributions, the Additional Investor Contribution, the issuance of
additional Units or any other event having an effect on a Member's Percentage
Interest, in each case to the extent permitted by and in accordance with this
Agreement. Except for the Additional Investor Contribution, the Members shall
have no obligation to make any additional Capital Contributions or loans to
the Company, even if the failure to do so could result in the Bankruptcy or
insolvency of the Company or any other adverse consequence to the Company.
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In the event that Investor fails to contribute to the Company all or any
portion of an Additional Capital Contribution within five days after the date
scheduled for such contribution (a "Contribution Default"), Operating may at
its option, exercisable within five days after the end of such five-day
period, (a) advance to the Company, on a fully recourse basis to the Company,
for the account of Investor the amount of such deficiency or (b) make a
contribution to the Company equal to, and in lieu of, Investor's delinquent
Additional Capital Contribution. If the option referred to in clause (a) is
exercised, the amount advanced by Operating on behalf of Investor shall
hereinafter be referred to as a "Deficiency Advance." The Deficiency Advance
shall be deemed a fully recourse loan by Operating to Investor and, on and
after the date that is six months from the date of the Deficiency Advance,
shall be payable upon Operating's demand. The Deficiency Advance shall be
deemed an Additional Capital Contribution of Investor. Interest at a rate per
annum equal to the lesser of (i) the prime commercial lending rate or base
lending rate published from time to time in the national edition of The Wall
Street Journal plus five (5) percent per annum and (ii) the maximum rate
allowed by law shall be payable on any Deficiency Advance by Investor to
Operating monthly in arrears, commencing on the first day of the calendar
month immediately following the date of the Deficiency Advance.
Notwithstanding any other provision of this Agreement, Operating shall have a
security interest in and shall receive from the Company all Company
distributions which would otherwise by payable to Investor, until all accrued
and unpaid interest on and the principal balance of all Deficiency Advances
made by Operating for the benefit of Investor shall have been paid.
If a Contribution Default occurs and Operating does not make a Deficiency
Advance, the following actions will occur:
(1) The Company may enforce, by court action, Investor's obligation to
make the Additional Capital Contribution which caused the Contribution
Default, including the payment of interest on the unpaid amount at a rate
per annum equal to the lesser of (i) the prime commercial lending rate or
base lending rate published from time to time in the national edition of
The Wall Street Journal plus five (5) percent per annum and (ii) the
maximum rate allowed by law from the date such Additional Capital
Contribution was payable. Investor shall pay all costs of the suit
including, without limitation, reasonable attorneys' fees, and all expenses
incurred in recovering the amounts (including interest) due. This provision
shall not limit the Company's right to recover other losses, damages or
expenses resulting from Investor's failure to make such Additional Capital
Contributions.
(2) Until such time as the Additional Capital Contribution which caused
the Contribution Default (plus interest thereon as provided in clause (1)
above) is paid in full to the Company (i) the provisions of Article VI
shall be applied as if no Class B Units are outstanding, (ii) the Company
shall retain all distributions under Paragraph 5.2 otherwise payable to
Investor and such amounts will be applied first to the payment of interest
on the Additional Capital Contribution which caused the Contribution
Default and then to the Additional Capital Contribution which caused the
Contribution Default, (iii) Investor shall not be entitled to exercise any
of the rights set forth in Article XI, and (iv) Investor shall not be
entitled to exercise any of the Rights.
(3) Operating may, as it option, purchase all the Units held by Investor
at a price per Unit equal to 10% of the closing price of the Paired Shares
on the New York Stock Exchange on the NYSE trading day immediately
preceding the date of such purchase.
(b) The limited liability company interest of a Member (or an assignee of a
Member) in capital, allocations of Net Income, Net Losses and distributions
shall be evidenced by the issuance to such Member (or assignee) of one or more
Units. The Company will be authorized to issue up to Units, of which not
more than Units may be Class A Units, not more than Units may be Class
B Units, and not more than Units may be Class C Units. The aggregate total
of all Units outstanding and the ownership of Units by each Member, as of the
date of this Agreement, are as set forth on Exhibit A hereto.
(c) From time to time, subject to Section 6.5 (c), the Company may issue
additional Units of the class previously issued to existing Members and their
transferees and Class C Units to newly-admitted Members in exchange for
additional Capital Contributions. When Operating contributes to the Company
the net proceeds to
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Operating from any offering or sale of Paired Shares (including, without
limitation, any issuance of Paired Shares pursuant to the exercise of options,
warrants, convertible securities, or similar rights to acquire Paired Shares),
the Company shall issue to Operating Class A Units equal in number to the
number of Paired Shares issued in such Offering. In the event that Operating
receives Class A Units pursuant to this Paragraph, Investor shall have the
right, but not the obligation, to make additional Capital Contributions in
exchange for its Pro Rata Share of Class B Units pursuant to Paragraph 11.1.
(d) Subject to Section 6.5 (c), the Company is hereby authorized to issue to
Operating Units 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 then-existing Units, as shall be determined by the
Company, including (i) the allocation of items of Company income, gain, loss,
deduction and credit to each such class or series of Units and (ii) the rights
of each such class or series of Units to share in Company distributions
(including liquidating distributions); provided, however, that no such
additional Units shall be issued to Operating unless (x) additional Units are
issued in connection with an issuance of shares of Operating, which shares
have designations, preferences and other rights, all such that the economic
interests of such shares are substantially similar to the designations,
preferences and other rights of the additional Units issued to Operating in
accordance with this Paragraph 3.1(d) and (y) Operating contributes to the
Company an amount equal to the net proceeds received by Operating in
connection with the issuance of such shares. Notwithstanding the foregoing,
the Company shall not issue any Class B Units to any Person other than
Investor.
(e) In the event of any change in the outstanding number of Paired Shares by
reason of any share dividend, split, reverse split, recapitalization, merger,
consolidation or combination, the number of Units held by each Member (or
assignee) shall be proportionately adjusted such that, to the extent possible,
one Unit remains the equivalent of one Share without dilution. It is the
intent of the Members that, to the extent possible, the number of Units held
by Operating shall at all times equal the number of issued and outstanding
Paired Shares.
(f) No fractional Units shall remain outstanding. Any fractional Units that,
but for this Paragraph 3.1(f), would otherwise be outstanding shall be
redeemed by the Company for cash equal to the fair market value of such
fractional Unit.
3.2 Percentage Interests. The Percentage Interest of a Member shall be
equal, as of any date, to the percentage obtained by dividing (a) the number
of Units held by such Member (including Units held by assignees of such Member
who have not been admitted as Members) on such date by (b) the total number of
issued and outstanding Units on such date.
3.3 Purchase Rights. If Operating grants, issues or sells any options,
convertible securities or rights to purchase shares, warrants, or other
property pro rata to the record holders of Operating Shares (collectively,
"Purchase Rights"), then the Members shall, to the extent practicable and
consistent with the other provisions of this Agreement, be entitled to acquire
from the Company interests in the Company that are substantially similar in
amount, tone and tenor to the Purchase Rights to which such Members would be
entitled if such Members had converted their Units into Paired Shares
immediately prior to the grant, issue or sale of the Purchase Rights.
3.4 Redemption. If Operating shall redeem any of its outstanding Operating
Shares, the Company shall concurrently therewith redeem an equal number of
Units held by Operating for the same price as paid by Operating for the
redemption of such Operating Shares. Similar redemptions of interests of
Operating in the Company shall occur if any other outstanding securities of
Operating which have counterpart securities of the Company, as contemplated by
Paragraph 3.1(d), are redeemed or otherwise retired. Notwithstanding the
foregoing, Operating shall not redeem any Operating Shares or counterpart
securities without the prior written consent of the Company.
3.5 No Third-Party Beneficiaries. No creditor or other third party shall
have the right to enforce any right or obligation of any Member to make
Capital Contributions or loans or to pursue any other right or remedy
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hereunder or at law or in equity, it being understood and agreed that the
provisions of this Agreement shall be solely for the benefit of, and may be
enforced solely by, the parties hereto and their respective successors and
assigns. None of the rights or obligations of the Members herein set forth to
make Capital Contributions or loans to the Company shall be deemed an asset of
the Company for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Company or
pledged or encumbered by the Company to secure any debt or other obligation of
the Company or of any of the Members.
3.6 No Interest on or Return of Capital Contribution. No Member shall be
entitled to interest on its Capital Contribution or Capital Account. Except as
provided herein or by law, no Member shall have any right to demand or receive
the return of its Capital Contribution.
ARTICLE 4
Meetings; Voting
4.1 Meetings.
(a) An annual meeting of Members of each class will be held on the first
Monday of May in each year, or if that is a legal holiday in the place where
the Company has its principal office, on the next following business day in
that place. If, pursuant to Paragraph 4.2, the Members of two or more classes
vote as a single class with regard to any matters brought before their annual
meetings, the annual meetings in that year of the holders of those classes of
Units will be combined into a single meeting (but with separate voting with
regard to any matters as to which they vote as separate classes).
(b) Special meetings of Members of a class may be called at any time for any
purpose by a majority of the Members of that class, or by the Members holding
a majority of the Units of that class, or by the President or the Secretary of
the Company.
(c) Notice of each meeting of the Members of any class, stating the date,
time and place of the meeting and the matters to be voted upon at it, must be
given not less than ten nor more than sixty days before the date of the
meeting to each Member entitled to vote at the meeting.
4.2 Voting.
(a) Except as otherwise provided in this Agreement, the Members of all
classes will vote together as though the Units were of a single class. At any
meeting of Members, each Member having the right to vote may vote at that
meeting in person or by proxy. Each Member entitled to vote at a meeting will
be entitled to one vote for each Unit of the class regarding which the Member
is entitled to vote at the meeting registered in the Member's name on the
books of the Company. The Members agree that because Investor is obligated to
make the Additional Investor Contribution, Investor will be entitled to vote
the total number of Additional Investor Units from and after the date of this
Agreement.
(b) The presence in person or by proxy of holders of a majority of the Units
of each class entitled to vote at the meeting shall constitute a quorum for
the transaction of business at the meeting.
(c) The selection of Class A Representatives and Class B Representatives
will be determined by plurality vote of the class entitled to vote. Except as
otherwise provided in this Agreement, any other matter will be determined by
the vote of a majority of the Units which are voted with regard to it.
(d) Whenever the vote of Members at a meeting is required or permitted in
connection with any action by the Company, the meeting and vote may be
dispensed with if the action is consented to in writing by Members having at
least the minimum number of votes required to authorize the action at a
meeting at which the holders of all Units entitled to vote are present and
voted.
(e) Class C Units shall have no voting rights.
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4.3 Unit Register. The Company will maintain a Unit register in which it
will record the names, addresses and taxpayer identification numbers of the
owners of Units and the number of Units of each class owned by each of them.
Upon notification that Units have been transferred (or, if Units are
represented by certificates, upon receipt of certificates representing Units
with appropriate documents of assignment attached) and receipt by the Company
of evidence satisfactory to the Company that the transfer was permitted by
Article VIII, the Company will record the transfer in the Unit register. The
Company may for all purposes treat the person shown in the Unit register as
the owner of the Units shown in the Unit register, even if the Company has
notice that the Units have been transferred to another person. Any reference
in this Agreement to information about Units or holders or owners of Units
shown on the books of the Company will refer to information shown in the Unit
register.
4.4 No Authority to Bind. Except as otherwise expressly provided herein, no
Member has the authority to bind the Company.
ARTICLE 5
Allocations, Distributions and Other Tax and Accounting Matters
5.1 Allocations. The Net Income, Net Loss and other Company items shall be
allocated pursuant to the provisions of this Paragraph 5.1.
(a) Allocation of Net Income and Net Loss.
(i) Net Income. Except as otherwise provided herein, Net Income for each
Fiscal Year or other applicable period shall be allocated to the Members in
accordance with their respective Percentage Interests.
(ii) Net Loss. Except as otherwise provided herein, Net Loss of the
Company for each Fiscal Year or other applicable period shall be allocated
to the holders of Units in accordance with their respective Percentage
Interests.
(b) Special Allocations. Notwithstanding any provisions of Paragraph 5.1(a)
hereof, the following special allocations shall be made in the following
order:
(i) Minimum Gain Chargeback. Notwithstanding any other Provision of this
Article V, if there is a net decrease in Company Minimum Gain for any
Fiscal Year (except as a result of conversion or refinancing of Company
indebtedness, certain capital contributions or revaluation of the Company
property as further outlined in Section 1.704-2(f) of the Regulations),
each holder of Units shall be specially allocated items of Company income
and gain for such year (and, if necessary, subsequent years) in an amount
equal to that holder's share of the net decrease in Company Minimum Gain as
determined under Section 1.704-2(g) of the Regulations. The items to be so
allocated shall be determined in accordance with Section 1.704-2(f) of the
Regulations. This clause (i) is intended to comply with the minimum gain
chargeback requirement in said section of the Regulations and shall be
interpreted consistently therewith.
(ii) Minimum Gain Chargeback Attributable to Member Nonrecourse
Debt. Notwithstanding any other provision of this Article V, if there is a
net decrease in Minimum Gain Attributable to Member Nonrecourse Debt during
any Fiscal Year (other than due to the conversion, refinancing or other
change in the debt instrument causing it to become partially or wholly
nonrecourse, certain capital contributions, or certain revaluations of
Company property (as further outlined in Section 1.704-2(i)(4) of the
Regulations), each holder of Units shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent years)
in an amount equal to the holder's share of the net decrease in the Minimum
Gain Attributable to Member Nonrecourse Debt as determined under Section
1.704-2(i) of the Regulations.
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The items to be so allocated shall be determined in accordance with
Sections 1.704-2(i)(4) and (j)(2) of the Regulations. This clause (ii) is
intended to comply with the minimum gain chargeback requirement with
respect to Member Nonrecourse Debt contained in said section of the
Regulations and shall be interpreted consistently therewith.
(iii) Qualified Income Offset. In the event a holder of Units
unexpectedly receives any adjustments, allocations or distributions
described in Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6) of the
Regulations, and such holder has an Adjusted Capital Account Deficit, items
of Company income and gain shall be specially allocated to such holder in
an amount and manner sufficient to eliminate the Adjusted Capital Account
Deficit as quickly as possible, provided that an allocation pursuant to
this Paragraph 5.1(b)(iii) shall be made only if and to the extent that
such holder would have Adjusted Capital Account Deficit after all other
allocations provided for in this Article V have been tentatively made as if
this Paragraph 5.1(b)(iii) were not in the Agreement. This clause (iii) is
intended to constitute a "qualified income offset" under Section 1.704-
1(b)(2)(ii) (d) of the Regulations and shall be interpreted consistently
therewith.
(iv) Gross Income Allocation. In the event any holder of Units has a
deficit Capital Account at the end of a Fiscal Year which is in excess of
the sum of (x) the amount such holder is obligated to restore pursuant to
any provision of this Agreement, and (y) the amount such holder is deemed
to be obligated to restore pursuant to the penultimate sentences of
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations, each such
holder shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Paragraph 5.1(b)(iv) shall be made only if and to the
extent that such holder would have a Capital Account Deficit in excess of
such sum after all other allocations provided for in this Article V have
been made as if Paragraph 5. 1 (b)(iii) hereof and this Paragraph
5.1(b)(iv) were not in the Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year or
other applicable period shall be allocated to the holders of Units in
accordance with their respective Percentage Interests. For purposes of
Section 1.752-3(a)(3) of the Regulations, "excess nonrecourse liabilities"
shall be allocated among the holders of Units in proportion to their
respective Percentage Interests.
(vi) Member Nonrecourse Deductions. Member Nonrecourse Deductions for any
Fiscal Year or other applicable period shall be specially allocated to the
holder of Units that bears the economic risk of loss with respect to the
Member Nonrecourse Debt of which such Member Nonrecourse Deductions are
attributable (as determined by Sections 1.704-2(b) (4) and (i) (1) of the
Regulations).
(vii) Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Section 734(b) or
Section 743(b) of the Code is required, pursuant to Section 1.704-
1(b)(2)(iv)(m)(2) or Section 1.704-1 (b)(2)(iv)(m)(4) of the Regulations,
to be taken into account in determining Capital Accounts, the amount of
such adjustment to Capital Accounts shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to
holders of Units in accordance with their interests in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such sections of the Regulations.
(viii) Curative Allocations. The Regulatory Allocations shall be taken
into account in allocating other items of income, gain, loss, and deduction
among the holders of Units so that, to the extent possible, the cumulative
net amount of allocations of Company items under Paragraphs 5.1(a) and (b)
hereof shall be equal to the net amount that would have been allocated to
each holder of Units if the Regulatory Allocations had not occurred. This
subparagraph (viii) is intended to minimize to the extent possible and to
the extent necessary any economic distortions which may result from
application of the Regulatory Allocations and shall be interpreted in a
manner consistent therewith. For purposes hereof, "Regulatory Allocations"
shall mean the allocations provided under this Paragraph 5.1(b) (other than
this subparagraph).
(ix) Varying Interests. In the event a Member's Percentage Interest
during a Fiscal Year changes, the allocations pursuant to this Article V
shall be made by the Company to take such varying interests into account in
any reasonable manner permitted under the Code and the Regulations.
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(c) Tax Allocations.
(i) Generally. Subject to clauses (ii) and (iii) hereof, items of income,
gain, loss, deduction and credit to be allocated for income tax purposes
(collectively, "Tax Items") shall be allocated among the holders of Units
on the same basis as their respective book items.
(ii) Allocations Respecting Section 704(c) of the Code and
Revaluations. Property contributed to the Company shall be subject to
Section 704(c) of the Code and the Regulations thereunder so that,
notwithstanding paragraph (b) hereof, taxable gain from disposition,
taxable loss from disposition and tax depreciation with respect to Company
property that is subject to Section 704(c) of the Code and/or Section
1.704-1(b)(2)(iv)(f) of the Regulations (collectively "Section 704(c) Tax
Items") shall be allocated on a property by property basis in accordance
with said Code Section and/or the Regulations thereunder, as the case may
be. The allocation of Section 704(c) Tax Items shall be made pursuant to
the traditional method of Section 1.704-3(b) of the Regulations.
Allocations pursuant to this Paragraph 5.1(c)(ii) are solely for purposes
of federal, state, and local taxes and shall not affect, or in any way be
taken into account in computing, the Capital Account or share of Net
Income, Net Loss, other items, or distributions of an holder of Units
pursuant to any provision of this Agreement.
(iii) Tax Credits and Other Items. Tax credits and other items shall be
allocated in accordance with the holdings of Units to the extent permitted
under Section 1.704-1(b)(4)(ii) of the Regulations or other applicable
provision of the Code and Regulations and otherwise in accordance with such
provisions.
5.2 Distributions. The Company shall make such distributions as it may in
its reasonable discretion determine to the holders of Units who are holders on
the Company Record Date with respect to such distribution. All such
distributions shall be made pro rata in accordance with the holders'
respective Percentage Interests. Notwithstanding the provisions of this
Paragraph 5.2 to the contrary, all distributions to be made after the
dissolution of the Company shall be made in accordance with Article XII.
Notwithstanding any provision to the contrary contained in this Agreement, the
Company, and the Representatives on behalf of the Company, shall not be
required to make a distribution to any Member on account of its Units or its
interest in the Company if such distribution would violate Section 18-607 of
the Act or other applicable law.
5.3 Books of Account. At all times the Company shall maintain or cause to be
maintained full, true, complete and correct books of account in accordance
with GAAP, using the calendar year as the fiscal and taxable year of the
Company. In addition, the Company shall keep all records required to be kept
pursuant to the Act.
5.4 Reports. The Company shall send to the Members promptly after receipt of
the same from the Accountants and in no event later than 105 days after the
close of each Fiscal Year of the Company, copies of Audited Financial
Statements for the Company, or of Operating if such statements are prepared
solely on a consolidated basis with Operating, for the immediately preceding
Fiscal Year of the Company. The Company shall also cause to be prepared such
reports and/or information as are necessary for Realty to determine its
qualification as a REIT and its compliance with REIT Requirements.
5.5 Tax Elections and Returns. All elections required or permitted to be
made by the Company under any applicable tax law shall be made by the Company
in its sole and absolute discretion, except that the Company shall, if
requested by a Member, file an election on behalf of the Company pursuant to
Section 754 of the Code to adjust the basis of the Company property in the
case of a transfer of a Unit or distribution from the Company, including
transfers made in connection with the exercise of the Rights, made in
accordance with the provisions of the Agreement. The Company shall consult in
good faith with the Representatives regarding any proposed modifications to
the tax returns of the Company. The Company shall be responsible for preparing
and filing all federal and state tax returns for the Company and furnishing
copies thereof to the Members, together with required Company schedules
showing allocations of tax items, copies of all within the period of time
prescribed by law. The Company shall use reasonable efforts to make available
to the holders of Units final K-1's not later than September 15 of each year.
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5.6 Tax Matters Member. Operating is hereby designated as the Tax Matters
Member within the meaning of Section 6231(a)(7) of the Code (and any
corresponding provisions of state and local law) for the Company; provided,
however, that (a) in exercising its authority as Tax Matters Member, shall be
limited by the provisions of this Agreement affecting tax aspects of the
Company; (b) Operating shall consult in good faith with the Representatives
regarding the filing of an administrative adjustment request with respect to
the Company before filing such request, it being understood, however, that the
provisions hereof shall not be construed to limit the ability of any Member,
including Operating, to file an administrative adjustment request on its own
behalf pursuant to Section 6227(a) of the Code; (c) Operating shall consult in
good faith with the Representatives regarding the filing of a petition for
judicial review of an administrative adjustment request under Section 6228 of
the Code, or a petition for judicial review of a final administrative judgment
under Section 6226 of the Code relating to the Company before filing such
petition; (d) Operating shall give prompt notice to the Representatives and
any notice partners under Section 6231 of the Code of the receipt of any
written notice that the IRS intends to examine or audit Company income tax
returns for any year, receipt of written notice of the beginning of an
administrative proceeding at the Company level relating to the Company under
Section 6223 of the Code, receipt of written notice of the final Company
administrative adjustment relating to the Company pursuant to Section 6223 of
the Code, and receipt of any request from the IRS for waiver of any applicable
statute of limitations with respect to the filing of any tax return by the
Company; and (e) Operating shall promptly notify the Representatives if
Operating does not intend to file for judicial review with respect to the
Company. Similar provisions shall apply in the case of any audit or
examination by a state or local taxing authority.
5.7 Withholding Payments Required By Law.
(a) Unless treated as a Tax Payment Loan (as hereinafter defined), any
amount paid by the Company for or with respect to any holder of Units on
account of any withholding tax or other tax payable with respect to the
income, profits or distributions of the Company pursuant to the Code, the
Regulations, or any state or local statute, regulation, notice, ruling or
ordinance requiring such payment (a "Withholding Tax Act") shall be treated as
a distribution to such holder for all purposes of this Agreement, consistent
with the character or source of the income, profits or cash which gave rise to
the payment or withholding obligation. To the extent that the amount required
to be remitted by the Company under the Withholding Tax Act exceeds the amount
then otherwise distributable to such holder, unless and to the extent that
funds shall have been provided by such holder pursuant to the last sentence of
this Paragraph 5.7(a), the excess shall constitute a loan from the Company to
such holder (a "Tax Payment Loan") which shall be payable upon demand and
shall bear interest, from the date that the Company makes the payment to the
relevant taxing authority, at the prime commercial lending rate or base
lending rate published from time to time in the national edition of The Wall
Street Journal, plus four (4) percent per annum, compounded monthly (but in no
event higher than the highest interest rate permitted by applicable law). So
long as any Tax Payment Loan to any holder of Units or the interest thereon
remains unpaid, the Company shall make future distributions due to such holder
under this Agreement by applying the amount of any such distributions first to
the payment of any unpaid interest on such Tax Payment Loan and then to the
repayment of the principal thereof, and no such distributions shall be paid to
such holder until all of such principal and interest has been paid in full. If
the amount required to be remitted by the Company under the Withholding Tax
Act exceeds the amount then otherwise distributable to a holder of Units, the
Company shall notify such holder at least five (5) Business Days in advance of
the date upon which the Company would be required to make a Tax Payment Loan
under this Paragraph 5.7(a) (the "Tax Payment Loan Date") and provide such
holder the opportunity to pay to the Company, on or before the Tax Payment
Loan Date, all or a portion of such deficit.
(b) The Company will take all actions necessary to comply with the
provisions of any Withholding Tax Act applicable to the Company and to carry
out the provisions of this Paragraph 5.7. Nothing in this Paragraph 5.7 shall
create any obligation on any holder of Units to advance funds to the Company
or to borrow funds from third parties in order to make any payments on account
of any liability of the Company under a Withholding Tax Act.
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(c) In the event that a Tax Payment Loan is not paid by a holder of Units
within thirty (30) days after written demand therefor is made by the Company,
the Company may cause all distributions that would otherwise be made to such
holder to be retained by the Company, or sell such holder's Units for sale
proceeds, in each case up to the amount necessary to repay such Tax Payment
Loan, including all accrued and unpaid interest therein, and such retained
distributions or sale proceeds shall be applied against, first, the accrued
interest on and, second, the principal of, such Tax Payment Loan.
ARTICLE 6
Member Board
6.1 Management by Members. The management of the Company is fully reserved
to the Members, and the Company will not have "managers," as that term is used
in the Act. The powers of the Company will be exercised by or under the
authority of, and the business and affairs of the Company will be managed
under the direction of, the Members, who will make all decisions and take all
actions for the Company, as described in this Article VI. Notwithstanding
anything herein to the contrary, the Company shall not take any action which
(or fail to take any action, the omission of which), in the opinion of counsel
to Operating (i) could adversely affect the ability of Realty to qualify or
continue to qualify as a REIT, (ii) could subject Operating to any additional
taxes under Section 857 or Section 4981 of the Code or other potentially
adverse consequences under the Code, (iii) could otherwise violate the REIT
Requirements or (iv) could violate any law or regulation of any governmental
body or agency having jurisdiction over Operating or its securities, unless
such action (or inaction) shall have been specifically consented to by
Operating in writing.
6.2 The Member Board. In managing the Company, the Members will act through
the Member Board, or through such Committees as the Member Board may
establish. The Member Board will consist of three Class A Representatives and
two Class B Representatives; provided that if, at any time after October 15,
1998 (i) Investor or its Affiliates no longer collectively own at least 40% of
the Additional Investor Units or (ii) the number of Class B Units held of
record by Investor and its Affiliates in the aggregate at any time is reduced
to less than 10% of the aggregate number of Units then outstanding, then from
and after the date of such reduction, the Member Board will consist of 4 Class
A Representatives and 1 Class B Representative. If there are no Class B Units
outstanding, then the Member Board will consist of 5 Representatives elected
by a majority vote of the Class A Units eligible to vote thereon. Except as
otherwise expressly provided in this Agreement, any act (including any vote or
consent) of the Class A Representatives will be the act of all the holders of
Class A Units and any act (including any vote or consent) of the Class B
Representatives will be the act of all the holders of Class B Units.
6.3 Selection and Terms of Representatives. The Representatives of each
class will be selected in accordance with Paragraph 4.2(c) by the holders of
the applicable class of Units at each annual meeting of those holders. Except
as otherwise provided in this Agreement, each Representative will serve at the
pleasure of the class of Members that the Representative represents. To the
fullest extent permitted by law, each Representative shall be deemed an agent
of the Member which appointed such Person a Representative, and, such
Representative shall not be deemed to be an agent or a sub-agent of the
Company or the other Members and shall have no duty (fiduciary or otherwise)
to the Company or the other Members. Each Member, by execution of this
Agreement, agrees to, consents to, and acknowledges the delegation of powers
and authority to such Representatives, and to the actions and decisions of
such Representatives within the scope of such Representatives' authority as
provided herein.
6.4 Meetings.
(a) Meetings of the Member Board may be called by any Representative on at
least five days' notice to each other Representative.
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(b) One Representative of each class will constitute a quorum at a meeting
of the Member Board.
(c) A Representative participating in a meeting by conference telephone or
similar communications equipment by which all persons present at the meeting
can hear each other will be deemed present at the meeting and all acts taken
by the Representative during his or her participation will be deemed taken at
the meeting.
6.5 Voting.
(a) The Class A Representatives, as a class, will at any time be entitled to
a number of votes equal to the then number of Class A Representatives, and the
Class B Representatives, as a class, will be entitled to a number of votes
equal to the number of Class B Representatives, on all matters. If there is
only one Member of a class, all the votes of the Representatives of that class
will be cast in the same manner. If there is more than one Member of a given
class, the Representatives of that class may decide among themselves whether
to cast all the votes to which they, as a class, are entitled in the same
manner or whether to allocate those votes among Representatives of the class.
The action of at least one Representative in casting the votes of the class of
Members that Representative represents will, unless there is more than one
Member of the class and the other Representatives of that class object at the
time the vote is cast, constitute the vote of the Representatives of that
class, even if the other Representatives of that class are not present when
the votes are cast.
(b) Except as provided in Paragraph 6.5(c), a majority of the votes cast
with respect to a matter at a meeting at which a quorum is present will be the
act of the Member Board.
(c) Notwithstanding anything to the contrary contained in this Agreement,
the affirmative votes of four Representatives will be required for any of the
following actions:
(i) except as otherwise provided in this Agreement, any change in the
number or classes of Units the Company is authorized to issue, any issuance
by the Company of Units of any class, any issuance by the Company of
options, rights or convertible or exchangeable securities which may entitle
the holder to acquire Units of any class, or the Company's entering into
any other type of agreement under which the Company is, or upon the passage
of time, the payment of money or the occurrence of any other event may
become, required to issue Units of any class;
(ii) the acquisition by the Company, whether by merger, consolidation,
purchase of stock or assets (or group of assets) or other business
combination, of any business or assets (or group of assets) having a value
in excess of $10,000,000, and the incurrence of expenditures for capital or
development projects in excess of $10,000,000;
(iii) the sale or disposal of the Santa Anita Racetrack and its adjacent
land, the Company's interest, if any, in the Towson, Maryland shopping
center or the Company's interest, if any, in the Joppa property (other than
a sale of such Towson and Joppa interests substantially on the terms set
forth in the Operating Disclosure Schedule to the Formation Agreement which
occurs prior to June 30, 1997), in each case, to the extent the Company has
an interest in any of the aforementioned properties; or the sale or
disposal of any assets (or group of assets) acquired by the Company after
the date of this Agreement, whether by merger, consolidation, sale of stock
or assets (or group of assets) or other business combination having a value
in excess of $10,000,000 or which contributed 10% or more of the EBITDA of
the Company in the prior four fiscal quarters;
(iv) the incurrence or issuance of indebtedness, the entering into a
guaranty, or the engagement in any other financing arrangement in excess of
$10,000,000 in the aggregate;
(v) the selection, retention, removal, replacement and compensation of
senior executive officers of the Company;
(vi) approval of the Company's annual operations budget; provided that if
a proposed annual operations budget is not approved prior to the beginning
of the related operating period, the annual
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operations budget for the then-current fiscal year plus an increase of %
of such budget shall be the operations budget of the Company for the
upcoming fiscal year until such time as the Member Board approves an
operating budget for such period;
(vii) The dissolution of the Company in accordance with Paragraph 12.1;
and
(viii) The institution of any proceedings in Bankruptcy on behalf of the
Company.
6.6 Action by Written Consent. Any action of the Member Board may be taken
without a meeting if written consent to the action is signed by a sufficient
number of Representatives to approve the action.
6.7 Committees. The Member Board may designate from among its members an
Executive Committee and other committees, each consisting of at least the same
proportion of Class A Representatives and Class B Representatives as the
numbers of Class A Representatives bears to the number of Class B
Representatives then serving on the Member Board. The Executive Committee will
have all the authority of the Member Board, except (i) as the Member Board
otherwise provides, and (ii) that the Executive Committee may not take any
action which, under Paragraph 6.5(c), must receive at least the votes of four
Representatives. Other committees will have such authority as the Member Board
grants them. The Member Board will have the right at any time to remove and
replace members of committees, to change the size of committees and to change
the membership of committees (subject to the requirement in the first sentence
of this Paragraph). At any meeting of any committee, the Class A
Representatives on the committee, as a class, and the Class B Representatives
on the committee, as a class, will be entitled to the same number of votes as
the Class A and B Representatives are then entitled to on the Member Board,
unless the Member Board unanimously determines that the Class A
Representatives on the committee or the Class B Representatives on the
committee, as a class, will be entitled to a different number of votes.
6.8 Operation in Accordance with REIT and ERISA Requirements.
(a) The Members acknowledge and agree the Company has the authority to and
shall operate in a manner that will enable Realty to (i) satisfy the REIT
Requirements and (ii) avoid the imposition of any federal income or excise tax
liability on Realty. The Company has the authority to and shall avoid taking
any action which would result in Realty ceasing to satisfy the REIT
Requirements or would result in the imposition of any federal income or excise
tax liability on Realty.
(b) Without the prior consent of the Member Board, no Member or holder of
Units or any Affiliate shall take any action, including acquiring, directly or
indirectly, an interest in any tenant of a Property (including, but not
limited to, Operating or its Affiliates), which would have, through the actual
or constructive ownership of any tenant of any Property, the effect of causing
the percentage of gross income of Realty that fails to be treated as "rents
from real Property" within the meaning of Section 856(d)(2) of the Code to
exceed such percentage on the date hereof. Each Member shall use its best
efforts to notify the Company on a timely basis of any direct or indirect
acquisition or potential direct or indirect acquisition of Paired Shares by
such Member or any Affiliate or direct or indirect owner of an interest in
such Member that could reasonably be expected to have such effect.
(c) For so long as Investor owns Class B Units, unless otherwise consented
to by Investor and Operating, the Company shall use its best efforts to
conduct its affairs in compliance with the exception for "operating companies"
under the first sentence of the regulations contained in 29 CFR (S) 2510-
3.101(c) or any successor regulations (the "Plan Assets Regulations"). Without
limiting the generality of the foregoing, if Investor or Operating provides to
the Company and the Member Board an opinion of counsel to the effect that
there is a material likelihood that the Company will cease to be an "operating
company" under the Plan Assets Regulations, then the Company and the Member
Board shall take such actions as may be reasonably requested by Investor or
Operating (if not consistent with actions requested by Investor) to cause the
Company not to be adversely affected with respect to its status as an
"operating company." The Company will each year deliver to Investor and
Operating a certificate, dated June 30 of such year, reasonably acceptable to
Investor setting forth with reasonable specificity facts pertinent to the
Company's status as an "operating company," provided that Operating shall have
prior notice of the form of the certificate a reasonable time prior to its
issuance.
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ARTICLE 7
Officers
7.1 Required and Permitted Officers. The Company will have a President, a
Secretary and a Treasurer. The Member Board may also elect a Chairman of the
Board, one or more Vice Presidents (one or more of whom may be designated an
Executive Vice President or a Senior Vice President), one or more Assistant
Secretaries or Assistant Treasurers, and such other officers as it may from
time to time deem advisable. The same person may hold two or more offices. No
officer except the Chairman of the Board, if there is one, need be a
Representative.
7.2 Election and Terms of Office. William C. Baker will serve as the initial
President of the Company. Each successor to William C. Baker and each other
officer will be elected by the Member Board and will hold office for such
term, if any, as the Member Board determines. Any officer may be removed at
any time, either with or without cause, by the Member Board.
7.3 Duties of Officers.
(a) The Chairman of the Board, if any, will preside at all meetings of the
Member Board and will have any other duties which from time to time may be
prescribed by the Member Board.
(b) The President will be the Chief Executive Officer of the Company, will
report to the Member Board and will see to it that all directives of the
Member Board are carried into effect. The President will preside at any
meeting of the Member Board at which the Chairman of the Board is not present.
(c) The officers, other than the Chairman of the Board and the President,
will have such powers and perform such duties, in each case subject to the
control of the Member Board and the President, as generally pertain to their
respective offices, as if the Company were a business corporation governed by
the General Corporation Law of the State of Delaware, as well as such powers
and duties as from time to time may be prescribed by the Member Board.
(d) Notwithstanding any other provision of this Agreement, each officer will
participate only in the day-to-day operations of the Company's business. No
officer will, in such capacity, determine any management policy or make any
management decision, all of which will be made by the Members, as provided in
Article VI.
7.4 Reliance by Third Parties. Any person or entity dealing with the Company
may rely upon a certificate signed by any officer of the Company as the
persons who are authorized to execute and deliver any instrument or document
of, or on behalf of, the Company and as to any other matter whatsoever
involving the Company.
ARTICLE 8
Transfer
8.1 Operating. Operating shall not sell, assign, pledge, encumber or
otherwise dispose of all or any portion of its Units without the prior written
approval of a majority in interest of the other Members and the approval of
the Member Board, which approval may be granted or withheld in each party's
sole and absolute discretion. Upon any transfer of a Unit in accordance with
the provisions of this Paragraph 8.1, the transferee of Operating shall become
vested with the powers and rights of Operating, and shall be liable for all
obligations and responsible for all duties of Operating, once such transferee
has executed such instruments as may be necessary to effectuate such admission
and to confirm the agreement of such transferee to be bound by all the terms
and provisions of this Agreement with respect to the Unit so acquired. It
shall be a condition to any transfer
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otherwise permitted hereunder that the transferee assumes by express agreement
(or pursuant to a statutory merger or consolidation wherein all obligations
and liabilities of Operating are assumed by a successor trust or corporation
by operation of law) all of the obligations of Operating under this Agreement
with respect to such transferred Unit and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of Operating are assumed by a successor trust or corporation by
operation of law) shall relieve Operating of its obligations under this
Agreement without the approval of the Member Board. Notwithstanding any
provision to the contrary in this Paragraph 8.1, no transferee of all or any
portion of Operating's Units may be admitted as a Member until each of the
conditions of Paragraph 10.1 has been satisfied.
8.2 Transfers by Members Other Than Operating.
(a) No Unit shall be transferred, in whole or in part, without the prior
written approval of a majority in interest of the other Members and the
approval of the Member Board, which approval may be granted or withheld in
each party's sole and absolute discretion. Notwithstanding the foregoing, the
following transfers are hereby approved in advance, provided that such
transfer otherwise complies with all other requirements of this Article VIII:
(i) transfers of Units to Operating pursuant to the exercise of Rights, (ii)
pledges to secure bona fide indebtedness, (iii) transfers to a Member's
Immediate Family, (iv) transfers to Affiliates and (v) transfers to the
partners of any Member which is a partnership.
(b) It shall be a condition to any transfer (contingent upon foreclosure, in
the case of a pledge, encumbrance, hypothecation or mortgage) that the
transferee assume by operation of law or express agreement all of the
obligations of the transferor under this Agreement (including, without
limitation, under Article VIII hereof) with respect to such transferred Units
and no such transfer (other than pursuant to a statutory merger or
consolidation wherein all obligations and liabilities of the transferor are
assumed by a successor corporation by operation of law) shall relieve the
transferor of its obligations under this Agreement without the approval of the
Member Board, in its reasonable discretion (it being understood that a
transferor shall be deemed relieved from such obligations, without the
necessity of any such approval, in respect of Units transferred to Operating
or the Company pursuant to the Exchange Rights Agreement). Upon such transfer,
the transferee of a Unit shall not be admitted as a Member and shall not
succeed to any of the rights and obligations of the transferor Member under
this Agreement until each of the conditions of Paragraph 10.1 has been
satisfied.
(c) In addition to any other restrictions on transfer provided herein, no
Units shall be transferable unless the transferor gives written notice of the
proposed transfer which notice shall state, to the best of its knowledge, that
such transfer will not violate any of the restrictions set forth in Paragraph
8.3 hereof.
(d) The Members acknowledge that the Units have not been registered under
any federal or state securities laws and, as a result thereof, they may not be
sold or otherwise transferred, except in compliance with such laws.
Notwithstanding anything to the contrary contained in this Agreement, no Units
may be sold or otherwise transferred unless such transfer is exempt from
registration under any applicable securities laws or such transfer is
registered under such laws, it being acknowledged that the Company has no
obligation to take any action which would cause any Units to be registered.
8.3 Certain Restrictions on Transfer. In addition to any other restrictions
on transfer herein contained, except with the approval of the Member Board, in
no event may any transfer of a Unit by any Person be made (a) to any person or
Entity that lacks the legal right, power or capacity to own Units; (b) in the
event such transfer would cause Realty to cease to comply with the REIT
Requirements; (c) if such transfer would, in the opinion of counsel to the
Company, cause the Company to cease to be classified as a partnership for
federal income tax purposes; (e) if such transfer would result in the Company
being treated as a "publicly traded partnership" or is effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code; (f) in
violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (g) if
the Member Board reasonably believes that such transfer may (i) cause any
portion or all of the assets of the Company to be deemed pursuant to United
States Department of Labor
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Regulation Section 2510.3-101 or otherwise pursuant to ERISA or the Code to be
for any purpose of ERISA or Section 4975 of the Code assets of any Restricted
Entity, or (ii) cause a "prohibited transaction" (as defined in Section
4975(c) of the Code or within the meaning of Section 406 of ERISA) to occur,
or (iii) cause the Company to become with respect to any Restricted Entity a
"party in interest" (as defined in Section 3(14) of ERISA) or a "disqualified
person" (as defined in Section 4975(e) of the Code), or (iv) cause the Company
to be jointly and severally liable for any obligation arising under ERISA or
the Code with respect to any "employee benefit plan" as defined in and subject
to ERISA or any "plan" as defined in Section 4975 of the Code, or (v) cause
any Nonrecourse Liability of the Company to be reclassified as Members
Nonrecourse Debt because the contemplated transferee (or any person or Entity
which is related to such transferee within the meaning of Section 1.752-4(b)
of the Regulations) is a lender with respect to such Nonrecourse Liability; or
(h) if the intended transferee is a Restricted Entity.
8.4 Effective Dates of Transfers.
(a) Transfers pursuant to this Article VIII may be made on any day, but for
purposes of this Agreement, the effective date of any such transfer shall be
(i) the first day of the month in which such transfer occurred if such
transfer occurred on or prior to the fifteenth calendar day of a month, or
(ii) the first day of the month immediately following the month in which such
transfer occurred, if such transfer occurred after the fifteenth calendar day
of a month, or such other date determined by the Member Board pursuant to such
convention as may be administratively feasible and consistent with applicable
law.
(b) If any Unit is transferred or assigned in compliance with the provisions
of this Article VIII, all distributions pursuant to Paragraph 5.2 hereof
attributable to such transferred Units (A) with respect to which the Company
Record Date is before the effective date of such transfer (other than a
pledge, encumbrance, hypothecation or mortgage) shall be made to the
transferor, and (B) all distributions after those described in (A) shall be
made to the transferee.
8.5 Transfer.
(a) The term "transfer," when used in this Article VIII with respect to a
Unit, shall be deemed to refer to a transaction by which a Person purports to
assign its Units to another Person, and includes a sale, assignment, gift,
pledge, encumbrance, hypothecation, mortgage, exchange, merger, disposition of
marital property pursuant to court order, any transfer by death or any other
disposition by law or otherwise.
(b) The Member Board is hereby authorized on behalf of each of the Members
to amend this Agreement (including the schedules hereto) to reflect the
admission of any transferee of a Unit as a substituted Member in accordance
with the provisions of this Article 8 without the vote or approval of any
Member.
ARTICLE 9
Information
9.1 Right to Information about the Company. Subject to Paragraph 9.2, any
Member will be entitled at any time during normal business hours to have
access to the properties, books and records of the Company and its
subsidiaries for any purpose reasonably related to its interest in the
Company.
9.2 Confidentiality. Each Member will, and will cause its representatives
to, hold all information it receives as a result of its access to the
properties, books and records of the Company or its subsidiaries in
confidence, except to the extent that information (i) is or becomes available
to the public (other than through a breach of this Agreement), (ii) becomes
available to the Member from a third party which, insofar as the Member is
aware, is not under an obligation to the Company or to a subsidiary to keep
the information confidential, (iii) was known to the Member before it was made
available to the Member or its representative by the Company or a subsidiary,
or (iv) otherwise is independently developed by the Member.
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9.3 Ownership of Paired Shares.
(a) Each Member hereby agrees to provide the Company within fifteen (15)
days of any written request therefor, a statement, to the best of its
knowledge, describing the number of Paired Shares actually or constructively
owned by such Member and all direct and indirect Owners of such Member for
purposes of the REIT Requirements as determined under Section 318(a) of the
Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the
Code, as modified by Section 856(h) of the Code.
(b) (i) Each Member other than Operating hereby covenants that, without the
prior written consent of the Company (except pursuant to options and other
rights granted with the knowledge and approval of the Company) it will not and
will use all reasonable efforts to cause its direct or indirect owners not to
acquire any Paired Shares or any rights to acquire Paired Shares and (ii) each
Member, except to the extent that the Company provides prior written consent,
hereby represents, warrants and covenants that (I) it is not and will not
become a Restricted Entity, (II) no "prohibited transaction" (as defined in
Section 4975(c) of the Code or within the meaning of Section 406 of ERISA) has
occurred or will occur that would not have occurred or occur if the Member and
its Affiliates were not Members, (III) the Company has not become and will not
become with respect to any Restricted Entity a "party in interest" (as defined
in Section 3(14) of ERISA) or a "disqualified person" (as defined in Section
4975(e) of the Code) which the Company would not have become or be if the
Member and its Affiliates were not Members, and (IV) the Company has not and
will not become jointly and severally liable for any obligations arising under
ERISA or the Code with respect to any "employee benefit plan" as defined in
and subject to ERISA or any "plan" as defined in the Code for which the
Company has not become or would not be liable if the Member and its Affiliate
were not Members.
ARTICLE 10
Members
10.1 Admission to the Company. No person will become a Member unless that
person is shown as an owner of Units on the books of the Company. No person
may resign as a Member of a class while that Member holds Units of that class.
A person which acquires Units from the Company will become a Member when the
person acquires those Units and executes a copy of this Agreement. A person
will cease being a Member when that person disposes of all the Units owned by
the person and the disposition of those Units is registered on the books of
the Company. No person to whom Units are transferred by a Member will become a
Member (i) unless the transfer was made as permitted by Article IX, (ii) until
the transfer is recorded on the books of the Company, and (iii) until the
person to whom the Units are transferred agrees to be bound by all the
provisions of this Agreement which were applicable to such person's transferor
and either executes a copy of this Agreement or executes and delivers to the
Company a separate document in which the person agrees to be bound by all
those provisions of this Agreement to the same extent as though the person had
executed this Agreement and (iv) unless a majority in interest of the non-
transferring Members and the Member Board have each approved in writing the
admission of the person to whom the Units are transferred as a substituted
Member, which approval may be granted or withheld in each party's sole and
absolute discretion.
10.2 Voting Limited to Members. Notwithstanding anything in Article III, (i)
Units shown on the books of the Company as being owned by a person which is
not a Member may not be voted unless and until the registered owner becomes a
Member as provided in Paragraph 10.1 or the Units are transferred to a Member
or to a person who becomes a Member as provided in Paragraph 10.1 and (ii) in
determining the number of outstanding Units of a class for the purpose of
determining whether matters voted upon by the holders of Units have been
approved, Units shown on the books of the Company as being owned by persons
who are not Members will not be treated as being outstanding.
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ARTICLE 11
Participation Rights and Tag-Along Rights
11.1 Participation Rights.
(a) Right to Participate. From and after the date hereof, until such time as
Investor's interest in the Company, Realty JV, Operating and Realty is reduced
to less than 10% of the combined equity interests of the Company, Realty JV,
Operating and Realty, on a fully diluted basis, each Class B Member shall be
entitled to a participation right to purchase or subscribe for such Class B
Member's Pro Rata Share of the total number of any additional Units to be
issued or sold by the Company, in the event that the Company issues or sells
any Units (other than Units issued pursuant to benefit plans and upon the
exercise of Unit options.)
(b) Notice. In the event the Company proposes to issue or sell any Units in
a transaction giving rise to the participation rights provided for in this
Article, the Company shall send a written notice (the "Participation Notice")
to each Class B Member setting forth the number of Units which the Company
proposes to sell or issue, the price (before any commission or discount) at
which such Units are proposed to be issued (or, in the case of an underwritten
or privately placed offering of Units or Operating Shares in which the price
is not known at the time the Participation Notice is given, the method of
determining such price and an estimate thereof), and all other relevant
information as to such proposed transaction as may be necessary for the Class
B Members to determine whether or not to exercise the rights granted in this
Article. At any time within 21 days after its receipt of the Participation
Notice, each Class B Member may exercise its participation rights to purchase
or subscribe for Units, as provided for in this Article, by so informing the
Company in writing (an "Exercise Notice"). Each Exercise Notice shall state
the percentage of the proposed sale or issuance that the Class B Members
elects to purchase. Each Exercise Notice shall be irrevocable, subject to the
conditions to the closing of the transaction giving rise to the participation
right provided for in this Article.
(c) Abandonment of Sale or Issuance. The Company shall have the right, in
its sole discretion, at all times prior to consummation of any proposed sale
or issuance giving rise to the participation right granted by this Article, to
abandon, rescind, annul, withdraw or otherwise terminate such sale or
issuance, whereupon all participation rights in respect of such proposed sale
or issuance pursuant to this Article shall become null and void, and the
Company shall have no liability or obligation to the Class B Members with
respect thereto by virtue of such abandonment, recession, annulment,
withdrawal or termination.
(d) Terms of Sale. The purchase or subscription by a Class B Member pursuant
to this Article shall be on the same price and other terms and conditions,
including the date of sale or issuance, as are applicable to the purchasers or
subscribers of the additional Units, whose purchases or subscriptions give
rise to the participation rights, which price and other terms and conditions
shall be substantially as stated in the relevant Participation Notice (which
standard shall be satisfied if the price, in the case of a negotiated
transaction, is not greater than 110% of the estimated price set forth in the
relevant Participation Notice or, in the case of an underwritten or privately
placed offering, is not greater than the greater of (i) 110% of the estimated
price set forth in the relevant Participation Notice or (ii) 105% of the most
recent closing price on or prior to the date of the pricing of the offering);
provided, however, that (A) the date of Investor's purchase pursuant to this
Section 11.1(d) shall be the later of (1) 21 days after the date Investor
delivers the Exercise Notice or (2) the date of the sale to the other
purchasers of the additional Units and (B) in the event the consideration to
be received by the Company, in connection with the issuance of Units giving
rise to participation rights hereunder is other than cash or cash equivalents,
the price per Unit at which the participation rights may be exercised shall be
the price per Unit set forth in the Participation Notice or determined in the
manner set forth in the Participation Notice (which shall in either event be
the price as set forth in the agreement pursuant to which such Units are to be
issued, provided that the consideration to be received therefor is valued
based upon the fair market value thereof); provided, further, that in the
event the purchases or subscriptions giving rise to the participation rights
are effected by an offering of securities registered under the 1933 Act and in
which offering it is not legally permissible for the
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securities to be purchased by a Class B Member to be included, such securities
to be purchased by Investor will be purchased in a concurrent private
placement. At the time of the closing of each purchase by a Class B Member of
Units pursuant to this Section 11.1(d), such Class B Member will deliver to
the Company an officer's certificate stating that to its knowledge following
such purchase such Class B Member will not own, directly or constructively,
more than 9.9% of the Paired Shares.
(e) Timing of Sale. If, with respect to any Participation Notice, a Class B
Member fails to deliver an Exercise Notice within the requisite time period,
the Company shall have 120 days after the expiration of the time in which the
Exercise Notice is required to be delivered in which to sell or issue not more
than the number of Units described in the Participation Notice at a price
equal to not less than 90% of the price set forth in the Participation Notice.
If, at the end of 120 days following the expiration of the time in which the
Exercise Notice is required to be delivered, the Company has not completed the
sale or issuance of Units, as the case may be, in accordance with the terms
described in the Participation Notice (or at a price which is at least 90% of
the estimated price set forth in the Participation Notice), the Company shall
again be obligated to comply with the provisions of this Article with respect
to, and provide the opportunity to participate in, any proposed sale or
issuance of Units.
11.2 Tag-Along Rights. (i) If at any time after the date of this Agreement
Operating proposes to sell or otherwise transfer Units to any person other
than an Affiliate of Operating, then at least 30 days prior to the closing of
such transfer or sale, Operating shall deliver a written notice (the "Co-Sale
Notice") to Investor, offering Investor the option to participate in such
proposed transfer and to sell to the transferee a percentage of the Units then
held by Investor equal to the percentage of the total number of Units then
outstanding which are proposed to be sold or otherwise transferred by
Operating to the prospective transferee. Such Co-Sale Notice shall specify in
reasonable detail the identity of the prospective transferee(s) and the terms
and conditions of the transfer or sale (including, without limitation, the
number of Units to be sold or otherwise transferred by Operating and the per
Unit price offered for such Units).
(ii) Investor may, within 20 days after receipt of a Co-Sale Notice, give
written notice (each, a "Tag-Along Notice") to Operating that Investor
wishes to participate in such proposed transfer, and such notice shall also
specify the number of Units Investor desires to include in such proposed
transfer.
(iii) Subject to Section 8.1, if Investor does not give Operating a
timely Tag-Along Notice with respect to the transfer proposed in the Co-
Sale Notice, Operating may thereafter transfer the Units specified in the
Co-Sale Notice on substantially the same terms and conditions set forth in
the Co-Sale Notice. If Investor gives Operating a timely Tag-Along Notice,
then Operating shall use all reasonable efforts to cause each prospective
transferee to agree to acquire all Units identified in all Co-Sale Notices
that are timely given to Operating, upon the same terms and conditions as
applicable to Operating's Units. If such prospective transferee is
unwilling or unable to acquire all of such additional Units upon such
terms, then Operating shall elect either to cancel such proposed transfer
or to allocate the maximum number of Units that each prospective transferee
is willing to purchase among Operating and Investor in proportion to their
proportionate share of such Units.
ARTICLE 12
Termination
12.1 Events of Dissolution. The Company shall be dissolved and its affairs
wound up upon the occurrence of any of the following events ("Dissolution
Events"):
(a) the Members vote for dissolution in accordance with Paragraph
6.5(c)(vii); or
(b) the withdrawal of Operating or Investor as a Member or the Bankruptcy of
any Member, unless within 90 days thereafter, not less than a majority in
interest of the remaining Members (as determined under Revenue Procedure 94-
46, 1994-2 CB 688) elect to continue the Company without dissolution; or
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(c) the entry of a decree of judicial dissolution under Section 18-802 of
the Act.
12.2 Liquidation. Upon the occurrence of a Dissolution Event, the Company
shall be liquidated and its affairs shall be wound up. All proceeds from such
liquidation shall be distributed as follows (except as otherwise required by
Section 18-804 of the Act):
(a) First, to the payment (or the making of reasonable provision for payment
thereof) of debts and liabilities of the Company and the expenses of
liquidation, including the establishment of any reserves which the Member
Board deems reasonably necessary with regard to contingent, conditional or
unmatured liabilities or obligations of the Company. That reserve may be paid
to a liquidating trustee to be applied to the payment of those obligations and
liabilities and, to the extent not required for that purpose, to be
distributed to the Members.
(b) Second, in accordance with the positive Capital Account balance of all
Members, as determined after taking into account all capital account
adjustments for the Fiscal Year during which such liquidation occurs. All
distributions required by this Paragraph 12.2(c) shall be made by the end of
such Fiscal Year, or, if later, within 90 days after the date of such
liquidation.
12.3 Final Accounting. In the event of the dissolution of the Company, prior
to any liquidation, a proper accounting shall be made to the Members from the
date of the last previous accounting to the date of dissolution.
12.4 Certificate of Cancellation. Upon the completion of the distribution of
the Company's assets, the Company will be terminated, all Units will be
cancelled, and the Members shall cause an authorized person to execute and
file a Certificate of Cancellation in accordance with Section 18-203 of the
Act.
12.5 No Liability for Return of Capital Contributions. No Member will be
personally liable for the return of the Capital Contribution of any other
Member. The only right of a Member upon dissolution of the Company will be to
receive distributions under this Article XIII.
12.6 Non-Dissolution Events. Except as provided in Section 12.1(b), the
death, retirement, resignation, expulsion, bankruptcy or dissolution of a
Member, or the occurrence of any other event which terminates the continued
membership of a Member in the Company, shall not cause the Company to be
dissolved and its affairs wound up, and upon the occurrence of any such event,
the business of the Company shall be continued without dissolution.
ARTICLE 13
Indemnification
13.1 Indemnity. Subject to the provisions of Paragraph 13.4, the Company
shall, to the fullest extent permitted by law, indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, except an action by or in the right of the Company, by
reason of the fact that the person is or was a Member, a Representative, an
employee or an agent of the Company, or is or was serving at the request of
the Company as a director, executive, officer, employee or agent of another
enterprise, against expenses including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by the person in
connection with the action, suit or proceeding if the person acted in good
faith and in a manner which the person reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to a criminal
action or proceeding, had no reasonable cause to believe the person's conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
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13.2 Indemnity for Actions By or In the Right of the Company. Subject to the
provisions of Paragraph 13.4, the Company shall, to the fullest extent
permitted by law, indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the rights of the Company to procure a judgment in its favor by reason
of the fact that the person is or was a Member, a Representative, an employee
or an agent of the Company, or is or was serving at the request of the Company
as a director, executive, officer, employee or agent of another enterprise,
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by the person in connection with the defense
or settlement of the actions or suit if the person acted in good faith and in
a manner which the person reasonably believed to be in or not opposed to the
best interests of the Company. Indemnification may not be made for any claim,
issue or matter as to which such person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the Company or for amounts paid in settlement to the Company, unless
and only to the extent that the court in which the action or suit was brought
or other court of competent jurisdiction determines upon application that in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
13.3 Indemnity if Successful. The Company shall indemnify a Member, a
Representative, an employee or an agent of the Company against expenses,
including attorneys' fees, actually and reasonably incurred by the person in
connection with the defense of any action, suit or proceeding referred to in
Paragraphs 13.1 and 13.2 or in defense of any claim, issue or matter therein,
to the extent that such person or entity has been successful on the merits.
13.4 Expenses. Any indemnification under Paragraphs 13.1 and 13.2, as well
as the advance payment of expenses permitted under Paragraph 13.5, unless
ordered by a court or advanced pursuant to Paragraph 13.5 below, must be made
by the Company only as authorized in the specific case upon a determination
that indemnification of the Member, the Representative, the employee or the
agent is proper in the circumstances under this Article XIII. The
determination must be made:
(a) by the vote of the Member Board excluding Representatives who are
parties to the action, suit or proceeding and constituting a quorum;
(b) if a quorum of the Member Board is not obtainable, by independent legal
counsel in a written opinion; or
(c) by the Members who were not parties to the action, suit or proceeding.
13.5 Advance Payment of Expenses. The expenses of Members, Representatives,
employees or agents incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Company as they are incurred and in advance of
the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the Member, Representative, employee or agent
to repay the amount if it is ultimately determined by a court of competent
jurisdiction that the person is not entitled to be indemnified by the Company.
The provisions of this subsection do not affect any rights to advancement of
expenses to which personnel other than Members or Representatives may be
entitled under any contract or otherwise by law.
13.6 Other Arrangements Not Excluded. The indemnification and advancement of
expenses authorized in or ordered by a court pursuant to this Article XIII:
(a) does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under any
agreement, vote of Members, Representatives or otherwise, for either an action
in the person's official capacity or an action in another capacity while
holding the person's office, except that indemnification, unless ordered by a
court, may not be made to or on behalf of any Member, Representative, employee
or agent if a final adjudication established that the person's acts or
omissions involved intentional misconduct, fraud or a knowing violation of the
law and was material to the cause of action; and
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(b) continues for a person who has ceased to be a Member, Representative,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person; and
(c) does not preclude the Member Board from advancing expenses to employees
of the Company in its sole discretion.
13.7 Liability. No Representative, employee or agent of the Company, or any
person who is serving or was serving at the request of the Company as a
director, executive, officer, employee, or agent of another enterprise, shall
have any personal liability to the Company or the Members for monetary damages
for breach of fiduciary duty in such capacity, provided that this Paragraph
13.7 will not eliminate the liability of any such Person (i) for any breach of
such Person's duty of loyalty to the Company or a class of its Members, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, or (iii) for any transaction from
which such Person derived an improper personal benefit.
ARTICLE 14
General
14.1 Reimbursement of Operating
(a) Except as provided in this Section 14.1 and elsewhere in this Agreement
(including the provisions of Articles V, XII and XIII hereof regarding
distributions, payments and allocations to which it may be entitled),
Operating shall not receive payments from or be compensated for its services
to the Company.
(b) Operating shall be reimbursed on a monthly basis, or such other basis as
the Member Board and Operating may determine, after consultation with
Investor, for all expenses it incurs relating to the ownership and operation
of, or for the benefit of, the Company, including, without limitation, the
Administrative Expenses. Such reimbursements shall be in addition to any
reimbursement to Operating as a result of indemnification pursuant to Article
XIII hereof.
(c) Operating shall also be reimbursed for all expenses it incurs relating
to the organization and formation of the Company, Operating's share of public
offerings of Paired Shares by Operating to the extent included in
Administrative Expenses, and any other issuance of additional Units.
14.2 Outside Activities of Operating. Operating shall not directly or
indirectly enter into or conduct any business other than the ownership,
acquisition and disposition of Units, and such activities as are incidental
thereto. All future acquisitions by Operating shall be made through and for
the benefit of the Company. Operating agrees that the net proceeds of all
offerings of securities by Operating shall be contributed to the Company (in
the case of equity offerings) or loaned to the Company (in the case of debt
offerings).
14.3 Waiver of Fiduciary Duty. Each Member hereby waives, to the maximum
extent permitted under law (including Section 18-1101(c) of the Act), any and
all fiduciary duties of Operating to each, all or any combination of them and
hereby agrees that Operating may, but is under no obligation to, take their
interests into account in performing or refraining from performing any act
permitted under this Agreement.
14.4 Payment of Investment Banking Fees; Reimbursement of Investor.
(a) The Company shall pay the fees contemplated to be paid by it and Realty
JV pursuant to Sections 2.14, 3.16 and 4.8 of the Formation Agreement.
(b) The Company shall reimburse Investor for its reasonable Transaction
Expenses (as such term is defined in the Formation Agreement) under the
circumstances described in Section 11.2(b) of the Formation Agreement.
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14.5 Amendments. This Agreement may only be amended by both (i) the vote of
the Member Board which, if applicable, will be the vote required by paragraph
6.5(c), and (ii) the vote of holders of a majority of each class of Units.
14.6 Notices. Any notice or other communication required or permitted to be
given under this Agreement must be in writing and will be deemed given when
delivered in person or sent by facsimile (with proof of receipt at the number
to which it is required to be sent), or on the third business day after the
day on which mailed by certified mail return receipt requested from within the
United States of America, if to the Company, addressed to the principal office
of the Company, and if to a holder of Units, addressed to that holder at the
address shown on the Unit register maintained by the Company.
14.7 Captions. The captions of the articles and paragraphs of this Agreement
are for convenience only and do not affect the meaning or interpretation of
this Agreement.
14.8 Governing Law. This Agreement will be governed by, and construed under,
the laws of the State of Delaware, and all rights and remedies shall be
governed by such laws without regard to principles of conflicts of laws.
14.9 Jurisdiction. Any action or proceeding relating to this Agreement or
any matters arising out of or in connection with this Agreement, and any
action for enforcement of any judgment in respect thereof, shall be brought
exclusively in either (i) the Superior Court of the County of Los Angeles or
of the United States of America for the Central District of California, or
(ii) the courts of the State of Delaware, the courts of the United States of
America for the District of Delaware and appellate courts from any thereof
and, by execution and delivery of this Agreement, each Member each hereby
accepts for itself and in respect of its property, generally and
unconditionally, the exclusive jurisdiction of the aforesaid courts and
appellate courts thereof. To the fullest extent permitted by law, each Member
irrevocably consents to service of process out of any of the aforementioned
courts in any such action or proceeding by notice given in accordance with
Paragraph 14.6. Each Member that is owned by non-United States interests will
designate a corporate agent or law firm located in the City of Los Angeles and
the State of Delaware, as agent for service of process (which, in the case of
any agent which is not the initial agent, must be upon 30-days prior written
notice to [ ]). Each Member hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid
actions or proceeding arising out of or in connection with this Agreement, and
for enforcement of a judgment in respect thereof, in the courts referred to
above and hereby further irrevocably waives and agrees, to the extent
permitted by applicable law, not to plead or claim that such an action or
proceeding brought in any such court has been brought in an inconvenient
forum. Nothing herein shall affect the right of any party hereto to serve
process in any other manner permitted by law.
14.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
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In Witness Whereof, the undersigned have executed this Amended and Restated
Limited Liability Company Agreement as of the day shown on the first page.
Santa Anita Operating Company
By___________________________________
Name:
Title:
Colony Investors II, L.P.
By: Colony Capital, L.P.,
its general partner
By: ColonyGP II, Inc.,
its general partner
By___________________________________
Name:
Title:
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EXHIBIT A
TO AMENDED AND RESTATED LIMITED
LIABILITY COMPANY AGREEMENT
SANTA ANITA OPERATING LLC
<TABLE>
<CAPTION>
INITIAL CAPITAL NUMBER/CLASS
MEMBER CONTRIBUTION OF UNITS
------ --------------- ------------
<S> <C> <C>
-----
Total
</TABLE>
31
<PAGE>
EXHIBIT C
EXCHANGE RIGHTS AGREEMENT
This Exchange Rights Agreement (this "Agreement") is made as of [DATE], 1996
among Santa Anita Realty Enterprises, Inc., a Delaware corporation ("Realty"),
Santa Anita Operating Company, a Delaware corporation ("Operating"), Santa
Anita Realty LLC, a Delaware limited liability company (the "Realty JV"),
Santa Anita Operating LLC, a Delaware limited liability company (the
"Operating JV" and together with the Realty JV, the "JVs"), and Colony
Investors II, L.P., a Delaware limited partnership ("Investor"). Unless
otherwise indicated, capitalized terms used are used herein as defined in
Section 11.
RECITALS
1. Pursuant to a Formation Agreement dated as of August 17, 1996 (as the
same may be amended or modified from time to time, the "Formation
Agreement") among Realty, Operating and Investor (i) on the date hereof
Realty and Investor are making capital contributions to the Realty JV in
return for the issuance by the Realty JV to Realty and to Investor of Units
(as defined in the Limited Liability Company Agreement of the Realty JV
(the "Realty JV Agreement")) of the Realty JV (such Units issued by the
Realty JV to Investor on the date hereof, together with any Units of the
Realty JV issued to Investor after the date hereof being hereinafter called
the "Realty Units") and (ii) on the date hereof Operating and Investor are
making capital contributions to the Operating JV in return for the issuance
by the Operating JV to Operating and to Investor of Units (as defined in
the Limited Liability Company Agreement of the Operating JV (the "Operating
JV Agreement" and together with the Realty JV Agreement, the "JV
Agreements")) of the Operating JV (such Units issued by the Operating JV to
Investor on the date hereof, together with any Units of the Operating JV
issued to Investor after the date hereof being hereinafter called the
"Operating Units").
2. Pursuant to the Formation Agreement the parties hereto are entering
into this Agreement to provide for the rights of Investor to tender Realty
Units and Operating Units in exchange for either Paired Shares (as defined
herein), cash or a combination of Paired Shares and cash, on the terms and
conditions set forth herein.
AGREEMENT
The parties hereto agree as follows:
Section 1. Right to Tender Investor Units. (a) Upon the terms and subject to
the conditions of this Agreement, each holder of Investor Units (as defined
below) shall have the right at any time after the earlier of (i) October 1,
1998 and (ii) the date on which Investor has purchased all of the Units
Investor is obligated to purchase under the JV Agreements, to tender to Realty
outstanding Realty Units and the right to tender to Operating outstanding
Operating Units. Notwithstanding anything to the contrary contained in this
Agreement, no Realty Unit may be tendered to Realty unless simultaneously
therewith the tendering holder also tenders to Operating an Operating Unit and
no Operating Unit may be tendered to Operating unless simultaneously therewith
the tendering holder also tenders to Realty a Realty Unit (a Realty Unit
tendered for exchange and the Operating Unit simultaneously tendered for
exchange being hereinafter collectively referred to as a "Investor Unit"); and
any attempted tender of a Realty Unit or an Operating Unit which is not
accompanied by a simultaneous tender of an Operating Unit or Realty Unit,
respectively, shall be void and of no effect; it being understood that a
simultaneous tender of unequal numbers of Realty Unit and Operating Unit shall
be valid under this sentence to the extent of the lesser of the number of
Realty Units or Operating Units, as the case may be, included in such tender.
(b) Notwithstanding any other provision of this Agreement, no Paired Shares
or cash shall be issued or paid in respect of any tender of Investor Units (i)
if, notwithstanding the provisions of Section 6 of this Agreement,
<PAGE>
the right to tender Investor Units and receive Paired Shares or cash would
result in Realty not satisfying the REIT Requirements in any respect or would
result in any person or entity Beneficially Owning Realty Shares exceeding the
Ownership Limit, or (ii) prior to the expiration or termination of the waiting
period applicable to such exchange and issuance, if any, under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as it may be amended from time to
time. In the event that the ability to receive Paired Shares or cash would
result in Realty not satisfying the REIT Requirements in any respect or would
result in any person or entity Beneficially Owning Realty Shares exceeding the
Ownership Limit, and as a result thereof no Paired Shares or cash may be
issued or paid in respect of any tender of Investor Units pursuant to Section
1(b)(i) above, the parties hereto shall use their respective best efforts to
restructure the terms and provisions of this Agreement (and, if necessary, the
JV Agreements and the Registration Rights Agreement (as defined in Section
6)), or to agree to terms and provisions in addition to such terms and
provisions, so as to provide to each such party the same substantive rights
(or substantive rights as close thereto as is reasonably practicable) as those
provided by this Agreement, the JV Agreements and the Registration Rights
Agreement.
(c) The rights to exchange Investor Units pursuant to this Agreement
constitute a continuous offer and may not be withdrawn, amended or modified by
Realty or Operating without the prior written consent of each holder of
outstanding Investor Units adversely affected by such withdrawal, amendment or
modification; provided that any withdrawal, amendment or modification that
does not adversely affect any holder of outstanding Investor Units may be
effected without the consent of such holder.
Section 2. Acceptance of Tender; Election of Method of Payment for Tendered
Investor Units. (a) Upon the terms and subject to the conditions of this
Agreement, Realty and Operating shall accept Investor Units validly tendered
in proper form and meeting all of the requirements of this Agreement. In order
for Investor Units to be validly tendered pursuant to this Agreement, the
registered holder thereof shall deliver to Realty and Operating, at the
address provided pursuant to Section 10, (i) a completed and duly executed
Letter of Transmittal in the form attached hereto as Exhibit A (the "Letter of
Transmittal") and any other documents required by the Letter of Transmittal
and (ii) a calculation, to the best knowledge of such registered holder after
due inquiry (together with such supporting documentation as Realty may
reasonably request), of the maximum number of Paired Shares that may be issued
to such registered holder without causing either (x) Realty to not satisfy the
REIT Requirements in any respect or (y) any person or entity to Beneficially
Own Realty Shares exceeding the Ownership Limit. Realty and Operating shall
make all determinations as to the validity and form of any tender of Investor
Units in accordance with the provisions of this Agreement and upon rejection
of a tender shall give the tendering holder written notice of such rejection,
which shall include the reasons therefor.
(b) Within 15 days after the valid tender pursuant to this Agreement of
Investor Units, Realty and Operating shall make an election to pay for such
Investor Units by delivering either (i) Paired Shares (the "Paired Share
Election"), (ii) cash (the "Cash Election") or (iii) a combination of Paired
Shares and cash (the "Combined Election"). Such election shall be made
pursuant to an agreement as to such election between Realty and Operating. If
Realty and Operating do not so agree within such 15-day period, they shall be
deemed to have made the Cash Election.
(c) Unless otherwise determined by agreement of Realty and Operating,
tenders of Investor Units pursuant to this Agreement shall be irrevocable and
shall not be subject to withdrawal or modification.
Section 3. Paired Share Election. (a) Subject to Section 6, if with respect
to any tender of Investor Units pursuant to this Agreement, Realty and
Operating make the Paired Share Election, then within 20 days after such
tender Realty and Operating shall deliver to the tendering holder one Paired
Share for each Investor Unit validly tendered pursuant to the provisions of
this Agreement.
(b) No fractional Paired Shares or scrip representing fractional Paired
Shares shall be issued upon exchange of Investor Units pursuant to this
Agreement. If more than one Letter of Transmittal shall be delivered at one
time by the same holder, the number of full Paired Shares which shall be
issuable upon exchange of the Investor Units tendered thereby shall be
computed on the basis of the aggregate number of Investor Units so tendered.
2
<PAGE>
Instead of any fractional Paired Shares which would otherwise be issuable upon
exchange of any Investor Units, Realty and Operating shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Paired Share Closing Price on the last business day preceding the date
of exchange.
(c) If a holder exchanges Investor Units pursuant to this Agreement, Realty
and Operating shall pay any documentary, stamp or similar issue or transfer
tax due on any issue of Paired Shares upon such exchange. Such holder,
however, shall (i) pay to Realty and Operating the amount of any additional
documentary, stamp or similar issue or transfer tax which is due (or shall
establish to the satisfaction of Realty and Operating the payment thereof) as
a result of Paired Shares being issued in a name other than the name of such
holder and (ii) be responsible for all income or other taxes as a result of
such exchange.
Section 4. Cash Election. (a) If with respect to any tender of Investor
Units pursuant to this Agreement, Realty and Operating make or are deemed to
have made the Cash Election, then within 20 days after such tender Realty and
Operating shall pay to the tendering holder an aggregate amount of cash (the
"Aggregate Cash Payment") equal to the product of (i) the number of Paired
Shares which would have been delivered to such holder if Realty and Operating
had made the Paired Share Election with respect to such tender and (ii) the
average Paired Share Closing Price for the ten trading day period ending one
day prior to the date of such tender.
(b) In connection with any payment pursuant to Section 4(a) or Section
5(ii), Realty and Operating shall pay the percentage of such payment (such
percentages being herein called the "Issuance Percentages") as Realty and
Operating may from time to time agree to based on their determination of the
relative fair values of Realty Shares and Operating Shares. Such obligation is
several and not joint.
Section 5. Combined Election. If, with respect to any tender of Investor
Units pursuant to this Agreement, Realty and Operating shall make the Combined
Election, then within 20 days after such tender Realty and Operating shall (i)
notify the tendering holder of the number of such tendered Investor Units
which will be exchanged for cash (the "Cash Units") and the number of such
tendered Investor Units which will be exchanged for Paired Shares (the "Paired
Share Units"), (ii) pay to the tendering holder, in respect of each Cash Unit
validly tendered pursuant to the provisions of this Agreement, an amount of
cash equal to the average Paired Share Closing Price for the ten trading day
period ending one day prior to the date of such tender and (iii), subject to
Section 3(b) and (c) and Section 6, deliver to the tendering holder one Paired
Share for each Paired Share Unit validly tendered pursuant to the provisions
of this Agreement.
Section 6. Registration Rights. If at any time, (a) Investor validly tenders
Investor Units pursuant to the provisions of this Agreement, (b) Realty and
Operating make the Paired Share Election or the Combined Election with respect
to such tender, (c) as a result of the Ownership Limit Investor cannot receive
the full number of Paired Shares otherwise issuable to Investor pursuant to
such tender and such Election (without giving effect to the Ownership Limit)
(the event described in clauses (a), (b) and (c) being referred to as a
"Paired Share Tender Reduction"; the number of such Paired Shares which
Investor cannot receive pursuant to such tender as a result of the Ownership
Limit being referred to as the "Unissued Paired Shares"; and the Investor
Units tendered in respect of such Unissued Paired Shares being referred to as
the "Delayed Payment Units"), then (i) subject to the other terms and
conditions of this Agreement, Investor shall be entitled to receive the number
of Paired Shares which it can receive pursuant to such tender, such Election
and the Ownership Limit and (ii) if Investor shall make a written request for
registration of Paired Shares pursuant to Section 2.3 of the Registration
Rights Agreement of even date herewith among Realty, Operating and the
Investor (the "Registration Rights Agreement") at a time when Investor is
entitled to make such a request under the Registration Rights Agreement, then,
pursuant to the terms of the Registration Rights Agreement, Realty and
Operating shall cause to be filed with the Securities and Exchange Commission
a registration statement and Realty and Operating shall register and sell
pursuant thereto a number of Paired Shares equal to the number of such
Unissued Paired Shares requested by the Investor to be registered pursuant to
Section 2.3 of the Registration Rights Agreement. Within two business days
after the receipt by Realty and Operating of the proceeds of any sale (after
underwriting discounts and commissions) of such Paired Shares pursuant to such
registration, Realty and Operating shall pay
3
<PAGE>
such proceeds to the tendering holder of the Delayed Payment Units, in full
payment for the tender of such Delayed Payment Units.
Section 7. Representations of Tendering Holder. Each tender of Investor
Units shall constitute an affirmative confirmation by the tendering holder of
each of the representations and warranties set forth in the form of Letter of
Transmittal. Without limiting the generality of the foregoing, unless, at the
time of a tender for exchange of Investor Units pursuant to this Agreement, a
registration statement relating to any Paired Shares to be delivered upon such
tender is effective under the Securities Act of 1933, as amended (the
"Securities Act"), such tender shall constitute a representation and warranty
by the tendering holder to Realty and Operating that such tendering holder (i)
is an "accredited investor" within the meaning of Rule 501 under the
Securities Act, (ii) has sufficient knowledge and experience in financial and
business matters and in investing in entities similar to the JVs, Realty and
Operating so as to be able to evaluate the risks and merits of its investment
in the JVs, Realty and Operating and it is able financially to bear the risks
thereof, (iii) has had an opportunity to discuss the business, management and
financial affairs of Realty, Operating and the JVs with the management of
Realty, Operating and the JVs, and (iv) understands that the Paired Shares
have not been registered under the Securities Act by reason of their issuance
in a transaction exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the
Securities Act and such Paired Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act and
applicable state securities laws or is exempt from such registration.
Section 8. Status of Tendering Holder. Until the holder of Investor Units
tendered pursuant to this Agreement becomes a holder of record of the Paired
Shares issued in exchange therefor (in the case of a Paired Share Election or
a Combined Election) or until such holder has received cash in exchange
therefor (in the case of a Cash Election or a Combined Election), such holder
shall continue to hold and own such Investor Units for all purposes of the
Realty JV Agreement and the Operating JV Agreement. In the case of a Paired
Share Election or a Combined Election, no such holder shall have any rights as
a stockholder of Realty or Operating in respect of such Paired Shares until
such holder becomes a holder of record of such Paired Shares.
Section 9. Reservation of Shares; Closing of Transfer Books. (a) Realty
shall reserve and shall at all times have reserved out of its authorized but
unissued Realty Shares, solely for the purpose of effecting the exchange of
Realty Units pursuant to this Agreement, enough Realty Shares to permit the
exchange of the then outstanding Realty Units. Operating shall reserve and
shall at all times have reserved out of its authorized but unissued Operating
Shares, solely for the purpose of effecting the exchange of Operating Units
pursuant to this Agreement, enough Operating Shares to permit the exchange of
the then outstanding Operating Units. All Paired Shares which may be issued
upon exchange of Investor Units shall be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof other than income taxes resulting from such exchange.
(b) Realty shall not close its transfer books so as to prevent the timely
issuance of Realty Shares pursuant to this Agreement. Operating shall not
close its transfer books so as to prevent the timely issuance of Operating
Shares pursuant to this Agreement.
Section 10. Notices. All notices and requests given pursuant to this
Agreement shall be in writing and shall be made by hand-delivery, first-class
mail (registered or certified, return receipt requested), facsimile with
telephone confirmation of receipt or overnight air courier guaranteeing next
business day delivery to the relevant address specified in the Formation
Agreement. Except as otherwise provided in this Agreement, the date of each
such notice and request shall be deemed to be, and the date on which each such
notice and request shall be deemed given shall be: at the time delivered, if
personally delivered or mailed; when receipt is acknowledged, if sent by
facsimile; and the next business day after timely delivery to the courier, if
sent by overnight courier guaranteeing next business day delivery.
4
<PAGE>
Section 11. Definitions. For purposes of this Agreement:
"Beneficially Owning" means owning Realty Shares directly, indirectly or
constructively by a person or entity through the application of Section
318(a) of the Code, as modified by Section 856(d)(5) of the Code, or
Section 544 of the Code, as modified by Section 856(h) of the Code. The
term "Beneficially Own" shall have a correlative meaning.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Operating Certificate of Incorporation" means the Certificate of
Incorporation of Operating, as amended from time to time after the date of
this Agreement.
"Operating Shares" means the shares of Common Stock, par value $.10 per
share, of Operating.
"Ownership Limit" when used with respect to Realty means 8% in value,
voting power or in number, whichever is more restrictive, of the issued and
outstanding capital stock of Realty and, when used with respect to
Operating means 8% in value, voting power or in number, whichever is more
restrictive, of the issued and outstanding capital stock of Operating.
"Paired Share" means an Operating Share and a Realty Share which are
paired pursuant to the Pairing Agreement dated December 20, 1979 between
Realty and Operating, as it may be amended from time to time.
"Paired Share Closing Price" shall mean, with respect to a particular
date, the last reported sales price regular way on such date or, in case no
such reported sale takes place on such date, the average of the reported
closing bid and asked prices regular way on such date, in either case on
the New York Stock Exchange, or if the Paired Shares are not then listed or
admitted to trading on such Exchange, on the principal national securities
exchange on which the Paired Shares are then listed or admitted to trading
or, if not then listed or admitted to trading on any national securities
exchange, the closing sale price on such date of the Paired Shares or, in
case no reported sale takes place on such date then, the average of the
closing bid and asked prices on such date, on NASDAQ or any comparable
system. If the Paired Shares are not then quoted on NASDAQ or any
comparable system, the Board of Directors of Realty and the Board of
Directors of Operating shall in good faith determine the Paired Share
Closing Price.
"REIT Requirements" shall mean the requirements for Realty to (i)
continue to qualify as a REIT under the Code and the rules and regulations
promulgated thereunder, (ii) avoid any federal income or excise tax
liability, (iii) retain its status as grandfathered from the application of
Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of the Deficit
Reduction Act of 1984, and (iv) retain the benefits of those certain
private letter rulings issued by the Internal Revenue Service to Realty
dated as of October 16, 1979, as supplemented January 11, 1980.
"Realty Shares" means the shares of Common Stock, $.10 par value, of
Realty.
Section 12. Partial Invalidity. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, but this Agreement
shall be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein unless the deletion of such
provision or provisions would result in such a material change as to cause
completion of the transactions contemplated hereby to be unreasonable.
Section 13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors or assigns. Notwithstanding any prohibition on assignment contained
herein, in the event that Investor transfers record ownership of Investor
Units to any third party, such third party shall become a party hereto with
the rights and obligation of Investor under this Agreement; provided, that
each such person agrees to be bound by all of the terms and conditions of this
Agreement.
Section 14. Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be considered an original
counterpart, and shall become a binding agreement when Realty,
5
<PAGE>
Operating, the Realty JV, the Operating JV and Investor shall have each
executed a counterpart of this Agreement.
Section 15. Titles and Headings. Titles and headings to Articles and
Sections herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
Section 16. Exhibits. The Exhibits referred to in this Agreement shall be
construed with, and as an integral part of, this Agreement to the same extent
as if the same had been set forth verbatim herein.
Section 17. Entire Agreement; Amendments and Waivers. This Agreement,
including the Exhibits, contains the entire understanding of the parties
hereto with regard to the subject matter contained herein. In addition to
amendments and modifications permitted by Section 1(e), the parties hereto, by
mutual agreement in writing, may amend, modify and supplement this Agreement.
The failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right
of such party thereafter to enforce each and every such provision. No waiver
of any breach of this Agreement shall be held to constitute a waiver of any
other or subsequent breach.
Section 18. Governing Law. Except to the extent that Delaware law is
mandatorily applicable to the rights and obligations of the stockholders of
Realty and Operating, and to the rights and obligations of the members of the
Realty JV and the Operating JV, this Agreement, and the application or
interpretation thereof, shall be governed exclusively by its terms and by the
internal laws of the State of California, without regard to principles of
conflicts of laws as applied in the State of California or any other
jurisdiction which, if applied, would result in the application of any laws
other than the internal laws of the State of California.
Section 19. Submission to Jurisdiction. Each of the parties hereto
irrevocably submits and consents to the jurisdiction of the United States
District Court for the Central District of California or the Superior Court of
the County of Los Angeles, in connection with any action or proceeding arising
out of or relating to this Agreement, and irrevocably waives any immunity from
jurisdiction thereof and any claim of improper venue, forum non conveniens or
any similar basis to which it might otherwise be entitled in any such action
or proceeding.
6
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto or by their duly authorized officers, all as of the date
first above written.
Santa Anita Realty Enterprises, Inc.
By: _________________________________
Name:
Title:
Santa Anita Operating Company
By: _________________________________
Name:
Title:
Santa Anita Realty LLC
By: _________________________________
Name:
Title:
Santa Anita Operating LLC
By: _________________________________
Name:
Title:
Colony Investors II, L.P.
By: Colony Capital, L.P.,
its general partner
By: ColonyGP II, Inc.,
its general partner
By: _________________________________
Name:
Title:
7
<PAGE>
EXHIBIT A TO
EXCHANGE RIGHTS AGREEMENT
LETTER OF TRANSMITTAL
TO TENDER UNITS
PURSUANT TO THE EXCHANGE RIGHTS AGREEMENT
DATED AS OF [DATE], 1996
TO:[ADDRESS]
DESCRIPTION OF UNITS
<TABLE>
<CAPTION>
NAMES(S) AND ADDRESS(ES) UNITS TENDERED (ATTACH
OF REGISTERED OWNERS ADDITIONAL LIST IF NECESSARY)
------------------------ -----------------------------
<S> <C> <C>
Realty
Units:
Operating
Units:
</TABLE>
-------------------------------------
Total
8
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Santa Anita Realty LLC (the "Realty JV")
the above-described Realty Units (as defined in the Exchange Rights Agreement
dated as of [DATE], 1996 (the "Exchange Rights Agreement")) and hereby tenders
to Santa Anita Operating LLC (the "Operating JV") the above-described
Operating Units (as defined in the Exchange Rights Agreement) in accordance
with the terms and conditions of the Exchange Rights Agreement and this Letter
of Transmittal (which together constitute the "Offer"), receipt of which is
hereby acknowledged. All terms used herein but not defined herein are used as
defined in the Exchange Rights Agreement.
Subject to, and effective upon the issuance of Paired Shares and/or the
payment of cash, as the case may be, for the Investor Units tendered hereby,
the undersigned hereby assigns and transfers (i) to Realty all right, title
and interest and in to all the Realty Units that are being tendered hereby and
irrevocably constitutes and appoints Realty (the "Realty Units Agent"), with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) transfer such Realty Units
on the books of the Realty JV and (b) receive all rights, privileges and
benefits, and any and all obligations and liabilities appertaining thereto and
otherwise exercise all rights of beneficial ownership of such Realty Units,
all in accordance with the terms of the Offer and (ii) to Operating all right,
title and interest in and to all the Operating Units that are being tendered
hereby and irrevocably constitutes and appoints Operating (the "Operating
Units Agent" and, together with the Realty Units Agent, the "Agents"), with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (a) transfer such Operating
Units on the books of the Operating JV and (b) receive all rights, privileges
and benefits, and any and all obligations and liabilities appertaining thereto
and otherwise exercise all rights of beneficial ownership of such Operating
Units, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants (i) to Realty that the
undersigned has full power and authority to tender, sell, assign and transfer
the tendered Realty Units and that upon payment therefor, Realty will acquire
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and the same will not be subject to any adverse claim, (ii)
to Operating that the undersigned has full power and authority to tender,
sell, assign and transfer the tendered Operating Units and that upon payment
therefor, Operating will acquire unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and the same will not be
subject to any adverse claim, (iii) to Realty and Operating that the tender
complies with each and every provision of Section 1 of the Exchange Rights
Agreement, and (iv) attached hereto is a calculation, to the best knowledge of
the undersigned after due inquiry (together with such supporting documentation
as Realty may reasonably request) of the maximum number of Paired Shares that
may be issued to the undersigned without causing either (x) Realty to not
satisfy the REIT Requirements in any respect or (y) any person or entity to
Beneficially Own Realty Shares exceeding the Ownership Limit. The undersigned
will, upon request, execute any additional documents deemed by Realty or
Operating to be reasonably necessary or desirable to complete the sale,
assignment and transfer of the tendered Investor Units.
Unless a registration statement relating to any Paired Shares to be
delivered to the undersigned is effective under the Securities Act of 1933, as
amended (the "Securities Act"), the undersigned hereby represents and warrants
to Realty and Operating that the undersigned (i) is an "accredited investor"
within the meaning of Rule 501 under the Securities Act, (ii) has sufficient
knowledge and experience in financial and business matters and in investing in
entities similar to the Partnerships, Realty and Operating so as to be able to
evaluate the risks and merits of its investment in the JVs, Realty and
Operating and it is able financially to bear the risks thereof, (iii) has had
an opportunity to discuss the business, management and financial affairs of
Realty, Operating and the JVs with the management of Realty, Operating and the
JVs, and (iv) understands that any such Paired Shares have not been registered
under the Securities Act by reason of their issuance in a transaction exempt
from the
9
<PAGE>
registration requirements of the Securities Act pursuant to Section 4(2)
thereof or Rule 505 or 506 promulgated under the Securities Act and any such
Paired Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act and applicable state securities
laws or is exempt from such registration. If not sold pursuant to an effective
registration statement, any such Paired Shares will bear an appropriate legend
indicating that such Paired Shares have not been registered under the
Securities Act and resale of such Paired Shares is restricted under applicable
securities laws.
All authority conferred or agreed to be conferred in this Letter of
Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and any obligation of the undersigned hereunder
shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned.
The undersigned understands that a tender of Investor Units pursuant to the
Exchange Rights Agreement is irrevocable and constitutes a binding agreement
between the undersigned and Realty and Operating upon the terms and subject to
the conditions of the Exchange Rights Agreement.
Unless otherwise indicated under "Special Delivery Instructions" or unless
the Paired Shares are to be sold to the public pursuant to a Tender
Registration as contemplated in Section 6 of the Exchange Rights Agreement and
the provisions of the Registration Rights Agreement, please mail any Paired
Shares issuable upon exchange of the Investor Units tendered hereby (or, if
the Cash Election or the Combined Election is made, the cash payment payable
pursuant thereto) to the address(es) of the registered holder(s) appearing
under "Description of Units." In the event that the Special Delivery
Instructions are completed, please issue the Paired Shares (or, if the Cash
Election or the Combined Election is made, the cash payment payable pursuant
thereto) in the name of the registered holder(s) and transmit the same to the
person or persons so indicated.
Realty, Operating and the undersigned agree that they will cooperate with
each other and will make, execute, acknowledge, deliver, record and file, or
cause to be made, executed, acknowledged, delivered, recorded and filed, at
such times and places as the other may reasonably deem necessary, all other
and further documents and instruments, and will take all other and further
actions, as the other may reasonably request from time to time in order to
effectuate the purposes and provisions of the tender made pursuant to this
Letter of Transmittal.
10
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SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Paired Shares or the cash payment are to be sent to
someone other than the undersigned or to the undersigned at an address other
than that above.
Mail certificates for Paired Shares or cash payment to:
Name __________________________________________________________________________
(please print)
Address _______________________________________________________________________
- -------------------------------------------------------------------------------
(include Zip Code)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
SIGN HERE
Complete Substitute Form W-9 included
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Signature(s) of holder of Units)
(Must be signed by registered holder(s) as name(s) appear(s) on books and
records of the Partnership. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please set forth full
title and see instruction 4.
Dated _________________________________________________________________________
Name(s) _______________________________________________________________________
(please print)
Capacity (Full Title) _________________________________________________________
Address _______________________________________________________________________
(include Zip Code)
Area Code and Tel. No. ________________________________________________________
Tax Identification or Social Security No. _____________________________________
(Complete Substitute Form W-9)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 1)
Authorized Signature __________________________________________________________
Name of Firm __________________________________________________________________
Dated _________________________________________________________________________
11
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
EXCHANGE RIGHTS AGREEMENT
1. GUARANTEE OF SIGNATURE. No signature guarantee on this Letter of
Transmittal is required unless the registered holder of the Investor Units has
completed the box entitled "Special Delivery Instructions". In such case all
signatures on this Letter of Transmittal must be guaranteed by a member firm
of any registered national securities exchange in the United States or of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company (not a savings bank or a savings and loan association) having an
office, branch or agency in the United States.
2. DELIVERY OF LETTER OF TRANSMITTAL. This Letter of Transmittal is to be
completed by the holder of Investor Units. A properly completed and duly
executed Letter of Transmittal and any other documents required by this Letter
of Transmittal must be received by the Agents.
No alternative, conditional or contingent tenders will be accepted.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
Investor Units tendered and/or other information required should be listed on
a separate schedule attached hereto.
4. SIGNATURES ON LETTER OF TRANSMITTAL. The signature must correspond with
the name as shown on the books and records of Realty and Operating without any
change whatsoever. If any of the Investor Units tendered hereby are owned of
record by two or more joint owners, all such owners must sign the Letter of
Transmittal.
If any tendered Investor Units are registered in different names, it will be
necessary to complete, sign and submit as many separate Letters of Transmittal
as there are different registrations.
If this Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, each person should so
indicate when signing, and proper evidence satisfactory to the Agents of their
authority so to act must be submitted.
5. SPECIAL DELIVERY INSTRUCTIONS. If a certificate for Paired Shares or the
cash payment is to be sent to someone other than the signer of this Letter of
Transmittal or to an address other than that shown above, the appropriate
boxes on this Letter of Transmittal should be completed.
6. WAIVER OF CONDITIONS. Each of Realty and Operating reserves the right to
waive in its sole discretion any of the specified conditions of the Offer in
the case of the Investor Units tendered; provided that any such waiver shall
not adversely affect any holder of outstanding Investor Units without the
consent of such holder.
7. BACK-UP WITHHOLDING. Under the Federal income tax law, a person
surrendering Investor Units must provide the Agents with his correct taxpayer
identification number ("TIN") on Substitute Form W-9 below unless an exemption
applies. If the correct TIN is not provided, a $50 penalty may be imposed by
the Internal Revenue Service and payments made in exchange for the surrendered
Investor Units may be subject to back-up withholding of that rate provided by
the Federal income tax law (such rate being at the date of the Exchange Rights
Agreement, 31%).
The TIN that must be provided is that of the registered holder of the
Investor Units. The TIN for an individual is his or her social security
number.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance or additional copies of the Exchange Rights Agreement and the
Letter of Transmittal may be directed to the Agents at the address set forth
above.
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<PAGE>
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a holder whose tendered Investor Units are
accepted for payment is required by law to provide the Agents (as payers) with
his correct taxpayer identification number on Substitute Form W-9 below. If
such holder is an individual, the taxpayer identification number is his social
security number. If the Agents are not provided with the correct taxpayer
identification number, the holder may be subject to a $50 penalty imposed by
the Internal Revenue Service. In addition, payments that are made to such
holder with respect to Investor Units purchased pursuant to the Offer may be
subject to back-up withholding.
If back-up withholding applies, the Agents are required to withhold, at that
rate provided by the Federal income tax law (such rate being at the date of
the Exchange Rights Agreement, 31%), of any such payments made to the holder
of Investor Units. Paired Shares otherwise deliverable hereunder may, at the
expense (and with all risk of loss for the account) of the undersigned, be
sold to pay such amounts. Back-up withholding is not an additional tax.
Rather, the tax liability of persons subject to back-up withholding will be
reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent back-up withholding on payments that are made to a holder of
Investor Units purchased pursuant to the Offer, the holder is required to
notify the Agents of his correct taxpayer identification number by completing
the form below certifying that the taxpayer identification number provided on
Substitute Form W-9 is correct.
WHAT NUMBER TO GIVE THE AGENT
The holder is required to give the Agents the social security number or
employer identification number of the record owner of the Investor Units.
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<PAGE>
PAYER'S NAME:
PART 1--Please provide your Social security
TIN in the box at right and number/ Employer
certify by signing and dating identification
below number
-----------------
SUBSTITUTE CERTIFICATION--Under the penalties of perjury, (i)
FORM W-9 I certify that the information provided on this
form in true, correct and complete and (ii) I am
not subject to backup withholding because: (a) I
am exempt from backup Service withholding, or (b)
I have not been notified by the Internal Revenue
Service (IRS) that I am subject to backup with-
holding as a result of a failure to report all in-
terest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withhold-
ing.
DEPARTMENT OF
THE TREASURY
INTERNAL -----------------------------------------------------
REVENUE SERVICE
SIGNATURE _________________ DATE ____________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP
WITHHOLDING OF THAT RATE PROVIDED BY THE FEDERAL INCOME TAX LAW (SUCH
RATE BEING AT THE DATE OF THE EXCHANGE RIGHTS AGREEMENT, 31%) OF ANY
PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
14
<PAGE>
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made as of [DATE],
1996 among Santa Anita Realty Enterprises, Inc., a Delaware corporation
("Realty"), Santa Anita Operating Company, a Delaware corporation
("Operating"), Santa Anita Realty LLC, a Delaware limited liability company
(the "Realty JV"), Santa Anita Operating LLC, a Delaware limited liability
company (the "Operating JV" and together with the Realty JV, the "JVs"), and
Colony Investors II, L.P., a Delaware limited partnership ("Investor"). Unless
otherwise indicated, capitalized terms used herein are used herein as defined
in Section 1.1.
RECITALS
1. Pursuant to a Formation Agreement dated as of August 17, 1996 (as the
same may be amended or modified from time to time, the "Formation Agreement")
among Realty, Operating and Investor (i) on the date hereof Realty and
Investor are making capital contributions to the Realty JV in return for the
issuance by the Realty JV to Realty and to Investor of Units (as defined in
the Limited Liability Company Agreement of the Realty JV (the "Realty JV
Agreement")) of the Realty JV (such Units issued by the Realty JV to Investor
on the date hereof, together with any Units of the Realty JV issued to
Investor after the date hereof being hereinafter called the "Realty Units")
and (ii) on the date hereof Operating and Investor are making capital
contributions to the Operating JV in return for the issuance by the Operating
JV to Operating and to Investor of Units (as defined in the Limited Liability
Company Agreement of the Operating JV (the "Operating JV Agreement")) of the
Operating JV (such Units issued by the Operating JV to Investor on the date
hereof, together with any Units of the Operating JV issued to Investor after
the date hereof being hereinafter called the "Operating Units").
2. Pursuant to the Formation Agreement the parties hereto desire to set
forth the rights of Investor and the obligations of Realty and Operating to
cause the registration of the Registrable Securities pursuant to the
Securities Act.
AGREEMENT
The parties hereto agree as follows:
Section 1. Definitions and Usage.
1.1. Definitions. As used in this Agreement:
"Beneficially Owning" means owning Realty Shares directly, indirectly or
constructively by a Person through the application of Section 318(a) of the
Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the
Code, as modified by Section 856(h) of the Code. The term "Beneficially Own"
shall have a correlative meaning.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Continuously Effective", with respect to a specified registration
statement, shall mean that such registration statement shall not cease to be
effective and available for Transfers of Registrable Securities thereunder for
longer than either (i) any ten (10) consecutive business days, or (ii) an
aggregate of fifteen (15) business days during the period specified in the
relevant provision of this Agreement.
"Demand Registration" shall have the meaning set forth in Section 2.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934 and the rules
and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
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<PAGE>
"Exchange Rights Agreement" shall mean the Exchange Rights Agreement dated
the date hereof among Realty, Operating, the Realty JV, the Operating JV and
Investor.
"Formation Agreement" shall have the meaning set forth in the recitals.
"Holders" shall mean holders of Registrable Securities.
"Issuance Percentage", when used with respect to Realty and Operating, shall
mean the relative percentages that Realty and Operating may from time to time
determine based on their joint determination of the relative values of Realty
Shares and Operating Shares.
"Majority Selling Holders" means those Selling Holders whose Registrable
Securities included in such registration represent a majority of the
Registrable Securities of all Selling Holders included therein.
"Operating JV" shall have the meaning set forth in the recitals.
"Operating Units" shall have the meaning set forth in the recitals.
"Operating Shares" shall mean the shares of Common Stock, par value $.10 per
share, of Operating.
"Ownership Limit" when used with respect to Realty means 8% in value, voting
power or in number, whichever is more restrictive, of the issued and
outstanding capital stock of Realty and, when used with respect to Operating
means 8% in value, voting power or in number, whichever is more restrictive,
of the issued and outstanding capital stock of Operating.
"Paired Shares" means an Operating Share and a Realty Share which are
"paired" pursuant to the Pairing Agreement dated December 20, 1979 between
Realty and Operating, as it may be amended from time to time.
"Person" shall mean any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggyback Registration" shall have the meaning set forth in Section 3.
"Realty Certificate of Incorporation" means the Certificate of Incorporation
of Realty, as amended from time to time after the date of this Agreement.
"Realty JV" shall have the meaning set forth in the recitals.
"Realty Units" shall have the meaning set forth in the recitals.
"Realty Shares" means the shares of Common Stock, $.10 par value per share,
of Realty.
"Register", "registered", and "registration" shall refer to a registration
effected by preparing and filing a registration statement or similar document
in compliance with the Securities Act, and the declaration or ordering by the
Commission of effectiveness of such registration statement or document.
"Registrable Securities" shall mean: (i) the Paired Shares issued upon
exchange of Realty Units and Operating Units pursuant to the Exchange Rights
Agreement, (ii) any Paired Shares or other securities issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which
is issued as) a dividend or other distribution with respect to, or in exchange
by Realty and Operating generally for, or in replacement by Realty and
Operating generally of, such Paired Shares; (iii) any securities issued in
exchange for Paired Shares in any merger or reorganization of Realty and
Operating; (iv) any Paired Shares issued to Investor pursuant to Section 6.2
of the Formation Agreement; and (v) any Paired Shares issued to Investor
pursuant to Section 1.2 of the Formation Agreement and upon exchange of
Preferred Paired Shares that are Purchased Shares; provided, however, that
Registrable Securities shall not include any securities which have theretofore
been registered and sold pursuant to the Securities Act or which have been
sold to the public pursuant to Rule 144 or any similar rule promulgated by the
Commission pursuant to the Securities Act, and, provided, further, Realty and
Operating shall have no obligation under Sections 2 and 3 to register any
Registrable Securities if Realty and Operating shall deliver to the Holders of
such Registrable Securities an opinion of counsel to the effect that the
proposed sale or disposition of all of the Registrable Securities for which
registration was requested does not require registration under the Securities
Act for a sale or disposition in a single public sale, and offers to remove
any and all legends restricting transfer from the certificates evidencing such
Registrable Securities.
2
<PAGE>
"Registrable Securities then outstanding" shall mean, with respect to a
specified determination date, the Registrable Securities owned by all Holders
on such date and the Registrable Securities which are issuable upon exchange
of Realty Units and Operating Units owned by all Holders on such date.
"Registration Expenses" shall have the meaning set forth in Section 6.1.
"REIT Requirements" shall mean the requirements for Realty to (i) continue
to qualify as a REIT under the Code and the rules and regulations promulgated
thereunder, (ii) retain the benefits of those certain private letter rulings
issued by the Internal Revenue Service to Realty dated as of October 16, 1979,
as supplemented January 11, 1980, (iv) avoid any federal income or excise tax
liability, and (iii) retain its status as grandfathered pursuant to Section
132(c)(3) of the Deficit Reduction Act of 1984.
"Securities Act" shall mean the Securities Act of 1933 and the rules and
regulations of the Commission thereunder, all as the same may be in effect at
the time.
"Selling Holders" shall mean, with respect to a specified registration
pursuant to this Agreement, Holders whose Registrable Securities are included
in such registration.
"Shelf Registration" shall have the meaning set forth in Section 2.2.
"Tender Registration" shall have the meaning set forth in Section 2.3.
"Transfer" shall mean and include the act of selling, giving, transferring,
creating a trust (voting or otherwise), assigning or otherwise disposing of
(other than pledging, hypothecating or otherwise transferring as security)
(and correlative words shall have correlative meanings); provided, however,
that any transfer or other disposition upon foreclosure or other exercise of
remedies of a secured creditor after an event of default under or with respect
to a pledge, hypothecation or other transfer as security shall constitute a
"Transfer."
"Underwriters' Representative" shall mean the managing underwriter, or, in
the case of a co-managed underwriting, the managing underwriter designated as
the Underwriters' Representative by the co-managers.
"Units" shall mean Realty Units and Operating Units, as applicable.
"Violation" shall have the meaning set forth in Section 7.1.
1.2. Usage.
(i) References to a Person are also references to its assigns and
successors in interest (by means of merger, consolidation or sale of all or
substantially all the assets of such Person or otherwise, as the case may
be).
(ii) References to Registrable Securities "owned" by a Holder shall
include Registrable Securities beneficially owned by such Person but which
are held of record in the name of a nominee, trustee, custodian, or other
agent, but shall exclude Paired Shares held by a Holder in a fiduciary
capacity for customers of such Person.
(iii) References to a document are to it as amended, waived and otherwise
modified from time to time and references to a statute or other
governmental rule are to it as amended and otherwise modified from time to
time (and references to any provision thereof shall include references to
any successor provision).
(iv) References to Sections or to Schedules or Exhibits are to sections
hereof or schedules or exhibits hereto, unless the context otherwise
requires.
(v) The definitions set forth herein are equally applicable both to the
singular and plural forms and the feminine, masculine and neuter forms of
the terms defined.
(vi) The term "including" and correlative terms shall be deemed to be
followed by "without limitation" whether or not followed by such words or
words of like import.
(vii) The term "hereof" and similar terms refer to this Agreement as a
whole.
(viii) The "date of" any notice or request given pursuant to this
Agreement shall be determined in accordance with Section 12.
3
<PAGE>
Section 2. Demand, Shelf and Tender Registrations.
2.1. If Investor shall make a written request to Realty and Operating, then
Realty and Operating shall cause to be filed with the Commission a
registration statement under the Securities Act (a "Demand Registration") and
(subject to Section 2.9) Realty and Operating shall include therein all or any
portion of the Registrable Securities as Investor shall request in such
written request; provided, however, that no request may be made pursuant to
this Section 2.1 if within 120 days prior to the date of such request a Demand
Registration statement pursuant to this Section 2.1 or a Shelf Registration
pursuant to Section 2.2 shall have been declared effective by the Commission.
Any request made pursuant to this Section 2.1 shall be addressed to the
attention of the Secretary of each of Realty and Operating, and shall specify
the number of Registrable Securities to be registered, the intended methods of
disposition thereof and that the request is for a Demand Registration pursuant
to this Section 2.1.
2.2. If Investor shall make a written request to Realty and Operating, then
Realty and Operating shall cause to be filed with the Commission a
registration statement in accordance with the Securities Act for an offering
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
(a "Shelf Registration"), and Realty and Operating shall include therein the
Registrable Securities requested by Investor; provided, however, that no
request may be made pursuant to this Section 2.2 if within 120 days prior to
the date of such request a Demand Registration statement pursuant to Section
2.1 or a Shelf Registration pursuant to Section 2.2 shall have been declared
effective by the Commission. Any request made pursuant to this Section 2.2
shall be addressed to the attention of the Secretary of each of Realty and
Operating, and shall specify the number of Registrable Securities to be
registered, the possible intended methods of disposition thereof and that the
request is for a Shelf Registration pursuant to this Section 2.2.
2.3. If (i) there is a Paired Share Tender Reduction (as defined in Section
6 of the Exchange Rights Agreement) and (ii) Investor shall make a written
request to Realty and Operating, then Realty and Operating shall cause to be
filed with the Commission a registration statement under the Securities Act (a
"Tender Registration"), and Realty and Operating shall register and sell
pursuant thereto a number of Paired Shares (such Paired Shares being
considered to be "Registrable Securities" for purposes of this Agreement)
equal to the number of Unissued Paired Shares (as defined in Section 6 of the
Exchange Rights Agreement) that Investor shall request in such written
request. Realty and Operating shall pay the net proceeds of such sale (after
underwriting discounts and commissions) to the tendering holder of the Delayed
Payment Units (as defined in Section 6 of the Exchange Rights Agreement)
pursuant to the Exchange Rights Agreement. Any request made pursuant to this
Section 2.3 shall be addressed to the attention of the Secretary of each of
Realty and Operating, and shall specify the number of unissued Paired Shares
to be registered, the intended methods of disposition thereof and that the
request is for a Tender Registration pursuant to this Section 2.3.
2.4. (i) Realty and Operating shall be entitled to postpone for up to 90
days the filing, effectiveness, supplementing or amending of any registration
statement otherwise required to be prepared and filed pursuant to this Section
2 or Section 3, if the Board of Directors of Realty or the Board of Directors
of Operating determines that such registration and the Transfer of Registrable
Securities contemplated thereby would interfere with, or require premature
disclosure of, any material financing, acquisition, disposition,
reorganization or other transaction involving the Realty JV, the Operating JV,
Realty or Operating or any of their respective subsidiaries and Realty or
Operating, as the case may be, promptly gives Investor notice of such
determination. Investor hereby acknowledges that any notice given by Realty or
Operating pursuant to this Section 2.4(i) shall constitute material non-public
information and that the United States securities laws prohibit any Person who
has material non-public information about a company from purchasing or selling
securities of such company or from communicating such information to any other
Person under circumstances in which it is reasonably foreseeable that such
Person is likely to purchase or sell such securities.
(ii) Realty and Operating shall not be obligated to file any Demand
Registration statement or any Tender Registration statement pursuant to
this Section 2 if, within 30 days after their receipt of the written
request of Investor, Realty and Operating notify Investor that, prior to
their receipt of such request, they had a plan or intention promptly to
register equity securities under the Securities Act. Holders of Registrable
Securities shall have rights to participate in any such registration on the
terms provided in Section 3 hereof.
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(iii) Notwithstanding anything to the contrary contained in this
Agreement, without the consent of Realty and Operating, no Registrable
Securities may be offered or sold pursuant to a registration statement
pursuant to Sections 2 or 3 prior to the earlier of (A) October 1, 1998 and
(B) the date on which Investor has purchased all of the Realty Units
Investor is required to purchase under the Realty JV Agreement and all of
the Operating Units Investor is required to purchase under the Operating JV
Agreement. No Holder shall be entitled to participate in any Piggyback
Registration pursuant to which securities registered thereunder are to be
offered or sold prior to the earlier of the events described in clauses (A)
and (B).
2.5. Following receipt of a request for a Demand Registration, a Shelf
Registration or a Tender Registration, Realty and Operating shall:
(i) File the registration statement with the Commission as promptly as
practicable, and shall use their respective reasonable efforts to have the
registration declared effective under the Securities Act as soon as
reasonably practicable, in each instance giving due regard to the need to
prepare current financial statements, conduct due diligence and complete
other actions that are reasonably necessary to effect a registered public
offering.
(ii) Use their respective reasonable efforts to keep the relevant
registration statement Continuously Effective (x) if a Demand Registration
or a Tender Registration, for up to 30 days or until such earlier date as
of which all the Registrable Securities under the Demand Registration
statement or Tender Registration statement shall have been disposed of in
the manner described in the registration statement and (y) if a Shelf
Registration, until such date as of which all the Registrable Securities
under the Shelf Registration statement have been disposed of in a manner
described in the registration statement, but in no event later than the
120th day following the effective date of such registration statement.
Notwithstanding the foregoing, if for any reason the effectiveness of a
registration pursuant to this Section 2 is suspended or, in the case of a
Demand Registration or a Tender Registration, postponed as permitted by
Section 2.4(i), the relevant foregoing period shall be extended by the
aggregate number of days of such suspension or postponement.
2.6. Notwithstanding anything in this Agreement to the contrary, (a) in no
event will Realty or Operating be obligated to effect more than a total of
three Demand Registrations and Shelf Registrations, (b) in no event will
Realty or Operating be obligated to effect any Demand Registration, Shelf
Registration or Tender Registration for less than 250,000 Paired Shares, (c)
in no event will Realty or Operating be obligated to effect a Demand
Registration or a Tender Registration if the Registrable Securities proposed
to be registered therein shall be covered by a Shelf Registration statement,
and (d) no registration shall be effected under this Agreement and no Transfer
of Registrable Securities may be effected if as a result thereof Realty would
not satisfy the REIT Requirements in any respect or if such registration or
Transfer would result in any Person Beneficially Owning Paired Shares in
excess of the Ownership Limit. For purposes of the preceding sentence,
registration shall not be deemed to have been effected (i) unless a
registration statement with respect thereto has become effective, or (ii) if
after such registration statement has become effective, the related offer,
sale or distribution of Registrable Securities thereunder is prohibited by any
stop order, injunction or other order or requirement of the Commission or
other governmental agency or court for any reason not attributable to Investor
or the Selling Holders and such prohibition is not thereafter eliminated. If
Realty and Operating shall have complied with their respective obligations
under this Agreement, a right to demand a registration pursuant to this
Section 2 shall be deemed to have been satisfied (A) if a Demand Registration
or a Tender Registration, upon the earlier of (x) the date as of which all of
the Registrable Securities included therein shall have been disposed of
pursuant to the Registration Statement, and (y) the date as of which such
Demand Registration shall have been Continuously Effective for a period of 30
days, and (B) if a Shelf Registration, upon the effective date of such Shelf
Registration, provided no stop order or similar order, or proceedings for such
an order, is thereafter entered or initiated.
2.7. A registration pursuant to this Section 2 shall be on such appropriate
registration form of the Commission as shall be selected by Realty and
Operating and shall permit the disposition of the Registrable Securities in
accordance with the intended method or methods of disposition specified in the
request pursuant to Sections 2.1, 2.2 or 2.3, respectively.
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<PAGE>
2.8. If any Demand Registration or Shelf Registration pursuant to Section 2
involves an underwritten offering (whether on a "firm commitment," "best
efforts" or "all reasonable efforts" basis or otherwise), Investor shall
select the underwriter or underwriters and manager or managers to administer
such underwritten offering; provided, however, that each Person so selected
shall be acceptable to Realty and Operating.
2.9. Whenever Realty and Operating shall effect a registration pursuant to
this Section 2 in connection with an underwritten offering by one or more
Selling Holders of Registrable Securities: (i) if such Selling Holders have
requested the inclusion therein of more than one class of Registrable
Securities and the Underwriters' Representative advises Investor that, in its
opinion, the inclusion of more than one class of Registrable Securities would
adversely affect such offering, Investor shall decide which class of
Registrable Securities shall be included therein in such offering and the
related registration and the other class shall be excluded and (ii) if the
Underwriters' Representative advises Investor that, in its opinion, the amount
of securities requested to be included in such offering (whether by Selling
Holders or others, including Realty and Operating) exceeds the amount which
can be sold in such offering within a price range acceptable to the Majority
Selling Holders, securities shall be included in such offering and the related
registration, to the extent of the amount which can be sold within such price
range in the following order of priority: first, the Registrable Securities
requested to be included in such registration pursuant to this Section 2, pro
rata based on the estimated gross proceeds from the sale thereof; and second,
all other securities requested to be included in such registration.
Section 3. Piggyback Registration.
3.1. If at any time Realty and Operating propose to register securities
under the Securities Act in connection with the public offering solely for
cash on Form S-1, S-2, S-3, or S-11 (or any replacement or successor forms),
Realty and Operating shall promptly give Investor written notice of such
registration. Upon the written request of each Holder given as promptly as
practicable but in any event within 20 days following the date of such notice,
Realty and Operating shall cause to be included in such registration statement
and use their respective reasonable efforts to be registered under the
Securities Act all the Registrable Securities that each such Holder shall have
requested to be registered; provided, however, that such right of inclusion
shall not apply to any registration statement covering an offering of debt
securities, preferred stock or convertible debt securities or any offering of
securities pursuant to a dividend reinvestment program (any such registration
in which Holders participate pursuant to this Section 3.1 being referred to as
a "Piggyback Registration"). Realty and Operating shall have the absolute
right to delay, withdraw or cease to prepare or file any registration
statement for any offering referred to in this Section 3 without any
obligation or liability to Investor or any Holder, it being understood that
any Registrable Securities previously included in any such withdrawn
Registration Statement shall not cease to be Registrable Securities by reason
of such inclusion or withdrawal.
3.2. If the Underwriters' Representative shall advise Realty and Operating
that, in its opinion, the amount or type of Registrable Securities requested
to be included in such registration would adversely affect such offering, or
the timing thereof, then Realty and Operating will include in such
registration, to the extent of the amount and class which Realty and Operating
are so advised can be sold without such adverse effect in such offering:
first, all securities proposed to be sold by Realty and Operating for their
own accounts; second, the Registrable Securities requested to be included in
such registration by Holders pursuant to this Section 3, pro rata based on the
estimated gross proceeds from the sale thereof; and third all other securities
requested to be included in such registration.
Section 4. Registration Procedures. Whenever required under Section 2 or
Section 3 to effect the registration of any Registrable Securities, Realty and
Operating shall, as expeditiously as practicable:
4.1. Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use their respective reasonable
efforts to cause such registration statement to become effective; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, Realty and Operating shall furnish to one
firm of counsel for the Selling Holders, copies of all such documents in the
form substantially as proposed to be filed with the Commission.
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4.2. Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act and rules thereunder with respect to the disposition of all
securities covered by such registration statement. If the registration is for
an underwritten offering, Realty and Operating shall amend the registration
statement or supplement the prospectus whenever required by the terms of the
underwriting agreement entered into pursuant to Section 4.5. If the
registration statement is for a Shelf Registration, Realty and Operating shall
amend the registration statement or supplement the prospectus so that it will
remain current and in compliance with the requirements of the Securities Act
for the period specified in Section 2.5(ii), and if during such period any
event or development occurs as a result of which the registration statement or
prospectus contains a misstatement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, Realty or Operating shall promptly notify
each Selling Holder, subject to the provisions of Section 2.4, amend the
registration statement or supplement the prospectus so that each will
thereafter comply with the Securities Act and furnish to each Selling Holder
of Registrable Securities such amended or supplemented prospectus, which each
such Holder shall thereafter use in the Transfer of Registrable Securities
covered by such registration statement. Pending any such amendment or
supplement described in this Section 4.2, each such Holder shall cease making
offers or Transfers of Registrable Shares pursuant to the prior prospectus. In
the event that any Registrable Securities included in a registration statement
subject to, or required by, this Agreement remain unsold at the end of the
period during which Realty and Operating are obligated to use their respective
reasonable efforts to maintain the effectiveness of such registration
statement, Realty and Operating may file a post-effective amendment to the
registration statement for the purpose of removing such Registrable Securities
from registered status.
4.3. Furnish to each Selling Holder of Registrable Securities, without
charge, such numbers of copies of the registration statement, any pre-
effective or post-effective amendment thereto, the prospectus, including each
preliminary prospectus and any amendments or supplements thereto, in each case
in conformity with the requirements of the Securities Act and the rules
thereunder, and such other related documents as any such Selling Holder may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by such Selling Holder.
4.4. Use their respective reasonable efforts (i) to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such states where an exemption from registration is not
available and as shall be reasonably requested by the Underwriters'
Representative and (ii) to obtain the withdrawal of any order suspending the
effectiveness of a registration statement, or the lifting of any suspension of
the qualification (or exemption from qualification) of the offer and transfer
of any of the Registrable Securities in any state, at the earliest possible
moment; provided, however, that neither Realty nor Operating shall be required
in connection therewith or as a condition thereto to qualify to do business or
to consent to general service of process in any state.
4.5. In the event of any underwritten offering, use their respective
reasonable efforts to enter into and perform their respective obligations
under an underwriting agreement (including indemnification and contribution
obligations of underwriters), in usual and customary form, with the managing
underwriter or underwriters of such offering. Realty and Operating shall also
cooperate with the Majority Selling Holders, and the Underwriters'
Representative for such offering in the marketing of the Registrable
Securities, including making available the officers, accountants, counsel,
premises, books and records of Realty and Operating for such purpose, but
neither Realty nor Operating shall be required to incur any material out-of-
pocket expense pursuant to this sentence.
4.6. Promptly notify each Selling Holder of any stop order issued or
threatened to be issued by the Commission in connection therewith and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
4.7. Make available for inspection by any Selling Holder, any underwriter
participating in such offering and the representatives of such Selling Holder
and Underwriter (but not more than one firm of counsel to such Selling
Holders), all financial and other information as shall be reasonably requested
by them, and provide any
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Selling Holder, any underwriter participating in such offering and the
representatives of such Selling Holder and Underwriter the reasonable
opportunity to discuss the business affairs of Realty and Operating with their
principal executives and independent public accountants who have certified the
audited financial statements included in such registration statement, in each
case all as necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided, however, that information
that Realty or Operating determines to be confidential and which Realty or
Operating advises such Person in writing, is confidential shall not be
disclosed unless such Person signs a confidentiality agreement reasonably
satisfactory to Realty and Operating or the related Selling Holder of
Registrable Securities agrees to be responsible for such Person's breach of
confidentiality on terms reasonably satisfactory to Realty and Operating.
4.8. Use their respective reasonable efforts to obtain a so-called "comfort
letter" from the independent public accountants of Realty and Operating, and
legal opinions of counsel to Realty and Operating addressed to the Selling
Holders, in customary form and covering such matters of the type customarily
covered by such letters, and in a form that shall be reasonably satisfactory
to Investor. Delivery of any such opinion or comfort letter shall be subject
to the recipient furnishing such written representations or acknowledgements
as are customarily provided by selling stockholders who receive such comfort
letters or opinions.
4.9. Use their respective reasonable efforts to cause the Registrable
Securities covered by such registration statement (i) if the Paired Shares are
then listed on a securities exchange or included for quotation in a recognized
trading market, to continue to be so listed or included for a reasonable
period of time after the offering, and (ii) to be registered with or approved
by such other United States or state governmental agencies or authorities as
may be necessary by virtue of the business and operations of Realty and
Operating to enable the Selling Holders of Registrable Securities to
consummate the disposition of such Registrable Securities.
4.10. Take such other actions as are reasonably required in order to
expedite or facilitate the disposition of Registrable Securities included in
each such registration.
Section 5. Holders' Obligations. It shall be a condition precedent to the
obligations of Realty and Operating to take any action pursuant to this
Agreement with respect to the Registrable Securities of any Selling Holder of
Registrable Securities that such Selling Holder shall:
5.1. Furnish to Realty and Operating such information regarding such Selling
Holder, the number of the Registrable Securities owned by it, and the intended
method of disposition of such securities as shall be required to effect the
registration of such Selling Holder's Registrable Securities, and to cooperate
fully with Realty and Operating in preparing such registration.
5.2. Agree to sell their Registrable Securities to the underwriters at the
same price and on substantially the same terms and conditions as Realty and
Operating or the other Persons on whose behalf the registration statement was
being filed have agreed to sell their securities, and to execute the
underwriting agreement agreed to by the Majority Selling Holders (in the case
of a registration under Section 2) or Realty and Operating and the Majority
Selling Holders (in the case of a registration under Section 3), and provide
such legal opinions and certificates to the Underwriters' Representative,
Realty and Operating as are customarily provided in connection with secondary
public offerings of equity securities.
Section 6. Expenses of Registration. Expenses in connection with
registrations pursuant to this Agreement shall be allocated and paid as
follows:
6.1. With respect to each Demand Registration, Shelf Registration and Tender
Registration each of Realty and Operating shall bear and pay all expenses
incurred in connection with any registration, filing, or qualification of
Registrable Securities with respect to such Registration for each Selling
Holder, including all registration, filing and National Association of
Securities Dealers, Inc. fees, all fees and expenses of complying with
securities or blue sky laws, all printing expenses, messenger and delivery
expenses, the reasonable fees and disbursements of counsel for Realty and
Operating, and of the independent public accountants for Realty and Operating,
including the expenses of "cold comfort" letters required by or incident to
such performance and compliance
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(the "Registration Expenses"), but excluding underwriting discounts and
commissions relating to Registrable Securities (which shall be paid on a pro
rata basis by the Selling Holders) and all fees and expenses of counsel for
the Selling Holders; provided, however, that Realty and Operating shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2 if the registration is subsequently withdrawn (in which case all
Selling Holders shall bear such expenses), unless, in the case of a Demand
Registration or a Shelf Registration, Holders whose Registrable Securities
constitute a majority of the Registrable Securities then outstanding agree
that such withdrawn registration shall have constituted one of the three
Demand and Shelf Registrations available to them under Section 2 hereof.
Realty and Operating each agree between themselves that they shall bear and
pay Registration Expenses in an amount equal to its respective Issuance
Percentage of such Registration Expenses and that they shall reimburse each
other to the extent necessary to cause each of them to so bear and pay such
respective amounts.
6.2. Realty and Operating shall bear and pay all Registration Expenses
incurred in connection with any Piggyback Registrations pursuant to Section 3
but excluding underwriting discounts and commissions relating to Registrable
Securities (which shall be paid on a pro rata basis by the Selling Holders)
and all fees and expenses of counsel for the Selling Holders.
Section 7. Indemnification; Contribution. If any Registrable Securities are
included in a registration statement under this Agreement:
7.1. To the extent permitted by applicable law, each of Realty and
Operating, severally and not jointly, shall indemnify and hold harmless each
Selling Holder, each Person, if any, who controls such Selling Holder within
the meaning of the Securities Act, and each officer, director, partner and
employee of such Selling Holder and such controlling Person, against any and
all losses, claims, damages, liabilities and expenses (joint or several),
including reasonable attorneys' fees and disbursements and reasonable expenses
of investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange
Act or other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein, or any amendments or
supplements thereto; or
(ii) The omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein
not misleading; provided, however, that the indemnification required by
this Section 7.1 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or expense if such settlement is effected
without the consent of Realty or Operating (which consent shall not be
unreasonably withheld), nor shall Realty or Operating be liable in any such
case for any such loss, claim, damage, liability or expense to the extent
that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with information furnished to Realty or Operating by
the indemnified party expressly for use in connection with such
registration; and provided, further, that the indemnity agreement contained
in this Section 7 shall not apply to the extent that any such loss is based
on or arises out of an untrue statement or alleged untrue statement of a
material fact, or an omission or alleged omission to state a material fact,
contained in or omitted from any preliminary prospectus if the final
prospectus shall correct such untrue statement or alleged untrue statement,
or such omission or alleged omission, and a copy of the final prospectus
has not been sent or given to such person at or prior to the confirmation
of sale to such person if an underwriter was under an obligation to deliver
such final prospectus and failed to do so.
7.2. To the extent permitted by applicable law, each Selling Holder shall
indemnify and hold harmless Realty, Operating, each of the directors, officers
and employees of Realty and Operating, each Person, if any, who controls
Realty or Operating within the meaning of the Securities Act, any other
Selling Holder, any controlling Person of any such other Selling Holder and
each officer, director, partner, and employee of such other Selling Holder and
such controlling Person, against any and all losses, claims, damages,
liabilities and
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expenses (joint and several), including reasonable attorneys' fees and
disbursements and reasonable expenses of investigation, incurred by such party
pursuant to any actual or threatened action, suit, proceeding or
investigation, or to which any of the foregoing Persons may otherwise become
subject under the Securities Act, the Exchange Act or other federal or state
laws, but only insofar as such losses, claims, damages, liabilities and
expenses arise out of or are based upon any Violation, in each case to the
extent that such Violation arises out of or is based upon information
furnished by such Selling Holder expressly for use in connection with such
registration; provided, however, that (x) the indemnification required by this
Section 7.2 shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or expense if such settlement is effected without the
consent of the relevant Selling Holder (which consent shall not be
unreasonably withheld) and (y) in no event shall the amount of any indemnity
under this Section 7.2 exceed the gross proceeds from the applicable offering
received by such Selling Holder.
7.3. Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, suit, proceeding, investigation or
threat thereof made in writing for which such indemnified party may make a
claim under this Section 7, such indemnified party shall deliver to the
indemnifying party a written notice thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties.
The failure to deliver written notice to the indemnifying party within a
reasonable time following the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 7 to the extent of
such prejudice but shall not relieve the indemnifying party of any liability
that it may have to any indemnified party otherwise than pursuant to this
Section 7. Any fees and expenses incurred by the indemnified party (including
any fees and expenses incurred in connection with investigating or preparing
to defend such action or proceeding) shall be paid to the indemnified party,
as incurred, within thirty (30) days of written notice thereof to the
indemnifying party. Any such indemnified party shall have the right to employ
separate counsel in any such action, claim or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be the
expenses of such indemnified party unless (i) the indemnifying party has
agreed to pay such fees and expenses or (ii) the indemnifying party shall have
failed to promptly assume the defense of such action, claim or proceeding or
(iii) the named parties to any such action, claim or proceeding (including any
impleaded parties) include both such indemnified party and the indemnifying
party, and such indemnified party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different
from or in addition to those available to the indemnifying party and that the
assertion of such defenses would create a conflict of interest such that
counsel employed by the indemnifying party could not faithfully represent the
indemnified party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such action, claim or proceeding on behalf of
such indemnified party, it being understood, however, that the indemnifying
party shall not, in connection with any one such action, claim or proceeding
or separate but substantially similar or related actions, claims or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses
of more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties, unless in the
reasonable judgment of such indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such action,, claim or proceeding, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional
counsel or counsels).
7.4. If the indemnification required by this Section 7 from the indemnifying
party is unavailable to an indemnified party hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to in this Section
7:
(i) The indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities
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or expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any Violation has
been committed by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such Violation.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 7.1 and Section
7.2, any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in Section 7.4(i). No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
7.5. If indemnification is available under this Section 7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
this Section 7 without regard to the relative fault of such indemnifying party
or indemnified party or any other equitable consideration referred to in
Section 7.4.
7.6. The obligations of Realty, Operating and the Selling Holders of
Registrable Securities under this Section 7 shall survive the completion of
any offering of Registrable Securities pursuant to a registration statement
under this Agreement, and otherwise.
Section 8. Lockup. (a) Each Holder, if so requested by the Underwriters'
Representative in connection with an offering of any securities covered by a
registration statement filed by Realty and Operating, whether or not Holder's
securities are included therein, shall not effect any public sale or
distribution of Paired Shares or any securities convertible into or
exchangeable or exercisable for Paired Shares, including a sale pursuant to
Rule 144 under the Securities Act (except as part of such underwritten
registration), during the 15-day period prior to, and during the 180-day
period beginning on, the date such registration statement is declared
effective under the Securities Act by the Commission. In order to enforce the
foregoing covenant, Realty and Operating shall be entitled to impose stop-
transfer instructions with respect to the Registrable Securities of each
Holder until the end of such period. Holders of Registrable Securities shall
have the right to participate in any such registration on the terms provided
in Section 3 hereof.
(b) Each of Realty and Operating agrees not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the 15-day period
prior to and during the 90-day period beginning on the effective date of any
underwritten Demand Registration (except pursuant to (i) registrations on Form
S-8 or any successor form, (ii) registrations on Form S-4 or any successor
form and (iii) registrations of securities in connection with a dividend
reinvestment plan on form(s) applicable to such securities) unless the
underwriters managing the registered public offering otherwise agree.
Section 9. Amendment, Modification and Waivers; Further Assurances.
(i) This Agreement may be amended with the consent of Realty and
Operating and Realty and Operating may take any action herein prohibited,
or omit to perform any act herein required to be performed by it, only if
Realty and Operating shall have obtained the written consent of Investor to
such amendment, action or omission to act and no consent or agreement of
any Holder shall be required for such amendment, action or omission to act.
(ii) No waiver of any terms or conditions of this Agreement shall operate
as a waiver of any other breach of such terms and conditions or any other
term or condition, nor shall any failure to enforce any provision hereof
operate as a waiver of such provision or of any other provision hereof. No
written waiver hereunder, unless it by its own terms explicitly provides to
the contrary, shall be construed to effect a continuing waiver of the
provisions being waived and no such waiver in any instance shall constitute
a
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waiver in any other instance or for any other purpose or impair the right
of the party against whom such waiver is claimed in all other instances or
for all other purposes to require full compliance with such provision.
(iii) Each of the parties hereto shall execute all such further
instruments and documents and take all such further action as any other
party hereto may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 10. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors or assigns. Notwithstanding any prohibition on assignment contained
herein, in the event that Investor transfers record ownership of Units to any
third party, such third party shall become a party hereto with the rights and
obligation of Investor under this Agreement; provided, that each such person
agrees to be bound by all of the terms and conditions of this Agreement.
Section 11. Miscellaneous.
11.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without giving regard to
the conflict of laws principles thereof.
11.2. Notices. All notices and requests given pursuant to this Agreement
shall be in writing and shall be made by hand-delivery, first-class mail
(registered or certified, return receipt requested), facsimile with telephonic
confirmation of receipt or overnight air courier guaranteeing next business
day delivery to the relevant address specified in the Formation Agreement.
Except as otherwise provided in this Agreement, the date of each such notice
and request shall be deemed to be, and the date on which each such notice and
request shall be deemed given shall be: at the time delivered, if personally
delivered or mailed; when receipt is acknowledged, if sent by facsimile; and
the next business day after timely delivery to the courier, if sent by
overnight air courier guaranteeing next business day delivery.
11.3. Entire Agreement; Integration. This Agreement supersedes all prior
agreements between or among any of the parties hereto with respect to the
subject matter contained herein and therein, and such agreements embody the
entire understanding among the parties relating to such subject matter.
11.4. Section Headings. Section headings are for convenience of reference
only and shall not affect the meaning of any provision of this Agreement.
11.5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart.
11.6. Severability. If any provision of this Agreement shall be enforceable,
such invalidity or unenforceability shall not affect the validity and
enforceability of the remaining provisions of this Agreement, unless the
result thereof would be unreasonable, in which case the parties hereto shall
negotiate in good faith as to appropriate amendments hereto.
11.7. Termination. This Agreement may be terminated at any time by a written
instrument signed by Realty, Operating and Investor. Unless sooner terminated
in accordance with the preceding sentence, this Agreement (other than Section
7 hereof) shall terminate in its entirety on such date as there shall be (a)
no Registrable Securities outstanding, and (b) no securities outstanding which
are convertible or exchangeable into Registrable Securities; provided that any
Paired Shares previously subject to this Agreement shall not be Registrable
Securities following the sale of any such shares in an offering registered
pursuant to this Agreement.
11.8. Other Registration Rights. Realty and Operating will not grant
directly or indirectly to any Persons any rights to have any equity securities
of Realty and Operating, or any securities convertible or exchangeable into or
exercisable for such securities, included in any registration statement to be
filed by Realty and Operating if such rights are greater than the rights of
Investor, unless approved by Investor. Each of Realty and Operating hereby
severally represents and warrants that it has not previously entered into any
agreement that is presently effective with respect to the Paired Shares
granting any registration rights to any Person.
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11.9. Submission to Jurisdiction. Each of the parties hereto and each of the
Holders irrevocably submits and consents to the jurisdiction of the United
States District Court for the Central District of California or the Superior
Court of the County of Los Angeles, in connection with any action or
proceeding arising out of or relating to this Agreement, and irrevocably
waives any immunity from jurisdiction thereof and any claim of improper venue,
forum non conveniens or any similar basis to which it might otherwise be
entitled in any such action or proceeding.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first written above.
Santa Anita Realty Enterprises, Inc.
By:
-----------------------------------
Name:
Title:
Santa Anita Operating Company
By:
-----------------------------------
Name:
Title:
Santa Anita Realty LLC
By:
-----------------------------------
Name:
Title:
Santa Anita Operating LLC
By:
-----------------------------------
Name:
Title:
Colony Investors II, L.P.
By:
----------------------------------
Colony Capital, L.P.,
its general partner
By:
----------------------------------
ColonyGP II, Inc.,
its general partner
By:
-----------------------------------
Name:
Title:
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EXHIBIT E
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT dated as of , 1996 (this "Agreement"), between
Santa Anita Realty Enterprises, Inc., a real estate investment trust organized
as a corporation under the laws of the State of Delaware ("Realty") and Santa
Anita Realty LLC, a limited liability company organized under the laws of the
State of Delaware (the "Realty JV").
R E C I T A L S
1. Realty, Santa Anita Operating Company, a Delaware corporation
("Operating"), and Colony Investors II, L.P., a Delaware limited
partnership ("Investor") have entered into a Formation Agreement dated as
of August 17, 1996 (as the same may be amended or modified from time to
time, the "Formation Agreement");
2. Pursuant to the Formation Agreement and concurrently with the
execution and delivery of this Agreement, Realty, Investor and Realty JV
are entering into a Limited Liability Company Agreement of even date
herewith (the "Realty JV Agreement"), pursuant to which agreement the terms
of Realty JV and the rights and obligations of the holders of units in
Realty JV are as set forth therein;
3. Pursuant to the Formation Agreement and concurrently with the
execution and delivery of this Agreement, Operating and Santa Anita
Operating LLC (the "Operating JV") are entering into a Contribution
Agreement of even date herewith (the "Operating Contribution Agreement"),
pursuant to which agreement Operating is contributing to the Operating JV,
on the terms and subject to the conditions set forth in the Operating
Contribution Agreement, certain properties and other assets of Operating;
4. Realty owns, or has a ground leasehold estate in, certain properties
which are leased by Realty to, and operated by, Operating or one of
Operating's affiliates or wholly owned subsidiaries; and
5. On the terms and subject to the conditions set forth herein, in the
Realty JV Agreement and in the Formation Agreement, Realty desires to
contribute to Realty JV, as Realty's initial capital contribution thereto,
all right, title and interest of Realty in and to the Properties and the
Notes Receivable (as hereafter defined) and substantially all of the other
properties and assets of Realty;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein and in the Formation
Agreement, the parties hereto agree as follows:
ARTICLE 1
Definitions
1.1 Capitalized Terms. As used in this Agreement:
1.1.1 "Assumed Liabilities" means the liabilities and obligations assumed
by Realty JV pursuant to subsection 2.1.2.
1.1.2 "Audited Financial Statements" means the audited financial
statements of Realty for the year ended December 31, 1995 as included in
the SEC Documents.
1.1.3 "Balance Sheet" means the date of the most recent balance sheet
included in the SEC Documents filed prior to the date of the Formation
Agreement, and "Balance Sheet Date" means the date of the Balance Sheet.
1.1.4 "Closing" means the consummation of the transactions contemplated
hereby; provided, however, that the Closing shall not be deemed to have
occurred until such time as (i) the Escrow Agent has
<PAGE>
caused to be filed or recorded in the Official Records each of the
instruments of conveyance, assignment or transfer described in Section 4.1
and intended to be so filed or recorded or, in lieu of such recording, has
insured over the gap occurring between the Closing Date and the actual
recording of the instruments of conveyance; and (ii) the Title Company has
issued, or is irrevocably committed to issue, the Owner's Title Policies
and the Lender's Title Policies described in Section 4.3.
1.1.5 "Closing Date" means the date on which the Closing actually occurs.
1.1.6 The word "contract" includes any and all agreements, commitments,
undertakings and other obligations, in each case whether or not in writing.
1.1.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.1.8 "Contributed Assets" means the properties, assets, rights,
privileges, claims and contracts contributed by Realty to Realty JV
pursuant to subsection 2.1.1 hereto.
1.1.9 "Disclosure Letter" means the Realty Disclosure Schedule (as
defined in the Formation Agreement).
1.1.10 "Escrow Agent" means .
1.1.11 "Franchise Agreements" means any franchise or license agreements
applicable to the Properties.
1.1.12 "Governmental Authority" means any governmental or other
regulatory or administrative agency, board, commission, department,
official or other instrumentality, including any court. 1.1.13 "Ground
Leases" means those leases under which Realty is the lessee or tenant of
any Real Property.
1.1.14 "Improvements" means any and all buildings, other structures,
parking areas and other improvements located on the subject land.
1.1.15 "Indirect Property" means any and all properties, assets, rights,
privileges, contracts and claims (real, personal and mixed, tangible and
intangible, absolute and contingent, wherever located) encumbered by one or
more Security Documents.
1.1.16 The "knowledge of Realty" (and words of similar import) has the
meaning specified in the Formation Agreement.
1.1.17 "Lender's Title Policy" means the standard form ALTA extended
coverage lender's title insurance policy of the Title Company in use at the
time in question in the state in which the relevant Indirect Property (or
portion thereof) is located.
1.1.18 "Management Agreements" means the management agreements applicable
to the Properties.
1.1.19 When used with respect to Realty JV, "Material Adverse Effect" has
the meaning set forth in the Formation Agreement. When used with respect to
any one or more Properties, the Notes Receivable or the Contributed Assets,
"Material Adverse Effect" means any change in or effect on the specified
properties or assets (or the related rights, privileges, contracts and
claims) that will materially and adversely affect the value of the same in
excess of $250,000 or the ability of Realty JV to own and operate (or cause
to be operated) the specified property or asset in substantially the same
manner as that property or asset was owned and operated by Realty;
provided, however, that each such determination shall be made after giving
effect to the Closing and to the changes in the Contributed Assets
resulting from the transactions contemplated by the Formation Agreement,
this Agreement and the other Transaction Agreements and that Material
Adverse Effect shall be determined as to the Properties, the Notes
Receivable and the Contributed Assets with respect to the specified
properties and assets taken as a whole.
1.1.20 "Mortgage Notes" means the promissory notes and other debt
instruments described in notes [ ] and [ ] to the Audited Financial
Statements, and "Mortgages" means all credit agreements, loan agreements
and other similar contracts entered into by Realty in common with one or
more Mortgage Notes, and all deeds of trust, mortgages, deeds to secure
debt, fixture filings, assignments of leases and rents, installment land
sale contracts, security agreements, pledges and pledge agreements,
financing statements, deposit account pledge agreements, collateral
assignments of mortgages, assignments of fixture filings or
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financing statements, assignments of contracts, guaranties, letters of
credit, credit supports, keepwell agreements, environmental indemnities and
other agreements, assignments and other instruments and documents securing
or guarantying the repayment of any indebtedness evidenced by, or the
satisfaction of any other liability or the performance of any other
obligation under or made in connection with, one or more Mortgage Notes.
1.1.21 "Notes Receivable" means the promissory notes held by Realty and
disclosed or reflected in the Balance Sheet.
1.1.22 "Official Records" means the appropriate office or offices for the
filing or recording of documents or instruments in the public records in
the county, state or other jurisdiction in which the applicable Property or
Indirect Property is located, or in such other office as may be necessary
in order to effectuate the conveyance, assignment or other transfer
contemplated by the subject document or instrument.
1.1.23 "Operating" means Santa Anita Operating Company.
1.1.24 "Operating Lease" means a lease pursuant to which Realty has
leased a Property to Operating or to a subsidiary or an affiliate of
Operating.
1.1.25 "Owner's Title Policy" means the standard form CLTA extended
coverage owner's title insurance policy of the Title Company in use at the
time in question in the state in which a particular Property is located.
1.1.26 "Permitted Title Exceptions" means [To be inserted after receipt
of all title policies]
1.1.27 The term "person" is used herein as defined in the Formation
Agreement.
1.1.28 "Property" means as to each property listed on Exhibit A to this
Agreement, all of the properties and assets constituting that Property
owned or leased by Realty or in which Realty otherwise has an interest, and
all rights, privileges, claims and contracts of Realty associated
therewith, of every kind and description, real, personal and mixed,
tangible and intangible, absolute and contingent, and wherever located
other than the Indirect Property. Each Property includes, without
limitation, (i) the subject Real Property; (ii) all furniture, furnishings,
fixtures, equipment, motor vehicles and other tangible personal property
owned or leased by Realty (or in which Realty otherwise has an interest)
located on that Real Property and used in connection with the operation of
the subject Property; (iii) all title policies, commitments and reports,
surveys, appraisals, environmental reports, engineering reports, building
plans and specifications and drawings and other books and records of Realty
with respect to that Property; (iv) all Franchise Agreements, Management
Agreements, maintenance and repair or service agreements, advertising
agreements and other similar contracts to which Realty is a party with
respect to that Property, if any; (v) all licenses, permits, certificates
of occupancy and other approvals and authorizations of Governmental
Authorities issued or granted to Realty with respect to that Property; (vi)
all trademarks, trade names, service marks, logos and other intangible
personal property owned, licensed or otherwise held by Realty with respect
to that Property; and (vii) all causes of action and other claims of Realty
relating to the ownership or operation of the subject Property.
1.1.29 "Property Interest" means Realty's title to or interest in the
Real Property that forms a part of a Property or interest in a partnership
that owns (or is in a partnership that is a partner in a partnership that
owns) title to the Real Property. Each Property Interest consists of one or
a combination of the following: (i) fee title to land and the Improvements
thereon, (ii) a leasehold estate in land together with fee title to the
Improvements thereon, or (iii) a leasehold estate in both land and the
Improvements thereon. Each Property Interest also includes all rights,
privileges and benefits incident to the ownership of such fee title or
leasehold estate, including, without limiting the generality of the
foregoing: (a) any option or right of first refusal in favor of Realty to
purchase the land and/or Improvements subject to a Ground Lease, together
with any and all ownership interests in real property heretofore acquired
by Realty as the result of the exercise of any such option or right; (b)
the landlord's interest in the Operating Lease and in each other lease or
sublease, if any, now existing with respect to all or any portion of a
Property; and (c) all right, title and interest of Realty in and to any and
all licenses, easements, grants, servitudes, covenants, rights, rights of
way, uses, privileges and other appurtenances in or affecting a Property.
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1.1.30 "Real Property" means as to each Property, the subject land and
the related Improvements.
1.1.31 "Realty" means Santa Anita Realty Enterprises, Inc.
1.1.32 "Realty JV" means the Santa Anita Realty LLC.
1.1.33 "SEC Documents" means complete and correct copies of all reports
and statements filed by Realty with the SEC since January 1, 1993.
1.1.34 "Security Documents" means all loan agreements, credit agreements,
installment land sale contracts, deeds of trust, mortgages, assignments of
leases and rents, assignments of contracts and other assignments, fixture
filings, security agreements, pledges, pledge agreements, financing
statements, deposit account pledge agreements, collateral assignments,
assignments of fixture filings or financing statements, guaranties, letters
of credit, credit supports, keepwell agreements, environmental indemnities
and other assignments, undertakings, agreements, instruments or documents
securing or guarantying the repayment of any indebtedness evidenced by, or
the satisfaction of any other liability or the performance of any other
obligation under or made in connection with, a Note Receivable.
1.1.35 "Title Company" means or an affiliate or representative thereof
in the jurisdiction in which the relevant Property or Indirect Property is
located.
1.1.36 "Title Exception" means (i) any matter affecting the ability of
the owner, lessor or lessee of real property to convey, assign or otherwise
transfer marketable and insurable title to such real property (including,
in the case of the Properties, transfer of the lessor's interest in the
Operating Leases); and (ii) any other matter affecting title to, or the
right of possession, use or enjoyment of, such real property, including,
without limitation, easements, covenants, conditions, restrictions, rights
of way, liens, encumbrances, encroachments, matters of survey, purchase
options or other rights to acquire, rights of first refusal or similar
rights vested in third parties, whether or not of record.
1.2 Interpretation. For purposes of this Agreement, the meanings assigned to
capitalized terms in Section 1.1 are equally applicable to the singular form
and the plural form of the terms defined; all references in this Agreement to
designated "Articles," "Sections" and "subsections" are to the designated
Articles, Sections and subsections of the body of this Agreement; and the
words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section,
subsection or other part hereof.
1.3 Other Terms. Any capitalized terms used in this Agreement and not
otherwise defined shall have the meaning given such term in the Formation
Agreement, unless the context clearly indicates otherwise.
ARTICLE 2
Contribution of Assets, Assumption of Liabilities
and Admission to Realty IV
In accordance with the requirements of Section 1.4 of the Formation
Agreement, Realty and Realty JV are taking the following actions concurrently
with their execution and delivery hereof:
2.1 Assignment and Assumption. Pursuant to the instruments and documents
described in Section 4.1, and except in each case as otherwise provided in
Section 4.2:
2.1.1 Realty is conveying, assigning and transferring to Realty JV and
Realty JV is accepting and acquiring from Realty, all right, title and
interest of Realty in and to all of the properties and assets of Realty and
all rights, privileges, claims and contracts of Realty associated
therewith, of every kind and description, real, personal and mixed,
tangible and intangible, absolute and contingent and wherever located,
including, without limitation, the Properties and the Notes Receivable.
2.1.2 Realty JV is assuming from Realty and becoming liable for, and
agreeing to pay, perform and discharge when due, all debts and other
liabilities and obligations of Realty of any kind or nature (whether
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absolute, accrued, contingent or otherwise, whether then due or to become
due, whether known or unknown and whether disclosed or undisclosed),
including, without limitation, all liabilities and obligations of Realty
under the Mortgages, the Ground Leases, the Operating Leases, the Franchise
Agreements and the Notes Receivable but excluding those liabilities and
obligations of Realty set forth on Exhibit B (the "Excluded Liabilities).
2.2 Admission as Member; Units. On the terms and subject to the conditions
set forth in the Realty JV Agreement, and in consideration of Realty's
contribution to Realty JV of the Contributed Assets, Realty is becoming a
member of Realty JV, and is receiving a "Percentage Interest" (as defined in
Realty JV Agreement) in Realty JV calculated and determined in accordance with
applicable provisions of the Realty JV Agreement and the Formation Agreement.
ARTICLE 3
Title Reports, Appraisals and Inspections
Realty JV acknowledges and expressly agrees as follows:
3.1 Title Reports, Appraisals and Environmental Reports. Prior to the date
hereof, Realty has obtained and made available to Realty JV with respect to
each Property or Indirect Property (i) an extended coverage preliminary title
report (or title insurance commitment), issued in each case by the Title
Company, together with copies of all documents listed in that preliminary
title report or title insurance commitment as Title Exceptions (such
preliminary title reports, title insurance commitments and documents
collectively the "Title Documents"); (ii) the most recent survey, the most
recent appraisal and the most recent Phase I, Phase II or other environmental
report in Realty's possession with respect to that Property or Indirect
Property, in each case if and to the extent that Realty possesses the same.
3.2 No Implied Warranty. Except as expressly stated to the contrary herein,
Realty is not, in this Agreement or any other agreement, instrument or
document contemplated by this Agreement, representing or warranting in any way
as to the value of the Contributed Assets, the absence of claims, charges,
liens and encumbrances against, or other restrictions on or rights of others
with respect to, the Contributed Assets or the condition of or any other
matter concerning the Contributed Assets, it being acknowledged and expressly
agreed by Realty JV that except as provided in Article IV, the Contributed
Assets are being contributed, assigned, conveyed and otherwise transferred to
Realty JV "as is, where is."
ARTICLE 4
Closing
4.1 Closing Date Deliveries. Realty and Realty JV, concurrently with their
execution and delivery of this Agreement, are executing and delivering, or
causing the other appropriate party or parties to execute and deliver, except
in each case as otherwise provided in Section 4.2, the following instruments
and documents, each of which shall be in form and substance reasonably
acceptable to Realty and its counsel and to Realty JV and its counsel:
4.1.1 With respect to each Property Interest that consists in whole or in
part of fee title, Realty is executing and delivering to Realty JV (i) a
grant deed in proper statutory and recordable form, conveying to Realty JV
that Property Interest, and (ii) an affidavit sufficient to exempt the
conveyance of that Real Property to Realty JV from the withholding
requirements of Section 1445 of the Code.
4.1.2 With respect to each Property Interest that consists, in whole or
in part, of an assignment in a partnership interest, Realty is executing
and delivering to Realty JV an assignment and assumption agreement and such
other instruments and documents of transfer as are necessary to effectuate
the transfer of such partnership interest from Realty to Realty JV and the
assumption by Realty JV of such interest.
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4.1.3 With respect to each Property Interest that consists in whole or in
part of an interest under a Ground Lease, (i) Realty and Realty JV are
executing and delivering a lease assignment and assumption agreement in
recordable form, conveying to Realty JV Realty's Property Interest under
that Ground Lease and evidencing Realty JV's assumption and agreement to
pay, perform and discharge when due all Assumed Liabilities arising from,
out of or otherwise in connection with that Ground Lease.
4.1.4 Realty and Realty JV are executing and delivering with respect to
each Mortgage, each Operating Lease and each Franchise Agreement, one or
more assignment and assumption agreements assigning to Realty JV all right,
title and interest of Realty in and to the Mortgage Notes and Mortgages,
the Operating Leases and the Franchise Agreements and evidencing Realty
JV's assumption and agreement to pay, perform and discharge when due all
Assumed Liabilities arising from, out of or otherwise in connection with
the Mortgage Notes and Mortgages, the Operating Leases and the Franchise
Agreements. In addition, if the consent of the lessor under a particular
Ground Lease, the holder of a particular Mortgage Note and Mortgage or the
franchisor under a particular Franchise Agreement (i) is required in
connection with the assignment to Realty JV of Realty's right, title and
Interest in and to, and Realty JV's assumption of Realty's liabilities and
obligations under, that Ground Lease, that Mortgage or that Franchise
Agreement, and (ii) is a consent described in Section of the Formation
Agreement, Realty and Realty JV in each case are executing and delivering
(and causing all other appropriate parties, if any to execute and deliver)
such additional assignment and assumption agreements and such other
agreements, certificates, opinion letters, information, financial
statements, instruments and documents (including, without limitation,
affirmations, confirmations, subordination, nondisturbance and attornment
agreements, guaranties, estoppel certificates, financing statements,
fixture filings and assignments of financing statements and fixture
filings) as have been reasonably required by that lessor, the holder of
that Mortgage Note and Mortgage or that franchisor, as the case may be.
4.1.5 With respect to each Note Receivable, Realty is delivering to
Realty JV (i) an executed assignment conveying and assigning to Realty JV
all right, title and interest of Realty in and to that Note Receivable, to
each Security Document securing the payment of, or otherwise related to,
that Note Receivable (and the claims, charges, liens and encumbrances
created by said Security Documents) and to the lender's policy of title
insurance (together with all endorsements thereto, if any) previously
obtained by Realty in connection with that Note Receivable; (ii) the
executed original of each Note Receivable, duly endorsed to Realty JV, if
and to the extent that said Note Receivable is in the possession of Realty;
and (iii) as to each financing statement or fixture filing previously
executed in favor of Realty in connection with that Note Receivable and
filed or recorded, an executed assignment thereof in form appropriate for
filing or recording, as applicable.
4.1.6 Realty is executing and delivering to Realty JV, and Realty JV is
executing and delivering to Realty, such additional bills of sale and
assignment, assumption agreements and other instruments and documents of
transfer as the parties have determined are reasonably necessary to
transfer to Realty JV all right, title and interest of Realty in and to the
Contributed Assets, and to evidence Realty JV's assumption and agreement to
pay, perform and discharge when due the Assumed Liabilities, not otherwise
assigned and transferred to or assumed by Realty JV pursuant to the deeds,
assignment and assumption agreements and other instruments and documents
described in the preceding subsections of this Section 4.1.
Realty and Realty JV have directed the Escrow Agent to cause each of the
foregoing deeds, lease assignment and assumption agreements and other
instruments and documents that is intended to be filed or recorded in the
public records of any state, county or other jurisdiction to be so filed or
recorded, as the case may be, at the earliest possible time.
4.2 Consents to Transfer. Realty hereby affirms to Realty JV that Realty has
used all reasonable efforts to obtain (i) the consent of each ground lessor,
lender and franchisor whose consent is required under a Ground Lease, a
Mortgage or a Franchise Agreement in order for it to convey, assign or
otherwise transfer to Realty JV that Ground Lease, Mortgage or Franchise
Agreement or the Property or Properties to which that Ground Lease, Mortgage
or Franchise Agreement relates, and (ii) any and all other consents of third
parties (including other
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partners in partnerships in which Realty is a partner) and all approvals and
actions of Governmental Authorities required in order for Realty to transfer
to Realty JV the other leases, licenses, permits, contracts, claims, rights
and privileges of Realty relating to the Properties and the Notes Receivable
(including, but not limited to, those consents, approvals and actions referred
to in Sections and of the Formation Agreement, to the extent the same
are to be obtained by Realty). If and to the extent that Realty has been
unable to obtain any third-party consent (a "Third-Party Consent") or approval
or action of a Governmental Authority (a "Governmental Approval") described
this Section 4.2:
4.2.1 Neither this Agreement nor any agreement, instrument or documents
executed and delivered pursuant hereto shall constitute a conveyance,
assignment or other transfer of (or an agreement to convey, assign or
otherwise transfer) the properties, assets, rights, privileges, claims or
contracts of Realty subject to that Third-Party Consent or Governmental
Approval (the "Non-Transferable Assets"), and the Non-Transferable Assets
shall not be included in the Contributed Assets;
4.2.2 Realty shall continue to be bound by, and shall not assign to
Realty JV, and Realty JV shall not assume, the obligations and liabilities
of Realty arising from, out of or in connection with the Non-Transferable
Assets;
4.2.3 Realty JV shall pay, perform and discharge when due the obligations
and liabilities described in subsection 4.2.2, and Realty shall assign and
promptly pay and remit to Realty JV (without further consideration
therefor) all monies and other consideration received by Realty in respect
of such payment and performance by Realty JV;
4.2.4 Realty shall exercise or exploit Realty's rights, privileges and
claims under or with respect to the Non-Transferable Assets as directed by
Realty JV; and if and at such time as any Third-Party Consent or
Governmental Approval shall be obtained or Realty's right, title or
interest in any Non-Transferable Asset otherwise shall become transferable,
Realty promptly shall convey, assign and otherwise transfer all right,
title and interest of Realty in and to that Non-Transferable Asset to
Realty JV, and Realty JV shall assume any and all liabilities and
obligations of Realty arising from, out of or in connection with the
transferred property, asset, right, privilege, claim or contract, in each
case without the payment of any further consideration therefor.
Realty has made available to Realty JV copies of all lessor, lender,
franchise, tenant and other Third-Party Consents, and all Governmental
Approvals, heretofore obtained by Realty, and from and after the date hereof
Realty shall provide to Realty JV copies of all Third-Party Consents and all
Governmental Approvals, if any, obtained by Realty after the date hereof
promptly after Realty obtains the same. No provision of this Section 4.2 shall
be construed to require Realty to pay or offer to pay any consideration to any
lessor, lender, franchisor or other third party from whom any Third-Party
Consent shall be requested.
4.3 Title Insurance. Concurrently with the execution and delivery hereof,
the Title Company is issuing to Realty JV, at the cost and expense of the
Realty JV, the following title insurance policies;
4.3.1 With respect to each Property Interest transferred to Realty JV,
the Title Company is issuing to Realty JV an Owner's Title Policy,
effective as of the date hereof, insuring Realty JV's fee title to (or
leasehold interest in) the subject Property free and clear of all Title
Exceptions other than Permitted Title Exceptions. Each Owner's Title Policy
being issued pursuant to this subsection 4.3.1 provides insurance coverage
in such amount as Realty JV heretofore has reasonably requested and
contains unmodified CLTA Form 100 and 116.1 Endorsements (or equivalents)
and such other endorsements as may be available and as Realty JV shall have
reasonably requested;
4.3.2 With respect to each Note Receivable transferred to Realty JV, the
Title Company is issuing to Realty JV a Lender's Title Policy (or, if
available, an endorsement to Realty's existing lender's title policy)
insuring the validity and priority of the lien created by the Security
Documents (as assigned to Realty JV) applicable to the subject Indirect
Property subject only to the Permitted Title Exceptions. Each Lender's
Title Policy issued pursuant to this subsection 4.3.2 provides insurance
coverage in the amount of, and
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contains such endorsements as were previously issued to Realty with respect
to, the lender's title insurance policy previously issued to Realty in
connection with that Note Receivable.
Realty hereby affirms that Realty has cooperated with the Title Company, and
executed and delivered to the Title Company and others such affidavits,
certificates and other instruments and documents, and taken such other
actions, as the Title Company may reasonably have required in order to issue
the Owner's Title Policies and the Lender's Title Policies required by this
Section 4.3, including, without limitation, executing any indemnity in favor
of the Title Company that the Title Company may reasonably have required
(taking into account the nature of the Property Interest owned by Realty with
respect to a given Property) to remove from said title policies exceptions for
mechanics' liens, delinquent taxes, parties in possession and other standard
exceptions.
4.4 Delivery of Possession. Possession of the Properties is being delivered
to Realty JV (subject in each case to the applicable Operating Lease and the
applicable Franchise Agreement and/or Management Agreement, if any, and to any
and all Permitted Title Exceptions and all other leases, subleases or other
rights of possession applicable to that Property) at the Properties;
possession of all other Contributed Assets is being delivered to Realty JV at
the principal executive offices of Realty.
4.5 Prorations. As soon as practicable after the Closing (but in no event
later than 30 days after the Closing Date), Realty shall submit to Realty JV
outside of escrow Realty's calculations of all prorations as between Realty
and Realty JV of all revenues and charges relating to the Contributed Assets
that are customarily prorated in transfers of real property, partnership
interests and notes receivable, including but not limited to interest and
principal payments under the Notes Receivable, periodic charges payable or
receivable with respect to the Real Property, such as rents (including prepaid
rents), utility charges, permit fees, service or other contractual fees,
common area maintenance charges, amounts payable or receivable under leases,
real and personal property taxes, general and special bonds and assessments
based upon the latest available tax information, without regard to any
reassessments or subsequent changes (provided that such prorations need not
cover any such matter which is to be paid by any tenant within the Real
Property). Such prorations shall be made as of 12:01 a.m. on the Closing Date,
with the understanding that all items of expense and income for the period
prior to the Closing Date will be for the account of Realty, and all items of
expense and income for the period on or after the Closing Date will be for the
account of Realty JV. Within 30 days after receiving Realty's calculations,
Realty JV shall provide Realty with any objections to such calculations,
whereupon the parties shall use their best efforts to resolve all such
objections promptly, but in any case within 10 days thereafter.
Notwithstanding the foregoing, delinquent rents from any leases, and
delinquent interest payments under the Notes Receivable, shall not be
prorated, but as rents (in the case of leases) or interest payments (in the
case of the Notes Receivable) are collected by either Realty or Realty JV,
they shall be applied first to amounts due for any periods after the Closing
until paid in full before any collections are applied to arrearages preceding
the Closing Date.
ARTICLE 5
Representations and Warranties of Realty
As an inducement to Realty JV to enter into this Agreement and to consummate
the transactions contemplated hereby, Realty represents and warrants to Realty
JV that, except as in each case may otherwise be disclosed in the SEC
Documents or set forth in the Disclosure Letter:
5.1 [Reserved]
5.2 Condemnation and Casualty. To the knowledge of Realty:
5.2.1 Realty has not received any notice from any Governmental Authority
of (i) any condemnation or eminent domain proceeding with respect to any
Property (including, without limitation, in connection with any existing,
proposed or contemplated plan to widen, realign or otherwise modify any
street or highway
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adjoining or adjacent to any Property), or (ii) any intended public
improvement that would result in any charge being levied or assessed
against, or in the creation of any claim, charge, lien or encumbrance upon
any Property, except for such condemnation or eminent domain proceedings,
and such claims, charges, liens and encumbrances as would not reasonably be
expected to have a Material Adverse Effect on the subject Property; and
5.2.2 Since the Balance Sheet Date, there has not been, occurred or
arisen any loss or destruction of, or damage to, any Property (whether or
not covered by insurance) that has involved or may involve a loss to Realty
of more than $250,000 in excess of applicable insurance coverage.
5.3 Material Contracts. Realty heretofore has made available to Realty JV a
true and complete copy of each of the following contracts in Realty's
possession (the "Material Contracts"):
5.3.1 Each Ground Lease, Operating Lease, Mortgage and Franchise
Agreement;
5.3.2 Each lease, installment sale contract or similar agreement under
which Realty is lessee of, or otherwise holds or uses, any furniture,
furnishings, fixtures, equipment, motor vehicle or other tangible personal
property owned by a third party, that in each case was entered into after
the Balance Sheet Date and that will obligate Realty JV to an amount of
$40,000 or more per year;
5.3.3 Each insurance policy currently maintained by Realty with respect
to the Properties;
5.3.4 Each license or other agreement (other than a Franchise Agreement)
under which Realty uses or has the right to use any trademark, trade name,
service mark, logo, patent or copyright on which the business of Realty or
any Property is substantially dependent;
5.3.5 Each covenant not to compete or other similar written contract that
will materially restrict the business to be carried on by Realty JV; and
5.3.6 Each written contract that was not made in the ordinary course of
business.
All amounts, if any, currently due and payable by Realty under each Material
Contract have been paid, and Realty otherwise has complied with the applicable
provisions of each Material Contract, except for such payment and other
uncured or unwaived defaults by Realty, if any, as would not reasonably be
expected to result in the forfeiture of any Ground Lease, the termination of
any Franchise Agreement, or the acceleration of the borrowings evidenced or
secured by any Mortgage, or to have a Material Adverse Effect on the
Properties or Realty JV. Realty has no knowledge of any default or breach by
any ground lessor, mortgagee, franchiser or other party to any Material
Contract that, individually or together with other such defaults and breaches,
would reasonably be expected to have a Material Adverse Effect on the
Properties or Realty JV.
5.4 Notes Receivable. Realty heretofore has made available to Realty JV,
with respect to each Note Receivable, true and complete copies of the
promissory note(s) and other debt instrument(s) evidencing the Note Receivable
and all Security Documents executed and delivered in connection with that Note
Receivable, to the extent the same are in the possession of Realty. Realty has
complied in all material respects with the applicable provisions of each Note
Receivable and the related Security Documents, and to the knowledge of Realty:
5.4.1 All principal, interest and other amounts due and payable under
each Note Receivable have been paid when due, and there is no uncured or
unwaived payment or other default or breach by the maker(s) of any Note
Receivable or the obligor(s) under any Security Document or any other fact
or circumstance that would impair the validity, enforceability or
collectability of any Note Receivable, except for such payment and other
defaults and breaches as would not reasonably be expected to have a
Material Adverse Effect on the Notes Receivable.
5.4.2 Realty has not received notice of any structural, mechanical, HVAC,
environmental or zoning condition, casualty, condemnation, title defect or
other fact or circumstance concerning any Indirect Property (or portion
thereof), or any fact or circumstance concerning any other collateral
securing a Note Receivable, that would reasonably be expected to have a
Material Adverse Effect on the Notes Receivable or Realty JV.
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5.5 Liabilities. Immediately after the Closing, Realty JV will not have
assumed from Realty pursuant to this Agreement any debt or other liability or
obligation of any kind except (i) liabilities and obligations that were
reflected or reserved against in the Balance Sheet and have not heretofore
been paid or discharged, (ii) liabilities and obligations incurred by Realty
since the Balance Sheet Date either in the ordinary course of business and
consistent with past practice or in connection with any transaction
contemplated or permitted by this Agreement, any other Transaction Agreement
or the Formation Agreement, (iii) liabilities and obligations under the Ground
Leases, Operating Leases, Mortgages and Franchise Agreements, and (iv)
liabilities and obligations that would not reasonably be expected to have a
Material Adverse Effect on the Contributed Assets or Realty JV.
ARTICLE 6
Post-Closing Covenants
6.1 Access to Information. Each of Realty and Realty JV from and after the
Closing shall afford to the other and its authorized accountants, attorneys,
bankers, financial advisors and other designated representatives reasonable
access (including, without limitation, using reasonable efforts to give access
to third parties possessing the requisite information) and duplicating rights,
during normal business hours, to all books and records (including, without
limitation, contracts, instruments, documents and computer data) and other
information within Realty's or Realty JV's possession relating to the
Contributed Assets, insofar as such access is reasonably requested by the
other. Information may be requested under this Article VI for, among other
purposes, audit, accounting, tax and litigation matters, as well as for
purposes of fulfilling reporting and other disclosure obligations.
6.2 Retention of Records. If at any time prior to the seventh anniversary
of the Closing Date, either party hereto proposes to destroy or otherwise
dispose of any significant books and records or other information relating to
the Contributed Assets, that party shall provide to the other party not less
than 90 days nor more than 120 days prior written notice of the same,
specifying the information proposed to be disposed of, and if the party
receiving the notice requests in writing prior to the scheduled date for the
destruction or disposal that any of the books, records or other information
proposed to be destroyed or disposed of be delivered to the requesting party,
the party proposing the destruction or disposal shall promptly arrange for
such delivery at the expense of the requesting party.
6.3 Confidentiality. All information disclosed by either party hereto
(directly or through an authorized representative) to the other party (or its
representative) pursuant to this Article VI and designated by the disclosing
party as confidential shall be held in confidence by such other party and its
representatives, shall not be disclosed by them to any third party, and shall
not be used by such other party (or its representatives) other than as
contemplated by this Article VI, except to the extent that (i) such disclosure
is compelled by judicial or administrative process or is, in the opinion of
such party's counsel, required by other requirement of law, or (ii) such
information can be shown to have been known to the recipient when received or
then or at any time thereafter lawfully obtainable by the receiving party from
another source.
ARTICLE 7
Miscellaneous Provisions
7.1 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants of the parties hereto (or either or
them) contained in this Agreement shall survive the Closing as, and to the
extent provided in the Formation Agreement.
7.2 Fees and Expenses. Each party hereto shall bear all costs and expenses
incurred by that party (including, without limitation, the fees and
disbursements of that party's attorneys, accountants, consultants,
contractors, investment bankers and other advisors) in connection with the
preparation, negotiation, execution
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and delivery of this Agreement, the agreements, certificates and other
documents and instruments executed and delivered in connection with this
Agreement, any due diligence tests, studies or investigations, and the
consummation of the transactions contemplated hereby; provided, however, that
if the Closing occurs, all real and personal property transfer taxes, all
sales, use and other similar taxes and all costs of documentary transfer
stamps, if any, imposed on or incurred in connection with the contribution and
transfer of the Contributed Assets to Realty JV and Realty JV's assumption of
the Assumed Liabilities, and all title premiums incurred in obtaining the
Lender's Title Policies and the Owner's Title Policies, all escrow fees, and
all filing fees, recording fees and other charges incurred in connection with
the filing and recording in the Official Records of the instruments and
documents described in Section 4.1, shall be paid by Realty JV.
7.3 Notices. All notices and other communications under this Agreement shall
be in writing, shall be deemed given when given as provided in the Formation
Agreement and if given to Realty JV shall be given to it at the address
specified in the Formation Agreement for Realty.
7.4 Further Assurances. Each of Realty and Realty JV shall take or cause to
be taken all such actions as may be necessary or as the other party may
reasonably request in order to effectuate the purposes of this Agreement, to
consummate the transactions contemplated hereby and to otherwise carry out the
terms hereof. Without limiting the generality of the foregoing, from time to
time after the Closing, at the request of Realty JV and without further
consideration, Realty shall execute and deliver such additional assignments,
conveyances and other instruments of transfer, and take such other actions, as
Realty JV may reasonably require in order to more effectively convey, assign
and otherwise transfer to Realty JV and to confirm Realty JV's title to all of
the Contributed Assets, to put Realty JV in actual possession and operating
control thereof and to permit Realty JV to exercise all rights with respect
thereto and to properly assume and pay, perform and discharge the Assumed
Liabilities.
7.5 Extension; Waiver. Either party hereto may at any time or from time to
time (i) extend the time for, or waive, the performance of any one or more of
the obligations of the other party under this Agreement, (ii) waive any
inaccuracy in any one or more representation and warranties of the other party
contained herein or in any certificate or other instrument or document
delivered pursuant hereto, or (iii) waive any condition or conditions
contained herein to the obligations of the waiving party hereunder. Any such
extension or waiver shall be valid only if set forth in a written instrument
signed by the party to be bound.
7.6 Severability. If any provision of this Agreement (or the application of
any provision of this Agreement to any person or circumstance) is held by a
court of competent jurisdiction to be illegal or otherwise invalid or
unenforceable, the remaining provisions of this Agreement and the application
of the subject provision to any other person or circumstance, shall not be
affected thereby, and to such end the provisions of this Agreement are
expressly agreed to be severable.
7.7 Time of the Essence. Time is of the essence of this Agreement and of the
satisfaction or performance of each condition and covenant contained herein.
7.8 Specific Performance. The parties hereto expressly agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that each party
hereto shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or equity. If either party brings any
legal or equitable action in connection with this Agreement, the prevailing
party shall be entitled to recover from the losing party all of its costs and
expenses, including court costs and reasonable attorneys' fees.
7.9 Successors and Assigns: Parties in Interest. Neither party to this
Agreement may assign, delegate or otherwise transfer any right or obligation
of that party under this Agreement without the prior written consent of the
other party hereto. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, and no provision of this Agreement, express or implied, is
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intended or shall be deemed to confer upon any other person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
7.10 Descriptive Headings. The descriptive headings of the Articles and
Sections herein have been inserted for convenience of reference only and are
not intended to be a part of, or to affect the meaning or interpretation of,
this Agreement.
7.11 Entire Agreement. This Agreement (including the Exhibits hereto), and
the Formation Agreement and the Realty JV Agreement contain and constitute the
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements, understandings and
negotiations, written and oral, between or by such parties or either of them
with respect to the subject matter hereof.
7.12 Amendment. This Agreement may not be amended, supplemented or otherwise
modified except by an instrument in writing signed by each party hereto.
7.13 Execution in Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original
counterpart, but all of which shall constitute one and the same agreement.
This Agreement shall become a binding agreement at such time as each of Realty
and Realty JV shall have received one fully executed counterpart hereof.
7.14 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without regard
to principles of conflicts of laws as applied in that State or in any other
jurisdiction that, if such principles of conflicts of laws were applied, would
result in the application of any laws other than the internal laws of the
State of California, provided, however, that the terms and conditions of the
instruments and documents of conveyance and assignment described in Section
4.1 and the recording and filing of the instruments and documents described in
that Section and intended to be recorded or filed with a Governmental
Authority shall be governed by the law of the applicable local jurisdiction.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first above written.
Santa Anita Realty Enterprises, Inc.
By: _________________________________
Name:
Title:
Santa Anita Realty LLC
By: _________________________________
Name:
Title:
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EXHIBIT A
PROPERTIES
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EXHIBIT B
EXCLUDED LIABILITIES
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EXHIBIT F
SERVICES AGREEMENT
Agreement dated as of [DATE], 1996 among Santa Anita Realty Enterprises,
Inc. ("Realty"), a Delaware corporation, Santa Anita Realty LLC ("Realty JV"),
a Delaware limited liability company, and Colony Capital, Inc. ("Advisor") a
Delaware corporation. Capitalized terms used but not defined herein shall have
the respective meanings ascribed to them in the Formation Agreement dated as
of August 17, 1996 among Colony Investors II, L.P. ("Investor"), Realty, and
Santa Anita Operating Company ("Operating") (as the same may be amended or
modified from time to time, the "Formation Agreement").
Background
A. Pursuant to the Formation Agreement, Investor, an affiliate of Advisor,
has purchased the Purchased Shares in the Public Companies and will purchase
Units in the JVs.
B. Realty and Realty JV desire Advisor to supply certain investment advisory
and other services to them to the extent and on the terms specified in this
Agreement.
Terms
1. FURNISHING OF SERVICES; FEE.
(a) Advisor will provide the Services (as herein defined) to Realty and
Realty JV subject to and in accordance with the terms of this Agreement. The
term "Services" as used in this Agreement means the activities described in
the remainder of this subparagraph (a). With respect to the Target
Acquisitions, as such term is defined in the Formation Agreement, Advisor will
assist Realty and Realty JV in sourcing such acquisitions, performing
financial and strategic analysis of such acquisitions and in structuring,
negotiating and completing transactions for such acquisitions. Advisor will
advise Realty JV on establishing an internal acquisitions department and will
recommend personnel for such department and assist Realty JV in evaluating
such personnel. Advisor will also assist Realty and Realty JV in formulating
their respective annual and longer term business plans and in determining
capital needs. Advisor will advise Realty and Realty JV with respect to public
and private offerings of securities, including advising on the selection of
underwriters, placement agents and on structuring such transactions. Advisor's
personnel will further assist in sourcing and completing debt transactions. It
is anticipated that prior to the establishment of Realty JV's acquisitions
department, the personnel who will provide these Services will include both
senior and junior level business persons employed by Advisor.
(b) In consideration for the Services, Realty JV will reimburse Advisor's
reasonable out-of-pocket expenses incurred in connection with Advisor's
performance of the Services upon receipt from Advisor of invoices or other
documentation reasonably acceptable to Realty JV, provided that any unusually
large or extraordinary expenses or any expenses out of the ordinary course of
business shall be first approved by Realty JV and such approval shall not be
unreasonably withheld. In addition, Realty JV will reimburse Advisor for its
personnel costs (including salary and benefits) to the extent such costs are
directly allocable to the performance of the Services by Advisor's personnel
and do not exceed $25,000 per month on a cumulative basis during the term of
this Agreement.
(c) If Realty or Realty JV or Operating or Operating JV consummates an
acquisition or other transaction with respect to a Targeted Acquisition
resulting from Services, Realty JV will pay Advisor a completion fee at the
closing of each such transaction in an amount determined by a majority of
those members of the Member Board of Realty JV who are not affiliated with
Advisor.
(d) From time to time, and at least monthly, Advisor shall submit a billing
statement to Realty JV detailing the amount of expenses and costs for which
Advisor seeks to be reimbursed relating to Services rendered during
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the period indicated in the billing statement (collectively, the "Billed
Amount"). If necessary, the billing statement shall be accompanied by a
reasonably detailed calculation of the reimbursable expenses pursuant to
subparagraph 1(b) above. Realty JV shall pay Advisor the Billed Amount within
45 days of receipt of the billing statement.
2. TERM AND TERMINATION.
(a) The term of this Agreement shall begin on [closing of transaction] and
shall continue until the earlier of (i) the date on which Investor has
purchased all the Units which Investor is obligated to purchase in Realty JV
pursuant to the Limited Liability Company Agreement of Realty JV dated the
date hereof (the "LLC Agreement") and (ii) October 1, 1998; provided that if
within 90 days after the termination date, Realty and/or Realty JV consummates
a transaction which was in progress at the termination date and that resulted
from Advisor's performance of the Services, Advisor shall be entitled to its
completion fee for such transaction in accordance with clause Section 1(c).
(b) Realty and Realty JV may terminate this Agreement effective on the close
of business on the last day of any month in the event Advisor is not providing
Services in a manner reasonably satisfactory to Realty and Realty JV; provided
that Realty and Realty JV have given Advisor written notice of their intention
to terminate this Agreement at least 15 days in advance of their doing so and
during that 15 day period, Advisor has failed to cure its failure of
performance. Advisor may terminate this Agreement effective on the close of
business on the last day of any month if either Realty or Realty JV is more
than 90 days in arrears in the payment of any amounts due under this
Agreement.
3. PERFORMANCE OF SERVICES.
(a) All the Services may be performed by Advisor's employees and Advisor
shall not be required to hire any persons other than its own employees in
connection with the performance of the Services.
(b) Advisor shall use its reasonable efforts to render the Services on
mutually agreed-upon schedules.
4. CONFIDENTIALITY.
(a) Subject to section 4(c), without the prior written consent of Realty and
Realty JV, the Confidential Information (defined below) (1) shall not be
disclosed, reproduced, distributed or communicated, directly or indirectly, in
whole or in part, by Advisor to any Person other than Advisor's
representatives, (2) shall be kept strictly confidential by Advisor and, where
applicable, Advisor's representatives, (3) shall not be used in any manner
inconsistent with this Agreement and (4) with respect to Confidential
Information that is material and competitively sensitive to the business of
Realty and/or Operating, such information shall not be used for purposes of
business competition with Realty and/or Operating. It is agreed (a) that
Advisor's representatives shall be informed by Advisor of the strictly
confidential nature of the Confidential Information and of the existence and
content of this Section 4, (b) that such representatives shall be bound to the
same extent as Advisor by the provisions of this Section 4 as a condition to
receiving the Confidential Information, (c) that each financial and accounting
representative of Advisor shall execute a confidentiality agreement with
Realty and Realty JV containing substantially similar provisions to this
Section 4 as a condition to receiving the Confidential Information and (d)
that Advisor shall be liable for any direct or indirect default of this
Agreement by any of Advisor's representatives.
(b) "Confidential Information" shall mean any information, written, oral or
otherwise, relating to Realty or Operating provided to Advisor in connection
with Advisor's rights and obligations hereunder or any other transactions
contemplated by this Agreement by any of Realty, Operating, Realty JV or the
representatives of any of the foregoing, which information is confidential,
proprietary or otherwise not generally available to the public or is labeled
as confidential, together with all analyses, compilations, data, studies,
reports, records or other documents which contain, are prepared on the basis
of, or otherwise reflect all or any portion of any of the foregoing
information.
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(c) Notwithstanding the foregoing, Confidential Information shall not
include information that (i) prior to the date of this Agreement was in the
possession of Advisor or its representatives and not otherwise subject to a
confidentiality agreement, (ii) is or becomes generally available to the
public other than through a direct or indirect default of this agreement by
Advisor or Advisor's representatives or (iii) is or becomes available to
Advisor or Advisor's representatives on a non-confidential basis from a source
other than Realty, Operating, Realty JV or any representatives of any of the
foregoing entities, without Advisor's or Advisor's representatives' knowledge
that the source has violated any fiduciary or other duty not to disclose such
information.
(d) If Advisor is requested or required (by oral question, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process or legal requirements) to disclose any Confidential
Information, Advisor will, as soon as practicable, notify Realty and Realty JV
of such request or requirement so that Realty and Realty JV may seek an
appropriate protective order. If, in the absence of a protective order,
Advisor is, in the opinion of Advisor's counsel, required to disclose such
Confidential Information, Advisor shall disclose only such of the Confidential
Information to the party requiring disclosure as is, in the opinion of
Advisor's counsel, required by law. Advisor shall, at the expense of Realty
JV, cooperate with the reasonable efforts of Realty and Realty JV to obtain a
protective order or other reliable assurance that confidential treatment will
be accorded the Confidential Information.
5. BOOKS AND RECORDS.
(a) At such time as Advisor no longer furnishes Services to Realty and
Realty JV pursuant to this Agreement, Advisor shall deliver to Realty and
Realty JV all of the books and records which are created in the process of
performing the Services that relate solely to Realty, Operating and Realty JV.
(b) Realty, Realty JV and Advisor shall provide the cooperation of their
respective employees, independent contractors and agents as each may
reasonably require for their corporate purposes, including requisite
assistance in defense of claims, legal proceedings, resolution of tax
questions, the conduct of tax audits or the investigation or review of other
matters arising from or relating to this Agreement.
6. REPRESENTATIONS AND WARRANTIES.
Advisor represents and warrants to Realty and Realty JV with respect to
Advisor, and each of Realty and Realty JV represents and warrants to Advisor,
as follows:
(a) It is duly formed, validly existing and in good standing under the laws
of the jurisdiction of its organization. It is duly qualified to transact
business and in good standing in each of the jurisdictions in which the
ownership or leasing of the properties used in its business or the conduct of
its business requires such qualification. It has requisite power and authority
to enter into this Agreement and perform its obligations hereunder.
(b) The execution, delivery and performance of this Agreement has been duly
authorized by all necessary action on its part. The Agreement has been duly
executed and delivered by it and constitutes the legal, valid and binding
obligations of such representing party enforceable in accordance with its
terms.
(c) No consent, approval or authorization of, or registration or filing
with, any person, including any governmental authority or other regulatory
agency, is required in connection with the execution and delivery of this
Agreement by it or the performance by it of its obligations hereunder.
7. MISCELLANEOUS.
(a) The rights and the obligations of the parties under this Agreement may
not be assigned or transferred by any party hereto without the prior written
consent of the other parties hereto.
(b) This Agreement, and the application and interpretation thereof, shall be
exclusively governed by its terms and by the internal laws of the State of
California, without regard to principles of conflicts of laws thereof.
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(c) Each of the parties hereto irrevocably submits and consents to the
jurisdiction of the United States District Court for the Central District of
California or the Superior Court of the County of Los Angeles in connection
with any action or proceeding arising out of or relating to this Agreement and
irrevocably waives any immunity from jurisdiction thereof and any claim of
improper venue, forum non conveniens or any similar basis to which it might
otherwise be entitled in any such action or proceeding.
(d) This Agreement may be executed in one or more counterparts, each of
which shall be considered an original counterpart, and shall become a binding
agreement when Realty, Realty JV, and Advisor shall have each executed one
counterpart.
(e) All notices and other communications under this Agreement shall be in
writing and shall be deemed given when delivered personally or by overnight
mail, facsimile with telephone confirmation of receipt or four days after
being mailed (by registered mail, return receipt requested) to a party at the
following address (or to such other address as such party may have specified
by notice given to the other parties pursuant to this provision):
If to Advisor:
Colony Capital, Inc.
1999 Avenue of the Stars, Suite 1200
Los Angeles, California 90067
Facsimile No. (310) 282-8813
Attention: John E. Viola
with a copy to:
Colony Investors II, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Facsimile No. (817) 871-4088
Attention: Rick Ekleberry, Esq.
and to:
Rogers & Wells
200 Park Avenue
New York, NY 10166
Facsimile No. (212) 878-8375
Attention: Robert E. King, Jr., Esq.
If to Realty or Realty JV:
Santa Anita Realty Enterprises, Inc.
301 West Huntington Drive, Suite 405
Arcadia, California 91066-6014
Facsimile No (818) 574-5997
Attention: Brian L. Fleming
with a copy to:
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071
Facsimile No. (213) 669-6407
Attention: Frederick B. McLane, Esq.
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In Witness Whereof, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
Santa Anita Realty Enterprises, Inc.
By: _________________________________
Name:
Title:
Santa Anita Realty llc
By: _________________________________
Name:
Title:
Colony Capital, Inc.
By: _________________________________
Name:
Title:
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EXHIBIT G
CHARTER AMENDMENT OF REALTY
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
SANTA ANITA REALTY ENTERPRISES, INC.
We, the undersigned, being the duly elected President and Chief Executive
Officer and Secretary and Treasurer of Santa Anita Realty Enterprises, Inc.
(the "Corporation"), a corporation organized and existing under the laws of
the State of Delaware, do hereby certify:
FIRST: That at a special meeting held on [ ] [ ], 1996, the Board of
Directors of the Corporation approved proposed amendments of the Certificate
of Incorporation of the Corporation, declaring said amendments to be advisable
and authorizing the proposed amendments to be presented to the stockholders of
the Corporation for their consideration at the special meeting of stockholders
to be held on [ ] [ ], 1996. The resolutions setting forth the proposed
amendment are as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware by amending the first paragraph of
Article FOURTH thereof to read as follows:
"Article FOURTH. Capitalization. The total number of shares of capital stock
which the Corporation has authority to issue is [ , , ] shares,
consisting of (a) [ , , ] shares of the par value of $0.10 each are to
be of a class designated Common Stock, (b) [ , , ] shares of the par
value of $0.10 each are to be of a class designated Preferred Stock, (c) [,,]
shares of the par value of $0.10 each are to be of a class designated Excess
Common Stock and (d) [ , , ] shares of the par value of $0.10 each are
to be of a class designated Excess Preferred Stock. The Excess Common Stock
and the Excess Preferred Stock shall have the rights provided in Article
THIRTEENTH. [The aggregate par value of all shares of stock which the
Corporation has authority to issue is $[ , , ].]"
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware by amending Article EIGHTH thereof to
read as follows:
"EIGHTH. [Reserved]."
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SECOND: That the above-referenced amendments to the Certificate of
Incorporation were set forth in the proxy statement of the Corporation dated
[ ] [ ], 1996, distributed in connection with the Special Meeting of
Stockholders of the Corporation held on [ ] [ ], 1996.
THIRD: That at the Special Meeting of Stockholders of the Corporation held
on [ ] [ ], 1996, and pursuant to notice duly given, holders of a majority
of the outstanding shares of the Corporation's Common Stock voted in favor of
the above-referenced amendments.
FOURTH: That the above-referenced amendments were duly adopted in accordance
with the provisions of Section 242 of Delaware General Corporation Law, as
amended.
IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of
Incorporation has been executed on behalf of the Corporation by its duly
authorized officers this [ ] day of [ ], 1996.
Santa Anita Realty Enterprises, Inc.
By: _________________________________
President and Chief Executive
Officer
Attest:
_____________________________________
Secretary and Treasurer
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EXHIBIT H
CHARTER AMENDMENT OF OPERATING
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF SANTA ANITA OPERATING COMPANY
We, the undersigned, being the duly elected President and Chief Executive
Officer and Secretary and Treasurer of Santa Anita Operating Company (the
"Corporation"), a corporation organized and existing under the laws of the
State of Delaware, do hereby certify:
FIRST: That at a special meeting held on [ ] [ ], 1996, the Board of
Directors of the Corporation approved proposed amendments of the Certificate
of Incorporation of the Corporation, declaring said amendments to be advisable
and authorizing the proposed amendments to be presented to the stockholders of
the Corporation for their consideration at the special meeting of stockholders
to be held on [ ] [ ], 1996. The resolutions setting forth the proposed
amendment are as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware by amending the first paragraph of
Article FOURTH thereof to read as follows:
"Article FOURTH. Capitalization. The total number of shares of capital stock
which the Corporation has authority to issue is [ , , ] shares,
consisting of (a) [ , , ] shares of the par value of $0.10 each are to
be of a class designated Common Stock, (b) [ , , ] shares of the par
value of $0.10 each are to be of a class designated Preferred Stock, (c) [ ,
, ] shares of the par value of $0.10 each are to be of a class
designated Excess Common Stock and (d) [ , , ] shares of the par value
of $0.10 each are to be of a class designated Excess Preferred Stock. The
Excess Common Stock and the Excess Preferred Stock shall have the rights
provided in Article THIRTEENTH. [The aggregate par value of all shares of
stock which the Corporation has authority to issue is $[ , , ].]"
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware by amending Article EIGHTH thereof to
read as follows:
"EIGHTH. [Reserved]."
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SECOND: That the above-referenced amendments to the Certificate of
Incorporation were set forth in the proxy statement of the Corporation dated
[ ] [ ], 1996, distributed in connection with the Special Meeting of
Stockholders of the Corporation held on [ ] [ ], 1996.
THIRD: That at the Special Meeting of Stockholders of the Corporation held
on [ ] [ ], 1996, and pursuant to notice duly given, holders of a majority
of the outstanding shares of the Corporation's Common Stock voted in favor of
the above-referenced amendments.
FOURTH: That the above-referenced amendments were duly adopted in accordance
with the provisions of Section 242 of Delaware General Corporation Law, as
amended.
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IN WITNESS WHEREOF, this Certificate of Amendment of Certificate of
Incorporation has been executed on behalf of the Corporation by its duly
authorized officers this [ ] day of [ ], 1996.
Santa Anita Operating Company
By:
-----------------------------------
President and Chief Executive
Officer
Attest:
- ---------------------------------
Secretary and Treasurer
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EXHIBIT I
FORM OF ROGERS & WELLS OPINION
All capitalized terms used herein and not otherwise defined shall have the
same definitions as set forth in the Formation Agreement (as the same may be
amended or modified from time to time,the "Formation Agreement"), dated August
17, 1996, among Santa Anita Realty Enterprises, Inc. ("Realty"), Santa Anita
Operating Company ("Operating") and Colony Investors II, L.P. ("Investor").
1. Investor is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
power and authority, partnership or other, to own and operate its property and
conduct its business.
2. Each Transaction Agreement has been duly authorized, executed and
delivered by Investor.
3. Assuming the due authorization, execution and delivery of the Agreements
by Realty, Operating and Investor, each of the Transaction Agreements
constitutes the legal, valid and binding obligation of Investor, enforceable
against Investor in accordance with its respective terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the
effect of general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law), and except as rights to
indemnity and contribution thereunder may be limited by applicable law.
4. No consent, approval or authorization of, or registration, filing or
declaration with, any federal or state governmental authority or other
regulatory agency (other than such of the foregoing as required in connection
with the operation, management, use or occupancy of any properties of Realty
or Operating, as to which we express no opinion) is required for the valid
execution and delivery by Investor of the Transaction Agreements, and
preference by Investor of its obligation thereunder except for such as have
been filed, obtained or made.
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EXHIBIT J
FORM OF O'MELVENY & MYERS LLP OPINION
All capitalized terms used herein and not otherwise defined shall have the
same definitions as set forth in the Formation Agreement, dated August 17,
1996, as the same may be amended or modified from time to time, among Santa
Anita Realty Enterprises, Inc., Santa Anita Operating Company and Colony
Investors II, L.P.
1. Realty has been duly organized, and is validly existing in good standing
under the laws of the State of Delaware, with corporate power to own, lease
and operate its properties and to carry on its business as described in the
Proxy Statement, to enter into the Transaction Agreements, and to perform its
obligation under the Transaction Agreements.
2. Realty is organized and operated in conformity with the REIT
Requirements, and its proposed method of operation will enable it to continue
to meet the REIT Requirements. The Pairing Agreement is a legally valid and
binding obligation of each of Realty and Operating, enforceable against Realty
and Operating in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditor's rights generally (including, without limitation,
fraudulent conveyance laws) and by general principles of equity, including,
without limitation, concepts of materiality, reasonableness, good faith and
fair dealing and the possible unavailability of specific performance or
injunctive relief, regardless of whether considered in a proceeding in equity
or at law.
3. Operating has been duly organized, and is validly existing in good
standing under the laws of the State of Delaware, with corporate power to own,
lease and operate its properties and to carry on its business as described in
the Proxy Statement, to enter into the Transaction Agreements, and to perform
its obligations under the Transaction Agreements.
4. The execution, delivery and performance of the Transaction Agreements
have been duly authorized by all necessary corporate action on the part of
each of Realty, Operating, Realty JV and Operating JV and the Transaction
Agreements have been duly executed and delivered by each of Realty, Operating,
Realty JV and Operating JV, as appropriate. Assuming the due authorization,
execution and delivery of each of the Transaction Agreements by the other
parties thereto, each of the Transaction Agreements constitutes the legally
valid and binding obligation of each of Realty and Operating, enforceable
against Realty and Operating in accordance with their respective terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditor's rights generally (including,
without limitation, fraudulent conveyance laws) and by general principles of
equity, including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance or injunctive relief, regardless of whether considered in
a proceeding in equity or at law. We express no opinion regarding the
provisions of Article IX of the Formation Agreement, Section 6 of Exhibit M to
the Formation Agreement and Section 7 of the Registration Rights Agreement.
5. No consent, order, approval, permit or authorization of, or registration
or filing with any California of federal government authority that we have, in
the exercise of customary professional due diligence, recognized as applicable
to Realty, Operating, Realty JV or Operating JV or to transactions of the type
contemplated by the Transaction Agreements is required on the part of Realty,
Operating, Realty JV or Operating JV for the execution and delivery of, and
performance of its respective obligations on or prior to the date of this
opinion under the Transaction Agreements, except as have been obtained.
6. The Proxy Statement, as of its issue date, appeared on its face to comply
in all material respects with the requirements as to form for Proxy Statements
under the Securities Exchange Act of 1934, as amended, and the related rules
and regulations in effect on such date.
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In connection with our participation in the preparation of the Proxy
Statement, we have not independently verified the accuracy, completeness or
fairness of the statements contained or incorporated therein, and the
limitations inherent in the examination made by us and the knowledge available
to us are such that we are unable to assume, and we do not assume, any
responsibility for such accuracy, completeness or fairness. However, on the
basis of our review and participation in conferences in connection with the
preparation of the Proxy Statement, and relying as to materiality to an extent
upon opinions of officers and other representatives of Realty and Operating,
we do not believe that the Proxy Statement and the incorporated documents,
considered as a whole at the time the Proxy Statement was mailed to
stockholders and at the date of the meetings of the Public Companies'
stockholders in connection with the Realty Stockholder Matters and the
Operating Stockholder Matters, contained any statement which at the time and
in light of the circumstances under which it was made, is false or misleading
with respect to any material fact or which omitted to state any material fact
necessary in order to make the statements therein not false or misleading.
However, we express no opinion or belief as to any document filed by Realty or
Operating under the Securities Exchange Act of 1934, as amended, except to the
extent that any such document is an incorporated document read together with
the Proxy Statement and considered as a whole, nor do we express any opinion
or belief as to information regarding Investor supplied by Investor to the
Public Companies for inclusion in the Proxy Statement or as to the financial
statements and other financial information contained or incorporated by
reference in the Proxy Statement or the incorporated documents.
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EXHIBIT K
[RESERVED]
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EXHIBIT L
STANDSTILL AGREEMENTS
Section 1. Standstill Period. (a) Subject to the provisions of the following
sentence, the "Standstill Period" shall be the period commencing on the date
hereof and ending on the date of the third anniversary of the date hereof.
Prior to the end of the Standstill Period, the Standstill Period shall also be
terminated on the earliest of:
(i) the acquisition by any person or group, as such term is used in
Section 13(d)(3) of the 1934 Act ("Group"), other than Investor or any
affiliate thereof, of beneficial ownership of 15% or more of the combined
equity interests of the Public Companies and the JVs, on a fully diluted
basis, unless approved by the Member Board of either JV or any committee
thereof;
(ii) any person or Group (other than Realty or Operating) having a number
of representatives on the Board of either of the Public Companies or the
Member Boards of the JVs, or having the right or power to elect a number of
representatives on the Board of either of the Public Companies or the
Member Boards of the JVs, equal to or greater than the number of
representatives to which Investor is entitled;
(iii) the authorization by either of the Public Companies or either of
the JVs or the Board of Directors of either of the Public Companies or the
Member Board of either of the JVs or any committee thereof (with all
Investor representatives voting against) of the solicitation of offers or
proposals or indications of interest with respect to any merger,
consolidation, capitalization transaction, other business combination,
liquidation, sale of either or both of the Public Companies or either or
both of the JVs or all or substantially all of the assets of either or both
of the Public Companies or either or both of the JVs or any other change of
control of either or both of the Public Companies or either or both of the
JVs or similar extraordinary transaction, but excluding any merger,
consolidation or other business combination in which the Public Companies
and the JVs are the surviving and acquiring corporations and in which the
businesses or assets so acquired do not, or would not reasonably be
expected to, have a value greater than 50% of the combined assets of the
Public Companies and the JVs prior to such merger, consolidation or other
business combination (any of the foregoing, a "Covered Transaction");
(iv) the written submission by any person or Group other than Investor or
any affiliate thereof of a proposal to either of the Public Companies or
the JVs (including to the Boards of Directors, Member Boards, or any agent,
representative or affiliate of either of the Public Companies or the JVs)
with respect to, or otherwise expressing an interest in pursuing, a Covered
Transaction; provided, however, that the Standstill Period shall not
terminate pursuant to this Section 1(a)(v) if, as soon as practicable after
receipt of any such proposal, the Board of such Public Company or the
Member Board of such JV determines that such proposal is not in the best
interests of such Company and its stockholders or such JV and its members
and for so long as such Board continues to reject such proposal as a result
of such determination; or
(v) in connection with any actual or proposed Covered Transaction, the
removal of any rights plan, provisions of the Amended Charter or the By-
laws of either of the Public Companies or the JV Agreements relating to
supermajority voting, "excess share" provisions, or any other similar
arrangements, agreements, commitments or provisions in the Amended Charter
or the By-laws of either of the Public Companies or the JV Agreements which
would reasonably be expected to impede the consummation of such actual or
proposed Covered Transaction by action of any Government Authority, the
Board or the stockholders of either of the Public Companies or the Member
Board or the Members of the JVs or otherwise, or, whether or not in
connection with any actual or proposed Covered Transaction, any
modification, amendment, waiver or repeal of the ownership restrictions in
the Amended Charters of the Public Companies (except as may be necessary to
allow any acquisition of Paired Shares that would not constitute an Early
Termination Event under Section 1(a)(i) and except as may be required to
satisfy the REIT Requirements).
Any event set forth in subsection (i) through (v) of this Section 1(a) shall
be an "Early Termination Event".
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Section 2. Restrictions During Standstill Period. (a) During the Standstill
Period, Investor will not, will cause each of its controlled affiliates not
to, and will use its reasonable best efforts to cause each of its other
affiliates not to, directly or indirectly:
(i) act in concert with any other person or Group by becoming a member of
a 13D Group, other than any 13D Group comprised exclusively of Investor and
one or more of its affiliates;
(ii) purchase or otherwise acquire Paired Shares or Units as a result of
which, after giving effect to such purchase or acquisition, Investor and
its affiliates will beneficially own more than 45% of the combined equity
interests of the Public Companies and the JVs on a fully diluted basis;
(iii) solicit or propose to effect or negotiate any Covered Transaction
other than pursuant to the Formation Agreement or at the request of the
Boards of Directors of the Public Companies or the Member Boards of the
JVs.
(iv) solicit, initiate or participate in any "solicitation" of "proxies"
or become a "participant" in any "election contest" (as such terms are
defined or used in Regulation 14A under the 1934 Act, disregarding clause
(iv) of Rule 14a-1(1)(2) and including an exempt solicitation pursuant to
Rule 14a-2(b)(1)); call, or in any way participate in a call for, any
special meeting of stockholders of either Public Company (or take any
action with respect to acting by written consent of the stockholders of
either Public Company); request, or take any action to obtain or retain any
list of holders of any securities of either Public Company; or initiate or
propose any stockholder proposal or participate in the making of, or
solicit stockholders of either Public Company for the approval of, one or
more stockholder proposals; provided, however, that Investor shall not be
prohibited from communicating with a securityholder who is engaged in any
"solicitation" of "proxies" or who is a "participant" in any "election
contest";
(v) seek representation on the Board of either Public Company or a change
in the composition or size of such Board other than as permitted by Section
6.4 of the Formation Agreement;
(vi) request either Public Company or JV or any of its directors,
officers, employees or agents to amend or waive any provisions of this
Section 2 or seek to challenge the legality or effect thereof; or
(vii) assist, advise, encourage or act in concert with any person with
respect to, or seek to do, any of the foregoing.
Section 3. Definitions. Unless otherwise defined below, all capitalized
terms used herein shall have the meanings given them in the Formation
Agreement.
(a) "Covered Transaction" shall have the meaning set forth in Section
1(a)(iv).
(b) "Early Termination Event" shall have the meaning set forth in Section
1(a).
(c) "Formation Agreement" shall mean the Formation Agreement, dated August
17, 1996 among Santa Anita Realty Enterprises, Inc., Santa Anita Operating
Company and Investor.
(d) "Government Authority" shall mean any government or state (or any
subdivision thereof) of or in the United States, or any agency, authority,
bureau, commission, department or similar body or instrumentality thereof, or
any governmental court or tribunal.
(e) "Group" shall mean a "group" as such term is used in Section 13(d)(3) of
the 1934 Act.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
(g) "Standstill Period" shall have the meaning set forth in Section 1(a).
(h) "13D Group" shall mean any group of persons acquiring, holding, voting
or disposing of Paired Shares or Units which would be required under Section
13(d) of the 1934 Act and the rules and regulations thereunder (as in effect,
and based on legal interpretations thereof existing, on the date hereof) to
file a statement on Schedule 13D with the Securities and Exchange Commission
as a "person" within the meaning of Section 13(d)(3) of the 1934 Act if such
group beneficially owned voting securities representing more than 5% of any
class of voting securities then outstanding.
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EXHIBIT M
REGISTRATION RIGHTS
Unless otherwise indicated, capitalized terms used herein shall have the
meanings assigned to them in the Formation Agreement (the "Agreement") to
which this exhibit is attached.
Section 1. Definitions and Usage.
1.1. Definitions. As used in this Exhibit:
"Beneficially Owning" means owning Realty Shares directly, indirectly or
constructively by a Person through the application of Section 318(a) of the
Code, as modified by Section 856(d)(5) of the Code, or Section 544 of the
Code, as modified by Section 856(h) of the Code. The term "Beneficially Own"
shall have a correlative meaning.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Continuously Effective", with respect to a specified registration
statement, shall mean that such registration statement shall not cease to be
effective and available for Transfers of Registrable Securities thereunder for
longer than either (i) any ten (10) consecutive business days, or (ii) an
aggregate of fifteen (15) business days during the period specified in the
relevant provision of this Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934 and the rules
and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Formation Agreement" means the Formation Agreement dated August 17, 1996,
as the same may be amended or modified from time to time, among Realty,
Operating and Investor.
"Issuance Percentage", when used with respect to Realty and Operating, shall
mean the relative percentages that Realty and Operating may from time to time
determine based on their joint determination of the relative values of Realty
Shares and Operating Shares.
"Ownership Limit" when used with respect to Realty means 8% in value, voting
power or in number, whichever is more restrictive, of the issued and
outstanding capital stock of Realty and, when used with respect to Operating
means 8% in value, voting power or in number, whichever is more restrictive,
of the issued and outstanding capital stock of Operating.
"Paired Shares" means an Operating Share and a Realty Share which are
"paired" pursuant to the Pairing Agreement dated December 20, 1979 between
Realty and Operating, as it may be amended from time to time.
"Person" shall mean any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Register", "registered", and "registration" shall refer to a registration
effected by preparing and filing a registration statement or similar document
in compliance with the Securities Act, and the declaration or ordering by the
Commission of effectiveness of such registration statement or document.
"Registrable Securities" shall mean any Common Paired Shares issued to
Investor pursuant to Section 1.2 of the Formation Agreement and upon the
exchange of Preferred Paired Shares that are Purchased Shares.
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"Registrable Securities then outstanding" shall mean, with respect to a
specified determination date, the Registrable Securities owned by all Holders
on such date and the Registrable Securities which are issuable upon exchange
of Realty Units and Operating Units owned by all Holders on such date.
"Registration Expenses" shall have the meaning set forth in Section 5.1.
"REIT Requirements" shall mean the requirements for Realty to (i) continue
to qualify as a REIT under the Code and the rules and regulations promulgated
thereunder, (ii) retain the benefits of those certain private letter rulings
issued by the Internal Revenue Service to Realty dated as of October 16, 1979,
as supplemented January 11, 1980, (iv) avoid any federal income or excise tax
liability, and (iii) retain its status as grandfathered from the application
of Section 269B(a)(3) of the Code pursuant to Section 136(c)(3) of the Deficit
Reduction Act of 1984.
"Securities Act" shall mean the Securities Act of 1933 and the rules and
regulations of the Commission thereunder, all as the same may be in effect at
the time.
"Transfer" shall mean and include the act of selling, giving, transferring,
creating a trust (voting or otherwise), assigning or otherwise disposing of
(other than pledging, hypothecating or otherwise transferring as security)
(and correlative words shall have correlative meanings); provided, however,
that any transfer or other disposition upon foreclosure or other exercise of
remedies of a secured creditor after an event of default under or with respect
to a pledge, hypothecation or other transfer as security shall constitute a
"Transfer."
"Underwriters' Representative" shall mean the managing underwriter, or, in
the case of a co-managed underwriting, the managing underwriter designated as
the Underwriters' Representative by the co-managers.
"Violation" shall have the meaning set forth in Section 6.1.
Section 2. Shelf Registration.
2.1. If this Agreement is terminated for any reason and within 15 business
days after the date of such termination Investor shall make a written request
to Realty and Operating, then Realty and Operating shall cause to be filed
with the Commission a registration statement under the Securities Act for an
offering on a delayed or continuous basis pursuant to Rule 415 or such other
appropriate rule under the Securities Act, and Realty and Operating shall
include therein all or any portion of the Registrable Securities as Investor
shall request in such written request. Any request made pursuant to this
Section 2.1 shall be addressed to the attention of the Secretary of each of
Realty and Operating, and shall specify the number of Registrable Securities
to be registered, the intended methods of disposition thereof and that the
request is for a Demand Registration pursuant to this Section 2.1.
2.2. Realty and Operating shall be entitled to postpone for up to 90 days
the filing, effectiveness, supplementing or amending of any registration
statement otherwise required to be prepared and filed pursuant to this Section
2, if the Board of Directors of Realty or the Board of Directors of Operating
determines that such registration and the Transfer of Registrable Securities
contemplated thereby would interfere with, or require premature disclosure of,
any material financing, acquisition, disposition, reorganization or other
transaction involving the Realty JV, the Operating JV, Realty or Operating or
any of their respective subsidiaries and Realty or Operating, as the case may
be, promptly gives Investor notice of such determination. Investor hereby
acknowledges that any notice given by Realty or Operating pursuant to this
Section 2.2 shall constitute material non-public information and that the
United States securities laws prohibit any Person who has material non-public
information about a company from purchasing or selling securities of such
company or from communicating such information to any other Person under
circumstances in which it is reasonably foreseeable that such Person is likely
to purchase or sell such securities.
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2.3. Following receipt of a request for a registration pursuant to Section
2.1, Realty and Operating shall:
(i) File the registration statement with the Commission as promptly as
practicable and shall use their respective reasonable efforts to have the
registration declared effective under the Securities Act as soon as
reasonably practicable, in each instance giving due regard to the need to
prepare current financial statements, conduct due diligence and complete
other actions that are reasonably necessary to effect a registered public
offering.
(ii) Use their respective reasonable efforts to keep the relevant
registration statement Continuously Effective until such date as of which
all the Registrable Securities under the registration statement have been
disposed of in a manner described in the registration statement, but in no
event later than the 120th day following the effective date of such
registration statement. Notwithstanding the foregoing, if for any reason
the effectiveness of a registration pursuant to this Section 2 is
suspended, the relevant foregoing period shall be extended by the aggregate
number of days of such suspension.
2.4. Notwithstanding anything in this Agreement to the contrary, no
registration shall be effected hereunder and no Transfer of Registrable
Securities may be effected if as a result thereof Realty would not satisfy the
REIT Requirements in any respect or if such registration or Transfer would
result in any Person Beneficially Owning Paired Shares in excess of the
Ownership Limit. For purposes of the preceding sentence, registration shall
not be deemed to have been effected (i) unless a registration statement with
respect thereto has become effective, or (ii) if after such registration
statement has become effective, the related offer, sale or distribution of
Registrable Securities thereunder is prohibited by any stop order, injunction
or other order or requirement of the Commission or other governmental agency
or court for any reason not attributable to Investor and such prohibition is
not thereafter eliminated. If Realty and Operating shall have complied with
their respective obligations under this Agreement, a right to demand a
registration pursuant to this Section 2 shall be deemed to have been satisfied
upon the effective date of the registration statement, provided no stop order
or similar order, or proceedings for such an order, is thereafter entered or
initiated.
2.5. A registration pursuant to this Section 2 shall be on such appropriate
registration form of the Commission as shall be selected by Realty and
Operating and shall permit the disposition of the Registrable Securities in
accordance with the intended method or methods of disposition specified in the
request pursuant to Section 2.1.
2.6. If the registration pursuant to Section 2 involves an underwritten
offering (whether on a "firm commitment," "best efforts" or "all reasonable
efforts" basis or otherwise), Investor shall select the underwriter or
underwriters and manager or managers to administer such underwritten offering;
provided, however, that each Person so selected shall be acceptable to Realty
and Operating.
Section 3. Registration Procedures. Whenever required under Section 2 to
effect the registration of any Registrable Securities, Realty and Operating
shall, as expeditiously as practicable:
3.1. Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use their respective reasonable
efforts to cause such registration statement to become effective; provided,
however, that before filing a registration statement or prospectus or any
amendments or supplements thereto, Realty and Operating shall furnish to one
firm of counsel for Investor copies of all such documents in the form
substantially as proposed to be filed with the Commission.
3.2. Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Securities Act and rules thereunder with respect to the disposition of all
securities covered by such registration statement. Realty and Operating shall
amend the registration statement or supplement the prospectus so that it will
remain current and in compliance with the requirements of the Securities Act
for the period specified in Section 2.3(ii), and if during such period any
event or development occurs as a result of which the registration statement or
prospectus contains a misstatement of a material fact or omits to
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state a material fact required to be stated therein or necessary to make the
statements therein not misleading, Realty or Operating shall promptly notify
Investor, amend the registration statement or supplement the prospectus so
that each will thereafter comply with the Securities Act and furnish to
Investor such amended or supplemented prospectus, which Investor shall
thereafter use in the Transfer of Registrable Securities covered by such
registration statement. Pending any such amendment or supplement, Investor
shall cease making offers or Transfers of Registrable Shares pursuant to the
prior prospectus. In the event that any Registrable Securities included in a
registration statement subject to, or required by, this Agreement remain
unsold at the end of the period during which Realty and Operating are
obligated to use their respective reasonable efforts to maintain the
effectiveness of such registration statement, Realty and Operating may file a
post-effective amendment to the registration statement for the purpose of
removing such Registrable Securities from registered status.
3.3. Furnish to Investor without charge, such numbers of copies of the
registration statement, any pre-effective or post-effective amendment thereto,
the prospectus, including each preliminary prospectus and any amendments or
supplements thereto, in each case in conformity with the requirements of the
Securities Act and the rules thereunder, and such other related documents as
Investor may reasonably request in order to facilitate the disposition of
Registrable Securities owned by Investor.
3.4. Use their respective reasonable efforts (i) to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such states where an exemption from registration is not
available and as shall be reasonably requested by the Underwriters'
Representative and (ii) to obtain the withdrawal of any order suspending the
effectiveness of a registration statement, or the lifting of any suspension of
the qualification (or exemption from qualification) of the offer and transfer
of any of the Registrable Securities in any state, at the earliest possible
moment; provided, however, that neither Realty nor Operating shall be required
in connection therewith or as a condition thereto to qualify to do business or
to consent to general service of process in any state.
3.5. In the event of any underwritten offering, use their respective
reasonable efforts to enter into and perform their respective obligations
under an underwriting agreement (including indemnification and contribution
obligations of underwriters), in usual and customary form, with the managing
underwriter or underwriters of such offering. Realty and Operating shall also
cooperate with Investor and the Underwriters' Representative for such offering
in the marketing of the Registrable Securities, including making available the
officers, accountants, counsel, premises, books and records of Realty and
Operating for such purpose, but neither Realty nor Operating shall be required
to incur any material out-of-pocket expense pursuant to this sentence.
3.6. Promptly notify Investor of any stop order issued or threatened to be
issued by the Commission in connection therewith and take all reasonable
actions required to prevent the entry of such stop order or to remove it if
entered.
3.7. Make available for inspection by Investor, any underwriter
participating in such offering and the representatives of Investor and such
Underwriter (but not more than one firm of counsel to Investor), all financial
and other information as shall be reasonably requested by them, and provide
Investor, any underwriter participating in such offering and the
representatives of Investor and such Underwriter the reasonable opportunity to
discuss the business affairs of Realty and Operating with their principal
executives and independent public accountants who have certified the audited
financial statements included in such registration statement, in each case all
as necessary to enable them to exercise their due diligence responsibility
under the Securities Act; provided, however, that information that Realty or
Operating determines to be confidential and which Realty or Operating advises
such Person in writing, is confidential shall not be disclosed unless such
Person signs a confidentiality agreement reasonably satisfactory to Realty and
Operating or Investor agrees to be responsible for such Person's breach of
confidentiality on terms reasonably satisfactory to Realty and Operating.
3.8. Use their respective reasonable efforts to obtain a so-called "comfort
letter" from the independent public accountants of Realty and Operating, and
legal opinions of counsel to Realty and Operating addressed to Investor in
customary form and covering such matters of the type customarily covered by
such letters, and in a form that shall be reasonably satisfactory to Investor.
Delivery of any such opinion or comfort letter shall be
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subject to the recipient furnishing such written representations or
acknowledgements as are customarily provided by selling stockholders who
receive such comfort letters or opinions.
3.9. Use their respective reasonable efforts to cause the Registrable
Securities covered by such registration statement (i) if the Paired Shares are
then listed on a securities exchange or included for quotation in a recognized
trading market, to continue to be so listed or included for a reasonable
period of time after the offering, and (ii) to be registered with or approved
by such other United States or state governmental agencies or authorities as
may be necessary by virtue of the business and operations of Realty and
Operating to enable Investor to consummate the disposition of such Registrable
Securities.
3.10. Take such other actions as are reasonably required in order to
expedite or facilitate the disposition of Registrable Securities included in
each such registration.
Section 4. Investor's Obligations. It shall be a condition precedent to the
obligations of Realty and Operating to take any action pursuant to this
Agreement with respect to the Registrable Securities of Investor that Investor
shall:
4.1. Furnish to Realty and Operating such information regarding Investor,
the number of the Registrable Securities owned by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of Investor's Registrable Securities, and to cooperate fully with
Realty and Operating in preparing such registration.
Section 5. Expenses of Registration. Expenses in connection with
registrations pursuant to this Agreement shall be allocated and paid as
follows:
5.1. Realty and Operating shall bear and pay all expenses incurred in
connection with any registration, filing, or qualification of Registrable
Securities, including all registration, filing and National Association of
Securities Dealers, Inc. fees, all fees and expenses of complying with
securities or blue sky laws, all printing expenses, messenger and delivery
expenses, the reasonable fees and disbursements of counsel for Realty and
Operating, and of the independent public accountants for Realty and Operating,
including the expenses of "cold comfort" letters required by or incident to
such performance and compliance (the "Registration Expenses"), but excluding
underwriting discounts and commissions relating to Registrable Securities
(which shall be paid by the Investor) and all fees and expenses of counsel for
the Investor; provided, however, that Realty and Operating shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2 if the registration is subsequently withdrawn. Realty and
Operating each agree between themselves that they shall bear and pay
Registration Expenses in an amount equal to its respective Issuance Percentage
of such Registration Expenses and that they shall reimburse each other to the
extent necessary to cause each of them to so bear and pay such respective
amounts.
Section 6. Indemnification; Contribution. If any Registrable Securities are
included in a registration statement under this Agreement:
6.1. To the extent permitted by applicable law, each of Realty and
Operating, severally and not jointly, shall indemnify and hold harmless
Investor, each Person, if any, who controls Investor within the meaning of the
Securities Act, and each officer, director, partner and employee of Investor
and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint or several), including reasonable attorneys'
fees and disbursements and reasonable expenses of investigation, incurred by
such party pursuant to any actual or threatened action, suit, proceeding or
investigation, or to which any of the foregoing Persons may otherwise become
subject under the Securities Act, the Exchange Act or other federal or state
laws, insofar as such losses, claims, damages, liabilities and expenses arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein, or any amendments or
supplements thereto; or
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(ii) The omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein
not misleading; provided, however, that the indemnification required by
this Section 6.1 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or expense if such settlement is effected
without the consent of Realty or Operating (which consent shall not be
unreasonably withheld), nor shall Realty or Operating be liable in any such
case for any such loss, claim, damage, liability or expense to the extent
that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with information furnished to Realty or Operating by
the Investor expressly for use in connection with such registration; and
provided, further, that the indemnity agreement contained in this Section 6
shall not apply to the extent that any such loss is based on or arises out
of an untrue statement or alleged untrue statement of a material fact, or
an omission or alleged omission to state a material fact, contained in or
omitted from any preliminary prospectus if the final prospectus shall
correct such untrue statement or alleged untrue statement, or such omission
or alleged omission, and a copy of the final prospectus has not been sent
or given to such person at or prior to the confirmation of sale to such
person if an underwriter was under an obligation to deliver such final
prospectus and failed to do so.
6.2. To the extent permitted by applicable law, Investor shall indemnify and
hold harmless Realty, Operating, each of the directors, officers and employees
of Realty and Operating, and each Person, if any, who controls Realty or
Operating within the meaning of the Securities Act, against any and all
losses, claims, damages, liabilities and expenses (joint and several),
including reasonable attorneys' fees and disbursements and reasonable expenses
of investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange
Act or other federal or state laws, but only insofar as such losses, claims,
damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent that such Violation arises out of or is
based upon information furnished by Investor expressly for use in connection
with such registration; provided, however, that (x) the indemnification
required by this Section 6.2 shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or expense if such settlement is
effected without the consent of Investor (which consent shall not be
unreasonably withheld) and (y) in no event shall the amount of any indemnity
under this Section 6.2 exceed the gross proceeds from the applicable offering
received by Investor.
6.3. Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, suit, proceeding, investigation or
threat thereof made in writing for which such indemnified party may make a
claim under this Section 6, such indemnified party shall deliver to the
indemnifying party a written notice thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties.
The failure to deliver written notice to the indemnifying party within a
reasonable time following the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 6 to the extent of
such prejudice but shall not relieve the indemnifying party of any liability
that it may have to any indemnified party otherwise than pursuant to this
Section 6. Any fees and expenses incurred by the indemnified party (including
any fees and expenses incurred in connection with investigating or preparing
to defend such action or proceeding) shall be paid to the indemnified party,
as incurred, within thirty (30) days of written notice thereof to the
indemnifying party. Any such indemnified party shall have the right to employ
separate counsel in any such action, claim or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be the
expenses of such indemnified party unless (i) the indemnifying party has
agreed to pay such fees and expenses or (ii) the indemnifying party shall have
failed to promptly assume the defense of such action, claim or proceeding or
(iii) the named parties to any such action, claim or proceeding (including any
impleaded parties) include both such indemnified party and the indemnifying
party, and such indemnified party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different
from or in addition to those available to the indemnifying party and that the
assertion of such defenses would create a conflict of interest such that
counsel employed by the indemnifying party could not faithfully represent the
indemnified party (in which case, if such indemnified party notifies the
indemnifying party in writing that it elects
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to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such
action, claim or proceeding on behalf of such indemnified party, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action, claim or proceeding or separate but substantially similar
or related actions, claims or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties,
unless in the reasonable judgment of such indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such action, claim or proceeding, in which
event the indemnifying party shall be obligated to pay the fees and expenses
of such additional counsel or counsels).
6.4. If the indemnification required by this Section 6 from the indemnifying
party is unavailable to an indemnified party hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to in this Section
6:
(i) The indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations. The relative fault of
such indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any Violation has been committed
by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Violation. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in Section 6.1 and Section
6.2, any legal or other fees or expenses reasonably incurred by such party
in connection with any investigation or proceeding.
(ii) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 6.4 were determined by pro rata
allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in Section 6.4(i). No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
6.5. If indemnification is available under this Section 6, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
this Section 6 without regard to the relative fault of such indemnifying party
or indemnified party or any other equitable consideration referred to in
Section 6.4.
6.6. The obligations of Realty, Operating and Investor under this Section 6
shall survive the completion of any offering of Registrable Securities
pursuant to a registration statement under this Agreement, and otherwise.
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EXHIBIT N
CERTIFICATE OF DESIGNATIONS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
SANTA ANITA REALTY ENTERPRISES, INC
SANTA ANITA REALTY ENTERPRISES, INC., a corporation organized and
existing by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
the corporation by its certificate of incorporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the corporation, at a meeting held on September 3, 1996, duly
adopted a resolution fixing the voting powers, designations, preferences and
rights relating to its Series A Redeemable Preferred Stock as follows:
"RESOLVED, that the Board of Directors (the "Board") of Santa Anita
Realty Enterprises, Inc. (the "Corporation") authorizes the issuance of a series
of preferred stock consisting of 867,343 shares and the Board fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions of such
preferences and/or rights, of the shares of that series as follows:
<PAGE>
Section 1. Designation and Amount.
----------------------
The shares of the series will be designated Series A
Redeemable Preferred Stock ("Series A Stock"). The total number of authorized
shares of the series will be 867,343 shares.
Section 2. Dividends and Distributions.
---------------------------
(a). Holders of shares of Series A Stock will be entitled
to receive per share cash dividends and non cash distributions equal to any per
share dividends and distributions paid on shares of the Corporation's common
stock, $.10 per value (the "Common Stock"), payable on the same dates as
dividends or distributions are paid on the Common Stock (each a "Dividend
Payment Date"). The Corporation may not declare any dividend or distribution on
the Common Stock without simultaneously declaring an equal per share dividend or
distribution on the Series A Stock and shall not pay dividend or make any
distribution on the Common Stock without simultaneously paying an equal per
share dividend or making an equal per share distribution on the Series A Stock.
If any Dividend Payment Date is not a Business Day, the dividend payment or
distribution due on that Dividend Payment Date will be paid on the Business Day
immediately preceding that Dividend Payment Date. As used with regard to the
Series A Stock, the term "Business Day" means a day on which both state and
federally chartered banks in Los Angeles, California are required to be open for
general banking business.
(b) Each dividend or distribution will be payable to
holders of record of the Series A Stock on a date (a "Record Date") selected by
the Board which is the same date as the record date for the payment of the
related dividend or distribution on the Common Stock. No Record Date will
precede the date when the resolution fixing the Record Date is adopted.
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(c) Any dividend paid or distribution made with regard to shares
of Series A Stock will be paid or made equally with regard to each outstanding
share of Series A Stock.
Section 3. Voting Rights.
-------------
The holders of shares of Series A Stock as such shall have no
voting power except as required by law and except as provided in subparagraphs
3(a) and 3(b) hereof:
(a) With regard to each matter presented for the vote of the
holders of the Common Stock other than the election of directors to the Board,
the holders of the Series A Stock will be entitled, except as otherwise required
by law, to vote together with the holders of the Common Stock, and together with
the holders of any other class or series of stock the holders of which vote
together with the holders of the Common Stock, with the same effect as though
the Series A Stock were part of the same class as the Common Stock, with each
holder of record of shares of Series A Stock on the record date for determining
the holders of the Common Stock entitled to vote being entitled to one vote per
share of Series A Stock.
(b) While any shares of Series A Stock are outstanding, the
Corporation will not, directly or indirectly, or through a merger or
consolidation with any other corporation, without the affirmative vote at a
meeting or the written consent of the holders of at least 66-2/3% of the
outstanding shares of Series A Stock voting separately as a class, (i) create or
increase the authorized number of shares of any class or series of stock that
ranks senior to the Series A Stock, (ii) amend, alter or repeal any of the
provisions of the Certificate of Incorporation or By-laws of the Corporation, or
of this resolution, so as to affect adversely the Series A Stock, or (iii)
authorize any reclassification, combination, split or division of any series
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of stock without at the same time making the same adjustment to the Series A
Stock. This Subsection will not prevent the issuance of any Series A Stock
which has been authorized in Section 1.
Section 4. Redemption at the Option of the Holder.
--------------------------------------
(a) Each holder of Series A Stock will have the right at any
time after September 4, 1996 to require the Corporation to redeem any or all the
shares of Series A Stock owned of record by the holder, at a redemption price
per share equal to the Current Market Price of the Common Stock as of the
Surrender Date, as such term is defined in Section 4(b), plus a cash payment
equal to the amount of any dividends and distributions which the Corporation
failed to declare and pay to the holders of Series A Stock in violation of
Section 2(a) ("unpaid dividends") with regard to the share (the "Redemption
Price"). Notwithstanding the foregoing, in lieu of such redemption, the
Corporation may, at its option, exchange such Series A Stock surrendered for
redemption by delivering to the redeeming holder a number of shares of Common
Stock equal to the number of shares of Series A Stock being surrendered;
provided that (i) any such shares of Common Stock are, upon delivery, duly and
validly issued, fully paid and non-assessable, free of all liens and charges and
listed on each national securities exchange, if any, upon which the outstanding
Common Stock is listed at the time of delivery and (ii) such exchange has been
approved by a majority of the shareholders present or represented by proxy at a
meeting called to, among other things, approve such exchange.
(b) In order to exercise a right to require the Corporation
to redeem or exchange a holder's Series A Stock, the holder must deliver a
request for redemption or exchange, accompanied by the certificates representing
the shares to be redeemed or exchanged,
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<PAGE>
to the Corporation (the date on which the holder delivers such request
accompanied by such certificates being referred to herein as the "Surrender
Date"). If a request for redemption or exchange is given with regard to shares
of Series A Stock, then promptly, and in any event within 30 days, after the
Surrender Date, the Corporation will pay the holder cash equal to the Redemption
Price of the shares or deliver shares of Common Stock for exchange in accordance
with Section 4(a). Notwithstanding the foregoing, if a majority of the
shareholders of the Corporation present or represented by proxy at a meeting
called to, among other things, approve the exchange of the Series A Stock for
shares of Common Stock (i) have approved such exchange prior to the Redemption
or Exchange Date, then the Corporation shall deliver shares of Common Stock in
exchange for the Series A Stock being surrendered for redemption or exchange
and shall not redeem such Common Stock for cash or (ii) have not approved such
exchange prior to the Redemption or Exchange Date, then the Corporation shall
pay the Redemption Price in cash to the extent that the amount of the Redemption
Price does not exceed the aggregate purchase price paid to the Corporation by
the original purchaser of the Series A Stock for all the shares of Series A
Stock, and to the extent that the Redemption Price exceeds such original
purchase price, the Corporation may pay all or any part of such excess by
delivering a promissory note to the holder. Such promissory note shall have a
principal amount equal to the amount of the Redemption Price not paid in cash,
bear interest at the prime commercial lending rate published from time to time
in the national edition of the Wall Street Journal plus 2% per annum, and mature
on the six months anniversary of the Redemption or Exchange Date. The date of
payment of the Redemption Price or delivery of shares is herein referred to as
the "Redemption or Exchange Date".
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<PAGE>
(c) If a request for redemption or exchange of shares of
Series A Stock accompanied by the certificates representing the shares to be
redeemed or exchanged is delivered to the Corporation, at the close of business
on the Redemption or Exchange Date, unless the Corporation subsequently defaults
in effecting the redemption or exchange of such shares, the holders of those
shares will cease to be stockholders with respect to those shares, will have no
interest in or claims against the Corporation by virtue of the shares and will
have no voting or other rights with respect to the shares (except the right to
receive cash or Common Stock pursuant to the redemption or exchange, and except
the right to receive dividends or distributions payable thereafter to the holder
of the Series A Stock as of a Record Date preceding such date pursuant to
subparagraph 4(d) hereof) and from and after the close of business on the
Redemption or Exchange Date the shares to be redeemed or exchanged will no
longer be deemed outstanding.
(d) If a Record Date occurs prior to a Redemption or Exchange
Date but the corresponding Dividend Payment Date occurs after the Redemption or
Exchange Date, the dividend payable on such Dividend Payment Date will be
payable on the Dividend Payment Date to the holder of record of the shares of
Series A Stock on the Record Date notwithstanding the redemption or exchange of
the shares of Series A Stock on the Redemption or Exchange Date.
Section 5. Redemption or Exchange at the Option of the Corporation
-------------------------------------------------------
(a) The Corporation will have the right at any time after
September 4, 1996 to require each holder of Series A Stock to surrender all of
the shares of Series A Stock owned of record by the holder in exchange for a
number of shares of Common Stock equal to the number of shares of Series A Stock
being called for exchange, provided that (i) any such
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<PAGE>
shares of Common Stock are, upon delivery, duly and validly issued, fully paid
and nonassessable, free of all liens and charges and listed on each national
securities exchange, if any, upon which the outstanding Common Stock is listed
at the time of delivery and (ii) such exchange has been approved by a majority
of the shareholders present or represented by proxy at a meeting called to,
among other things, approve such exchange. In addition, if (i) the Realty
Stockholder Matters, as such term is defined in the Formation Agreement, dated
as of August 17, 1996, as the same may be amended from time to time, among the
Corporation, Santa Anita Operating Company and Colony Investors II, L.P. (the
"Formation Agreement") are not approved by the Requisite Vote at the meeting of
the Corporation's stockholders referred to in Section 5.2(a) of the Formation
Agreement or (ii)Investors's interest in the Public Companies and JVs is reduced
to below 10% of the combined equity interests of the Public Companies and the
JVs on a fully diluted basis, then in either case, the Corporation will have the
right at any time after September 4, 1999 to require each holder of Series A
Stock to surrender all of the shares of Series A stock owned of record by the
holder for redemption, at a redemption price per share equal to the Current
Market Price of the Common Stock as of the date the Corporation calls such
shares for redemption pursuant to Section 5(b) plus a cash payment of any unpaid
dividends with regard to the shares. Capitalized terms used in the immediately
preceding sentence and not defined shall have the meanings given them in the
Formation Agreement.
(b) In order to exercise a right to require the holders of
Series A Stock to surrender such Series A Stock for redemption or exchange, the
Corporation must deliver a written notice of redemption or exchange to each
holder of Series A Stock not less than five Business Days prior to the date
specified for redemption or exchange (the "Corporation
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<PAGE>
Redemption or Exchange Date"). Such notice will set forth the Corporation
Redemption or Exchange Date, whether the Series A Stock will be redeemed for
cash or exchanged for shares of Common Stock and the place or places where the
Series A Stock should be surrendered for redemption or exchange. Notice of
redemption or exchange having been given in accordance with the previous
sentence, on or before the Corporation Redemption or Exchange Date, the holders
of Series A Stock shall surrender the certificates representing the shares to be
redeemed or exchanged to the Corporation. Promptly after the certificates
representing Series A Stock are surrendered to the Corporation, the Corporation
will deliver to the holder the consideration for such shares.
(c) At the close of business on the Corporation Redemption or
Exchange Date, unless the Corporation subsequently defaults in effecting the
redemption or exchange of such shares, the holders of the shares called for
redemption or exchange will cease to be stockholders with respect to those
shares, will have no interest in or claims against the Corporation by virtue of
the shares and will have no voting or other rights with respect to the shares
(except the right to receive cash or shares of Common Stock pursuant to the
redemption or exchange, and except the right to receive dividends or
distributions payable thereafter to the holder of the Series A Stock as of a
Record Date preceding such date pursuant to subparagraph 5(d) hereof) and, from
and after the close of business on the Corporation Redemption or Exchange Date
the shares to be redeemed or exchanged will no longer be deemed outstanding.
(d) If a Record Date occurs prior to a Corporation Redemption or
Exchange Date but the corresponding Dividend Payment Date occurs after the
Corporation Redemption or Exchange Date, the dividend payable on such Dividend
Payment Date will be payable on the Dividend Payment Date to the holder of
record of the shares of Series A Stock
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<PAGE>
on the Record Date notwithstanding the redemption or exchange of the shares of
Series A Stock on the Corporation Redemption or Exchange Date.
Section 6. Liquidation.
-----------
Upon the liquidation, dissolution or winding-up of the
Corporation, whether voluntary or involuntary, the holders of the Series A Stock
will be entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any distribution is made to holders of any Junior Shares (as defined
below), an amount equal to (i) $.01 per share (the "Liquidation Preference")
plus (ii) all dividends which have been declared but have not been paid
("declared and unpaid dividends"), and all unpaid dividends, with regard to the
Series A Stock to the date of final distribution. If, upon any liquidation,
dissolution or winding-up of the Corporation, the assets of the Corporation, or
proceeds of those assets, available for distribution to the holders of Series A
Stock and of the shares of all other classes or series which are on a parity as
to distributions on liquidation with the Series A Stock are not sufficient to
pay in full the preferential amount required to be distributed to the holders of
the Series A Stock and of all other classes or series which are on a parity as
to distributions on liquidation with the Series A Stock, then the assets, or the
proceeds of those assets, which are available for distribution to the holders of
Series A Stock and of the shares of all other classes or series which are on a
parity as to distributions on liquidation with the Series A Stock will be
distributed to the holders of the Series A Stock and of the shares of all other
classes or series which are on a parity as to distributions on liquidation with
the Series A Stock ratably in accordance with the respective amounts of the
liquidation preferences of the shares held by each of them. After payment of
the full amount of the Liquidation Preference (including unpaid dividends) and
declared and unpaid dividends to which
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<PAGE>
holders of Series A Stock are entitled, the holders of Series A Stock will
participate in any further distribution of assets of the Corporation to the same
extent as the holders of Junior Shares ratably in accordance with the respective
number of shares of capital stock held by each of them. For the purposes of this
Section, neither a consolidation or merger of the Corporation with another
corporation, nor a sale or transfer of all or any part of the Corporation's
assets for cash or securities, will be considered a liquidation, dissolution or
winding-up of the Corporation.
As used with regard to the Series A Stock, the term "Junior Shares"
means all shares of Common Stock and all shares of any other class or series of
stock of the Corporation to which the shares of Series A Stock are prior in
rank. If the Series A Stock ranks prior to another class or series of stock as
to some matters, but not as to other matters, shares of the other class or
series are "Junior Shares" with regard to the matters as to which the Series A
Stock ranks prior to the other class or series, but not as to other matters.
Section 7. Pairing. The Series A Stock shall not be transferable,
-------
redeemable or exchangeable and shall not be transferred, redeemed or exchanged
on the books of the Corporation, except in combination with an equal number of
shares of Series A Redeemable Preferred Stock of Santa Anita Operating Company.
Sections 1, 2, 5, 6 and 7 of the Pairing Agreement, dated as of December 31,
1979 between this Corporation and Santa Anita Operating Company shall apply to
the Series A Stock.
Section 8. Miscellaneous.
-------------
(a) No fractional shares of Common Stock will be issued upon
exchange of Series A Stock. Any fractional interest in a share of Common Stock
resulting from exchange of shares of Series A Stock will be paid in cash
(computed to the nearest cent) based on the last reported sale price of the
Common Stock on the Trading Day (as defined in
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<PAGE>
Subparagraph 8(b)) immediately preceding the day of exchange. If more than one
share of Series A Stock is surrendered for exchange at substantially the same
time by the same holder, the number of full shares of Common Stock issuable upon
any exchange thereof will be computed on the basis of all the shares of Series A
Stock surrendered at the time by that holder.
(b) For the purpose of any computation relating to Series A
Stock, the "Current Market Price" of the Common Stock on any date will be the
average of the last reported sale prices per share of the Common Stock on each
of the 30 consecutive Trading Days (as defined below) preceding the date of the
computation. Notwithstanding the foregoing, if any person commences a tender
offer for shares of outstanding Common Stock in exchange for cash consideration
(i) if such tender offer is the subject of an Alternative Transaction Notice,
the Current Market Price will be the price per share being offered in such
tender offer, and (ii) if such tender offer is not the subject of an Alternative
Transaction Notice or if the consideration offered in such tender offer is not
cash, the Current Market Price will be the last reported sale price per share of
the Common Stock on the Surrender Date. The term "Alternative Transaction
Notice" shall have the same meaning as set forth in the Formation Agreement. The
last reported sale price of the Common Stock on each day will be (A) the last
reported sale price of the Common Stock on the principal stock exchange on which
the Common Stock is listed, or (B) if the Common Stock is not listed on a stock
exchange, the last reported sale price of the Common Stock on the principal
automated securities price quotation system on which sale prices of the Common
Stock are reported, or (C) if the Common Stock is not listed on a stock exchange
and sale prices of the Common Stock are not reported on an automated quotation
system, the mean of the high bid and low asked price quotations for the Common
Stock as reported by National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and asked
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quotations for the Common Stock on at least five of the ten preceding Trading
Days. If the Common Stock is not traded or quoted as described in any of clause
(A), (B) or (C), the Current Market Price of the Common Stock on a day will be
the fair market value of the Common Stock on that day as determined by a member
firm of the New York Stock Exchange, Inc. selected by the Board. The term
"Trading Day" means (x) if the Common Stock is listed on at least one stock
exchange, a day on which there is trading on the principal stock exchange on
which the Common Stock is listed, (y) if the Common Stock is not listed on a
stock exchange, but sale prices of the Common Stock are reported on an automated
quotation system, a day on which trading is reported on the principal automated
quotation system on which sales of the Common Stock are reported, or (z) if the
Common Stock is not listed on a stock exchange and sale prices of the Common
Stock are not reported on an automated quotation system, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(c) The Corporation will pay any documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on exchange of Series A Stock; provided, however, that the
-------- -------
Corporation will not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of shares of Common Stock in a
name other than that of the holder of record of the Series A Stock to be
exchanged and no such issue or delivery will be made unless and until the person
requesting the issue or delivery has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that the
tax has been paid.
(d) Upon any redemption or exchange of shares of Series A
Stock, the shares of Series A Stock which are redeemed or exchanged will have
the status of authorized and unissued shares of preferred stock, and the number
of shares of preferred stock which the
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Corporation will have authority to issue will not be decreased by the redemption
or exchange of shares of Series A Stock, but the number of shares of Series A
Stock which the Corporation will have authority to issue will be reduced so that
the shares of Series A Stock which were redeemed or exchanged may not be re-
issued as shares of Series A Stock.
(e) Except as otherwise expressly provided in this resolution,
whenever a notice or other communication is required or permitted to be given to
holders of shares of Series A Stock, the notice or other communication will be
deemed properly given if deposited in the United States mail, postage prepaid,
addressed to the persons shown on the books of the Corporation as the holders of
the shares at the addresses as they appear in the books of the Corporation, as
of a record date or dates determined in accordance with the Corporation's
Certificate of Incorporation and By-laws, these resolutions and applicable law,
as in effect from time to time.
(f) Except as may otherwise be required by law, shares of Series A
Stock will not have any designations, preferences, limitations or relative
rights, other than those specifically set forth in this resolution and in the
Certificate of Incorporation.
(g) The headings of the various subdivisions of this resolution are
for convenience only and will not affect the meaning or interpretation of any of
the provisions of this resolution.
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IN WITNESS WHEREOF, Santa Anita Realty Enterprises, Inc. has caused
this certificate to be signed by Brian L. Fleming, its Acting Chief Executive
Officer and President, this 5th day of September, 1996.
SANTA ANITA REALTY ENTERPRISES, INC.
By: /s/ Brian L. Fleming
------------------------------------
Brian L. Fleming
Acting Chief Executive Officer and
President
<PAGE>
EXHIBIT O
CERTIFICATE OF DESIGNATIONS
OF
SERIES A REDEEMABLE PREFERRED STOCK
OF
SANTA ANITA OPERATING COMPANY
SANTA ANITA OPERATING COMPANY, a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of
the corporation by its certificate of incorporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the corporation, at a meeting held on September 3, 1996, duly
adopted a resolution fixing the voting powers, designations, preferences and
rights relating to its Series A Redeemable Preferred Stock as follows:
"RESOLVED, that the Board of Directors (the "Board") of Santa Anita
Operating Company (the "Corporation") authorizes the issuance of a series of
preferred stock consisting of 867,343 shares and the Board fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions of such
preferences and/or rights, of the shares of that series as follows:
Section 1. Designation and Amount.
----------------------
The shares of the series will be designated Series A
Redeemable Preferred Stock ("Series A Stock"). The total number of authorized
shares of the series will be 867,343 shares.
<PAGE>
Section 2. Dividends and Distributions.
---------------------------
(a) Holders of shares of Series A Stock will be entitled to
receive per share cash dividends and non cash distributions equal to any per
share dividends and distributions paid on shares of the Corporation's common
stock, $.10 par value (the "Common Stock"), payable on the same dates as
dividends or distributions are paid on the Common Stock (each a "Dividend
Payment Date"). The Corporation may not declare any dividend or distribution on
the Common Stock without simultaneously declaring an equal per share dividend or
distribution on the Series A Stock, and shall not pay any dividend or make any
distribution on the Common Stock without simultaneously paying an equal per
share dividend or making an equal per share distribution on the Series A Stock.
If any Dividend Payment Date is not a Business Day, the dividend payment or
distribution due on that Dividend Payment Date will be paid on the Business Day
immediately preceding that Dividend Payment Date. As used with regard to the
Series A Stock, the term "Business Day" means a day on which both state and
federally chartered banks in Los Angeles, California are required to be open for
general banking business.
(b) Each dividend or distribution will be payable to holders
of record of the Series A Stock on a date (a "Record Date") selected by the
Board which is the same date as the record date for the payment of the related
dividend or distribution on the Common Stock. No Record Date will precede the
date when the resolution fixing the Record Date is adopted.
(c) Any dividend paid or distribution made with regard to
shares of Series A stock will be paid or made equally with regard to each
outstanding share of Series A Stock.
2
<PAGE>
Section 3. Voting Rights.
-------------
The holders of shares of Series A Stock as such shall have no
voting power except as required by law and except as provided in subparagraphs
3(a) and 3(b) hereof:
(a) With regard to each matter presented for the vote of the
holders of the Common Stock other than the election of directors to the Board,
the holders of the Series A Stock will be entitled, except as otherwise required
by law, to vote together with the holders of the Common Stock, and together with
the holders of any other class or series of stock the holders of which vote
together with the holders of the Common Stock, with the same effect as though
the Series A Stock were part of the same class as the Common Stock, with each
holder of record of shares of Series A Stock on the record date for determining
the holders of the Common Stock entitled to vote being entitled to one vote per
share of Series A Stock.
(b) While any shares of Series A Stock are outstanding, the
Corporation will not, directly or indirectly, or through a merger or
consolidation with any other corporation, without the affirmative vote at a
meeting or the written consent of the holders of at least 66-2/3% of the
outstanding shares of Series A Stock voting separately as a class, (i) create or
increase the authorized number of shares of any class or series of stock that
ranks senior to the Series A Stock, (ii) amend, alter or repeal any of the
provisions of the Certificate of Incorporation or By-laws of the Corporation, or
of this resolution, so as to affect adversely the Series A Stock, or (iii)
authorize any reclassification, combination, split or division of any series of
stock without at the same time making the same adjustment to the Series A Stock.
This Subsection will not prevent the issuance of any Series A Stock which has
been authorized in Section 1.
3
<PAGE>
Section 4. Redemption at the Option of the Holder.
--------------------------------------
(a) Each holder of Series A Stock will have the right at any
time after September 4, 1996 to require the Corporation to redeem any or all the
shares of Series A Stock owned of record by the holder, at a redemption price
per share equal to the Current Market Price of the Common Stock as of the
Surrender Date, as such term is defined in Section 4(b), plus a cash payment
equal to the amount of any dividends and distributions which the Corporation
failed to declare and pay to the holders of Series A Stock in violation of
Section 2(a) ("unpaid dividends") with regard to the share (the "Redemption
Price"). Notwithstanding the foregoing, in lieu of such redemption, the
Corporation may, at its option, exchange such Series A Stock surrendered for
redemption by delivering to the redeeming holder a number of shares of Common
Stock equal to the number of shares of Series A Stock being surrendered;
provided that (i) any such shares of Common Stock are, upon delivery, duly and
validly issued, fully paid and non-assessable, free of all liens and charges and
listed on each national securities exchange, if any, upon which the outstanding
Common Stock is listed at the time of delivery and (ii) such exchange has been
approved by a majority of the shareholders present or represented by proxy at a
meeting called to, among other things, approve such exchange.
(b) In order to exercise a right to require the Corporation to
redeem or exchange a holder's Series A Stock, the holder must deliver a request
for redemption or exchange, accompanied by the certificates representing the
shares to be redeemed or exchanged, to the Corporation (the date on which the
holder delivers such request accompanied by such certificates being referred to
herein as the "Surrender Date"). If a request for redemption or exchange is
given with regard to shares of Series A Stock, then promptly, and in any event
within 30 days, after the Surrender Date, the Corporation will pay the holder
cash equal to the
4
<PAGE>
Redemption Price of the shares or deliver shares of Common Stock for exchange in
accordance with Section 4(a). Notwithstanding the foregoing, if a majority of
the shareholders of the Corporation present or represented by proxy at a meeting
called to, among other things, approve the exchange of the Series A Stock for
shares of Common Stock (i) have approved such exchange prior to the Redemption
or Exchange Date, then the Corporation shall deliver shares of Common Stock in
exchange for the Series A Stock being surrendered for redemption or exchange and
shall not redeem such Common Stock or (ii) have not approved such exchange prior
to the Redemption or Exchange Date, then the Corporation shall pay the
Redemption Price in cash to the extent that the amount of the Redemption Price
does not exceed the aggregate purchase price paid to the Corporation by the
original purchaser of the Series A Stock for all the shares of Series A Stock,
and to the extent that the Redemption Price exceeds such original purchase
price, the Corporation may pay all or any part of such excess by delivering a
promissory note to the holder. Such promissory note shall have a principal
amount equal to the amount of the Redemption Price not paid in cash, bear
interest at the prime commercial lending rate published from time to time in the
national edition of the Wall Street Journal plus 2% per annum, and mature on the
six months anniversary of the Redemption or Exchange Date. The date of payment
of the Redemption Price or delivery of shares is herein referred to as the
"Redemption or Exchange Date".
(c) If a request for redemption or exchange of shares of Series
A Stock accompanied by the certificates representing the shares to be redeemed
or exchanged is delivered to the Corporation, at the close of business on the
Redemption or Exchange Date, unless the Corporation subsequently defaults in
effecting the redemption or exchange of such shares, the holders of those shares
will cease to be stockholders with respect to those shares, will have no
5
<PAGE>
interest in or claims against the Corporation by virtue of the shares and will
have no voting or other rights with respect to the shares (except the right to
receive cash or Common Stock pursuant to the redemption or exchange, and except
the right to receive dividends or distributions payable thereafter to the holder
of the Series A Stock as of a Record Date preceding such date pursuant to
subparagraph 4(d) hereof) and from and after the close of business on the
Redemption or Exchange Date the shares to be redeemed or exchanged will no
longer be deemed outstanding.
(d) If a Record Date occurs prior to a Redemption or Exchange
Date but the corresponding Dividend Payment Date occurs after the Redemption or
Exchange Date, the dividend payable on such Dividend Payment Date will be
payable on the Dividend Payment Date to the holder of record of the shares of
Series A Stock on the Record Date notwithstanding the redemption or exchange of
the shares of Series A Stock on the Redemption or Exchange Date.
Section 5. Redemption or Exchange at the Option of the Corporation.
-------------------------------------------------------
(a) The Corporation will have the right at any time after
September 4, 1996 to require each holder of Series A Stock to surrender all of
the shares of Series A Stock owned of record by the holder in exchange for a
number of shares of Common Stock equal to the number of shares of Series A Stock
being called for exchange, provided that (i) any such shares of Common Stock
are, upon delivery, duly and validly issued, fully paid and non-assessable, free
of all liens and charges and listed on each national securities exchange, if
any, upon which the outstanding Common Stock is listed at the time of delivery
and (ii) such exchange has been approved by a majority of the shareholders
present or represented by proxy at a meeting called to, among other things,
approve such exchange. In addition, if (i) the Realty
6
<PAGE>
Stockholder Matters, as such term is defined in the Formation Agreement, dated
as of August 17, 1996, as the same may be amended from time to time, among the
Corporation, Santa Anita Realty Enterprises, Inc. and Colony Investors II, L.P.
(the "Formation Agreement") are not approved by the Requisite Vote at the
meeting of the Corporation's stockholders referred to in Section 5.2(a) of the
Formation Agreement or (ii) Investor's interest in the Public Companies and the
JVs is reduced to below 10% of the combined equity interests of the Public
Companies and the JVs on a fully diluted basis, then in either case, the
Corporation will have the right at any time after September 4, 1999 to require
each holder of Series A Stock to surrender all of the shares of Series A Stock
owned of record by the holder for redemption, at a redemption price per share
equal to the Current Market Price of the Common Stock as of the date the
Corporation calls such shares for redemption pursuant to Section 5(b) plus a
cash payment of any unpaid dividends with regard to the shares. Capitalized
terms in the immediately preceding sentence and not defined shall have the
meanings given them in the Formation Agreement.
(b) In order to exercise a right to require the holders of Series A
Stock to surrender such Series A Stock for redemption or exchange, the
Corporation must deliver a written notice of redemption or exchange to each
holder of Series A Stock not less than five Business Days prior to the date
specified for redemption or exchange (the "Corporation Redemption or Exchange
Date"). Such notice will set forth the Corporation Redemption or Exchange Date,
whether the Series A Stock will be redeemed for cash or exchanged for shares of
Common Stock and the place or places where the Series A Stock should be
surrendered for redemption or exchange. Notice of redemption or exchange having
been given in accordance with the previous sentence, on or before the
Corporation Redemption or Exchange Date, the holders of Series A Stock shall
surrender the certificates representing the shares to be redeemed
7
<PAGE>
or exchanged to the Corporation. Promptly after the certificates representing
Series A Stock are surrendered to the Corporation, the Corporation will
deliver to the holder the consideration for such shares.
(c) At the close of business on the Corporation Redemption or
Exchange Date, unless the Corporation subsequently defaults in effecting the
redemption or exchange of such shares, the holders of the shares called for
redemption or exchange will cease to be stockholders with respect to those
shares, will have no interest in or claims against the Corporation by virtue of
the shares and will have no voting or other rights with respect to the shares
(except the right to receive cash or shares of Common Stock pursuant to the
redemption or exchange, and except the right to receive dividends or
distributions payable thereafter to the holder of the Series A Stock as of a
Record Date preceding such date pursuant to subparagraph 5(d) hereof) and, from
and after the close of business on the Corporation Redemption or Exchange Date
the shares to be redeemed or exchanged will no longer be deemed outstanding.
(d) If a Record Date occurs prior to a Corporation Redemption or
Exchange Date but the corresponding Dividend Payment Date occurs after the
Corporation Redemption or Exchange Date, the dividend payable on such Dividend
Payment Date will be payable on the Dividend Payment Date to the holder of
record of the shares of Series A Stock on the Record Date notwithstanding the
redemption for exchange of the shares of Series A Stock on the Corporation
Redemption or Exchange Date.
Section 6. Liquidation
-----------
Upon the liquidation dissolution or winding-up of the Corporation,
whether voluntary or involuntary, the holders of the Series A Stock will be
entitled to receive out of the assets of the Corporation available for
distribution to its stockholders, whether from
8
<PAGE>
capital, surplus or earnings, before any distribution is made to holders of any
Junior Shares (as defined below), an amount equal to (i) $.01 per share (the
"Liquidation Preference") plus (ii) all dividends which have been declared but
have not been paid ("declared and unpaid dividends"), and all unpaid dividends,
with regard to the Series A Stock to the date of final distribution. If, upon
any liquidation, dissolution or winding-up of the Corporation, the assets of the
Corporation, or proceeds of those assets, available for distribution to the
holders of Series A Stock and of the shares of all other classes or series which
are on a parity as to distributions on liquidation with the Series A Stock are
not sufficient to pay in full the preferential amount required to be distributed
to the holders of the Series A Stock and of all other classes or series which
are on a parity as to distributions on liquidation with the Series A Stock, then
the assets, or the proceeds of those assets, which are available for
distribution to the holders of Series A Stock and of the shares of all other
classes or series which are on a parity as to distributions on liquidation with
the Series A Stock will be distributed to the holders of the Series A Stock and
of the shares of all other classes or series which are on a parity as to
distributions on liquidation with the Series A Stock ratably in accordance with
the respective amounts of the liquidation preferences of the shares held by each
of them. After payment of the full amount of the Liquidation Preference
(including unpaid dividends) and declared and unpaid dividends to which holders
of Series A Stock are entitled, the holders of Series A Stock will participate
in any further distribution of assets of the Corporation to the same extent as
the holders of Junior Shares ratably in accordance with the respective number of
shares of capital stock held by each of them. For the purposes of this Section,
neither a consolidation or merger of the Corporation with another corporation,
nor a sale or transfer of all or any part of the Corporation's assets for cash
or securities, will be considered a liquidation, dissolution or winding-up of
the Corporation.
9
<PAGE>
As used with regard to the Series A Stock, the term "Junior Shares"
means all shares of Common Stock and all shares of any other class or series of
stock of the Corporation to which the shares of Series A Stock are prior in
rank. If the Series A Stock ranks prior to another class or series of stock as
to some matters, but not as to other matters, shares of the other class or
series are "Junior Shares" with regard to the matters as to which the Series A
Stock ranks prior to the other class or series, but not as to other matters.
Section 7. Pairing. The Series A Stock shall not be transferable,
-------
redeemable or exchangeable and shall not be transferred, redeemed or exchanged
on the books of the Corporation, except in combination with an equal number of
shares of Series A Redeemable Preferred Stock of Santa Anita Realty Enterprises,
Inc. Sections 1, 2, 5, 6 and 7 of the Pairing Agreement, dated as of December
31, 1979 between this Corporation and Santa Anita Realty Enterprises, Inc.
shall apply to the Series A Stock.
Section 8. Miscellaneous.
-------------
(a) No fractional shares of Common Stock will be issued
upon exchange of Series A Stock. Any fractional interest in a share of Common
Stock resulting from exchange of shares of Series A Stock will be paid in cash
(computed to the nearest cent) based on the last reported sale price of the
Common Stock on the Trading Day (as defined in Subparagraph 8(b) immediately
preceding the day of exchange. If more than one share of Series A Stock is
surrendered for exchange at substantially the same time by the same holder, the
number of full shares of Common Stock issuable upon any exchange thereof will be
computed on the basis of all shares of Series A Stock surrendered at that time
by that holder.
(b) For the purpose of any computation relating to Series A
Stock, the "Current Market Price" of the Common Stock on any date will be the
average of the last
10
<PAGE>
reported sale prices per share of the Common Stock on each of the 30 consecutive
Trading Days (as defined below) preceding the date of the computation.
Notwithstanding the foregoing, if any person commences a tender offer for shares
of outstanding Common Stock in exchange for cash consideration (i) if such
tender offer is the subject of an Alternative Transaction Notice, the Current
Market Price will be the price per share being offered in such tender offer, and
(ii) if such tender offer is not the subject of an Alternative Transaction
Notice or if the consideration offered in such tender offer is not cash, the
Current Market Price will be the last reported sale price per share of the
Common Stock on the Surrender Date. The term "Alternative Transaction Notice"
shall have the same meaning as set forth in the Formation Agreement. The last
reported sale price of the Common Stock on each day will be (A) the last
reported sale price of the Common Stock on the principal stock exchange on which
the Common Stock is listed, or (B) if the Common Stock is not listed on a stock
exchange, the last reported sale price of the Common Stock on the principal
automated securities price quotation system on which sale prices of the Common
Stock are reported, or (C) if the Common Stock is not listed on a stock exchange
and sale prices of the Common Stock are not reported on an automated quotation
system, the mean of the high bid and low asked price quotations for the Common
Stock as reported by National Quotation Bureau Incorporated if at least two
securities dealers have inserted both bid and asked quotations for the Common
Stock on at least five of the ten preceding Trading Days. If the Common Stock is
not traded or quoted as described in any of clause (A), (B) or (C), the Current
Market Price of the Common Stock on a day will be the fair market value of the
Common Stock on that day as determined by a member firm of the New York Stock
Exchange, Inc. selected by the Board. The term "Trading Day" means (x) if the
Common Stock is listed on at least one stock exchange, a day on which there is
trading on the principal stock exchange on which the
11
<PAGE>
Common Stock is listed, (y) if the Common Stock is not listed on a stock
exchange, but sale prices of the Common Stock are reported on an automated
quotation system, a day on which trading is reported on the principal automated
quotation system on which sales of the Common Stock are reported, or (z) if the
Common Stock is not listed on a stock exchange and sale prices of the Common
Stock are not reported on an automated quotation system, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(c) The Corporation will pay any documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on exchange of Series A Stock; provided, however, that the
-------- -------
Corporation will not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of shares of Common Stock in a
name other than that of the holder of record of the Series A Stock to be
exchanged and no such issue or delivery will be made unless and until the person
requesting the issue or delivery has paid to the Corporation the amount of any
such tax or has established, to the satisfaction of the Corporation, that the
tax has been paid.
(d) Upon any redemption or exchange of shares of Series A Stock,
the shares of Series A Stock which are redeemed or exchanged will have the
status of authorized and unissued shares of preferred stock, and the number of
shares of preferred stock which the Corporation will have authority to issue
will not be decreased by the redemption or exchange of shares of Series A Stock,
but the number of shares of Series A Stock which the Corporation will have
authority to issue will be reduced so that the shares of Series A Stock which
were redeemed or exchanged may not be re-issued as shares of Series A Stock.
(e) Except as otherwise expressly provided in this resolution,
whenever a notice or other communication is required or permitted to be given to
holders of shares of
12
<PAGE>
Series A Stock, the notice or other communication will be deemed properly given
if deposited in the United States mail, postage prepaid, addressed to the
persons shown on the books of the Corporation as the holders of the shares at
the addresses as they appear in the books of the Corporation, as of a record
date or dates determined in accordance with the Corporation's Certificate of
Incorporation and By-laws, these resolutions and applicable law, as in effect
from time to time.
(f) Except as may otherwise be required by law, shares of Series
A Stock will not have any designations, preferences, limitations or relative
rights, other than those specifically set forth in this resolution and in the
Certificate of Incorporation .
(g) The headings of the various subdivisions of this resolution
are for convenience only and will not affect the meaning or interpretation of
any of the provisions of this resolution.
13
<PAGE>
IN WITNESS WHEREOF, Santa Anita Operating Company has caused this
certificate to be signed by William C. Baker, its Chief Executive Officer and
President, this 5th day of September, 1996.
SANTA ANITA OPERATING COMPANY
By: /s/William C. Baker
---------------------------
William C. Baker
Chief Executive Officer and President
<PAGE>
EXHIBIT 99.1
KOLL ARCADIA INVESTORS, LLC
4343 VON KARMAN AVENUE
NEWPORT BEACH, CA 92660
October 9, 1996
Santa Anita Realty Enterprises, Inc.
Santa Anita Operating Company
Boards of Directors
285-301 West Huntington Drive
Arcadia, CA 91066-6014
Gentlemen:
Koll Arcadia Investors, LLC ("KAI") has been carefully following the recent
proposed transactions between Colony Investments II ("Colony") and The Santa
Anita Companies (the "Companies")--Santa Anita Realty Enterprises, Inc.
("Realty") and Santa Anita Operating Company ("Operating"). Based on a
thorough review of the limited information available to the public, we believe
these transactions are not in the best interests of the stockholders of the
Companies. Public statements by some of your largest stockholders indicate
they, too, share this conclusion.
Therefore, as an affiliate of a significant stockholder, we are providing an
alternative recapitalization plan for the Boards' consideration. We believe
our plan provides superior value for the owners of the Companies, as compared
with the proposed Colony transactions.
There are several elements of the Colony transactions that we find
particularly troubling:
. Control of the Companies is effectively being transferred to Colony, yet
no cash is to be paid to current stockholders.
. Control is being transferred to Colony for an investment of only $12.7
million or $12.98 per paired share. To cede control for such a nominal
amount (relative to the capital base of the Companies) is highly
unusual; to transfer such control at a share price that is a significant
discount to market value is even more extraordinary.
. Board approval of the Colony transactions--a decision dramatically
affecting the future of the Companies--apparently was made absent
consideration of any alternative proposals.
. Further dilution of current stockholders' value is ensured by the grant
of a long-term, fixed, below-market option to Colony to acquire up to
45% of the Companies. This option structure deprives current
stockholders of the ability to participate in the value of existing
assets, particularly because it gives current stockholders no rights to
invest on the same terms as Colony.
The KAI proposal, on the other hand, is designed to provide significantly
greater value to stockholders, both at the conclusion of the transactions and
over the longer term. We estimate the value of this transaction to be in
excess of $19 per share to the existing stockholders, with the vast majority
of that coming in cash in the form of an immediate dividend. The primary
components and benefits of our proposal include:
. An up-front cash dividend of $14.00 per paired common share to current
stockholders of the Companies--which we anticipate should be
substantially tax-free for federal income tax purposes. (To maximize the
amount of the dividend on the common stock, and because terms of
Colony's Series A
1
<PAGE>
Preferred Stock have not been publicly filed in Delaware, we have not
assumed payment of any amount on Colony's Preferred Shares.)
. An investment of $50 million by KAI, which is nearly four times that of
Colony's $12.7 million and represents a valuation premium of
approximately 46% over the $12.98 per paired share paid by Colony.
. An opportunity for stockholders to participate in future investments, on
the same terms as KAI, through rights offerings (whereas the Colony
transactions grant only Colony the opportunity to make additional
investments on advantageous and dilutive terms). However, under KAI's
plan, stockholders will not be obligated to invest additional funds if
they do not choose to do so; KAI is prepared to serve as a standby
purchaser for such rights offerings. We estimate the value of these
rights to be at least an additional $2.00 per paired share.
The following is an outline of our proposal:
KAI INVESTMENT: KAI will make an initial cash investment in the Companies
of at least $50 million. This investment will be based on
a price per paired share of $17.00, less the $14.00 per
paired share paid to current stockholders as a special
dividend (the "Dividend"). Thus, KAI will acquire
16,667,000 newly issued paired shares and newly created
operating partnership units, as described below. Each
current stockholder will receive $14.00 per paired share
in cash and will continue to hold shares with a current
value of at least approximately $3.00 per paired share and
the ability to continue to participate in an exceptional
opportunity for growth and increased value.
In connection with KAI's initial investment, Realty would
contribute to a newly formed limited liability entity (the
"Realty OP") substantially all of the properties and
assets of Realty, subject to substantially all of the
liabilities of Realty, and Operating would contribute to a
newly formed limited liability entity (the "Operating OP")
substantially all of its properties and operating assets,
subject to substantially all of its liabilities. Units of
the Ops to be issued to KAI will be exchangeable, together
but not separately, for shares of the paired common stock
of Realty and Operating equivalent to the percentage
ownership of the OPs represented by the units tendered.
Any exchange of units of the OPs for shares of the paired
common stock will be subject to the prohibition against
any issuance of shares that would cause Realty to fail to
satisfy the REIT tests.
INITIAL DIVIDEND: KAI will ensure that its initial investment, together with
the proceeds of an anticipated financing, will be
sufficient to pay the Dividend. The Dividend will be paid
to all stockholders other than KAI. In exchange for its
investment, KAI will receive (i) newly issued paired
shares representing ownership in Realty and Operating
which, when aggregated with paired shares currently owned
by KAI and its affiliates, will give KAI and its
affiliates an ownership interest of approximately 9.8% and
(ii) interests in the Realty OP and the Operating OP equal
in value (based on the convertibility of each OP unit into
one share) to the balance of KAI's investment.
RIGHTS OFFERING: In order to allow all stockholders to participate in
attractive investment opportunities without dilution,
subject to applicable securities laws, KAI will cause the
Companies to issue rights (the "Rights") within six months
of the Closing to purchase an aggregate of $50 million of
equity in the Companies to all stockholders. The Rights,
which may be issuable in series, will provide that all
stockholders (including KAI) will be entitled to purchase
one new paired share of
2
<PAGE>
the Companies at a price of $2.00 for each paired share
they own at the time of the rights issuance at any time
through 1998. KAI believes that the value of each Right
will be at least $2.00 per existing paired share. KAI is
prepared to serve as a standby purchaser for such Rights
offerings. Following completion of the Rights offerings,
KAI will invest up to an additional $100 million in the
Companies if sufficient capital is not otherwise
available to the Companies to take advantage of
attractive investment opportunities.
GOVERNANCE: The Boards of Directors of the Companies will include a
majority of KAI nominees. KAI will support the election
of up to three existing directors to serve as independent
directors to ensure continuity in representation of
public stockholders.
KAI, or an affiliate, will serve as the managing general
partner of each of the Ops.
SPONSORSHIP: KAI has been formed by Donald M. Koll ("Koll") and Apollo
Real Estate Investment Fund II, L.P. ("Apollo"). As
Chairman and founder of The Koll Company and its many
affiliated companies, Donald Koll has successfully
created a network of companies that invest, develop,
construct, finance and manage real estate throughout the
United States, Mexico and Asia. These real estate
investments began in the early 1960's and Koll operations
are now all headquartered in Newport Beach, California.
For 35 years, Koll has developed institutional quality
industrial parks, office buildings, shopping centers and
public facilities in partnership with, or on behalf of,
major corporations, financial institutions and
governmental agencies. Koll's efforts in master planning
also include significant expertise in mixed use projects
in the Southwest U.S. and Mexico. Apollo is a private
investment fund managed by affiliates of Apollo Real
Estate Advisors, a New York-based investment management
firm. Apollo has committed capital of in excess of $500
million which it invests in real estate assets and
companies and related operating businesses. Since 1993,
the principals of Apollo have successfully invested
approximately $800 million of equity in over 60 real
estate-related transactions with a total capitalization
in excess of $3 billion.
FUTURE OPERATIONS
KAI is committed to pursuing a program of intensive managerial focus to
maximize stockholder realization on existing core assets. This will include a
strategic review of enhancing the parimutuel operations, particularly related
to the potential for increasing brand equity and realization of operating
efficiencies and revenue potential through joint marketing of the simulcast
product with other California tracks. KAI has been in contact with recognized
industry experts and intends to continue to seek the assistance of major
constituents in finalizing an optimal approach to enhancing the value of Santa
Anita's racing product.
KAI also intends to analyze carefully the development potential of excess
acreage at Santa Anita and put forward a development plan which is both
economically viable and sensitive to the concerns of the residents and elected
officials of Arcadia. Koll has developed an excellent reputation for community
interaction, environmental sensitivity, thoughtful planning and balanced
economic analysis to create projects that meet the objectives of the numerous
constituents concerned with the development process.
Finally, KAI intends to maximize the value of the paired share format by
pursuing acquisitions, mergers, joint ventures, and other business
arrangements with real estate intensive operating businesses. KAI intends
to focus both on asset transactions, and, opportunities to invest in, or with,
public and/or private companies. Due to the superior transaction flow
experienced by both Apollo and Koll, KAI is highly confident in its ability to
rapidly grow the assets of the company in a manner that is accretive to all
stockholders.
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This proposal is subject to negotiation and execution of mutually acceptable
definitive documentation and to confirmation by KAI of the information
contained in the publicly-filed documents of Realty and Operating and that
neither Company has suffered a material adverse change in its business or
prospects since June 30, 1996.
This proposal provides your stockholders with substantially more value than
the Colony proposal, both initially, and over time. KAI is committed to
pursuing this transaction and hopes to work cooperatively with you to enhance
stockholder value. KAI looks forward to discussing this proposal with you and
will be calling you shortly to arrange a time to discuss its proposal in
detail.
Very truly yours,
KOLL ARCADIA INVESTORS, LLC
Donald M. Koll
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Exhibit 99.2
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KOLL ARCADIA INVESTORS, LLC
4343 VON KARMAN AVENUE
NEWPORT BEACH, CA 92660
October 21, 1996
Santa Anita Realty Enterprises, Inc.
Santa Anita Operating Company
Boards of Directors
285-301 West Huntington Drive
Arcadia, CA 91066-6014
Gentlemen:
On October 9, 1996, Koll Arcadia Investors, LLC ("KAI") presented an alternative
recapitalization plan to the Boards of Directors of The Santa Anita Companies
(the "Companies")--Santa Anita Realty Enterprises and Santa Anita Operating
Company--which we believe is demonstrably financially superior to the Colony
transaction approved by the Boards of Directors of the Santa Anita Companies in
August of this year. We find the Companies' response to date to be of concern.
The statement on October 11 that the Companies "will let you know when we think
it appropriate to respond" is, we believe, highly inappropriate given the
importance of our proposal to the Companies' stockholders. The Companies' press
release regarding "any illusions" that our "rhetoric" would influence the Boards
obscures the clear choices placed before you. The pricing and structure of our
proposal are far more eloquent than any commentary either side will put forth.
The Companies' repeated characterization of the KAI offer as unsolicited is
particularly revealing--it was unsolicited only because the Boards of the Santa
Anita Companies chose not to seek proposals superior to that of Colony.
We can only conclude that the reason for your failure to embrace our proposal is
that Colony improperly stands on both sides of this transaction to the clear
detriment of the paired common stockholders of the Santa Anita Companies. In
accordance with your duties to the owners of the Companies; as major
stockholders, we would expect the following actions to be taken immediately by
the directors of the Santa Anita Companies:
--The immediate formation of independent committees of the Boards of
Directors, comprised of unaffiliated, disinterested directors represented by
truly independent legal and financial advisors, to review the Colony proposal,
the KAI alternative recapitalization proposal and any other bona fide proposals
received by the Santa Anita Companies. We understand that you may be
considering this action and believe that it is an appropriate step if the
independent committees are organized and act in a manner which insures a fair
process;
--In that regard, in recognition of his clear and irresolvable conflict,
Mr. Barrack should be asked to resign from the Board. In light of the past
influence he has had with respect to the Board of Directors, the action of any
independent committee will be suspect if Mr. Barrack remains on the Board. Mr.
Barrack should observe the deliberations of the independent committees and the
Boards of Directors from the same place as KAI--outside of the boardroom; and
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--We urge that the independent committee meet with KAI and its advisors to
discuss the KAI alternative recapitalization proposal and its advantages to the
owners of the Santa Anita Companies. KAI remains ready to meet with the
independent committees and its advisors to discuss our proposal which provides
your stockholders with substantially more value than the Colony proposal, both
initially, and over time.
As you know,
--Our proposal calls for an up-front cash dividend of $14 per share to
current stockholders of the Companies--which we anticipate to be substantially
tax-free for federal income tax purposes--versus no cash to stockholders in the
Colony proposal;
--Our proposal calls for an investment by KAI of $50 million versus only
$12.7 million in the Colony proposal;
--Our proposal affords stockholders of the Santa Anita Companies an
opportunity to participate in future investments through rights offerings to
purchase up to $50 million of common equity versus the Colony transaction which
grants only Colony the opportunity to make additional investments on
advantageous and dilutive terms.
KAI looks forward to working cooperatively with the Boards of the Directors of
the Santa Anita Companies to enhance stockholder value. However, under separate
cover, we are delivering demands under Delaware law for the lists of common
stockholders of each of the Companies so that we may preserve our right to
communicate directly with them in the future regarding our proposal.
Very truly yours,
KOLL ARCADIA INVESTORS, LLC
Donald M. Koll
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Exhibit 99.3
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THE SANTA ANITA COMPANIES
NEWS RELEASE
CONTACTS:
Brian L. Fleming Josh Pekarsky
The Santa Anita Companies Kekst and Company
(818) 574-6303 (212) 593-2655
SANTA ANITA REAFFIRMS COMMITMENT TO
STRATEGIC ALLIANCE WITH COLONY CAPITAL
Arcadia, CA, October 27, 1996 -- The Santa Anita Companies (NYSE: SAR) today
reported that the Boards of the Directors of Santa Anita Realty Enterprises,
Inc. and Santa Anita Operating Company ("The Companies") have reaffirmed their
commitment to the previously announced strategic alliance with Colony Capital
and its affiliates, and that The Companies are moving forward with the
finalization of the joint proxy statement to shareholders seeking approval of
the transaction.
The Companies also reported that the Special Committees of certain independent
directors which the Boards of Directors had appointed to review the proposal
received from the Apollo/Koll entity, Koll Arcadia Investors, LLC ("KAI"), have
determined that the proposal, in its present form, was incomplete. Accordingly,
the Special Committees made a recommendation, which was adopted by the Boards,
that the Apollo/Koll proposal provided an insufficient basis to allow The
Companies to initiate and participate in discussions with Apollo/Koll within the
limitations contained in The Companies' agreement with Colony. The Special
Committees made a further recommendation, which was also approved by the Boards,
that Morgan Stanley & Co. Incorporated, financial advisor to The Companies, be
directed to commence discussions with Apollo/Koll if at any time Apollo/Koll
addressed in a sufficient manner the concerns of the Special Committees so that
The Companies could commence discussion with Apollo/Koll without breaching the
terms of their agreements with Colony. Thomas J. Barrack, Jr, who is a director
of The Companies and the Chief Executive Officer of Colony, did not participate
in the Boards' decisions. Mr. Barrack has not participated in any of the
Boards' prior deliberations on the Colony transaction.
The Companies sent the following letter to KAI regarding the KAI proposal:
# # #
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[Santa Anita Letterhead]
October 27, 1996
Koll Arcadia Investors, LLC
4343 Von Karman Avenue
Newport Beach, CA 92660
Gentlemen:
On October 9, 1996, The Companies received your unsolicited letter in which
Koll Arcadia Investors, LLC ("KAI") described in general terms a proposal under
which control of The Companies would be transferred to KAI. The proposal was
styled as an "alternative recapitalization plan" to the strategic alliance with
Colony Capital and its affiliates which had been previously approved by the
Boards of Directors of The Companies. Following receipt of that letter, the
Boards formed Special Committees to review your proposal.
After careful consideration, the Special Committees recommended to the full
Boards of The Companies that the KAI proposal provides an insufficient basis for
The Companies to initiate and participate in discussion with you. In making this
recommendation, the Special Committees determined that your proposal was
incomplete in at least the following respects:
1. The proposal did not adequately describe the nature and feasibility of the
up-front cash dividend of $14.00 per paired share. While the proposal
contemplates additional external financing for the dividend, it does not
identify the sources or terms of that financing or whether commitments for
such financing have been obtained. Also, you did not address whether the
proposal would change as a result of the requirement of paying the dividend
to the holders of The Companies' Series A Preferred Stock, the terms of
which were publicly filed well before the submission of your proposal.
Finally, no support was provided for the assertion that the dividend would
be substantially tax-free to The Companies' stockholders and we have been
advised that such a dividend may in large part be taxable.
2. No information or analysis was provided to support the post-dividend
valuation of $3.00 per paired share.
3. No information or analysis was provided to support the asserted $2.00 per
share valuation of the proposed Rights to be issued to all stockholders of
The Companies (including KAI). Indeed, if all stockholders receive the
Rights, we are uncertain as to why the Rights would have any value at all.
4. No information was provided regarding the terms, timing and certainty of
the additional $100 million to be invested in The Companies by KAI.
5. The proposal provided inadequate information regarding the structure of
KAI, including the identity of the owners and any other affiliates and
their respective ownership interests and responsibility for capital
commitments. In addition, the proposal did not disclose whether KAI has any
arrangement or understanding with other industry participants which might
impact the future of racing at Santa Anita Park.
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6. Insufficient information was provided regarding KAI's plans for the future
operations and governance of The Companies. Among other things, the
proposal did not address adequately KAI's plans for acquiring real estate
intensive operating businesses, KAI's intentions regarding maintaining
Realty's REIT status and KAI's need to control The Companies and the
proposed operating entities. Additionally, the proposal did not assess the
impact that such a highly leveraged capital structure would have on The
Companies' ability to pursue new business opportunities in the future.
Acting upon the Special Committees' recommendation, the Boards have
reaffirmed The Companies commitment to the strategic alliance with Colony which
they believe will substantially enhance stockholder value and will not transfer
control of The Companies from the existing stockholders. Accordingly, The
Companies are preparing the proxy statement to be sent to stockholders for
approval of the Colony strategic alliance.
Sincerely,
William C. Baker
Chairman of The Boards of Directors
Santa Anita Realty Enterprises, Inc.
and Santa Anita Operating Company
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