<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
Under the Securities Exchange Act of 1934
(Amendment No. )*
CHARLES E. SMITH
RESIDENTIAL REALTY, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $.01 par value
----------------------------------------
(Title of Class of Securities)
832197107
---------
(CUSIP Number)
Ellen Kendall, Esq. Gregory P. Patti, Esq.
c/o Prudential Real Estate Investors O'Melveny & Myers LLP
8 Campus Drive The Citicorp Center
Parsippany, New Jersey 07054 153 East 53rd Street, 54th Floor
(973) 683-1696 New York, New York 10022-4611
(212) 326-2000
John Westney, Esq.
The Prudential Realty Group
One Ravinia Drive, Suite 1400
Atlanta, Georgia 30346
(770) 395-8466
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 3, 1997
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box |_|
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
- ----------
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall
not be deemed to be "filed" for the purpose of Section 18 of the Securities
Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
<PAGE> 2
CUSIP No. 832197107
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(Intentionally Omitted)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |X|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
NEW JERSEY
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES BENEFICIALLY 1,450,000 SHARES
OWNED BY EACH
REPORTING PERSON 8 SHARED VOTING POWER
0 SHARES
9 SOLE DISPOSITIVE POWER
1,450,000 SHARES
10 SHARED DISPOSITIVE POWER
0 SHARES
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,450,000 SHARES
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES |X|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IC, CO, IA
- --------------------------------------------------------------------------------
Page 2 of 18 Pages
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CUSIP No. 832197107
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
STRATEGIC VALUE INVESTORS, LLC
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(Intentionally Omitted)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |X|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES BENEFICIALLY 0 SHARES
OWNED BY EACH
REPORTING PERSON 8 SHARED VOTING POWER
0 SHARES
9 SOLE DISPOSITIVE POWER
0 SHARES
10 SHARED DISPOSITIVE POWER
0 SHARES
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0 SHARES
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES |X|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
00
- --------------------------------------------------------------------------------
Page 3 of 18 Pages
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CUSIP No. 832197107
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(Intentionally Omitted)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) |X|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEM 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES BENEFICIALLY 0 SHARES
OWNED BY EACH
REPORTING PERSON 8 SHARED VOTING POWER
0 SHARES
9 SOLE DISPOSITIVE POWER
0 SHARES
10 SHARED DISPOSITIVE POWER
0 SHARES
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0 SHARES
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES |X|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
00
- --------------------------------------------------------------------------------
Page 4 of 18 Pages
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ITEM 1. SECURITY AND THE ISSUER
This Statement on Schedule 13D (this "Statement") relates to the
common stock, par value $.01 per share (the "Shares"), of Charles E. Smith
Residential Realty, Inc. (the "Company").
The name and address of the principal executive offices of the
Company is 2345 Crystal Drive, Crystal City, Virginia 22202.
ITEM 2. IDENTITY AND BACKGROUND
This Statement is filed by The Prudential Insurance Company of
America, a New Jersey corporation ("Prudential"), Strategic Value Investors
LLC, a Delaware limited liability company ("SVI"), and Strategic Value
Investors International LLC, a Delaware limited liability company ("SVI
International"; and collectively with Prudential and SVI, the "Reporting
Parties"), in each case, with respect to the acquisition by the Reporting
Parties of Shares from the Company on October 3, 1997 (the "Closing Date").
Prudential is an insurance company and the address of its principal
business and principal office is Prudential Plaza, 751 Broad Street, Newark, New
Jersey 07102.
Each of SVI and SVI International is a limited liability company
formed to invest in shares or their equivalents of public and private real
estate companies and real estate investment trusts (collectively, "REITs") or
interests in partnerships in which REITs own general partnership interests or
other significant partnership interests.
Prudential owns 49% of the membership interests in SVI and New York
State Teachers' Retirement System, a New York pension fund created and existing
by virtue of the New York State Education Law and endowed with the powers and
privileges of a corporation pursuant to Section 502 thereof, Houston Municipal
Employees Pension System, a Texas municipal pension system, Chesterfield
Investment Company, Inc., a Delaware corporation, 1199 Health Care Employees'
Pension Fund, a New York trust, Dallas Police and Fire Pension System, a Texas
trust, and Illinois Municipal Retirement Fund, an Illinois qualified pension
plan under Section 401(a) of the Internal Revenue Code of 1986, as amended,
collectively own 51% of the membership interests in SVI. The address of the
principal business and principal office of SVI is 8 Campus Drive, 4th Floor,
Parsippany, New Jersey 07054.
SCPG Holdings Pte. Ltd., a corporation organized under the laws of
Singapore, owns 66 2/3% of the membership
Page 5 of 18 Pages
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interests in SVI International and Crescent Holding GmbH, a corporation
organized under the laws of Austria, owns 331/3% of the membership interests in
SVI International. Prudential has committed to make parallel investments with
investments made by SVI International (in such role, the "Prudential
Co-Investor") such that the Prudential Co-Investor's investment is equal to 49%
of the sum of (i) the Prudential Co-Investor's investment and (ii) SVI
International's investment. In addition, The Prudential Investment Company, a
wholly-owned subsidiary of Prudential and the investment advisor of each of SVI
and SVI International ("PIC"), has agreed that it is PIC's intention that the
investments of SVI, on the one hand, and SVI International and the Prudential
Co-Investor, on the other, will be made in parallel. The address of the
principal business and principal office of SVI International is c/o Coutts
(Cayman) Limited, Coutts House, P.O. Box 707, Grand Cayman, British West Indies.
As described in Item 5 below, Prudential (in its capacity as the
Prudential Co-Investor), SVI and SVI International own of record 152,250 Shares,
1,139,286 Shares and 158,464 Shares, respectively. Prudential may be deemed
solely to beneficially own (i) the Shares owned of record by it in its capacity
as the Prudential Co-Investor and (ii) the Shares owned of record by each of SVI
and SVI International by virtue of the ability of PIC to vote and dispose of
such Shares pursuant to certain investment management agreements described in
Item 6 hereto.
During the past five years, none of the Reporting Parties has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
During the past five years, none of the Reporting Parties has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which such person was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Certain information required by Item 2 concerning the persons
identified in General Instruction C to Schedule 13D with respect to the
Reporting Parties is set forth on Schedule A hereto, which Schedule A is
incorporated herein by reference. To the knowledge of each Reporting Party,
during the past five years none of such persons has been (i) convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) a party to a
Page 6 of 18 Pages
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civil proceeding of a judicial or administrative body of competent jurisdiction
as a result of which such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Pursuant to a Purchase Agreement (the "Purchase Agreement") dated as
of September 17, 1997 between the Company and Prudential, Prudential agreed to
acquire from the Company 1,450,000 Shares and 1,216,666 shares of the Company's
Series B Cumulative Redeemable Preferred Stock, $.01 par value (the "Preferred
Shares"), for an aggregate purchase price of $75,999,981. Pursuant to an
Assignment and Assumption of Acquisition Rights dated as of October 2, 1997 (the
"Assignment Agreement"), Prudential (i) assigned the right to purchase 1,139,286
Shares and 955,952 Preferred Shares to SVI and 158,464 Shares and 132,964
Preferred Shares to SVI International and (ii) retained, as the Prudential
Co-Investor, the right to purchase 152,250 Shares and 127,750 Preferred Shares.
The Purchase Agreement and the Assignment Agreement are described in Item 6
hereto and are attached hereto at Exhibits I and II, respectively. As described
in Item 5, the Shares issuable upon the conversion of the Preferred Shares are
not deemed to be beneficially owned by any of the Reporting Parties for the
purposes of Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
The 152,250 Shares owned of record by Prudential were purchased from
the Company on October 3, 1997 for an aggregate purchase price of $4,339,125.
The source of the funds to pay the purchase price was the capital of Prudential.
The 1,139,286 Shares owned of record by SVI were purchased from the
Company on October 3, 1997 for an aggregate purchase price of $32,469,651. The
source of the funds to pay the purchase price was the capital of SVI available
for investment.
The 158,464 Shares owned of record by SVI International were
purchased from the Company on October 3, 1997 for an aggregate purchase price of
$4,516,224. The source of the funds to pay the purchase price was the capital of
SVI International available for investment.
ITEM 4. PURPOSE OF TRANSACTION
Prudential, SVI and SVI International acquired and are holding the
Shares and Preferred Shares for investment purposes and without the intention of
effecting a change in control of the Company. Notwithstanding the foregoing,
depending on market conditions, any of the Reporting Parties may choose to
acquire additional Shares and Preferred Shares
Page 7 of 18 Pages
<PAGE> 8
(subject to the restrictions set forth in the next paragraph) or dispose of some
or all of its Shares and Preferred Shares.
In connection with the transactions contemplated by the Purchase
Agreement and the authorization and the issuance of the Preferred Shares, the
Company adopted the Series B Preferred Articles Supplementary substantially in
the form set forth as Exhibit A to the Purchase Agreement. In addition, the
Company's Amended and Restated Articles of Incorporation (the "Articles")
provide for certain ownership limitations that would have prohibited the
Reporting Parties from acquiring Shares and Preferred Shares (which Preferred
Shares are convertible, in certain circumstances, into Shares on a one-for-one
basis as set forth in the Series B Preferred Articles Supplementary) that would
have (but for the waiver described in the immediately following sentence)
exceeded 9.8% of the outstanding Shares (assuming for the purposes of such
calculation, that the Preferred Shares are immediately convertible into Shares).
In connection with the transactions contemplated by the Purchase Agreement, the
board of directors of the Company issued a Waiver of Ownership Limitations
(which Waiver of Ownership Limitations is set forth as Exhibit C to the Purchase
Agreement) permitting the purchase of the Shares and Preferred Shares pursuant
to the Purchase Agreement; provided, among other things, that the Reporting
Parties do not convert the Preferred Shares such that the Reporting Parties
beneficially own in excess of 9.8% of the Shares.
Except as set forth above, no Reporting Party, nor to any Reporting
Party's knowledge, any of the persons identified on Schedule A, has any plans or
proposals that would result in or relate to any of the transactions described in
paragraphs (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) Prudential may be deemed to beneficially own 1,450,000 Shares,
or approximately 9.7% of the 14,895,693 Shares issued and outstanding as of the
Closing Date (after giving effect to the issuance to Prudential, SVI and SVI
International of 1,450,000 Shares on the Closing Date). Of such 1,450,000
Shares, Prudential (i) owns 152,250 of such Shares beneficially and of record in
its capacity as the Prudential Co-Investor, (ii) may be deemed to beneficially
own 1,139,286 of such Shares (which Shares are owned of record by SVI) by virtue
of the ability of PIC to vote and dispose of such Shares pursuant to an
Investment Advisory Agreement dated as of October 2, 1997 between SVI and PIC
(the "SVI Investment Advisory Agreement") and (iii) may be deemed to
beneficially own 158,464 of such Shares (which Shares are owned of record by SVI
International) by virtue of the ability of PIC to vote and dispose of such
Shares
Page 8 of 18 Pages
<PAGE> 9
pursuant to an Investment Advisory Agreement dated as of October 2, 1997 among
SVI International, PIC, Prudential and Strategic Value Investors International
Ltd. ("SVI Ltd."), a Cayman islands company and a wholly-owned subsidiary of
Prudential (the "SVI International Investment Advisory Agreement"). Each of the
SVI Investment Advisory Agreement and the SVI International Investment Advisory
Agreement is described in Item 6 hereto and is attached hereto at Exhibit V and
Exhibit VII, respectively. SVI and SVI International do not beneficially own the
Shares owned of record by them because they do not have the power to vote or
dispose such Shares.
Prudential Securities Incorporated, an indirect wholly-owned
subsidiary of Prudential ("PSI"), beneficially owns on the date hereof 500
Shares in certain discretionary accounts on behalf of clients of PSI. Prudential
disclaims beneficial ownership of such Shares because the management of PSI, and
not Prudential, directs the disposition and/or voting, if any, of such Shares.
If all of the Preferred Shares owned of record were permitted to be
converted into Shares pursuant to the Articles, Prudential would be deemed to
beneficially own 2,666,666 Shares or 16.6% of the 16,112,359 Shares that would
be outstanding upon the conversion of such Preferred Shares (based on the
14,895,693 Shares outstanding on the Closing Date). Because the Articles
prohibit the conversion of the Preferred Shares to the extent described in Item
4, the Shares that would otherwise be issuable upon the conversion of the
Preferred Shares are not deemed to be beneficially owned by the Reporting
Parties pursuant to Section 13 of the Exchange Act.
(b) Prudential has the sole power to vote or direct the vote and the
sole power to dispose or direct the disposition of the 1,450,000 Shares owned of
record by Prudential, SVI and SVI International.
Page 9 of 18 Pages
<PAGE> 10
(c) Except as specified above in Item 3, none of the Reporting
Parties has effected any transactions in the Shares during the past 60 days.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF ISSUER
As described in Item 3 above, Prudential and the Company entered
into the Purchase Agreement as of September 17, 1997, pursuant to which the
Company agreed to sell 1,450,000 Shares and 1,216,666 Preferred Shares to
Prudential and certain assignees of Prudential, including SVI and SVI
International. The Purchase Agreement contains customary representations and
warranties, covenants and conditions of or with respect to Prudential and the
Company. The Purchase Agreement also contains, among other things, (i) the
covenant of the Company to provide to Prudential, SVI and SVI International,
during the period ending on the earlier of January 1, 2003 and the first date
upon which the Shares sold pursuant to the Purchase Agreement, together with the
Shares into which the Preferred Shares sold pursuant to the Purchase Agreement
are convertible, have an aggregate market value of less than $30 million,
non-confidential operating information of the same general nature as the Company
provides to financial analysts, substantially concurrently with the provision of
such information to financial analysts, (ii) the covenant of the Company to
permit the Reporting Parties to consult with management of the Company regarding
operating and financial matters of the Company and (iii) certain standstill
provisions prohibiting the Reporting Parties from, among other things, (a)
soliciting or negotiating any merger, consolidation or liquidation of the
Company, (b) soliciting, initiating or participating in a proxy solicitation,
(c) seeking representation on the Company's board of directors and (d) acquiring
any Shares and Preferred Shares if such Shares and the Shares issuable upon the
conversion of such Preferred Shares would exceed 19.988% of the Shares
outstanding immediately after such conversion. The foregoing description of the
Purchase Agreement and the Assignment Agreement is qualified in its entirety by
reference to such Purchase Agreement and Assignment Agreement, which are filed
as Exhibit I and Exhibit II hereto, respectively, and are incorporated herein by
reference.
Prudential and the Company entered into a Registration Rights
Agreement (the "Registration Rights Agreement") dated as of October 3, 1997,
pursuant to which the Company has agreed, prior to the date that is 45 days
after the initial issuance of Shares pursuant to the Purchase Agreement, to file
a registration statement under Rule 415 of the Securities Act of 1933, as
amended (the "Shelf Registration"), registering the Shares to be issued to
Prudential, SVI and SVI International (together with the Shares into which the
Preferred Shares may be converted, the "Registrable Shares"). The Company agrees
in the
Page 10 of 18 Pages
<PAGE> 11
Registration Rights Agreement to use its reasonable best efforts to keep such
Shelf Registration continuously effective for so long as the aggregate market
value of the Registrable Shares is at least $10 million or such shorter period
that will terminate upon the earlier of the following: (A) the date when all the
Registrable Shares have been sold pursuant to such Shelf Registration or Rule
144 promulgated pursuant to the Exchange Act and (B) the date on which, in the
reasonable, written opinion of counsel to the holders of the Registrable Shares
and/or to the Company, all outstanding Registrable Shares held by persons that
are not affiliates of the Company may be resold without registration under the
Securities Act of 1933, as amended, in accordance with Rule 144(k) promulgated
pursuant to the Exchange Act or any successor provision thereto. The foregoing
description of the Registration Rights Agreement is qualified in its entirety by
reference to the Registration Rights Agreement which is filed as Exhibit III
hereto and is incorporated herein by reference.
In connection with the formation of SVI, Prudential and the other
owners of membership interests in SVI identified in Item 2 hereto entered into
an Operating Agreement dated as of October 2, 1997, which is filed as Exhibit IV
hereto and which is incorporated herein by reference. In addition, SVI and PIC
entered into the SVI Investment Advisory Agreement dated as of October 2, 1997,
pursuant to which PIC has the power to vote and dispose the Shares owned of
record by SVI. The SVI Investment Advisory Agreement is terminable without cause
by SVI under certain circumstances. The foregoing description of the SVI
Investment Advisory Agreement is qualified in its entirety by reference to such
agreement, which is filed as Exhibit V hereto and is incorporated herein by
reference.
In connection with the formation of SVI International, SVI Ltd. and the
owners of membership interests in SVI International identified in Item 2 hereto
entered into an Operating Agreement dated as of October 2, 1997, which is filed
as Exhibit VI hereto and which is incorporated herein by reference. SVI Ltd.,
which is the manager of SVI International pursuant to the terms of such
Operating Agreement, has certain approval rights with respect to new
investments by SVI International. In addition, SVI Ltd., SVI, Prudential and
PIC entered into the SVI International Investment Advisory Agreement dated as
of October 2, 1997, pursuant to which PIC has the power to vote and dispose the
Shares owned of record by SVI International. The SVI International Investment
Advisory Agreement is terminable without cause by SVI International under
certain circumstances. The foregoing description of the SVI International
Investment Advisory Agreement is qualified in its entirety by reference to such
agreement, which is filed as Exhibit VII hereto and is incorporated herein by
reference.
The filing of this Statement should not be construed as an admission
that any of the Reporting Parties is or was for the purposes of Section 13 or
Section 16 of the Exchange Act the
Page 11 of 18 Pages
<PAGE> 12
beneficial owner of the Shares or the Preferred Shares described herein.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit No. Description
----------- -----------
I Purchase Agreement dated as
of September 17, 1997
II Assignment Agreement dated as
of October 2, 1997
III Registration Rights
Agreement dated as of
October 3, 1997
IV Operating Agreement (SVI)
dated as of October 2, 1997
V Investment Advisory
Agreement (SVI) dated as of
October 2, 1997
VI Operating Agreement (SVI
International) dated as of
October 2, 1997
VII Investment Advisory
Agreement (SVI
International) dated as of
October 2, 1997
Page 12 of 18 Pages
<PAGE> 13
Signature
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
October 14, 1997
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ JOHN B. RYAN
------------------------------
Name: John B. Ryan
Title: 2nd Vice President
STRATEGIC VALUE INVESTORS, LLC
By: The Prudential Investment Corporation
Its: Attorney-in-Fact
By: /s/ KEVIN R. SMITH
------------------------------
Name: Kevin R. Smith
Title: Vice President
STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC
By: Strategic Value Investors International Ltd.
Its: Manager
By: /s/ TERENCE McHUGH
------------------------------
Name: Terence McHugh
Title: Vice President
Page 13 of 18 Pages
<PAGE> 14
SCHEDULE A
Additional information required by Item 2 of Schedule 13D.
1. The Prudential Insurance Company of America. Set forth below is the name,
principal occupation/title and business address of each director and executive
officer of Prudential. Each of such persons is a citizen of the United States of
America, except that Richard M. Thomson is a citizen of Canada.
DIRECTORS
Principal Occupation/
Name Title Address
- ---- --------------------- -------
Franklin E. Agnew Business Consultant USX Tower
Suite 660
600 Grant Street
Pittsburgh, PA 15219
Frederic K. Becker President Wilentz Goldman & Spitzer
90 Woodbridge Center Drive
Suite 900
Woodbridge, NJ 07095
James G. Cullen Vice Chairman Bell Atlantic Corp.
1310 North Court House
Road
11th Floor
Arlington, VA 22201
Carolyne K. Davis Health Care Advisor Ernst & Young
1225 Connecticut Avenue,
NW
Washington, DC 20036
Roger A. Enrico Chief Executive Officer PepsiCo
700 Anderson Hill Road
Purchase, NY 10577
Allan D. Gilmour Former Vice Chairman, The Prudential Insurance
Ford Motor Company Company of America
751 Broad Street
Newark, NJ 07102
William H. Gray III President and CEO United Negro College
Fund, Inc.
8260 Willow Oaks Corp.
Drive
P.O. Box 10444
Fairfax, VA 22031-4511
Jon F. Hanson Chairman Hampshire Management
Company
235 Moore Street,
Suite 200
Hackensack, NJ 07601
Page 14 of 18 Pages
<PAGE> 15
Glen H. Hiner Chairman and CEO Owens Corning
Owens Corning Parkwall
Toledo, OH 43659
Constance Horner Guest Scholar The Brookings Institution
1775 Massachusetts Avenue,
NW
Washington, DC 20036-2188
Gaynor N. Kelley Retired Chairman and CEO The Prudential Insurance
Company of America
751 Broad Street
23rd Floor
Newark, NJ 07102
Burton G. Malkiel Professor Princeton University Dept.
of Economics
110 Fisher Hall
Prospect Avenue
Princeton, NJ 08544-1021
Arthur F. Ryan Chairman, CEO and The Prudential Insurance
President Company of America
751 Broad Street
Newark, NJ 07102
Ida F.S. Schmertz Principal Investment Strategies
International
c/o The Prudential
Insurance Company of
America
751 Broad Street
23rd Floor
Newark, NJ 07102
Charles R. Sitter Former President Exxon Corporation
5959 Las Colinas Boulevard
Irving, TX 75039-2298
Donald L. Staheli Chairman and CEO Continental Grain Company
277 Park Avenue
New York, NY 10172
Richard M. Thomson Chairman and CEO The Toronto-Dominion Bank
P.O. Box 1
Toronto-Dominion Centre
Toronto, Ontario
Canada M5K 1A2
James A. Unruh Chairman and CEO Unisys Corporation
Township Line and Union
Meetings Roads
P.O. Box 500
Blue Bell, PA 19424-0001
Page 15 of 18 Pages
<PAGE> 16
P. Roy Vagelos, M.D. Former Chairman and CEO Merck & Co., Inc.
One Crossroads Drive
Building A, 3rd Floor
Bedminster, NJ 07921
Stanley C. Van Ness, Esq. Counselor at Law Picco Herbert Kennedy
One State Street Square
Suite 1000
Trenton, NJ 08607-1388
Paul A. Volcker Chairman and CEO 610 Fifth Avenue
Suite 420
New York, NY 10020
Joseph H. Williams Director The Williams Companies,
Inc.
One Williams Center
Tulsa, OK 74172
EXECUTIVE OFFICERS
Principal Occupation/
Name Title Address
- ---- --------------------- -------
Arthur F. Ryan Chairman of the Board, The Prudential Insurance
Chief Executive Company of America
Officer and President Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
E. Michael Caulfield Chief Executive Officer, The Prudential Insurance
Money Management Group Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Michele Darling Executive Vice President, The Prudential Insurance
Human Resources Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Mark B. Grier Chief Financial Officer The Prudential Insurance
Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Roger A. Lawson Executive Vice President, The Prudential Insurance
Marketing and Planning Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
Page 16 of 18 Pages
<PAGE> 17
John V. Scicutella Operations and Systems The Prudential Insurance
Executive Officer Company of America
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
2. Strategic Value Investors, LLC. SVI is controlled (for purposes of
General Instruction C to Schedule 13D) by Prudential. The directors and
executive officers of Prudential are set forth above.
3. Strategic Value Investors International, LLC. SVI International is
controlled (for purposes of General Instruction C to Schedule 13D) by SCPG
Holdings Pte. Ltd., a corporation organized under the laws of Singapore
("SCPG"), which is a wholly owned subsidiary of Government of Singapore
Corporation (Realty) Pte. Ltd., an agency of the Government of Singapore
("GSIC"). Set forth below is the name, principal occupation/title and business
address of each executive officer or director of SCPG. Each of such persons is a
citizen of Singapore, except S. Bradford Child is a citizen of the United States
of America and Mok Yee Yin is a citizen of Malaysia.
Principal Occupation/
Name Title Address
- ---- --------------------- -------
Kwok Wai Keong Regional Manager, Government of Singapore
(Director) Government of Singapore Investment Corporation Pte. Ltd.
Investment Corporation 250 North Bridge Tower #38-00
Pte. Ltd. Raffles City Tower
Singapore 179101
Seek Ngee Huat Director of Real Estate, Government of Singapore
(Director) Government of Singapore Investment Corporation Pte. Ltd.
Investment Corporation 250 North Bridge Tower #38-00
Pte. Ltd. Raffles City Tower
Singapore 179101
S. Bradford Child Senior Investment Manager, c/o GSIC Realty Corporation
(Director) GSIC 255 Shoreline Drive, Suite 600
Redwood City, CA 94065
Guy Tcheau Regional Manager, GSIC c/o GSIC Realty Corporation
(Director) 255 Shoreline Drive, Suite 600
Redwood City, CA 94065
Page 17 of 18 Pages
<PAGE> 18
Name Principal Occupation/ Address
- ---- Title -------
---------------------
Mok Yee Yin Manager, Government of Singapore
(Secretary) Government of Singapore Investment Corporation Pte. Ltd.
Investment Corporation 250 North Bridge Tower #38-00
Pte. Ltd. Raffles City Tower
Singapore 179101
Deanna Ong Senior Accountant, Government of Singapore
(Secretary) Government of Singapore Investment Corporation Pte. Ltd.
Investment Corporation 250 North Bridge Tower #38-00
Pte. Ltd. Raffles City Tower
Singapore 179101
Page 18 of 18 Pages
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
I Purchase Agreement dated as
of September 17, 1997
II Assigned Agreement dated as
of October 2, 1997
III Registration Rights Agreement
dated as of October 3, 1997
IV Operating Agreement (SVI)
dated as of October 2, 1997
V Investment Advisory Agreement
(SVI) dated as of October 2,
1997
VI Operating Agreement (SVI
International) dated as of
October 2, 1997
VII Investment Advisory Agreement
(SVI International) dated as
of October 2, 1997
<PAGE> 1
EXHIBIT I
Execution Copy
PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 17, 1997
BETWEEN
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
AND
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
<PAGE> 2
PURCHASE AGREEMENT
This PURCHASE AGREEMENT (this "Agreement") is made as of the 17th
day of September, 1997 by and between Charles E. Smith Residential Realty, Inc.,
a Maryland corporation (the "Company"), and The Prudential Insurance Company of
America (the "Investor" or "Prudential").
W I T N E S S E T H
WHEREAS, the Company wishes to issue and sell to the Investor or one
or more other Prudential Investors (as defined in Section 7.2 hereof) an
aggregate of 1,450,000 shares of common stock of the Company, $0.01 par value
per share (the "Common Stock") and 1,216,666 shares of Series B Cumulative
Convertible Redeemable Preferred Stock, $0.01 par value per share, of the
Company (the "Series B Preferred Shares"), the terms of which shall be as set
forth in the Series B Preferred Articles Supplementary in the form of Exhibit A
(the "Series B Preferred Articles Supplementary"), in accordance with and
subject to the terms and conditions set forth herein (the Common Stock and the
Series B Preferred Shares, collectively, the "Shares"); and
WHEREAS, Investor wishes to purchase, either for its own account or
with one or more other Prudential Investors, the Shares on the terms and subject
to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements and warranties herein contained, the parties hereby agree
as follows:
1. PURCHASE AND SALE OF SHARES.
1.1 Sale and Issuance of the Shares.
(a) The Company shall adopt and file with the State Department of
Assessments and Taxation of Maryland (the "SDAT") on or before the Closing Date
(as defined below) the Series B Preferred Articles Supplementary.
(b) Subject to the terms and conditions of this Agreement, at the
Closing (as defined below), the Company agrees to issue and sell to Investor or
one or more other Prudential Investors, and Investor agrees to purchase, or
cause one or more other Prudential Investors to purchase, from the Company an
aggregate of 1,450,000 shares of Common Stock and 1,216,666 Series B Preferred
Shares, at an aggregate purchase price of $75,999,981.00 (the "Purchase Price").
1.2 Closing.
(a) Upon the terms and subject to the satisfaction or waiver of all
the conditions to closing set forth in this Agreement, the closing (the
"Closing") of the purchase and sale of the Shares shall take place at the
offices of Hogan & Hartson L.L.P., Columbia Square, 555 Thirteenth Street, N.W.,
Washington, D.C. 20004-1109 or at such other location as may be agreed upon by
the Company and the Investor. Such Closing shall take place at 10:00 a.m.,
Eastern time on or before September 26,
<PAGE> 3
1997 or such other date or time as may be agreed upon by the Company and the
Prudential Investors (the "Closing Date"). At the Closing, the Company agrees to
issue and sell to the Investor (or one or more other Prudential Investors) and
the Investor agrees to purchase (or cause one or more other Prudential Investors
to purchase) from the Company the Shares.
(b) At the Closing, the Company shall issue and deliver to each
Prudential Investor stock certificates in definitive form, registered in the
name of the Prudential Investor, representing the Shares being purchased by the
Prudential Investor and the Prudential Investors shall deliver to the Company,
against delivery of the stock certificates representing the Shares, an amount
equal to the Purchase Price by wire transfer of immediately available funds
payable to the Company's order.
(c) The certificates evidencing the Shares shall bear a legend
substantially in the following form, in addition to any other legend required by
the Company's Articles of Incorporation, unless the Company determines otherwise
in accordance with applicable law:
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. THE
HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, REPRESENTS, ACKNOWLEDGES, AND
AGREES FOR THE BENEFIT OF CHARLES E. SMITH RESIDENTIAL REALTY, INC. (THE
"COMPANY") THAT: (I) IT HAS ACQUIRED A "RESTRICTED SECURITY" THAT HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT; (II) IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY EXCEPT PURSUANT (A) TO A REGISTRATION STATEMENT THAT HAS
BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (B) TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND, IN EACH
CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY APPLICABLE JURISDICTION; AND (III) IT WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THIS SECURITY
OF THE RESALE RESTRICTIONS SET FORTH IN (II) ABOVE. ANY OFFER, SALE OR OTHER
DISPOSITION PURSUANT TO THE FOREGOING CLAUSE (B) IS SUBJECT TO THE RIGHT OF THE
ISSUER OF THIS SECURITY (i) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION OR OTHER INFORMATION REASONABLY SATISFACTORY TO IT IN FORM AND
SUBSTANCE, AND (ii) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED
UPON THE REQUEST OF A HOLDER AFTER OCTOBER 1, 1999.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants, as of the date of this
Agreement and as of the Closing Date, that:
2
<PAGE> 4
2.1 Organization, Good Standing and Qualification.
(a) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland with full
power and authority to own, lease and operate its properties and conduct its
business as now being conducted, and has been duly qualified to transact
business and is in good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business, so as to require
such qualification, except where the failure to so qualify would not be
reasonably expected to result in a Material Adverse Effect. "Material Adverse
Effect" means any material adverse effect on the operations, assets, business,
affairs, properties, or financial or other condition of the Company and its
subsidiaries taken as a whole.
(b) Charles E. Smith Residential Realty, L.P. (the "Operating
Partnership") has been duly formed and is validly existing as a limited
partnership in good standing under the Delaware Revised Uniform Limited
Partnership Act with partnership power and authority to own, lease and operate
its properties and conduct its business as now being conducted and has been duly
qualified to transact business and is in good standing under the laws of each
jurisdiction in which it owns or leases properties, or conducts any business, so
as to require such qualification, except where the failure to so qualify would
not be reasonably expected to result in a Material Adverse Effect.
(c) The subsidiaries of the Company set forth on Schedule 2.1
(individually, a "Subsidiary", collectively the "Subsidiaries") have each been
duly organized and are validly existing and in good standing under the laws of
their respective jurisdictions of incorporation or formation and have full power
and authority to own, lease and operate their properties and to conduct their
businesses as now being conducted, and each Subsidiary has been duly qualified
to transact business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or conducts any business, so
as to require such qualification, except where the failure to be in good
standing or to so qualify would not be reasonably expected to result in a
Material Adverse Effect. The Company has no subsidiaries except as set forth on
Schedule 2.1. The Company or the Operating Partnership owns, directly or
indirectly, all of the equity securities of each Subsidiary.
2.2 Power, Authority and Enforceability
(a) The Company has all requisite corporate power and authority, and
has taken all required corporate action necessary, to execute, deliver and
perform this Agreement and to issue and sell the Shares as herein provided.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally, and (ii) equitable principles of general applicability relating to
the availability of specific performance, injunctive relief, or other equitable
remedies.
2.3 Capitalization.
Upon the Company's adoption of the Series B Preferred Articles
Supplementary, the authorized capital stock of the Company will consist of
95,000,000 shares of Common Stock, par value $0.01 per share, 45,000,000 shares
of excess stock, par value $0.01 per share, 2,640,325 shares of Series A
Preferred Stock, par value $0.01 per share, 1,220,000 shares of Series B
Preferred Stock, par
3
<PAGE> 5
value $0.01 share, and 1,139,675 shares which are not classified. All of the
issued and outstanding shares of capital stock of the Company have been duly and
validly authorized and issued and are fully paid and nonassessable. Except as
set forth in the Company's most recent annual report filed on Form 10-K or on
Schedule 2.3, (i) there are no outstanding securities or indebtedness
convertible into, exchangeable for or carrying the right to acquire, Common
Stock or other equity securities of the Company or subscriptions, warrants,
options, rights or other arrangements or commitments obligating the Company to
issue or dispose of any Common Stock or other equity securities or any ownership
therein, (ii) there are no outstanding contractual obligations, commitments,
understandings or arrangements of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire, require or make any payment in respect
of any shares of equity securities of the Company or any such Subsidiary, (iii)
there are no contractual restrictions on the payment of dividends or other
distributions or amounts on or in respect of the Company's Common Stock, (iv)
there are no agreements or arrangements to which any of the Company or its
Subsidiaries is a party pursuant to which the Company is or could be required to
register shares of Common Stock or other securities under the Securities Act on
terms materially more favorable to the holder of such Common Stock or other
securities than the terms of the Registration Rights Agreement attached hereto
as Exhibit C, and (v) there are no agreements or arrangements restricting the
voting or transfer of any equity securities of the Company.
2.4 Valid Issuance of Shares.
The Shares which are being purchased by the Investor hereunder, when
issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly authorized and issued,
fully paid and nonassessable. The shares of Common Stock issuable upon the
conversion of the Series B Preferred Shares (the "Converted Shares") will be
duly and validly reserved for such issuance (based upon the initial conversion
price thereof) and, when issued upon such conversion in accordance with the
Series B Preferred Articles Supplementary, will be duly and validly authorized
and issued, fully paid and nonassessable.
2.5 Compliance with Other Instruments And Applicable Law.
The execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby do not (i) result in a violation of the Company's Amended and Restated
Articles of Incorporation (the "Articles of Incorporation") or the Company's
Amended and Restated Bylaws (the "Bylaws") or (ii) conflict with, or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree applicable to the Company
or any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, be reasonably expected to result
in a Material Adverse Effect or materially impair the Company's ability to
perform its obligations under this Agreement).
2.6 No Registration Under the Securities Act.
Assuming the continuing accuracy of the Investor's representations
set forth in Article III and compliance by the Investor with the transfer
restrictions set forth in the legends on the certificates
4
<PAGE> 6
evidencing the Shares and the Converted Shares, it is not necessary in
connection with the offer, sale and delivery of the Shares in the manner
contemplated by this Agreement to register the Shares or the issuance to the
Investor of the Converted Shares under the Securities Act of 1933, as amended
(the "Securities Act").
2.7 No General Solicitation.
Neither the Company nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act, an "Affiliate") of the Company has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Shares in a
manner that would require registration under the Securities Act of the Shares or
(ii) engaged in any form of general solicitation or general advertising in
connection with the offering of the Shares (as those terms are used in
Regulation D under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4.2 of the Securities Act.
2.8 Financial Statements.
The audited financial statements and supporting schedules included
in the Company's periodic filings filed pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), are complete and correct in all
material respects and present fairly the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates specified and the
consolidated results of their operations for the periods specified, in each
case, in conformity with generally accepted accounting principles applied on a
consistent basis ("GAAP") during the periods involved, except as indicated
therein or in the notes thereto. The unaudited financial statements, supporting
schedules and pro forma financial information included in the Company's periodic
filings filed pursuant to the Exchange Act, comply as to form in all material
respects with the applicable accounting requirements under the Securities Act
and the Exchange Act and the related published rules and regulations.
2.9 Exchange Act Compliance.
The Company has timely filed all documents required to be filed with
the Securities and Exchange Commission (the "Commission") pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act and all documents filed by the
Company with the Commission pursuant to the Securities Act and the Exchange Act,
when so filed, complied in form in all material respects with such acts and did
not contain an 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,
in light of the circumstances under which they were made, not misleading.
2.10 No Material Adverse Changes.
Since the date that the Company filed its most recent annual report
on Form 10-K pursuant to the Exchange Act, except as otherwise stated in such
annual report or in a subsequent 10-Q filed by the Company with the Commission
or as contemplated by such annual report or by this Agreement: (i) there has
been no change in the business, operations or financial condition, of the
Company and its Subsidiaries considered as one enterprise, or in the earnings or
the ability to continue
5
<PAGE> 7
to conduct business in the usual and ordinary course of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, which has had a Material Adverse Effect; and (ii)
except for the transactions contemplated by this Agreement, there has been no
transaction entered into by the Company or any of its Subsidiaries other than
(a) transactions in the ordinary course of business or (b) transactions which
would not, individually or in the aggregate, be reasonably expected to result in
a Material Adverse Effect; and (iii) there have not been any changes in the
capital stock (except as set forth in Section 2.3 of this Agreement) or any
increases in the debt of the Company and its Subsidiaries considered as one
enterprise, which would, individually or in the aggregate, be reasonably
expected to result in a Material Adverse Effect.
2.11 Litigation.
Except as set forth in the Company's most recent annual report on
Form 10-K filed pursuant to the Exchange Act or in any subsequent 10-Q filed by
the Company with the Commission, there is no action, suit or proceeding (whether
or not purportedly on behalf of the Company or any of its Subsidiaries) before
or by any court or governmental agency or body, domestic or foreign, now
pending, or to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries which, either alone or in the aggregate,
would reasonably be expected to have a Material Adverse Effect or materially
impair the Company's ability to perform its obligations under this Agreement.
2.12 Title to Properties; Leasehold Interests.
(a) Except as disclosed in the Company's most recent annual report
on Form 10-K filed pursuant to the Exchange Act or in any subsequent filing by
the Company with the Commission, or except to the extent that the inaccuracy of
any of the following, either individually or in the aggregate, would not be
reasonably expected to result in a Material Adverse Effect: (i) the Company,
through one or more Subsidiaries, has good and marketable title to all real
properties and all other assets identified as being owned by the Company in its
most recent annual report filed on Form 10-K, in each case, subject only to
Permitted Exceptions (as herein defined); (ii) all leases under which the
Company, or any of its Subsidiaries, leases any property are in full force and
effect, and neither the Company nor any such Subsidiary is in default of any of
the terms or provisions of any of such leases and no claim has been asserted by
anyone adverse to any such entity's rights as lessee under any of such leases,
or affecting or questioning any such entity's right to the continued possession
or use of the properties under any such leases or asserting a default under any
such leases; and (iii) all liens, charges or encumbrances on or affecting any of
the property and assets of the Company and its Subsidiaries which are required
to be disclosed in the Company's periodic reports filed pursuant to the Exchange
Act are disclosed therein;
(b) As used in this Agreement, "Permitted Exceptions" means: (i)
real estate taxes and assessments not yet delinquent; (ii) covenants,
restrictions, easements and other similar agreements, provided that the same are
not violated by existing improvements or the current use and operation of the
Company's or any Subsidiary's property; (iii) zoning laws, ordinances and
regulations, building codes, rules and other governmental laws, regulations,
rules and orders affecting any of the Company's or any Subsidiary's property,
provided that the same are not violated by existing improvements or the current
use and operation of such property; (iv) any imperfection of title which does
not affect in any material adverse respect the current use, operation or
enjoyment of any of the Company's or any Subsidiary's real property and does not
render title to such real property unmarketable or uninsurable and does not
impair the value of such property; and (v) mortgage financing disclosed in the
Company's most recent annual report on Form 10-K filed pursuant to the Exchange
Act.
6
<PAGE> 8
2.13 Environmental Compliance.
(a) Except as disclosed in the Company's most recent annual report
on Form 10-K filed pursuant to the Exchange Act or in any subsequent filing by
the Company with the Commission, the Company and each of its Subsidiaries has
complied and is in compliance in all material respects with all Environmental
Statutes (as hereinafter defined), except for such noncompliance as would not be
reasonably expected to result in a Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries intends to use
any real property owned or occupied by any such party for the purpose of
handling, burying, storing, retaining, refining, transporting, processing,
manufacturing, generating, producing, spilling, seeping, leaking, escaping,
leaching, pumping, pouring, emitting, emptying, discharging, injecting, dumping,
transferring or otherwise disposing of or dealing with Hazardous Materials.
(c) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, neither the Company nor any of its Subsidiaries is
aware of any seepage, leak, escape, leach, discharge, injection, release,
emission, spill, pumping, pouring, emptying or dumping of Hazardous Materials
(i) on to any real property owned or occupied by any such party, (ii) into
waters on or adjacent to any real property owned or occupied by any such party
or (iii) onto lands from which Hazardous Materials might seep, flow or drain
into such waters.
(d) The Company is not aware of any occurrence or circumstance that,
with notice or passage of time or both, would give rise to a claim under or
pursuant to any Environmental Statute (as hereinafter defined) pertaining to
Hazardous Materials on or originating from any real property owned or occupied
by the Company or any of its Subsidiaries, which claim would be reasonably
expected to result in a Material Adverse Effect.
(e) No land owned by the Company or any of its Subsidiaries is
included or proposed for inclusion on the National Priorities List issued
pursuant to CERCLA (as hereinafter defined) by the United States Environmental
Protection Agency (the "EPA") or on the inventory of other potential "Problem"
sites issued by the EPA and has not otherwise been publicly identified by the
EPA as a potential CERCLA site or included or proposed for inclusion on any list
or inventory issued pursuant to any other Environmental Statute or issued by any
other Governmental Authority (as hereinafter defined).
(f) As used herein, "Hazardous Material" shall include without
limitation any flammable explosives, radioactive materials, hazardous materials,
hazardous wastes, toxic substances or related materials, asbestos or any
hazardous material as defined by any federal, state or local environmental law,
ordinance, rule or regulation, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss.ss. 9601 et seq.: ("CERCLA"), the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. ss.ss. 1801 et seq., the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. ss.ss. 9601 et seq., the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001 et seq., the
Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss.ss. 136 et seq., the
Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq., the Clean Water Act (Federal Water
Pollution Control Act), 33 U.S.C. ss.ss. 1251 et seq., the Safe Drinking Water
Act, 42 U.S.C. ss.ss. 300F to 300j-11, and the Occupational Safety and Health
Act, 29 U.S.C. ss.ss. 651 et seq., as any of the above statutes may be amended
from time to time, and in the regulations adopted and publications promulgated
pursuant to each of the foregoing (individually, an "Environmental Statute"
collectively, the "Environmental Statutes") or by any federal, state or local
governmental authority having or claiming jurisdiction over the properties and
assets described in the Company's periodic reports filed pursuant to the
Exchange Act (a "Governmental Authority").
7
<PAGE> 9
2.14 Taxes.
(a) The Company and its Subsidiaries have filed all federal, state,
local, foreign and other tax returns, reports, information returns and
statements required to be filed by them (except for returns, reports,
information returns and statements relating to which the failure to file would
not be reasonably expected to result in any Material Adverse Effect). The
Company and its Subsidiaries have paid or caused to be paid all taxes (including
interest and penalties) that are shown as due and payable on such returns or
claimed by any taxing authority to be due and payable with respect to such
returns, except those which are being contested by it in good faith by
appropriate proceedings and in respect of which adequate reserves are being
maintained on its books in accordance with generally accepted accounting
principles consistently applied. The Company and its Subsidiaries do not have
any material liabilities for taxes other than those incurred in the ordinary
course of business and in respect of which adequate reserves are being
maintained by it in accordance with generally accepted accounting principles
consistently applied. Except as set forth on Schedule 2.14 hereto, federal and
state income tax returns for the Company and its Subsidiaries have not been
audited by the Internal Revenue Service or state authorities. No deficiency,
assessment with respect to or proposed adjustment of the Company's or any of its
Subsidiaries' federal, state, local, foreign or other tax returns is pending or,
to the best of the Company's or any of its Subsidiaries' knowledge, threatened.
There is no tax lien, whether imposed by any federal, state, local or other tax
authority, outstanding against the assets, properties or business of the
Company. There are no applicable taxes, fees or other governmental charges
payable by the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the issuance by the Company of the
Shares or the Converted Shares.
(b) The Company has qualified to be taxed as a real estate
investment trust pursuant to Sections 856 through 860 of the Internal Revenue
Code, as amended (the "Code"), for its taxable years ended December 31, 1994
through December 31, 1996, and the Company's present method of operation and its
assets and contemplated income are such that the Company expects under present
law to so qualify for the fiscal year ending December 31, 1997 and in the
future.
2.15 Insurance.
The Company and its Subsidiaries each carry or is entitled to the
benefits of insurance in such amounts and covering such risks as is reasonably
sufficient under the circumstances or is customary in the industry and all such
insurance is in full force and effect.
2.16 Employees; ERISA.
(a) The Company has good relationships with its employees and has
not had any substantial labor problems. The Company does not have any knowledge
as to any intentions of any key employee or any group of employees to leave the
employ of the Company. Other than as disclosed in the Company's most recent
annual report on Form 10-K filed pursuant to the Exchange Act or in any
subsequent filing by the Company with the Commission or with respect to plans
that do not discriminate in scope, terms or operation in favor of executive
officers or directors, are available generally to all salaried employees and are
not required to be disclosed pursuant to the rules and regulations of the
Commission, the Company has not established, sponsored, maintained, made any
contributions to or been
8
<PAGE> 10
obligated by law to establish, maintain, sponsor or make any contributions to
any "employee pension benefit plan" or "employee welfare benefit plan" (as such
terms are defined in ERISA), including, without limitation, any "multi-employer
plan." The Company is in compliance with all applicable laws relating to the
employment of labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social Security and other
taxes, and with ERISA, except where the failure to so comply would not be
reasonably expected to result in a Material Adverse Effect.
(b) In its capacity as general partner of the Operating Partnership,
the Company exercises management rights and responsibilities, directly or
indirectly, through one or more Subsidiaries of the Company or the Operating
Partnership, with respect to the real property owned by the Operating
Partnership and the Subsidiaries, including decisionmaking authority with
respect to future acquisitions and sales of such real property.
(c) The terms of this transaction have been negotiated and
determined at arms'-length and are not less favorable to Investor than the terms
that generally would be available in an arms'-length transaction between
unrelated parties.
2.17 Legal Compliance.
(a) The Company is in compliance with all applicable laws, rules,
regulations, orders, licenses, judgments, writs, injunctions, decrees or
demands, except to the extent that failure to comply would not be reasonably
expected to result in a Material Adverse Effect. The Company has all necessary
permits, licenses and other authorizations required to conduct its business as
currently conducted, and as proposed to be conducted, except where a failure to
have such permit, license or other authorization would not be reasonably
expected to result in a Material Adverse Effect.
(b) Except as disclosed in the Company's most recent annual report
on Form 10-K filed pursuant to the Exchange Act or in any subsequent filing by
the Company with the Commission, there are no adverse orders, judgments, writs,
injunctions, decrees or demands of any court or administrative body, domestic or
foreign, or of any other governmental agency or instrumentality, domestic or
foreign, outstanding against the Company which would reasonably be expected to
result in a Material Adverse Effect.
(c) Neither the Company nor any Subsidiary of the Company is (i) in
default under or in violation of any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound, except such defaults or violations as could not
reasonably be expected to have a Material Adverse Effect or (ii) in violation of
any order of any Governmental Authority, except for such violations as could not
reasonably be expected to have a Material Adverse Effect.
2.18 Governmental Consent.
Other than such consents, approvals, authorizations, declarations or
filings as have already been obtained or made or which will be made at or prior
to the Closing Date and as are set forth on Schedule 2.18, no consent, approval
or authorization of, or declaration or filing with, any Governmental Authority
on the part of the Company is required for the valid execution and delivery of
this Agreement or performance hereunder or the valid offer, issue, sale and
delivery of the Shares pursuant to this Agreement and the Series B Preferred
Articles Supplementary.
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2.19 Investment Company.
The Company is not an investment company, as defined in the
Investment Company Act of 1940, as amended, nor controlled by an investment
company.
2.20 No Other Liabilities.
Except as set forth on Schedule 2.20, neither the Company nor any
Subsidiary of the Company has any material liability, whether absolute, accrued,
contingent or otherwise of a kind required to be reflected on a balance sheet
prepared in accordance with generally accepted accounting principles or in the
notes thereto, except liabilities (i) reflected on the consolidated balance
sheet of the Company and its Subsidiaries as at June 30, 1997, or (ii)
liabilities that (a) have been incurred by the Company or any of its
Subsidiaries after June 30, 1997 in the ordinary course of business and (2)
could not reasonably be expected to have a Material Adverse Effect.
2.21 Material Contracts.
The Forms 10-Q filed in 1997, the 1996 Form 10-K, and Schedule 2.21,
collectively, contain a correct and complete list of the following with respect
to the Company and its Subsidiaries: (i) agreements with any person having
beneficial ownership of 5% or more of the outstanding shares of Common Stock of
the Company or any director or officer of the Company or any of its Subsidiaries
and all shareholders' agreements and voting trusts to which the Company is a
party or of which it has knowledge, in each case that are required to be filed
as exhibits to a Form 10-K of the Company pursuant to Regulation S-K, and (ii)
agreements not made in the ordinary course of business that could reasonably be
expected to result in a Material Adverse Effect.
Except for material contracts of the type required to be disclosed
in the Company's most recent annual report on Form 10-K, neither the Company nor
any Subsidiary of the Company has entered into an agreement not made in the
ordinary course of business and which could reasonably be expected to result in
a Material Adverse Effect.
2.22 No Merger Agreements.
As of the date hereof, neither the Company nor any Subsidiary of the
Company has entered into any agreement with any person or entity which has not
been terminated as of the date of this Agreement and under which there remains
any liability or obligation thereof with respect to a merger or consolidation
with the Company or any Subsidiary of the Company or any other acquisition of a
substantial amount of the assets of the Company or any such Subsidiary.
2.23 Certain Actions By The Company.
The Company has not: (i) made a general assignment for the benefit
of creditors; (ii) filed any voluntary petition in bankruptcy or suffered the
filing of an involuntary petition by the Company's creditors; (iii) suffered the
appointment of receiver to take possession of all or substantially all of the
Company's assets; (iv) suffered the attachment or other judicial seizure of all
or substantially all of the Company's assets; (v) admitted in writing the
Company's inability to pay its debts as they become due; or (vi) made an offer
of settlement, extension or composition to its creditors generally.
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3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor represents and warrants, as of the date of this
Agreement and as of the Closing Date, that:
3.1 Organization, Good Standing and Qualification.
The Investor has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of New Jersey with full
power and authority to own, lease and operate its properties and conduct its
business as now being conducted, and has been duly qualified to transact
business and is in good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business, so as to require
such qualification, except where the failure to so qualify would not have a
material adverse effect on the Investor.
3.2 Power, Authority and Enforceability.
(a) The Investor has the requisite corporate power and authority,
and has taken all required corporate action necessary, to execute, deliver and
perform this Agreement and to purchase the Shares hereunder.
(b) This Agreement has been duly executed and delivered by the
Investor and constitutes the legal, valid and binding obligation of the Investor
enforceable against the Investor in accordance with its terms, except as may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and other laws of general application affecting enforcement of creditors' rights
generally, and (ii) equitable principles of general applicability relating to
the availability of specific performance, injunctive relief, or other equitable
remedies.
3.3 Compliance with Other Instruments.
The execution, delivery and performance of this Agreement by the
Investor and the consummation by the Investor of the transactions contemplated
hereby do not (i) result in a violation of the Investor's Articles of
Incorporation or Bylaws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Investor is
a party, or result in a violation of any law, rule, regulation, order, judgment
or decree applicable to the Investor or by which any property or asset of the
Investor is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, materially impair the Investor's ability
to perform its obligations under this Agreement).
3.4 Ownership Limitations.
The Investor has received a copy of the Company's Articles of
Incorporation and understands the restrictions on transfer and ownership of the
Company included in Article VIII thereof and shall comply with such restrictions
(after giving effect to the waiver referred to in Section 4.9 hereof).
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3.5 Investment Intent; Sophisticated Investor.
The Investor is an "accredited investor" within the meaning of Rule
501(a) of the Securities Act. The Investor is purchasing the Shares solely for
investment purposes and not with a view toward making a public distribution of
such shares or the Converted Shares except in accordance with the restrictions
on transfer set forth in the legends thereon and in accordance with the
Registration Rights Agreement. In the normal course of its business or its
investing activities, the Investor invests in or purchases securities similar to
the Shares and it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of purchasing the
Shares. The Investor is aware that it may be required to bear the economic risk
of an investment in the Shares for an indefinite period of time and it is able
to bear such risk for an indefinite period.
3.6 Unregistered Securities.
The Investor understands and acknowledges and agrees that the Shares
and the Common Stock issuable upon conversion of the Series B Preferred Shares
have not been, and that the Series B Preferred Shares will not be, registered
under the Securities Act or any other applicable securities law and, unless so
registered, may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any other
applicable securities law, pursuant to an exemption therefrom or in a
transaction not subject thereto. The Investor agrees to comply with the legends
set forth in the certificates representing such shares.
3.7 Access to Information.
The Investor has had access to such financial and other information
concerning the Company or any of its affiliates and the Shares as it deemed
necessary in connection with its decision to purchase any of the Shares,
including an opportunity to ask questions and request information from the
Company, subject to any limitations specified in Section 6.4 of this Agreement.
3.8 REIT Qualification Matters.
To the knowledge of the Investor, no person which would be treated
as an "individual" for purposes of Section 542(a)(2) of the Code (as modified by
Section 856(h) of the Code) owns or would be considered to own (taking into
account the ownership attribution rules under Section 544 of the Code, as
modified by Section 856(h) of the Code) in excess of 20% of the value of the
outstanding equity interest in the Investor.
3.9 Investment Company Matters
The Investor is not, and after giving effect to the purchase of the
Series B Preferred Shares contemplated hereby, will not be (a) required to
register as an "investment company" or (b) an entity controlled by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended.
3.10 Governmental Consent.
Other than such consents, approvals, authorizations, declarations or
filings as have already been obtained or made or which will be made at or prior
to the Closing Date, no consent, approval or authorization of, or declaration or
filing with, any Governmental Authority on the part of the Investor is required
for the valid execution and delivery of this Agreement or performance of its
obligations hereunder.
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4. CONDITIONS OF THE INVESTOR'S OBLIGATIONS AT THE CLOSING.
The Investor's obligations at the Closing under Section 1.2 of this
Agreement are subject to the satisfaction or waiver by the Investor on or before
such Closing of each of the following conditions:
4.1 Series B Preferred Articles Supplementary.
At or prior to the Closing, the Series B Preferred Articles
Supplementary shall have been filed with and accepted for recording by the SDAT.
4.2 Representations and Warranties.
The representations and warranties of the Company contained in
Article 2 shall be true on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of such
Closing.
4.3 Performance.
The Company shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the date of such Closing.
4.4 No Material Adverse Change.
After the date of this Agreement and through the Closing Date, there
shall not have occurred any change or event that has had or may reasonably be
expected to have a Material Adverse Effect.
4.5 Opinion of Company Counsel.
The Investor shall have received from Hogan & Hartson L.L.P.,
counsel for the Company, and from the general counsel of the Company opinions in
form and scope customary for transactions such as the Purchase of Shares and
other transactions contemplated hereunder and reasonably satisfactory to the
Investor.
4.6 Registration Rights Agreement.
Simultaneous with the Closing, the Company and the Investor shall
have entered into a Registration Rights Agreement in the form attached hereto as
Exhibit B.
4.7 Officer's Certificate.
The Company shall have delivered to the Investor on the Closing Date
a certificate or certificates signed by an authorized officer of the Company to
the effect that the facts required to exist by Sections 4.1, 4.2, 4.3, 4.4, 4.9,
4.10 and 4.11 exist on such Closing Date.
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4.8 Proceedings.
All proceedings to be taken in connection with the transactions
contemplated by this Agreement and all documents incidental thereto, shall be
reasonably satisfactory in form and substance to the Investor; and the Investor
shall have received copies of all documents which the Investor may reasonably
request in connection with said transactions and copies of the records of all
proceedings of the Company in connection therewith in form and substance
satisfactory to the Investor.
4.9 Limited Waiver of Ownership Limitations.
The Board of Directors of the Company shall have adopted a limited
waiver of the ownership limitations in its Articles of Incorporation
substantially in the form attached hereto as Exhibit C.
4.10 No Injunction
There shall not be in effect any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits
consummation of the transactions contemplated hereby and there shall be no
actual or threatened action, suit, arbitration, inquiry, proceedings or
investigation by or before any Governmental Authority, court or agency of
competent jurisdiction, which would reasonably be expected to materially impair
the ability of the Company or the Investor to consummate the transactions
contemplated hereby or of the Company to issue the Shares.
4.11 Amendment to Operating Partnership Agreement
The First Amended and Restated Partnership Agreement of the
Operating Partnership, as amended, shall have been amended further to create
preferred partnership interests with economic attributes substantially identical
to those of the Series B Preferred Shares.
4.12 Listing Approval.
On or before the date that the registration statement filed pursuant
to the Registration Rights Agreement becomes effective, the Common Stock
(including shares issuable upon conversion of the Series B Preferred Shares)
shall have been approved for listing on the New York Stock Exchange.
4.13 Consultation Agreement.
The Operating Partnership and certain Subsidiaries specified by the
Investor shall have entered into an agreement with the Investor and the Company
providing information and consultation rights to each of them substantially
similar in scope and duration as those set forth in Section 6.1.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING.
The obligations of the Company under Section 1.2 of this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions:
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5.1 Representations and Warranties.
The representations and warranties of the Investor contained in
Article 3 shall be true on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of such
Closing.
5.2 Performance.
The Investor shall have performed and complied with all agreements,
obligations and conditions contained in this Agreement that are required to be
performed or complied with by it on or before the date of such Closing.
5.3 Officer's Certificate.
The Investor shall have delivered to the Company on the Closing Date
a certificate or certificates signed by an authorized officer of the Investor to
the effect that the facts required to exist by Sections 5.1 and 5.2 and exist on
such Closing Date.
5.4 No Injunction.
There shall not be in effect any order, decree or injunction of a
court or agency of competent jurisdiction which enjoins or prohibits
consummation of the transactions contemplated hereby and there shall be no
actual or threatened action, suit, arbitration, inquiry, proceedings or
investigation by or before any Governmental Authority, court or agency of
competent jurisdiction, which would reasonably be expected to materially impair
the ability of the Company or the Investor to consummate the transactions
contemplated hereby.
6. COVENANTS.
6.1 Information Rights.
(a) For the period ending on the earlier of (i) January 1, 2003, and
(ii) the first date on which the number of shares of Common Stock plus the
number of shares of Common Stock issuable upon conversion of Series B Preferred
Stock then held by the Prudential Investor have an aggregate Market Value (as
defined below) of less than $30 million (the "Qualification Period"), the
Company and/or the Operating Partnership shall provide to the Investor copies of
all documents filed by either of them with the Commission pursuant to Sections
13 or 15 of the Exchange Act and any amendments thereto filed with the
Commission promptly after the filing thereof with the Commission. As used
herein, the "Market Value" of the Common Stock as of any date shall equal the
average of the closing prices of the Common Stock reported for the preceding 10
trading days on the New York Stock Exchange.
(b) The Company and the Operating Partnership shall keep proper
books of record and account, in which full and correct entries shall be made of
all financial transactions and the assets and business of the Company and the
Operating Partnership in accordance with generally accepted accounting
principles, and the Company shall cause the Operating Partnership and its other
Subsidiaries to do the same. Subject to the limitations set forth in Section
8.5(C) of the Partnership Agreement, during the Qualification Period, the
Company shall, and shall cause the Operating Partnership to, upon reasonable
notice by Purchaser, provide Purchaser with reasonable access to, all books and
records of the Company and the Operating Partnership during regular business
hours and allow Purchaser to make copies and abstracts thereof and the Company
shall cause its Subsidiaries to do the same. Purchaser shall
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have the right to consult from time to time (but in any event not more
frequently than five times in any calendar year) with management of the Company
at the Company's place of business regarding operating and financial matters of
the Company and its Subsidiaries.
(c) During the Qualification Period, the Company shall provide to
such Prudential Investor non-confidential operating information of the same
general nature as the Company provides to financial analysts, substantially
concurrently with provision of such information to financial analysts. Investor
hereby acknowledges that the Company will not be required to furnish any
information that the Company believes would constitute material nonpublic
information, unless the Investor agrees in writing with the Company not to trade
in the securities of the Company until such time as such material information
becomes public.
6.2 Maintenance of REIT Status.
(a) Until the earlier of (i) the end of the Qualification Period or
(ii) December 31, 2002, the Company will use its reasonable best efforts to
continue to be taxed as a real estate investment trust pursuant to Sections 856
through 860 of the Code, subject to the right of the Company to voluntarily
terminate its status as a real estate investment trust pursuant to Subsection
6.2(b). The Company agrees that it will not voluntarily terminate its status as
a real estate investment trust for a period of 24 months after the date of this
Agreement.
(b) If the Company's Board of Directors shall adopt a resolution or
take other corporate action recommending that the Company terminate its status
as a real estate investment trust, the Company shall, within 10 calendar days of
such resolution, provide each Prudential Investor with notice of the record date
for the annual or special meeting of stockholders called for the approval of
such action. The Company agrees that the record date for determining
stockholders eligible to vote at meeting at which such a vote or resolution
shall occur shall not be earlier than the twentieth calendar day after the date
of the notice provided pursuant to this Subsection 6.2(b).
6.3 Waiver of Ownership Limitations.
So long as the sum of (i) the aggregate number of shares of Common
Stock held by all Prudential Investors and (ii) the aggregate number of shares
of Common Stock into which the Series B Preferred Shares held by all Prudential
Investors are convertible (assuming that all such Series B Preferred Shares are
immediately convertible) is greater than 9.8% of the outstanding Common Stock
and (ii) the Prudential Investors have not breached the covenant set forth in
Subsection 6.5(a)(iii) of this Agreement, the Company shall not reverse or
rescind the waiver required to be granted pursuant to Section 4.9 of this
Agreement. Thereafter, the Company may reverse or rescind such waiver or such
waiver may terminate by its own terms.
6.4 No Public Disclosure.
Neither party to this Agreement nor any affiliate of either party
will make any public disclosure concerning the transactions contemplated by this
Agreement unless such disclosure has been provided to the other party at least
one business day prior to such disclosure. Unless in the reasonable opinion of
counsel to each party such disclosure is required by applicable law, neither
party nor any affiliate of either party will make any such public disclosure
without the other party's prior written consent.
With respect to the initial public disclosure of the transactions
contemplated by this Agreement, the Investor shall have the right to review
(before filing or public announcement) any filing
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or press release that refers to the Investor or the transactions contemplated
hereby. The Investor shall have the right to review (before public announcement)
any subsequent press releases that specifically refer to the transactions
contemplated hereby or to the Investor.
6.5 Standstill Provisions.
(a) During the Standstill Period (as defined below), except as
provided in Subsection 6.5(a)(iii), each Prudential Investor will not, and will
cause each of its controlled Affiliates not to, and will use its reasonable
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 (as defined below), other than any 13D Group comprised
exclusively of Investor and one or more of its Affiliates;
(ii) sell, transfer, pledge (other than pledges made to
commercial lending institutions securing indebtedness for borrowings) or
otherwise dispose of (collectively, "Transfer") any Series B Preferred Shares or
Common Stock to any person if the acquisition of such capital stock by such
person would, to the knowledge of the Prudential Investor at the time of such
Transfer, after due inquiry, violate the provisions of Section 8(b)(1) of the
Articles of Incorporation of the Company; provided that this Section shall not
prohibit Transfers (A) between the Investor and an Affiliate of the Investor or
(B) between one or more Affiliates of the Investor;
(iii) so long as the sum of (i) the aggregate number of shares
of Common Stock held by all Prudential Investors and (ii) the aggregate number
of shares of Common Stock into which the Series B Preferred Shares held by all
Prudential Investors are convertible (assuming that all such Series B Preferred
Shares are immediately convertible) is greater than 9.8% of the outstanding
Common Stock, purchase or otherwise acquire any Common Stock or other securities
of the Company if, after giving effect to such purchase or acquisition, the
Prudential Investors and their Affiliates (and any persons that are members of a
13D Group of which any Prudential Investor or any of their Affiliates may be a
member, notwithstanding the provisions of clause (i) above) collectively would
Beneficially Own (as defined below) more than 19.998% of the outstanding shares
of Common Stock of the Company; provided that the Prudential Investors shall not
be deemed to have breached this covenant as a result of a decrease in the
aggregate number of shares of Common Stock outstanding;
(iv) solicit or propose to effect or negotiate any merger,
consolidation, other business combination, liquidation, sale of the Company or
all or substantially all of the assets of the Company and its Subsidiaries or
any other change of control of the Company or similar extraordinary transaction;
(v) solicit, initiate or participate in any "solicitation," of
"proxies" or become a "participant" in an "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)(i); call, or in any way participate in a call for, any special meeting
of stockholders of the Company (or take any action with respect to acting by
written consent of the stockholders of the Company); request, or take any action
to obtain or retain any list of holders of any securities of the Company; or
initiate or propose any stockholder proposal or participate in the making of, or
solicit stockholders of the Company for the approval of, one or more stockholder
proposals; provided that Investor shall not be prohibited from communicating
with a security holder who is engaged in any "solicitation" of "proxies" or who
is a "a participant" in any "election contest";
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(vi) seek representation on the Board of Directors of the
Company or a change in the size of the Board of Directors; or
(vii) Transfer any capital stock of such Prudential Investor
or of any Affiliate of such Prudential Investor that owns any capital stock of
the Company, or Transfer of any options, warrants, convertible securities, or
other similar rights to acquire any capital stock of such Prudential Investor or
any such Affiliate, such that, after giving effect thereto, the Beneficial Owner
(as defined below) of such shares of capital stock of the Company would, to the
knowledge of the Prudential Investor at the time of such Transfer, after due
inquiry, (A) Beneficially Own more than 19.998% of the outstanding shares of
Common Stock of the Company or (B) violate the provisions of Section 8(b)(l) of
the Articles of Incorporation, or
(viii) act in concert with any person with respect to any of the
foregoing.
The foregoing provisions shall not be construed to prevent the Prudential
Investor from voting, or granting any proxy to vote, any Shares or attending or
participating in any meeting called by the Company or a person other than
Prudential Investor.
(b) As used in this Section, the following terms have the respective
meanings set forth below:
"Affiliate" shall have the meaning ascribed thereto in Rule 12b-2
promulgated under the 1934 Act, as such rule is in effect on the date hereof,
but shall not include any investment company registered under the Investment
Company Act of 1940, as amended, with respect to which Prudential or any of its
Affiliates provides management services.
"Beneficially Own" shall mean, with respect to any security, having
direct or indirect (including through any Affiliate) "beneficial ownership" of
such security, as determined pursuant to Rule 13d-3 under the 1934 Act,
including pursuant to any agreement, arrangement or understanding, whether or
not in writing. "Beneficial Ownership" and "Beneficial Owner" shall have
correlative meanings. As used with respect to the Common Stock of the Company,
the term shall include any shares of Common Stock issuable, without regard to
any requirement of notice or the passage of time or the occurrence of any event,
pursuant to any options, warrants, or other convertible or exchangeable
securities held by the applicable person, its Affiliates, or any member of a 13D
Group of which such person is a member. For purposes of this Agreement, the
Prudential Investor shall not be deemed to Beneficially Own Common Stock held in
customer accounts of any broker-dealer subsidiary of Prudential.
"Covered Transaction" shall mean any merger, consolidation, other
business combination, liquidation, sale of the Company or all or substantially
all of the assets of the Company and its subsidiaries or any other change of
control of the Company or similar extraordinary transaction, other than any
transaction in which the Company is the surviving and acquiring corporation and
in which the business or assets so acquired do not, or would not reasonably be
expected to, have a value greater than 50% of the assets of the Company (on a
consolidated basis) prior to such transaction.
"Group" shall mean a "group" as such term is used in Section
13(d)(3) of the 1934 Act.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization, or
other form of business or legal entity.
"Prudential Investor" shall have the meaning given such term in
Section 7.2 of this Agreement.
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"Standstill Period" shall mean the period beginning on the date
hereof and ending on the earlier of (i) January 1, 2003, and (ii) the first date
following the date on which the aggregate Beneficial Ownership by the Prudential
Investors and their Affiliates (and any persons that are members of a 13D Group
of such Prudential Investors or any of their Affiliates are members,
notwithstanding the provisions of clause (i) of Section 6.5(a)) of shares of
Common Stock of the Company shall have been less than 9.8% of the number of
outstanding shares of Common Stock of the Company (treating any shares of Common
Stock issuable under options, warrants, or other convertible or exchangeable
securities Beneficially Owned by such Prudential Investors, their Affiliates,
and any member of such a 13D Group as being outstanding for this purpose).
Notwithstanding the foregoing, the Standstill Period also shall be terminated on
the earliest of:
(i) the acquisition by any person or Group other than a
Prudential Investor or any Affiliate thereof of Beneficial Ownership of 25% or
more of the outstanding shares of Common Stock of the Company, on a fully
diluted basis; or
(ii) any breach by the Company of this Agreement that is
neither cured nor desisted from within 30 days of receipt of written notice of
such breach and which would reasonably be expected to materially adversely
affect a Prudential Investor.
"13D Group" shall mean any group of persons acquiring, holding,
voting, or disposing of capital stock of the Company that 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) for the 1934 Act if such group
Beneficially Owned capital stock representing more than 5% of any class of
capital stock of the Company then outstanding.
6.6 Specific Performance.
Each of the Company and each Prudential Investor acknowledges and
agrees that, in view of the uniqueness of the arrangements contemplated by
Sections 6.1 and 6.5 and of this Agreement and the irreparable damage that the
Prudential Investor (with respect to Section 6.1) and the Company (with respect
to Section 6.5) would suffer in the event that any of the provisions of such
Sections are not performed by each Prudential Investor and the Company (or their
respective directors, officers, employees, financial advisors, legal advisors,
accountants, agents or representatives, as the case may be) in accordance with
their specific terms or are otherwise breached, that the parties hereto would
not have an adequate remedy at law for money damages in the event that such
Sections are not performed in accordance with their terms. Accordingly, each
party shall be entitled, without the requirement of posting a bond or other
security, to equitable relief, including injunctive relief and specific
performance, in the event of any breach of the provisions of such Sections by
the other, in addition to all other remedies available at law or in equity.
7. MISCELLANEOUS
7.1 Survival of Warranties and Covenants.
The warranties and representations of the Company and the Investor
contained in or made pursuant to Articles II and III of this Agreement shall
survive the Closing hereunder through and until
19
<PAGE> 21
the expiration of the statute of limitations applicable to each such warranty or
representation. The covenants contained in or made pursuant to Article VI hereof
shall survive the Closing hereunder indefinitely, except for any provisions
which expire by their terms. The representations and warranties contained in
this Agreement shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor or the Company unless, as a
result of such investigation, the Investor or the Company, as the case may be,
acquires actual knowledge that a representation or warranty is untrue.
7.2 Successors and Assigns.
Except as otherwise provided herein, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto. Except as specifically provided
hereby, the Investor shall not be permitted to assign any of its rights
hereunder to any third party; provided, however, that the Investor's rights
hereunder may be assigned to another Prudential Investor (either by the Investor
or another Prudential Investor). "Prudential Investor" shall mean (i) the
Investor, (ii) any Person controlled (as such term is defined in Rule 12b-2
under the 1934 Act), directly or indirectly, by The Prudential Insurance Company
of America and (iii) any one or more of Strategic Value Investors, LLC ("SVI"),
Strategic Value Investors International LLC ("SVI International") and the
Prudential Co-Investor and any Redemption Vehicle (as each such term is
described in the offering documentation of SVI and SVI International), to which
any Series B Preferred Shares or shares of Common Stock are transferred or to
which the rights under this Agreement are assigned (either before or after the
Closing), by the Investor or another Prudential Investor, and which agrees to be
bound by the terms of this Agreement. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
7.3 Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland, without giving effect to the conflict of law
provisions thereof.
7.4 Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
7.5 Titles and Subtitles.
The title and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
7.6 Notices.
Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
(a) upon personal delivery to the party to be notified, (b) on the fifth
business day after deposit with the United States Post Office, by registered or
certified mail, postage prepaid, (c) on the next business day after dispatch via
nationally recognized overnight courier or (d) upon confirmation of transmission
by facsimile, all addressed to the party to be notified at the address indicated
for such party below, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties. Notices should be
provided in accordance with this Section at the following addresses:
20
<PAGE> 22
If to the Investor, to:
Strategic Value Investors
c/o The Prudential Insurance Company of America
c/o Prudential Real Estate Investors Inc.
8 Campus Drive
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attn.: SVI Portfolio Manager
Facsimile: (201) 734-1472
with a copy to:
Goodwin, Proctor & Hoar LLP
300 Park Avenue, 17th Floor
New York, New York 10022
Attn.: Robert S. Insolia
Facsimile: (212) 572-6476
If to the Company, to:
Charles E. Smith Residential Realty, Inc.
2345 Crystal Drive
Crystal City
Arlington, Virginia 22202
Attn.: Robert D. Zimet
Facsimile: (703) 769-1305
with a copy to:
Hogan & Hartson L.L.P.
555 13th Street, N.W.
Washington, D.C. 20004-1109
Attn.: J. Warren Gorrell, Jr.
Facsimile: (202) 637-5910
7.7 Finder's Fees or Broker's Fees.
Each party represents that it neither is nor will be obligated for
any finder's fee or broker's fee or commission in connection with this
transaction. The Investor agrees to indemnify and hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
or broker's fee (and the costs and expenses of defending against such liability
or asserted liability) for which the Investor or any of its officers, employees
or representatives is responsible. The Company agrees to indemnify and hold
harmless the Investor from any liability for any commission or compensation in
the nature of a finder's fee or broker's fee (and the costs and expenses of
defending against such liability or asserted liability) for which the Company or
any of its officers, employees or representatives is responsible.
21
<PAGE> 23
7.8 Expenses.
Each party shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement or the Series B Preferred Articles
Supplementary, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.9 Amendments and Waivers.
Any term of this Agreement may be amended, and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the Investor. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
7.10 Severability.
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Entire Agreement.
This Agreement constitutes the entire agreement among the parties
with respect to the subject matter hereof and no party shall be liable or bound
to any other party in any manner by any warranties, representations or covenants
except as specifically set forth herein.
22
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Purchase
Agreement as of the date first above written.
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA
By: /s/ Jeffrey L. Danker
----------------------------------------
Name: Jeffrey L. Danker
Its: Managing Director
CHARLES E. SMITH RESIDENTIAL REALTY,
INC.
By: /s/ Ernest Gerardi, Jr.
----------------------------------------
Name: Ernest Gerardi, Jr.
Its: President
23
<PAGE> 25
Schedule 2.1
SUBSIDIARIES
1. Charles E. Smith Residential Realty L.P.
2. First Herndon Associates Limited Partnership
3. Metropolitan Acquisition Finance LAP.
4. Smith Employment Services L.P.
5. Smith Property Holdings Columbia Road L.P.
6. Smith Property Holdings One L.P.
7. Smith Property Holdings One (D.C.) L.P.
8. Smith Property Holdings Two, L.P.
9. Smith Property Holdings Two (D.C.) L.P.
10. Smith Property Holdings Three L.P.
11. Smith Property Homage Three (D.C.) L.P.
12. Smith Property Holdings Four L.P.
13. Smith Properly Holdings Five L.P.
14. Smith Property Holdings Five (D.C.) L.P.
15. Smith Property Holdings Six LP.
16. Smith Property Holdings Six (D.C.) L.P.
17. Smith Property Holdings Seven L.P.
18. Smith Properly Holding Crystal Towers L.P.
19. Smith Property Holdings Kenmore L.P.
20. Smith Property Holdings Van Ness L.P.
21. Smith Property Holdings Crystal Plaza L.L.C.
22. Smith One, Inc.
23. Smith Two, Inc.
24. Smith Three, Inc.
25. Smith Four, Inc.
26. Smith Five, Inc.
27. Smith Six, Inc.
28. Smith Seven, Inc.
24
<PAGE> 26
EXHIBIT A
Series B Cumulative Convertible
Redeemable Preferred Stock
ARTICLES SUPPLEMENTARY
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
=====================================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series B Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
=====================================
Dated as of September 23, 1997
<PAGE> 27
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
=====================================
Articles Supplementary of Board of Directors
Classifying and Designating a Series of
Preferred Stock as
Series B Cumulative Convertible Redeemable
Preferred Stock and
Fixing Distribution and Other Preferences
and Rights of Such Series
=====================================
Charles E. Smith Residential Realty, Inc., a Maryland corporation
(the "Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland pursuant to section 8-203(b) of the Annotated Code of
Maryland that:
FIRST: Pursuant to authority granted by the Amended and Restated
Articles of Incorporation of the Corporation, the Board of Directors on
September 10, 1997 adopted a resolution designating and classifying 1,216,666
unissued and unclassified shares of capital stock as Series B Cumulative
Convertible Redeemable Preferred Stock.
SECOND: The following is a description of the Series B Cumulative
Convertible Redeemable Preferred Stock, including the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption thereof:
Section 1. Number of Shares and Designation. This class of preferred
stock shall be designated as Series B Cumulative Convertible Redeemable
Preferred Stock and the number of shares which shall constitute such series
shall not be more than 1,216,666 shares, par value $0.01 per share, which number
may be decreased (but not below the number thereof then outstanding) from time
to time by the Board of Directors.
Section 2. Definitions. For purposes of the Series B Preferred
Shares, the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors
to perform any of its responsibilities with respect to the Series B
Preferred Shares.
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which state or federally chartered banking
institutions in New York City, New York are not required to be open.
"Call Date" shall mean the date specified in the notice to
holders required under Section 5(d) as the Call Date.
"Common Shares" shall mean the shares of Common Stock, par
value $0.01 per share, of the Corporation.
<PAGE> 28
"Constituent Person" shall have the meaning set forth in
Section 6(e).
"Conversion Price" shall mean the conversion price per Common
Share for which the Series B Preferred Shares are convertible, as
such Conversion Price may be adjusted pursuant to Section 6. The
initial conversion price shall be $28.50 (equivalent to a conversion
rate of one Common Share for each Series B Preferred Share).
"Current Market Price" of publicly traded shares of Common
Stock or any other class of shares of capital stock or other
security of the Corporation or any other issuer for any day shall
mean the last reported sales price, regular way on such day, or, if
no sale takes place on such day, the average of the reported closing
bid and asked prices on such day, regular way, in either case as
reported on the New York Stock Exchange ("NYSE") or, if such
security is not listed or admitted for trading on the NYSE, on the
principal national securities exchange on which such security is
listed or admitted for trading or, if not listed or admitted for
trading on any national securities exchange, on the Nasdaq Stock
Market ("NASDAQ") or, if such security is not quoted on such
National Market System, the average of the closing bid and asked
prices on such day in the over-the-counter market as reported by
NASDAQ or, if bid and asked prices for such security on such day
shall not have been reported through NASDAQ, the average of the bid
and asked prices on such day as furnished by any NYSE member firm
regularly making a market in such security selected for such purpose
by the Board of Directors.
"Dividend Payment Date" shall mean (i) for any Dividend Period
with respect to which the Corporation pays a dividend on the Common
Shares, the date on which such dividend is paid, or (ii) for any
Dividend Period with respect to which the Corporation does not pay a
dividend on the Common Shares, a date to be set by the Board of
Directors, which date shall not be later than the forty-fifth
calendar day after the end of the applicable Dividend Period.
"Dividend Periods" shall mean quarterly dividend periods
commencing on January 1, April 1, July 1 and October 1 of each year
and ending on and including the day preceding the first day of the
next succeeding Dividend Period, except that: (i) the initial
Dividend Period shall commence on July 1, 1997 and end on and
include September 30, 1997, and (ii) the Dividend Period during
which any Series B Preferred Shares shall be redeemed pursuant to
Section 5 shall end on and include the Call Date with respect to the
Series B Preferred Shares being redeemed.
"Expiration Time" shall have the meaning set forth in Section
6(d)(iv).
"Fair Market Value" shall mean the average of the daily
Current Market Prices of a Common Share on the five (5) consecutive
Trading Days selected by the Corporation commencing not more than 20
Trading Days before, and ending not later than, the earlier of the
day in question and the day before the "ex date" with respect to the
issuance or distribution requiring such computation. The term "ex
date," when used with respect to any issuance or distribution, means
the first day on which the Common Shares trade regular way, without
the right to receive such issuance or distribution, on the exchange
or in the market, as the case may be, used to determine that day's
Current Market Price.
Exh. A-2
<PAGE> 29
"Fully Junior Shares" shall mean the Common Shares and any
other class or series of shares of capital stock of the Corporation
now or hereafter issued and outstanding over which the Series B
Preferred Shares have preference or priority in both (i) the payment
of dividends and (ii) the distribution of assets on any liquidation,
dissolution or winding up of the Corporation.
"Funds from Operations" shall mean net income (loss) (computed
in accordance with generally accepted accounting principles)
excluding gains (or losses) from debt restructuring, and
distributions in excess of earnings allocated to other Operating
Partnership interests or minority interests (as reflected in the
financial statements of the Corporation) plus
depreciation/amortization of assets unique to the real estate
industry, all computed in a manner consistent with the revised
definition of Funds From Operations adopted by the National
Association of Real Estate Investment Trusts (NAREIT), in its White
Paper dated March 1995, as such definitions may be modified from
time to time, as determined by the Corporation in good faith.
"Issue Date" shall mean the date on which the first Series B
Preferred Shares are issued.
"Junior Shares" shall mean the Common Shares and any other
class or series of capital stock of the Corporation now or hereafter
issued and outstanding over which the Series B Preferred Shares have
preference or priority in either (i) the payment of dividends or
(ii) the distribution of assets on any liquidation, dissolution or
winding up of the Corporation.
"Liquidation Preference" shall have the meaning set forth in
Section 4(a).
"Non-Electing Share" shall have the meaning set forth in
Section 6(e).
"Operating Partnership" shall mean the Charles E. Smith
Residential Realty, L.P., a Delaware limited partnership.
"Parity Shares" shall have the meaning set forth in Section
8(b).
"Person" shall mean any individual, firm, partnership,
corporation, limited liability company or other entity, and shall
include any successor (by merger or otherwise) of such entity.
"Purchased Shares" shall have the meaning set forth in Section
6(d)(iv).
"Securities" and "Security" shall have the meanings set forth
in Section 6(d)(iii).
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Series B Preferred Shares" shall mean the shares of Series B
Cumulative Convertible Redeemable Preferred Stock.
"Set apart for payment" shall be deemed to include, without
any action other than the following, the recording by the
Corporation in its accounting ledgers of any
Exh. A-3
<PAGE> 30
accounting or bookkeeping entry which indicates, pursuant to a
declaration of dividends or other distribution by the Board of
Directors, the allocation of funds to be so paid on any series or
class of shares of capital stock of the Corporation; provided,
however, that if any funds for any class or series of Junior Shares
or any class or series of shares of capital stock ranking on a
parity with the Series B Preferred Shares as to the payment of
dividends are placed in a separate account of the Corporation or
delivered to a disbursing, paying or other similar agent, then "set
apart for payment" with respect to the Series B Preferred Shares
shall mean placing such funds in a separate account or delivering
such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in
question are traded on the NYSE, or if such securities are not
listed or admitted for trading on the NYSE, on the principal
national securities exchange on which such securities are listed or
admitted, or if not listed or admitted for trading on any national
securities exchange, on the National Market System of NASDAQ, or if
such securities are not quoted on such National Market System, in
the securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in Section
6(e).
"Transfer Agent" shall mean First Union National Bank, or such
other agent or agents of the Corporation as may be designated by the
Board of Directors or their designee as the transfer agent,
registrar and dividend disbursing agent for the Series B Preferred
Shares.
"Units" shall mean Partnership Units as that term is defined
in the Amended and Restated Agreement of Limited Partnership of the
Operating Partnership.
"Voting Preferred Shares" shall have the meaning set forth in
Section 9.
"Weighted Average Trading Price" shall mean, for any Trading
Day, the number obtained by dividing (i) the sum of the products,
for each sale of Common Shares on such Trading Day, of (a) the sale
price per Common Share and (b) the number of Common Shares sold by
(ii) the total number of Common Shares sold on such Trading Day.
Section 3. Dividends.
(a) The holders of Series B Preferred Shares shall be entitled
to receive, when, as and if declared by the Board of Directors, out
of funds legally available for the payment of dividends, cumulative
preferential dividends payable in cash in an amount per share equal
to the greater of (i) 7.0877% of the Liquidation Preference per
annum (equivalent to $2.02 per share) or (ii) the ordinary cash
dividends (determined on each Dividend Payment Date) on the Common
Shares, or portion thereof, into which a Series B Preferred Share is
convertible. The dividends referred to in clause (ii) of the
preceding sentence shall equal the number of Common Shares, or
portion thereof, into which a Series B Preferred Share is
convertible, multiplied by the most current quarterly dividend on a
Common Share on or before the applicable Dividend Payment Date. If
the Corporation pays an ordinary cash dividend on the Common Shares
with respect to a Dividend Period after the date on which the
Dividend Payment Date is declared pursuant
Exh. A-4
<PAGE> 31
to clause (ii) of the definition of Dividend Payment Date and the
dividend calculated pursuant to clause (ii) of this paragraph (a)
with respect to such Dividend Period is greater than the dividend
previously declared on the Series B Preferred Shares with respect to
such Dividend Period, the Corporation shall pay an additional
dividend to the holders of the Series B Preferred Shares on the date
on which the dividend on the Common Shares is paid, in an amount
equal to the difference between (y) the dividend calculated pursuant
to clause (ii) of this paragraph (a) and (z) the amount of dividends
previously declared on the Series B Preferred Shares with respect to
such Dividend Period. The dividends shall begin to accrue and shall
be fully cumulative from the first day of the applicable Dividend
Period, whether or not in any Dividend Period or Periods there shall
be funds of the Corporation legally available for the payment of
such dividends, and shall be payable quarterly, when, as and if
declared by the Board of Directors, in arrears on Dividend Payment
Dates. Each such dividend shall be payable in arrears to the holders
of record of Series B Preferred Shares as they appear in the records
of the Corporation at the close of business on such record dates,
not less than 10 nor more than 50 days preceding such Dividend
Payment Dates thereof, as shall be fixed by the Board of Directors.
Accrued and unpaid dividends for any past Dividend Periods may be
declared and paid at any time and for such interim periods, without
reference to any regular Dividend Payment Date, to holders of record
on such date, not less than 10 nor more than 50 days preceding the
payment date thereof, as may be fixed by the Board of Directors. Any
dividend payment made on Series B Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with
respect to Series B Preferred Shares which remains payable.
(b) The amount of dividends referred to in clause (i) of
Section 3(a) payable for each full Dividend Period on the Series B
Preferred Shares shall be computed by dividing the annual dividend
rate by four. The distribution payable with respect to the initial
Dividend Period will include a full dividend with respect to such
Dividend Period, notwithstanding the fact that the Series B
Preferred Shares were issued after September 30, 1997 (i.e., the
greater of $0.505 per Series B Share or the ordinary cash dividend
paid on the Common Shares with respect to the quarterly period
ending on or about September 30, 1997). The amount of dividends
payable for any period shorter than a full Dividend Period, on the
Series B Preferred Shares shall be computed on the basis of a
360-day year of twelve 30-day months. Holders of Series B Preferred
Shares shall not be entitled to any dividends, whether payable in
cash, property or shares, in excess of cumulative dividends, as
herein provided, on the Series B Preferred Shares. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
dividend payment or payments on the Series B Preferred Shares which
may be in arrears.
(c) So long as any Series B Preferred Shares are outstanding,
no dividends, except as described in the immediately following
sentence, shall be declared or paid or set apart for payment on any
class or series of Parity Shares for any period unless full
cumulative dividends have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series B Preferred Shares for all
Dividend Periods terminating on or prior to the dividend payment
date on such class or series of Parity Shares. When dividends are
not paid in full or a sum sufficient for such payment is not set
apart, as aforesaid, all dividends declared upon Series B Preferred
Shares and all dividends declared upon any other class or series of
Parity Shares shall be declared ratably in proportion to the
respective amounts of
Exh. A-5
<PAGE> 32
dividends accumulated and unpaid on the Series B Preferred Shares
and accumulated and unpaid on such Parity Shares.
(d) So long as any Series B Preferred Shares are outstanding,
no dividends (other than dividends or distributions paid solely in
shares of, or options, warrants or rights to subscribe for or
purchase shares of, Fully Junior Shares) shall be declared or paid
or set apart for payment or other distribution shall be declared or
made or set apart for payment upon Junior Shares, nor shall any
Junior Shares be redeemed, purchased or otherwise acquired (other
than a redemption, purchase or other acquisition of Common Shares
made for purposes of an employee incentive or benefit plan of the
Corporation or any subsidiary) for any consideration (or any moneys
be paid to or made available for a sinking fund for the redemption
of any Junior Shares) by the Corporation, directly or indirectly
(except by conversion into or exchange for Fully Junior Shares),
unless in each case (i) the full cumulative dividends on all
outstanding Series B Preferred Shares and any other Parity Shares of
the Corporation shall have been or contemporaneously are declared
and paid or declared and set apart for payment for all past Dividend
Periods with respect to the Series B Preferred Shares and all past
dividend periods with respect to such Parity Shares and (ii)
sufficient funds shall have been or contemporaneously are declared
and paid or declared and set apart for the payment of the dividend
for the current Dividend Period with respect to the Series B
Preferred Shares and the current dividend period with respect to
such Parity Shares.
(e) No distributions on Series B Preferred Shares shall be
declared by the Board of Directors or paid or set apart for payment
by the Corporation at such time as the terms and provisions of any
agreement of the Corporation, including any agreement relating to
its indebtedness, prohibits such declaration, payment or setting
apart for payment or provides that such declaration, payment or
setting apart for payment would constitute a breach thereof or a
default thereunder, or if such declaration or payment shall be
restricted or prohibited by law.
Exh. A-6
<PAGE> 33
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation (whether
capital or surplus) shall be made to or set apart for the holders of
Junior Shares, the holders of the Series B Preferred Shares shall be
entitled to receive Twenty Eight Dollars and Fifty Cents ($28.50)
(the "Liquidation Preference") per Series B Preferred Share plus an
amount equal to all dividends (whether or not earned or declared)
accumulated, accrued and unpaid thereon to the date of final
distribution to such holders; but such holders shall not be entitled
to any further payment; provided, that the dividend payable with
respect to the Dividend Period containing the date of final
distribution shall be equal to the greater of (i) the dividend
provided in Section 3(a)(i) or (ii) the dividend determined pursuant
to Section 3(a)(ii) for the preceding Dividend Period. Until the
holders of the Series B Preferred Shares have been paid the
Liquidation Preference in full, no payment will be made to any
holder of Junior Stock upon the liquidation, dissolution, or winding
up of the Corporation. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or
proceeds thereof, distributable among the holders of the Series B
Preferred Shares shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other
shares of any class or series of Parity Shares, then such assets, or
the proceeds thereof, shall be distributed among the holders of
Series B Preferred Shares and any such other Parity Shares ratably
in accordance with the respective amounts that would be payable on
such Series B Preferred Shares and any such other Parity Shares if
all amounts payable thereon were paid in full. For the purposes of
this Section 4, (i) a consolidation or merger of the Corporation
with one or more corporations, real estate investment trusts or
other entities, (ii) a sale, lease or conveyance of all or
substantially all of the Corporation's property or business or (iii)
a statutory share exchange shall not be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary, of the
Corporation.
(b) Subject to the rights of the holders of shares of any
Parity Shares upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Corporation, after
payment shall have been made in full to the holders of the Series B
Preferred Shares, as provided in this Section 4, any other series or
class or classes of Junior Shares shall, subject to the respective
terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed, and
the holders of the Series B Preferred Shares shall not be entitled
to share therein.
Section 5. Redemption at the Option of the Corporation.
(a) The Series B Preferred Shares shall be redeemable by the
Corporation, at its option, in whole at any time or from time to
time in part as set forth herein, subject to the following
provisions. Series B Preferred Shares may be redeemed, in whole or
in part, at the option of the Corporation, at any time by issuing
and delivering to each holder for each Series B Preferred Share to
be redeemed such number of authorized but previously unissued Common
Shares as equals the Liquidation Preference (excluding any
accumulated, accrued and unpaid dividends, if any, to the Call Date,
which are to be paid in cash as provided below, whether or not
earned or declared) per Series B Preferred
Exh. A-7
<PAGE> 34
Share divided by the Conversion Price as in effect as of the opening
of business on the Call Date; provided that the Corporation may not
issue to any holder a number of Common Shares that would result in
such holder exceeding the Common Stock Ownership Limit then
applicable to such holder; provided further that the Corporation
shall deliver to each holder, as a condition to the redemption of
Series B Shares pursuant to this paragraph, a certificate of an
officer of the Corporation stating that the Corporation has not then
commenced liquidation or bankruptcy proceedings and does not then
have any intention of commencing any such proceedings.
(b) Series B Preferred Shares shall be redeemed by the
Corporation on the date specified in the notice to holders required
under paragraph (d) of this Section 5 (the "Call Date"). The Call
Date shall be selected by the Corporation, shall be specified in the
notice of redemption, and shall be not less than 30 day nor more
than 60 days after the date notice of redemption is sent by the
Corporation. Upon any redemption of Series B Preferred Shares
pursuant to paragraph (a) of this Section 5, the Corporation shall
pay in cash to the holder of such shares an amount equal to all
accumulated, accrued, and unpaid dividends, if any, to the Call
Date, whether or not earned or declare as provided in this
paragraph. Immediately prior to authorizing any redemption of the
Series B Preferred Shares, and as a condition precedent for such
redemption, the Corporation, by resolution of its Board of
Directors, shall declare a mandatory dividend on the Series B
Preferred Shares, payable in cash on the Call Date in an amount
equal to all accumulated, accrued, and unpaid dividends as of the
Call Date on the Series B Preferred Shares to be redeemed, which
amount shall be added to the redemption price, except to the extent
such dividends are to be paid pursuant to the immediately following
sentence. If the Call Date falls after a dividend payment record
date and prior to the corresponding Dividend Payment Date, then each
holder of Series B Preferred Shares at the close of business on such
dividend payment record date shall be entitled to the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the redemption of such shares prior to such Dividend
Payment Date. Except as provided above, the Corporation shall make
no payment or allowance for accumulated or accrued dividends on
Series B Preferred Shares called for redemption or on the Common
Shares issued upon such redemption.
(c) If full cumulative dividends on the Series B Preferred
Shares and any other class or series of Parity Shares of the
Corporation have not been declared and paid or declared and set
apart for payment, the Series B Preferred Shares may not be redeemed
under this Section 5 in part and neither the Corporation nor any of
its subsidiaries may purchase or acquire Series B Preferred Shares,
otherwise than pursuant to a purchase or exchange offer made on the
same terms to all holders of Series B Preferred Shares.
(d) Notice of the redemption of any Series B Preferred Shares
under this Section 5 shall be mailed by first-class mail to each
holder of record of Series B Preferred Shares to be redeemed at the
address of each such holder as shown on the Corporation's records,
not less than 30 nor more than 90 days prior to the Call Date.
Neither the failure to mail any notice required by this paragraph
(d), nor any defect therein or in the mailing thereof, to any
particular holder, shall affect the sufficiency of the notice or the
validity of the proceedings for redemption with respect to the other
holders. Any notice which was mailed in the manner herein provided
shall be conclu-
Exh. A-8
<PAGE> 35
sively presumed to have been duly given on the date mailed whether
or not the holder receives the notice. Each such mailed notice shall
state, as appropriate: (1) the Call Date; (2) the number of Series B
Preferred Shares to be redeemed and, if fewer than all the shares
held by such holder are to be redeemed, the number of such shares to
be redeemed from such holder; (3) the number of Common Shares to be
issued in redemption of the Series B Preferred Shares to be
redeemed; (4) the place or places at which certificates for such
shares are to be surrendered; (5) the then-current Conversion Price;
and (6) that dividends on the shares to be redeemed shall cease to
accrue on such Call Date except as otherwise provided herein. Notice
having been mailed as aforesaid, from and after the Call Date
(unless the Corporation shall fail to make available an amount of
Common Shares and cash necessary to effect such redemption,
including all accumulated, accrued, and unpaid dividends to the Call
Date, whether or not earned or declared), (i) except as otherwise
provided herein, dividends on the Series B Preferred Shares so
called for redemption shall cease to accumulate or accrue on the
Series B Preferred Shares called for redemption (except that, in the
case of a Call Date after a dividend payment record date and prior
to the corresponding Dividend Payment Date, holders of Series B
Preferred Shares on the dividend payment record date will be
entitled on such Dividend Payment Date to receive the dividend paid
on such shares), (ii) such shares shall no longer be deemed to be
outstanding, and (iii) all rights of the holders thereof as holders
of Series B Preferred Shares of the Corporation shall cease (except
the rights to convert and to receive the Common Shares and/or cash
payable upon such redemption, without interest thereon, upon
surrender and endorsement of their certificates if so required and
to receive any dividends payable thereon). The Corporation's
obligation to provide Common Shares and/or cash in accordance with
the preceding sentence shall be deemed fulfilled if, on or before
the Call Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Corporation) that has an
office in the Borough of Manhattan, City of New York, and that has,
or is an affiliate of a bank or trust company that has, capital and
surplus of at least $500,000,000, such number of Common Shares and
such amount of cash as is necessary for such redemption, in trust,
with irrevocable instructions that such Common Shares and/or cash be
applied to the redemption of the Series B Preferred Shares so called
for redemption. In the case of any redemption pursuant to paragraph
(a)(i) of this Section 5, at the close of business on the Call Date,
each holder of Series B Preferred Shares to be redeemed (unless the
Corporation defaults in the delivery of the Common Shares or cash
payable on such Call Date) shall be deemed to be the record holder
of the Common Shares into which such Series B Preferred Shares are
to be converted at redemption, regardless of whether such holder has
surrendered the certificates representing the Series B Preferred
Shares to be so redeemed. No interest shall accrue for the benefit
of the holders of Series B Preferred Shares to be redeemed on any
cash so set aside by the Corporation. Subject to applicable escheat
laws, any such cash unclaimed at the end of two years from the Call
Date shall revert to the general funds of the Corporation, after
which reversion the holders of such shares so called for redemption
shall look only to the general funds of the Corporation for the
payment of such cash.
As promptly as practicable after the surrender in accordance
with such notice of the certificates for any such shares so redeemed
(properly endorsed or assigned for transfer, if the Corporation
shall so require and if the notice shall so state), such
certificates shall be exchanged in accordance with such notice for
certificates representing Common Shares and/or any cash (without
interest thereon) for which such shares have
Exh. A-9
<PAGE> 36
been redeemed. If fewer than all the outstanding Series B Preferred
Shares are to be redeemed, shares to be redeemed shall be selected
by the Corporation from outstanding Series B Preferred Shares not
previously called for redemption pro rata (as nearly as may be), by
lot or by any other method determined by the Corporation in its sole
discretion to be equitable. If fewer than all the Series B Preferred
Shares represented by any certificate are redeemed, then new
certificates representing the unredeemed shares shall be promptly
issued without cost to the holder thereof.
(e) In the case of any redemption pursuant to paragraph (a)(i)
of this Section 5,
(i) no fractional Common Shares or scrip representing
fractions of Common Shares shall be issued upon redemption of
the Series B Preferred Common Shares. Instead of any
fractional interest in Common Shares that would otherwise be
deliverable upon redemption of Series B Preferred Shares, the
Corporation shall pay to the holder of such share an amount in
cash (rounded to the nearest cent) based upon the Current
Market Price of the Common Shares on the Trading Day
immediately preceding the Call Date. If more than one share
shall be surrendered for redemption at one time by the same
holder, the number of full Common Shares issuable upon
redemption thereof shall be computed on the basis of the
aggregate number of Series B Preferred Shares so surrendered.
(ii) the Corporation covenants that any Common Shares
issued upon redemption of Series B Preferred Shares shall be
validly issued, fully paid and non-assessable. The Corporation
shall use its reasonable best efforts to list the Common
Shares required to be delivered upon any such redemption of
Series B Preferred Shares, prior to such redemption, upon each
national securities exchange, if any, upon which the
outstanding Common Shares are listed at the time of such
delivery.
Section 6. Conversion. Holders of Series B Preferred Shares shall
have the right to convert all or a portion of such shares into Common Shares, as
follows:
(a) Subject to and upon compliance with the provisions of this
Section 6 and the provisions of Article VIII of the Corporation's
Articles of Incorporation, a holder of Series B Preferred Shares
shall have the right, at his or her option, on or after the date 90
days after the Issue Date, to convert such shares into the number of
authorized but previously unissued fully paid and non-assessable
Common Shares obtained by dividing the aggregate Liquidation
Preference of such shares (exclusive of accumulated, accrued, and
unpaid dividends, which are to be paid in cash as provided below) by
the Conversion Price (as in effect at the time and on the date
provided for in the last paragraph of paragraph (b) of this Section
6) by surrendering such shares to be converted, such surrender to be
made in the manner provided in paragraph (b) of this Section 6.
Notwithstanding any provision of Article VIII of the Corporation's
Articles of Incorporation, a holder shall be entitled to convert
shares of Series B Preferred Stock immediately prior to the record
date for payments of distributions to holders of Common Shares upon
any liquidation or winding up of the Company.
(b) In order to exercise the conversion right, the holder of
each Series B Preferred Share to be converted shall surrender the
certificate representing such share,
Exh. A-10
<PAGE> 37
duly endorsed or assigned to the Corporation or in blank, at the
office of the Transfer Agent, accompanied by written notice to the
Corporation that the holder thereof elects to convert such Series B
Preferred Shares. Unless the shares issuable on conversion are to be
issued in the same name as the name in which such Series B Preferred
Share is registered, each share surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay any transfer or
similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid).
Holders of Series B Preferred Shares at the close of business
on a dividend payment record date shall be entitled to receive the
dividend payable on such shares on the corresponding Dividend
Payment Date notwithstanding the conversion thereof following such
dividend payment record date and prior to such Dividend Payment
Date. However, Series B Preferred Shares surrendered for conversion
during the period between the close of business on any dividend
payment record date with respect to the Series B Preferred Shares
and the opening of business on the dividend payment record date with
respect to the Common Shares for the corresponding Dividend Period
(except shares converted after the issuance of notice of redemption
with respect to a Call Date during such period, such Series B
Preferred Shares being entitled to such dividend on the Dividend
Payment Date) must be accompanied by payment of an amount equal to
the dividend payable on such Common Shares on such Dividend Payment
Date. A holder of Series B Preferred Shares on a dividend payment
record date who (or whose transferee) tenders any such shares for
conversion into Common Shares on the corresponding Dividend Payment
Date will receive the dividend payable by the Corporation on such
Series B Preferred Shares on such date, and the converting holder
need not include payment of the amount of such dividend upon
surrender of Series B Preferred Shares for conversion. Except as
provided above, the Corporation shall make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted shares
or for dividends on the Common Shares issued upon such conversion.
As promptly as practicable after the surrender of certificates
for Series B Preferred Shares as aforesaid, the Corporation shall
issue and shall deliver at such office to such holder, or on his or
her written order, a certificate or certificates for the number of
full Common Shares issuable upon the conversion of such shares in
accordance with provisions of this Section 6, and any fractional
interest in respect of a Common Share arising upon such conversion
shall be settled as provided in paragraph (c) of this Section 6.
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the
certificates for Series B Preferred Shares shall have been
surrendered and such notice shall have been received by the
Corporation as aforesaid (and if applicable, payment of an amount
equal to the dividend payable on such shares shall have been
received by the Corporation as described above), and the person or
persons in whose name or names any certificate or certificates for
Common Shares shall be issuable upon such conversion shall be deemed
to have become the holder or holders of record of the shares
represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date
unless the share transfer books of the Corporation shall be closed
on that date, in which event such
Exh. A-11
<PAGE> 38
person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding
day on which such share transfer books are open, but such conversion
shall be at the Conversion Price in effect on the date on which such
shares shall have been surrendered and such notice received by the
Corporation.
(c) No fractional shares or scrip representing fractions of
Common Shares shall be issued upon conversion of the Series B
Preferred Shares. Instead of any fractional interest in a Common
Share that would otherwise be deliverable upon the conversion of a
Series B Preferred Share, the Corporation shall pay to the holder of
such share an amount in cash based upon the Current Market Price of
the Common Shares on the Trading Day immediately preceding the date
of conversion. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full Common
Shares issuable upon conversion thereof shall be computed on the
basis of the aggregate number of Series B Preferred Shares so
surrendered.
(d) The Conversion Price shall be adjusted from time to time
as follows:
(i) If the Corporation shall after the Issue Date (A)
pay a dividend or make a distribution on its capital shares in
Common Shares, (B) subdivide its outstanding Common Shares
into a greater number of shares, (C) combine its outstanding
Common Shares into a smaller number of shares or (D) issue any
shares of capital stock by reclassification of its Common
Shares, the Conversion Price in effect at the opening of
business on the day following the date fixed for the
determination of stockholders entitled to receive such
dividend or distribution or at the opening of business on the
Business Day next following the day on which such subdivision,
combination or reclassification becomes effective, as the case
may be, shall be adjusted so that the holder of any Series B
Preferred Share thereafter surrendered for conversion shall be
entitled to receive the number of Common Shares that such
holder would have owned or have been entitled to receive after
the happening of any of the events described above as if such
Series B Preferred Shares had been converted immediately prior
to the record date in the case of a dividend or distribution
or the effective date in the case of a subdivision,
combination or reclassification. An adjustment made pursuant
to this subparagraph (i) shall become effective immediately
after the opening of business on the Business Day next
following the record date (except as provided in paragraph (h)
below) in the case of a dividend or distribution and shall
become effective immediately after the opening of business on
the Business Day next following the effective date in the case
of a subdivision, combination or reclassification.
(ii) If the Corporation shall issue after the Issue Date
rights, options or warrants to all holders of Common Shares
entitling them (for a period expiring within 45 days after the
record date described below) to subscribe for or purchase
Common Shares at a price per share less than 94% (100% if a
stand-by underwriter is used and charges the Corporation a
commission) of the Fair Market Value per Common Share on the
record date for the determination of stockholders entitled to
receive such rights, options or warrants, then the Conversion
Price in effect at the opening of business on the Business Day
next following such record date shall be adjusted to equal the
price determined by
Exh. A-12
<PAGE> 39
multiplying (A) the Conversion Price in effect immediately
prior to the opening of business on the Business Day next
following the date fixed for such determination by (B) a
fraction, the numerator of which shall be the sum of (x) the
number of Common Shares outstanding on the close of business
on the date fixed for such determination and (y) the number of
shares that the aggregate proceeds to the Corporation from the
exercise of such rights, options or warrants for Common Shares
would purchase at 94% of such Fair Market Value (or 100% in
the case of a stand-by underwriting), and the denominator of
which shall be the sum of (x) the number of Common Shares
outstanding on the close of business on the date fixed for
such determination and (y) the number of additional Common
Shares offered for subscription or purchase pursuant to such
rights, options or warrants. Such adjustment shall become
effective immediately after the opening of business on the day
next following such record date (except as provided in
paragraph (h) below). In determining whether any rights,
options or warrants entitle the holders of Common Shares to
subscribe for or purchase Common Shares at less than 94% of
such Fair Market Value (or 100% in the case of a stand-by
underwriting), there shall be taken into account any
consideration received by the Corporation upon issuance and
upon exercise of such rights, options or warrants, the value
of such consideration, if other than cash, to be determined by
the Board of Directors.
(iii) If the Corporation shall distribute to all holders
of its Common Shares any securities of the Corporation (other
than Common Shares) or evidence of its indebtedness or assets
(including cash other than cumulative cash dividends or cash
distributions paid with respect to the Common Shares after
December 31, 1996 which are not in excess of the following:
the sum of (A) the Corporation's cumulative undistributed
Funds from Operations at December 31, 1996, plus (B) the
cumulative amount of Funds from Operations, as determined by
the Board of Directors, after December 31, 1996, minus (C) the
cumulative amount of dividends accrued or paid in respect of
the Series B Preferred Shares or any other class or series of
preferred stock of the Corporation after the Issue Date) or
rights, options or warrants to subscribe for or purchase any
of its securities (excluding those rights, options and
warrants issued to all holders of Common Shares entitling them
for a period expiring within 45 days after the record date
referred to in subparagraph (ii) above to subscribe for or
purchase Common Shares, which rights and warrants are referred
to in and treated under subparagraph (ii) above) (any of the
foregoing being hereinafter in this subparagraph (iii)
collectively called the "Distribution"), then in each such
case the Conversion Price shall be adjusted so that it shall
equal the price determined by multiplying (x) the Conversion
Price in effect immediately prior to the close of business on
the date fixed for the determination of stockholders entitled
to receive such Distribution by (y) a fraction, the numerator
of which shall be the Fair Market Value per Common Share on
the record date described below less the then fair market
value (as determined by the Board of Directors, whose
determination shall be conclusive and shall be described in a
resolution of the Board of Directors), of the portion of the
Distribution so distributed and applicable to one Common
Share, and the denominator of which shall be the Fair Market
Value per Common Share on the record date mentioned below.
Such adjustment shall become effective immediately at the
opening of business on the
Exh. A-13
<PAGE> 40
Business Day next following (except as provided in paragraph
(h) below) the record date for the determination of
stockholders entitled to receive such Distribution. For the
purposes of this subparagraph (iii), a Distribution, which is
distributed not only to the holders of the Common Shares on
the date fixed for the determination of stockholders entitled
to such Distribution, but also is distributed with each Common
Share delivered to a Person converting a Series B Preferred
Share after such determination date, shall not require an
adjustment of the Conversion Price pursuant to this
subparagraph (iii); provided that on the date, if any, on
which a person converting a Series B Preferred Share would no
longer be entitled to receive such Distribution with a Common
Share (other than as a result of the termination of all such
Distribution), such Distribution shall be deemed to have
occurred and the Conversion Price shall be adjusted as
provided in this subparagraph (iii) (and such day shall be
deemed to be "the date fixed for the determination of the
stockholders entitled to receive such Distribution" and "the
record date" within the meaning of the two preceding
sentences).
(iv) In case a tender or exchange offer (which term
shall not include open market repurchases by the Corporation)
made by the Corporation or any subsidiary of the Corporation
for all or any portion of the Common Shares shall expire and
such tender or exchange offer shall involve the payment by the
Corporation or such subsidiary of consideration per Common
Share having a fair market value (as determined in good faith
by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of
Directors), at the last time (the "Expiration Time") tenders
or exchanges may be made pursuant to such tender or exchange
offer, that exceeds the Current Market Price per Common Share
on the Trading Day next succeeding the Expiration Time, the
Conversion Price shall be reduced so that the same shall equal
the price determined by multiplying the Conversion Price in
effect immediately prior to the effectiveness of the
Conversion Price reduction contemplated by this subparagraph,
by a fraction of which the numerator shall be the number of
Common Shares outstanding (including any tendered or exchanged
shares) at the Expiration Time, multiplied by the Current
Market Price per Common Share on the Trading Day next
succeeding the Expiration Time, and the denominator shall be
the sum of (A) the fair market value (determined as aforesaid)
of the aggregate consideration payable to stockholders based
upon the acceptance (up to any maximum specified in the terms
of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any maximum, being
referred to as the "Purchased Shares") and (B) the product of
the number of Common Shares outstanding (less any Purchased
Shares) at the Expiration Time and the Current Market Price
per Common Share on the Trading Day next succeeding the
Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day
following the Expiration Time.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative
increase or decrease of at least 1% in such price; provided,
however, that any adjustments that by reason of this
subparagraph (v) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment
until made; and provided, further, that
Exh. A-14
<PAGE> 41
any adjustment shall be required and made in accordance with
the provisions of this Section 6 (other than this subparagraph
(v)) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the holders
of Common Shares. Notwithstanding any other provisions of this
Section 6, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any
Common Shares pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of
the Corporation and the investment of additional optional
amounts in Common Shares under such plan. All calculations
under this Section 6 shall be made to the nearest cent (with
$.005 being rounded upward) or to the nearest one-tenth of a
share (with .05 of a share being rounded upward), as the case
may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the
extent permitted by law, to make such reductions in the
Conversion Price, in addition to those required by this
paragraph (d), as it in its discretion shall determine to be
advisable in order that any share dividends, subdivision of
shares, reclassification or combination of shares,
distribution of rights or warrants to purchase shares or
securities, or distribution of other assets (other than cash
dividends) hereafter made by the Corporation to its
stockholders shall not be taxable, or it that is not possible,
to reduce any income taxes otherwise payable as a result of
such event to the maximum extent possible.
(e) If the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory
share exchange, self tender offer for all or a substantial portion
of its Common Shares, sale of all or substantially all of the
Corporation's assets or recapitalization of the Common Shares and
excluding any transaction as to which subparagraph (d)(i) of this
Section 6 applies) (each of the foregoing being referred to herein
as a "Transaction"), in each case as a result of which Common Shares
are converted into the right to receive shares, securities or other
property (including cash or any combination thereof), each Series B
Preferred Share which is not redeemed or converted into the right to
receive shares, securities or other property in connection with such
Transaction shall thereafter be convertible into the kind and amount
of shares, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such
Transaction by a holder of that number of Common Shares into which
one Series B Preferred Share was convertible immediately prior to
such Transaction, assuming such holder of Common Shares (i) is not a
Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which
such sale or transfer was made, as the case may be ("Constituent
Person"), or an affiliate of a Constituent Person and (ii) failed to
exercise his rights of election, if any, as to the kind or amount of
shares, securities and other property (including cash) receivable
upon such Transaction (provided that if the kind or amount of
shares, securities and other property (including cash) receivable
upon such Transaction is not the same for each Common Share held
immediately prior to such Transaction by other than a Constituent
Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-Electing Share"),
then for the purpose of this paragraph (e) the kind and amount of
shares, securities and other property (including cash) receivable
upon such Transaction by each Non-Electing Share shall be deemed to
be the kind and amount so receivable per share by a plurality of the
Non-Electing Shares). The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent with
the provisions
Exh. A-15
<PAGE> 42
of this paragraph (e), and it shall not consent or agree to the
occurrence of any Transaction until the Corporation has entered into
an agreement with the successor or purchasing entity, as the case
may be, for the benefit of the holders of the Series B Preferred
Shares that will contain provisions enabling the holders of the
Series B Preferred Shares that remain outstanding after such
Transaction to convert into the consideration received by holders of
Common Shares at the Conversion Price in effect immediately prior to
such Transaction. The provisions of this paragraph (e) shall
similarly apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any
other distribution) on its Common Shares (other than cash
dividends or distributions paid with respect to the Common
Shares after December 31, 1996 not in excess of the sum of the
Corporation's cumulative undistributed Funds from Operations
at December 31, 1996, plus the cumulative amount of Funds from
Operations, as determined by the Board of Directors, after
December 31, 1996, minus the cumulative amount of dividends
accrued or paid in respect of the Series B Preferred Shares or
any other class or series of preferred shares of capital stock
of the Corporation after the Issue Date); or
(ii) the Corporation shall authorize the granting to all
holders of Common Shares of rights, options or warrants to
subscribe for or purchase any shares of any class or any other
rights, options or warrants; or
(iii) there shall be any reclassification of the Common
Shares (other than an event to which subparagraph (d)(i) of
this Section 6 applies) or any consolidation or merger to
which the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or a statutory
share exchange, or a self tender offer by the Corporation for
all or a substantial portion of its outstanding Common Shares
(or an amendment thereto changing the maximum number of shares
sought or the amount of type of consideration being offered
therefor) or the sale or transfer of all or substantially all
of the assets of the Corporation as an entirety; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent
and shall cause to be mailed to the holders of Series B Preferred
Shares at their addresses as shown on the records of the
Corporation, as promptly as possible, but at least 10 days prior to
the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights, options or warrants,
or, if a record is not to be taken, the date as of which the holders
of Common Shares of record to be entitled to such dividend,
distribution or rights, options or warrants are to be determined or
(B) the date on which such reclassification, consolidation, merger,
statutory share exchange, sale, transfer, liquidation, dissolution
or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Shares of record shall
be entitled to exchange their Common
Exh. A-16
<PAGE> 43
Shares for securities or other property, if any, deliverable upon
such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up.
Failure to give or receive such notice or any defect therein shall
not affect the legality or validity of the proceedings described in
this Section 6.
(g) Whenever the Conversion Price is adjusted as herein
provided, the Corporation shall promptly file with the Transfer
Agent an officer's certificate setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the
facts requiring such adjustment which certificate shall be
conclusive evidence of the correctness of such adjustment absent
manifest error. Promptly after delivery of such certificate, the
Corporation shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the
effective date of such adjustment and shall mail such notice of such
adjustment of the Conversion Price to the holder of each Series B
Preferred Share at such holder's last address as shown on the
records of the Corporation.
(h) In any case in which paragraph (d) of this Section 6
provides that an adjustment shall become effective on the day next
following the record date for an event, the Corporation may defer
until the occurrence of such event (A) issuing to the holder of any
Series B Preferred Share converted after such record date and before
the occurrence of such event the additional Common Shares issuable
upon such conversion by reason of the adjustment required by such
event over and above the Common Shares issuable upon such conversion
before giving effect to such adjustment and (B) paying to such
holder any amount of cash in lieu of any fraction pursuant to
paragraph (c) of this Section 6.
(i) There shall be no adjustment of the Conversion Price in
case of the issuance of any shares of capital stock of the
Corporation in a reorganization, acquisition or other similar
transaction except as specifically set forth in this Section 6. If
any action or transaction would require adjustment of the Conversion
Price pursuant to more than one paragraph of this Section 6, only
one adjustment shall be made and such adjustment shall be the amount
of adjustment that has the highest absolute value.
(j) If the Corporation shall take any action affecting the
Common Shares, other than action described in this Section 6, that
in the opinion of the Board of Directors would materially and
adversely affect the conversion rights of the holders of the Series
B Preferred Shares, the Conversion Price for the Series B Preferred
Shares may be adjusted, to the extent permitted by law, in such
manner, if any, and at such time, as the Board of Directors, in its
sole discretion, may determine to be equitable in the circumstances.
(k) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued Common Shares, solely for
the purpose of effecting conversion of the Series B Preferred
Shares, the full number of Common Shares deliverable upon the
conversion of all outstanding Series B Preferred Shares not
theretofore converted. For purposes of this paragraph (k), the
number of Common Shares that shall be deliverable upon the
conversion of all outstanding Series B Preferred Shares shall be
computed as if at the time of computation all such outstanding
shares were held by a single holder.
Exh. A-17
<PAGE> 44
The Corporation covenants that any Common Shares issued upon
conversion of the Series B Preferred Shares shall be validly issued,
fully paid and non-assessable. Before taking any action that would
cause an adjustment reducing the Conversion Price below the then-par
value of the Common Shares deliverable upon conversion of the Series
B Preferred Shares, the Corporation will take any action that, in
the opinion of its counsel, may be necessary in order that the
Corporation may validly and legally issue fully paid and (subject to
any customary qualification based upon the nature of a real estate
investment trust) non-assessable Common Shares at such adjusted
Conversion Price.
The Corporation shall use reasonable best efforts to list the
Common Shares required to be delivered upon conversion of the Series
B Preferred Shares, prior to such delivery, upon each national
securities exchange, if any, upon which the outstanding Common
Shares are listed at the time of such delivery.
The Corporation shall endeavor to comply with all federal and
state securities laws and regulations thereunder in connection with
the issuance of any securities that the Corporation shall be
obligated to deliver upon conversion of the Series B Preferred
Shares. In addition to any legend required by Article VIII of the
Articles of Incorporation, the certificates evidencing such
securities shall bear such legends restricting transfer thereof in
the absence of registration under applicable securities laws or an
exemption therefrom as the Corporation may in good faith deem
appropriate.
(l) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or
delivery of Common Shares or other securities or property on
conversion of the Series B Preferred Shares pursuant hereto;
provided, however, that the Corporation shall not be required to pay
any tax that may be payable in respect of any transfer involved in
the issue or delivery of Common Shares or other securities or
property in a name other than that of the holder of the Series B
Preferred Shares to be converted, and no such issue or delivery
shall be made unless and until the person requesting such issue or
delivery has paid to the Corporation the amount of any such tax or
established, to the reasonable satisfaction of the Corporation, that
such tax has been paid.
Section 7. Shares To Be Retired. All Series B Preferred Shares which
shall have been issued and reacquired in any manner by the Corporation shall be
restored to the status of authorized but unissued shares of capital stock of the
Corporation, without designation as to class or series.
Section 8. Ranking. Any class or series of shares of capital stock
of the Corporation shall be deemed to rank:
(a) prior to the Series B Preferred Shares, as to the payment
of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series
shall be entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the
case may be, in preference or priority to the holders of Series B
Preferred Shares;
(b) on a parity with the Series B Preferred Shares, as to the
payment of dividends and as to distribution of assets upon
liquidation, dissolution or winding up,
Exh. A-18
<PAGE> 45
whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof shall be
different from those of the Series B Preferred Shares, if the
holders of such class or series and the Series B Preferred Shares
shall be entitled to the receipt of dividends and of amounts
distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference
or priority one over the other ("Parity Shares"); the Series A
Cumulative Convertible Redeemable Preferred Stock of the Corporation
are Parity Shares;
(c) junior to the Series B Preferred Shares, as to the payment
of dividends or as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Junior
Shares; and
(d) junior to the Series B Preferred Shares, as to the payment
of dividends and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class or series shall be Fully
Junior Shares.
Section 9. Voting. So long as any Series B Preferred Shares are
outstanding, in addition to any other vote or consent of stockholders required
by law or by the Corporation's Articles of Incorporation, the affirmative vote
of at least 66-2/3% of the votes entitled to be cast by the holders of the
Series B Preferred Shares given in person or by proxy, either in writing without
a meeting or by vote at any meeting called for the purpose, shall be necessary
for effecting or validating:
(a) Any amendment, alteration or repeal of any of the
provisions of the Corporation's Articles of Incorporation, the
Corporation's By-Laws or these Articles Supplementary that
materially and adversely affects the voting powers, rights or
preferences of the holders of the Series B Preferred Shares;
provided, however, that the amendment of the provisions of the
Corporation's Articles of Incorporation so as to authorize or create
or to increase the authorized amount of, any Fully Junior Shares,
Junior Shares that are not senior in any respect to the Series B
Preferred Shares or any Parity Shares shall not be deemed to
materially adversely affect the voting powers, rights or preferences
of the holders of Series B Preferred Shares; or
(b) A share exchange that affects the Series B Preferred
Shares, a consolidation with or merger of the Corporation into
another entity, or a consolidation with or merger of another entity
into the Corporation, unless in each such case each Series B
Preferred Share (i) shall remain outstanding without a material and
adverse change to its terms and rights or (ii) shall be converted
into or exchanged for convertible preferred shares of the surviving
entity having preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption thereof identical to that of a
Series B Preferred Share (except for changes that do not materially
and adversely affect the holders of the Series B Preferred Shares);
or
(c) The authorization, reclassification or creation of, or the
increase in the authorized amount of, any shares of any class or any
security convertible into shares of any class ranking prior to the
Series B Preferred Shares in the distribution of assets on any
liquidation, dissolution or winding up of the Corporation or in the
payment of dividends;
Exh. A-19
<PAGE> 46
provided, however, that no such vote of the holders of Series B Preferred Shares
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such prior shares or
convertible security is to be made, as the case may be, provision is made for
the redemption of all Series B Preferred Shares at the time outstanding for
Common Stock.
For purposes of the foregoing provisions of this Section 9, each
Series B Preferred Share shall have one (1) vote per share, except that when any
other series of Preferred Shares shall have the right to vote with the Series B
Preferred Shares as a single class on any matter, then the Series B Preferred
Shares and such other series shall have with respect to such matters one (1)
vote per $28.50 of stated liquidation preference. Except as otherwise required
by applicable law or as set forth herein, the Series B Preferred Shares shall
not have any relative, participating, optional or other special voting rights
and powers other than as set forth herein, and the consent of the holders
thereof shall not be required for the taking of any Corporation action.
Section 10. Record Holders. The Corporation and the Transfer Agent
may deem and treat the record holder of any Series B Preferred Shares as the
true and lawful owner thereof for all purposes, and neither the Corporation nor
the Transfer Agent shall be affected by any notice to the contrary.
Exh. A-20
<PAGE> 47
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be duly executed by its President and attested by its Secretary
this ___ day of September, 1997.
CHARLES E. SMITH RESIDENTIAL REALTY, INC.
By:
- ----------------------------------
Its: President
I, Robert Zimet, Secretary, hereby acknowledge on behalf of Charles
E. Smith Residential Realty, Inc. that the foregoing Articles Supplementary are
the corporate act of said corporation under the penalties of perjury.
Attest:
- ---------------------------------
Exh. A-21
<PAGE> 48
Exhibit B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of October 3, 1997 (this
"Agreement"), by and between Charles E. Smith Residential Realty, Inc., a
Maryland corporation (the "Company"), The Prudential Insurance Company of
America, a New Jersey corporation ("Prudential"), Strategic Value Investors,
LLC, a Delaware limited liability company ("SVI-US") and Strategic Value
Investors International, LLC, a Delaware limited liability company
("SVI-International")(Prudential, SVI-US and SVI-International collectively, the
"Investors").
WHEREAS, pursuant to that certain Series B Cumulative Convertible
Redeemable Preferred Share Purchase Agreement, dated as of the date hereof (the
"Purchase Agreement"), by and between the Company and Prudential, Prudential has
agreed to acquire 1,450,000 shares of the Company's Common Stock, par value $.01
per share (the "Common Stock"), and 1,216,666 shares of Series B Cumulative
Convertible Redeemable Preferred Stock, par value $.01 per share, of the Company
(the "Preferred Stock" and, together with the Common Stock, the "Shares"), all
of which Preferred Stock may be converted into shares of Common Stock, pursuant
to the terms of and subject to certain limitations set forth in the Articles
Supplementary relating to the Preferred Stock; and
WHEREAS, in connection with the Purchase Agreement, the Company has
agreed to register for sale by Prudential and certain transferees, the shares of
Common Stock purchased by Prudential pursuant to the Purchase Agreement (the
"Initial Common Shares") and the shares of Common Stock received by Prudential
upon conversion of shares of Preferred Stock (the "Underlying Common Shares");
WHEREAS, pursuant to that certain Assignment and Assumption of Acquisition
Rights dated as of October 2, 1997, Prudential assigned and SVI-US and
SVI-International assumed certain of Prudential's rights and obligations under
the Purchase Agreement and the Company acknowledged and consented to such
assignment and assumption; and
WHEREAS, the parties hereto desire to enter into this Agreement to
evidence the foregoing agreement of the Company and the mutual covenants of the
parties relating thereto.
NOW, THEREFORE, in consideration of the foregoing and the covenants
of the parties set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, subject to the
terms and conditions set forth herein, the parties hereby agree as follows:
Section 1. Certain Definitions.
In this Agreement the following terms shall have the following
respective meanings:
"Accredited Investor" shall have the meaning set forth in Rule 501
of the General Rules and Regulations promulgated under the Securities Act.
"Affiliates" shall mean, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
Person specified.
<PAGE> 49
"Articles Supplementary" shall mean the Articles Supplementary
Classifying and Designating the Series B Cumulative Convertible Redeemable
Preferred Stock, as filed with the Department of Assessments and Taxation of the
State of Maryland.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the relevant time.
"Holder" or "Holders" shall mean (i) the Investors and (ii) each
Person holding Registrable Shares as a result of a transfer or assignment to
that Person of Registrable Shares other than pursuant to an effective
registration statement or Rule 144 (or any successor provision) under the
Securities Act.
"Indemnified Party" shall have the meaning ascribed to it in Section
4(c) of this Agreement.
"Indemnifying Party" shall have the meaning ascribed to it in
Section 4(c) of this Agreement.
"Managing Underwriter" shall mean the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering, if any, as set forth in Section 3 hereof.
"Market Value" shall mean, with respect to the Common Stock on any
date of determination, the average of the closing prices of the Common Stock on
each of the preceding 10 trading days on the New York Stock Exchange.
"Person" shall mean an individual, corporation, partnership, estate,
trust, association, private foundation, joint stock company or other entity.
"Preferred Stock" shall have the meaning ascribed to it in the
recitals to this Agreement.
"Prospectus" shall mean the prospectus included in any Shelf
Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable Shares.
The terms "Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a Shelf Registration Statement
(and Prospectus) in compliance with the Securities Act providing for the sale by
the Holders in accordance with the method or methods of distribution designated
by the Holders, and the declaration or ordering of the effectiveness of such
registration statement by the Commission.
"Registrable Shares" shall mean (i) the Initial Common Shares, (ii)
the Underlying Common Shares, and (iii) the shares of Common Stock issued upon
redemption of shares of Preferred Stock in accordance with Section 5(a) of the
Articles Supplementary classifying and designating the Preferred Stock;
provided, however, that any such shares of Common Stock shall cease to be
Registrable
Exh. B-2
<PAGE> 50
Shares when (A) a shelf registration statement with respect to the sale of such
shares shall have become effective under the Securities Act and all such shares
shall have been disposed of in accordance with such shelf registration
statement; (B) such shares shall have been resold by the Holder thereof in
accordance with Rule 144; (C) such shares shall have been otherwise transferred
and new certificates not subject to transfer restrictions under the Securities
Act and not bearing any legend restricting further transfer shall have been
delivered by the Company, and no other applicable and legally binding
restriction on transfer under the federal securities laws shall exist; or (D)
such shares may be sold in accordance with Rule 144(k) under the Securities Act.
"Registration Expenses" shall mean all out-of-pocket expenses
(excluding Selling Expenses) incurred by the Company in complying with Section 2
hereof, including, without limitation, the following: (a) all registration and
filing fees; (b) fees and expenses of compliance with federal and state
securities or real estate syndication laws (including, without limitation,
reasonable fees and disbursements of counsel in connection with state securities
and real estate syndication qualifications of the Registrable Shares under the
laws of such jurisdictions as the Holders may reasonably designate); (c)
printing (including, without limitation, expenses of printing or engraving
certificates representing the Registrable Shares in a form eligible for deposit
with The Depository Trust Company and otherwise meeting the requirements of any
securities exchange on which they are listed and of printing registration
statements and prospectuses), messenger, telephone, shipping and delivery
expenses; (d) fees and disbursements of counsel for the Company; (e) fees and
disbursements of all independent public accountants of the Company; (f)
Securities Act liability insurance if the Company so desires; (g) fees and
expenses of other Persons reasonably necessary in connection with the
registration, including any experts, retained by the Company; and (h) fees and
expenses incurred in connection with the listing of the Registrable Shares on
each securities exchange on which securities of the same class are then listed.
"Rule 144" shall mean Rule 144 promulgated by the Commission under
the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the relevant time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to any sale of Registrable
Shares.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2 hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 2 hereof filed
with the Commission which covers some or all of the Registrable Shares, as
applicable, on an appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the Commission, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
Exh. B-3
<PAGE> 51
Section 2. Shelf Registration.
(a) The Company shall, within 45 days following the date of initial
issuance (the "Issue Date") of the Shares, file with the Commission a Shelf
Registration Statement relating to the offer and sale of the Registrable Shares
by the Holders from time to time in accordance with the methods of distribution
elected by such Holders and set forth in such Shelf Registration Statement and,
thereafter, shall use its reasonable best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act as soon
as practicable and in no event later than 90 days after the Issue Date
(including, without limitation, the execution of an undertaking to file
post-effective amendments and appropriate qualification under applicable state
securities and real estate syndication laws); provided, however that no Holder
shall be entitled to have the Registrable Shares held by it covered by such
Shelf Registration unless such Holder is in compliance with Section 3(k) hereof.
(b) The Company shall (i) use its reasonable best efforts to keep
such Shelf Registration continuously effective in order to permit the Prospectus
forming part thereof to be usable by the Holders for so long as the aggregate
Market Value of the Registrable Shares is at least $10 million or such shorter
period that will terminate upon the earlier of the following: (A) the date when
all the Registrable Shares have been sold pursuant to such shelf registration
statement or Rule 144 and (B) the date on which, in the reasonable, written
opinion of counsel to the Holders and/or to the Company, all outstanding
Registrable Shares held by persons that are not affiliates of the Company may be
resold without registration under the Securities Act in accordance with Rule
144(k) or any successor provision thereto (in any such case, such period being
called the "Effectiveness Period") and (ii) after the effectiveness of the Shelf
Registration Statement, promptly upon the request of any Holder to take any
action reasonably necessary to register the sale of any Registrable Shares of
such Holder and to identify such Holder as a selling securityholder. The Company
shall be deemed not to have used their reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if the Company
voluntarily takes any action that would result in Holders covered thereby not
being able to offer and sell any such Registrable Shares during that period,
unless (x) such action is required by applicable law or the rules of any
national securities exchange or other market on which any of the Registrable
Shares are then listed or quoted, or (y) any event contemplated by paragraph
3(c)(2)(iii) below occurs and the Company acts promptly in good faith and for
valid business reasons in suspending use of the Prospectus until the requisite
changes have been made and the Company thereafter promptly (and in no event
longer than 30 days) complies with the requirements of paragraph 3(i) below.
Notwithstanding the foregoing, the Company shall have the right (the
"Suspension Right") to defer such filing (or suspend sales under any filed
registration thereunder) for a period of not more than 90 days during any
12-month period, if the Company shall furnish to the Holders a certificate
signed by the President or any other executive officer of the Company stating
that, either (i) in the good faith judgment of the Company, the continued
effectiveness of the Shelf Registration Statement would require the Company to
disclose a material financing, acquisition or other corporate transaction, and
the Board of Directors shall have determined in good faith that it would be
detrimental to the Company and its shareholders to file such registration
statement or amendment thereto at such time (or continue sales under a filed
registration statement) or (ii) the Company plans to conduct an underwritten
offering of its equity securities during such 90-day period. and, in each case,
therefore, the Company has elected to defer the filing of such registration
statement (or suspend sales under a filed registration statement); provided
that, in the case of clause (ii), the Company shall terminate such deferral or
suspension, prior to the end of such 90-day period and following the thirtieth
day following the initial closing of any such underwritten offering, in the
event that during such period the average of the closing prices of the class of
equity
Exh. B-4
<PAGE> 52
securities sold by the Company in such offering during a period of 20
consecutive trading days is at least 110% of the initial public offering price
of such security in such offering.
Section 3. Registration Procedures.
(a) The Company shall furnish to the Holders , prior to the filing
thereof with the Commission, a copy of any Shelf Registration Statement, and
each amendment thereof or supplement, if any, to the Prospectus included therein
and shall use its reasonable efforts to reflect in each such document, when so
filed with the Commission, such comments at the Holders reasonably may propose.
(b) The Company shall take such action as may be necessary so that
(i) any Shelf Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any amendment or supplement thereto (and
each report or other document incorporated therein by reference in each case)
complies in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the respective rules and regulations
thereunder, (ii) any Shelf Registration Statement and any amendment thereto does
not, when it becomes effective, contain an 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 and (iii) any Prospectus forming part
of any Shelf Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they were made, not misleading.
(c) (1) The Company shall advise the Holders: (i) when a Shelf
Registration Statement and any amendment thereto has been filed with the
Commission and when the Shelf Registration Statement or any post-effective
amendment thereto has become effective; and (ii) of any request by the
Commission for amendments or supplements to the Shelf Registration Statement or
the Prospectus included therein or for additional information.
(2) The Company shall advise the Holders of: (i) the issuance by the
Commission of any stop order suspending effectiveness of the Shelf Registration
Statement or the initiation of any proceedings for that purpose; (ii) the
receipt by the Company of any notification with respect to the suspension of the
qualification of the securities included therein for sale in any jurisdiction or
the initiation of any proceeding for such purpose; and (iii) the happening of
any event that requires the making of any changes in the Shelf Registration
Statement or the Prospectus so that, as of such date, the Shelf Registration
Statement and the Prospectus do not contain an untrue statement of a material
fact and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading (which
advice shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company shall use its reasonable best efforts to prevent the
issuance, and if issued to obtain the withdrawal, of any order suspending the
effectiveness of any Shelf Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Holder, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if the
Holder so requests in writing, all reports, other documents and exhibits
(including those incorporated by reference).
Exh. B-5
<PAGE> 53
(f) The Company shall, during the Effectiveness Period, deliver to
each Holder, without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents (except upon and during the continuance of any event described
in paragraph 3(c)(2)(iii) above) to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Shares covered by the Prospectus or any
amendment or supplement thereto during the Shelf Registration Period.
(g) Prior to any offering of Registrable Shares pursuant to any
Shelf Registration Statement, the Company shall register or qualify or cooperate
with the Holders included therein and their respective counsel in connection
with the registration or qualification of such Registrable Shares for offer and
sale under the securities or blue sky laws of such jurisdictions as any such
Holders reasonably request in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such United States
jurisdictions of the Registrable Shares covered by such Shelf Registration
Statement; provided, however, that in no event shall the Company be obligated to
(i) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to so qualify but for this
Section 3(g), (ii) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof then so subject or (iii)
subject itself to taxation in any such jurisdiction if it is not so subject.
(h) Unless any Registrable Shares shall be in book-entry only form,
the Company shall cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to be
sold pursuant to any Shelf Registration Statement free of any restrictive
legends and in such permitted denominations and registered in such names as
Holders may request in connection with the sale of Registrable Shares pursuant
to such Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by paragraph
3(c)(2)(iii) above, the Company shall promptly, and in any event within 30 days,
prepare a post-effective amendment to any Shelf Registration Statement or an
amendment or supplement to the related Prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Registrable
Shares included therein, the Prospectus will not include an untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If the Company notifies the Holders of the occurrence of
any event contemplated by paragraph 3(c)(2)(iii) above, the Holders shall
suspend the use of the Prospectus until the requisite changes to the Prospectus
have been made.
(j) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to their security holders or otherwise provide in accordance with
Section 11(a) of the Securities Act as soon as practicable after the effective
date of the applicable Shelf Registration Statement an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act.
(k) The Company may require each Holder to be sold pursuant to any
Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of such Registrable Shares as the
Company may from time to time reasonably request for inclusion in such Shelf
Registration Statement and the Company may exclude from such registration the
Registrable Shares of any Holder that fails to furnish such information within a
reasonable time after receiving such request.
Exh. B-6
<PAGE> 54
(l) The Company agrees to use its reasonable best efforts (including
the payment of any listing fees) to obtain the listing of all Registrable Shares
covered by the registration statement on each securities exchange on which
securities of the same class are then listed.
(m) If the Holders of at least 800,000 Registrable Shares (or such
fewer number as remain outstanding) shall propose to sell such Registrable
Shares in an underwritten public offering, such Holders shall be entitled to
select the underwriters for such offering, subject to the approval of the
Company, not to be unreasonably withheld (provided that the Holders shall not
require consent of the Company in order for Prudential Securities Incorporated
to be an underwriter) and the Company shall make available members of the
management of the Company and its Affiliates for reasonable assistance in
selling efforts relating to such offering for a public offering of such size
(including, without limitation, senior management attendance at due diligence
meetings with underwriters and their counsel and road shows) and shall enter
into underwriting agreements containing usual and customary terms and conditions
for such types of offerings [(including "blackout" periods following
consummation of any such offering, to the extent reasonably requested by the
Managing Underwriter in the circumstances and not inconsistent with the needs of
the Company to raise additional equity capital at such time)]; provided that (i)
the Company shall not be required to assist in an underwritten offering more
than once in any 12-month period or more than three times during the term of
this Agreement; (ii) the Company shall pay the Registration Expenses for one
underwritten offering; and (iii) upon request by an underwriter, the Company
shall waive the common stock ownership limitation contained in its Articles of
Incorporation to the extent necessary to permit such underwriter to purchase the
securities for the purpose of the distribution.
Section 4. Expenses of Registration.
The Company shall pay all Registration Expenses incurred in
connection with the registration of the Registrable Shares in accordance with
Sections 2 and 3 hereof. All Selling Expenses incurred in connection with the
offer and sale of Registrable Shares by any of the Holders shall be borne by the
Holder offering or selling such Registrable Shares pursuant to Section 7 of this
Agreement. Each Holder shall pay the expenses of its own counsel.
Section 5. Indemnification.
(a) In connection with any Shelf Registration Statement, the Company
shall indemnify and hold harmless each Holder and each of their respective
directors and officers and each person controlling such Holder within the
meaning of Section 15 of the Securities Act as follows:
(i) from and against any loss, liability, claim, damage and expense
whatsoever, including any amounts paid in settlement of any investigation,
litigation, proceeding or claim, joint or several, as incurred, arising
out of any untrue statement or alleged untrue statement of a material fact
contained in any Shelf Registration Statement (or any amendment thereto)
covering Registrable Shares, including all documents incorporated therein
by reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, that the Company shall not be liable under this
clause (i) for any settlement of any action effected without its written
consent, which consent shall not be unreasonably
Exh. B-7
<PAGE> 55
withheld; and (ii) against any and all expenses (including reasonable fees
and disbursements of counsel chosen by any such Holder (except to the
extent otherwise expressly provided in Section 5(c) hereof)), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any court or governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, as such expenses are incurred to the extent that any such
expense is not paid under subparagraph (i) of this Section 5(a); provided
further, that the indemnity provided for in this Section 5(a) shall not
apply to any loss, liability, claim, damage or expense to the extent
arising out of an untrue statement or omission or alleged untrue statement
or omission (i) made in reliance upon and in conformity with written
information furnished to the Company by such Holder in writing expressly
stating that such information is being provided by such Holder for use in
the Shelf Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto) or (ii) contained in
any preliminary prospectus or the Prospectus if such Holder failed to send
or deliver a copy of the Prospectus (or any amendment or supplement
thereto) to the Person asserting such losses, claims, damages or
liabilities on or prior to the delivery of written confirmation of any
sale of securities covered thereby to such Person in any case where such
Prospectus (or any amendment or supplement thereto) corrected such untrue
statement or omission. Any amounts advanced by the Company to an
indemnified party pursuant to this Section 5 as a result of such losses
shall be returned to the Company if it shall be finally determined by such
a court in a judgment not subject to appeal or final review that such
indemnified party was not entitled to indemnification by the Company.
(b) Each Holder, severally and not jointly, shall indemnify and hold
harmless the Company and the other selling Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Shelf Registration Statement) and each Person, if any, who controls the Company
or other selling Holder within the meaning of Section 15 of the Securities Act,
from and against any loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 5(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Shelf Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such selling Holder in writing expressly stating that such
information is being provided by such Holder for use in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto); provided, however, that no such Holder shall be liable for
any claims hereunder in excess of the amount of net proceeds received by such
Holder from the sale of Registrable Shares pursuant to the Shelf Registration
Statement.
(c) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
omission to so notify the Indemnifying Party shall not relieve it from any
liability which it may have to the Indemnified Party pursuant to the provisions
of this Section 5 except to the extent of the actual damages suffered by such
delay in notification. The Indemnifying Party shall assume the defense of such
action, including the employment of counsel to be chosen by the Indemnifying
Party to be reasonably satisfactory to the Indemnified Party, and payment of
expenses. The Indemnified Party shall have the right to employ its own counsel
in any such case, but the legal fees and expenses of such counsel shall be at
the expense of the Indemnified Party, unless the employment of such counsel
shall have been authorized in writing by the Indemnifying Party in connection
with the defense of such action, or the Indemnifying Party shall not have
employed counsel to take charge of the defense of such action or the Indemnified
Party shall have reasonably concluded that there may be defenses available to it
or
Exh. B-8
<PAGE> 56
them which are different from or additional to those available to the
Indemnifying Party (in which case the Indemnifying Party shall not have the
right to direct the defense of such action on behalf of the Indemnified Party),
in any of which events such fees and expenses shall be borne by the Indemnifying
Party. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 5 is
unavailable to a party that would have been an Indemnified Party under this
Section 5 in respect of any expenses, claims, losses, damages and liabilities
referred to herein, then each party that would have been an Indemnifying Party
hereunder shall, in lieu of indemnifying such Indemnified Party, contribute to
the amount paid or payable by such Indemnified Party as a result of such
expenses, claims, losses, damages and liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and such Indemnified Party on the other in connection with the statement or
omission which resulted in such expenses, claims, losses, damages and
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or such Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each Holder agrees that it would not be
just and equitable if contribution pursuant to this Section were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 5(d).
(e) 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.
Section 6. Information to be Furnished by Holders.
Each Holder shall furnish to the Company such information as the
Company may reasonably request and as shall be required in connection with the
Registration and related proceedings referred to in Sections 2 and 3 hereof. If
any Holder fails to provide the Company with such information within 15 business
days of the Company's request, the Company's obligations under Sections 2 and 3
hereof with respect to such Holder or the Registrable Shares owned by such
Holder shall be suspended until such Holder provides such information.
Section 7. Rule 144 Sales.
(a) The Company covenants that it will file the reports required to
be filed by the Company under the Exchange Act, so as to enable any Holder to
sell Registrable Shares pursuant to Rule 144 under the Securities Act.
(b) In connection with any sale, transfer or other disposition by
any Holder of any Registrable Shares pursuant to Rule 144 under the Securities
Act, the Company shall cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to be
sold and not bearing any Securities Act legend, if deemed appropriate, and
enable certificates for such Registrable Shares to be for such number of shares
and registered in such names as the selling Holder
Exh. B-9
<PAGE> 57
may reasonably request, provided that such request is made at least two business
days prior to any sale of Registrable Shares.
Section 8. Miscellaneous.
(a) Governing Law. This Agreement shall he governed in all respects
by the laws of the State of Maryland (other than the choice of law rules
thereof).
(b) Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
(c) Amendment. No supplement, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the party to be
bound thereby.
(d) Notices, etc. Each notice, demand, request, request for
approval, consent, approval, disapproval, designation or other communication
(each of the foregoing being referred to herein as a notice) required or desired
to be given or made under this Agreement shall be in writing (except as
otherwise provided in this Agreement), and shall be effective and deemed to have
been received (i) when delivered in person, (ii) when sent by facsimile with
receipt acknowledged, (iii) five (5) days after having been mailed by certified
or registered United States mail, postage prepaid, return receipt requested, or
(iv) the next business day after having been sent by a nationally recognized
overnight mail or courier service, receipt requested. Notices shall be addressed
as follows: (a) if to the Investors, at the Investor's address or fax number set
forth below its signature hereon, or at such other address or fax number as the
Investors shall have furnished to the Company in writing, or (b) if to any
assignee or transferee of the Investors, at such address or fax number as such
assignee or transferee shall have furnished the Company in writing, or (c) if to
the Company, at the address or fax number of its principal executive offices set
forth below its signature hereon or at such other address or fax number as the
Company shall have furnished to the Investors or any assignee or transferee. Any
notice or other communication required to be given hereunder to a Holder in
connection with a registration may instead be given to the designated
representative of such Holder.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by fewer than all of the parties
hereto (provided that each party executes one or more counterparts), each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
(f) Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
(g) Section Titles. Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in the
text.
(h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns including, without the need for an express assignment or
any consent by the Company thereto, subsequent Holders. The Company hereby
agrees to extend the benefits of this Agreement to any Holder and any such
Holder may specifically enforce the provisions of this Agreement as if an
original party hereto.
Exh. B-10
<PAGE> 58
(i) Remedies. The Company and the Investors acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that the Company and each Holder,
in addition to any other remedy to which it may be entitled at law or in equity,
shall be entitled to compel specific performance of the obligations of another
party under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
(j) Attorneys' Fees. If the Company or any Holder brings an action
to enforce its rights under this Agreement, the prevailing party in the action
shall be entitled to recover its costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
[Page Break Intentionally Inserted]
Exh. B-11
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
CHARLES E. SMITH RESIDENTIAL
REALTY, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
2345 Crystal Drive
Crystal City
Arlington, Virginia 22202
Attention: Robert D. Zimet
Facsimile: (703) 769-1312
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
8 Campus Drive
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: Jeffrey L. Danker
Facsimile: (201) 734-1472
Exh. B-12
<PAGE> 60
STRATEGIC VALUE INVESTORS, LLC
By: The Prudential Investment
Corporation, Its Attorney-In-Fact
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
8 Campus Drive
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Facsimile: (201) 734-1472
STRATEGIC VALUE INVESTORS
INTERNATIONAL, LLC
By: Strategic Value Investors
International Ltd., Its Manager
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
8 Campus Drive
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Facsimile: (201) 734-1472
Exh. B-13
<PAGE> 61
Exhibit C
WAIVER OF OWNERSHIP LIMITATIONS
RESOLVED, that, pursuant to Section 8(j) of the Company's Articles of
Incorporation, as amended, the Common Stock Ownership Limit and the Aggregate
Stock Ownership Limit (as such terms are defined in the Articles of
Incorporation) set forth in Section 8(b)(1)(i) of the Articles of Incorporation
are hereby waived with respect to the Acquisition and Beneficial Ownership (as
such terms are defined in the Articles of Incorporation) of Series B Preferred
Shares and shares of Common Stock of the Company by each Prudential Investor (as
that term is defined in the Purchase Agreement to be entered into between the
Company and The Prudential Insurance Company of America) and any other Person
(as such term is defined in the Articles of Incorporation) that Beneficially
Owns (as such term is defined in the Articles of Incorporation) Series B
Preferred Shares and Common Stock solely by reason of a Prudential Investor's
(as defined in the Purchase Agreement) Beneficial Ownership of Series B
Preferred Shares or Common Stock ("a Prudential Related Person"); provided that
(i) this waiver shall not be effective to exempt any Person
that would be treated as an "individual" for purposes of Section 542(a)(2)
of the Internal Revenue Code of 1986, as amended (the "Code") (as modified
by Section 856(h) of the Code) from either the Common Stock Ownership Limit
or the Aggregate Stock Ownership Limit; and
(ii) this waiver shall not be effective to exempt any Person from
either the Common Stock Ownership Limit or the Aggregate Stock Ownership
Limit (whether or not such Person would be treated as an "individual"
under the provisions of the Code cited above) if (and to the extent that),
by reason of such Person's Beneficial Ownership of Capital Stock (as such
term is defined in the Articles of Incorporation), any Person that would
be treated as an "individual" under the provisions of the Code cited above
would be considered to own Capital Stock in excess of either the Common
Stock Ownership Limit or the Aggregate Stock Ownership Limit; and
(iii) this waiver shall not be effective to exempt any Prudential
Investor or Prudential Related Person from either the Common Stock
Ownership Limit or the Aggregate Stock Ownership Limit if (and to the
extent that) the Prudential Investors, their respective affiliates (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of
1934, as amended), and any member of a group (as such term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended)
relating to the capital stock of the Company, of which any Prudential
Investor or any of its affiliates is a member, collectively Beneficially
Own shares of Common Stock of the Company (including for such purpose any
shares of Common Stock issuable upon exercise of any Acquisition Rights
(as such term is defined in the Articles of Incorporation) held by any of
them) in excess of the Special Ownership Limit (as defined below);
provided further that this waiver shall terminate in the event that
(x) the Prudential Investors, their respective affiliates (as such
term is defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended), and any member of a group (as such term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) relating to
the capital stock of the Company, of which any Prudential Investor or any
of its affiliates is a member, collectively Beneficially Own shares of
Common Stock of the Company (including for such purpose any shares of
Common Stock issuable upon exercise of any Acquisition Rights (as such
term is defined in the Articles of Incorporation) held by any of them) in
excess of the Special Ownership Limit; or
<PAGE> 62
(y) the Prudential Investors, their respective affiliates, and any
member of a group relating to the capital stock of the Company, of which
any Prudential Investor or any of its affiliates is a member, collectively
Beneficially Own in excess of 9.8% of the outstanding shares of Common
Stock of the Company (excluding for such purpose any shares of Common
Stock issuable upon conversion of any Series B Preferred Stock
Beneficially Owned by any of them); provided that the waiver shall not
terminate under this paragraph solely by reason of the issuance of Common
Stock by the Company in redemption of Series B Preferred Stock or by
reason of a conversion of Series B Preferred Stock into Common Stock
immediately prior to liquidation of the Company;
provided that this waiver shall not terminate solely as a result of a decrease
in the aggregate number of outstanding shares of Common Stock.
As used herein, the term "Special Ownership Limit" shall mean a number of
shares of Common Stock equal to the lesser of (A) 19.998% of the outstanding
Common Stock of the Company (the shares of Common Stock issuable upon conversion
of Series B Preferred Shares being deemed to be outstanding for this purpose) or
(B) the sum of (i) 1,450,000 shares of Common Stock (the "Initial Shares"), plus
(ii) the number of shares of Common Stock held by any Prudential Investor that
was acquired by any Prudential Investor upon conversion of any Series B
Preferred Stock ("Conversion Shares"), plus (iii) the number of shares of Common
Stock Beneficially Owned by a Prudential Investor by reason of the ownership by
a Prudential Investor of any shares of Series B Preferred Stock (excluding any
shares of Series B Preferred Stock acquired after the original issuance thereof
from any Person other than a Prudential Investor) ("Underlying Shares"), plus
(iv) the number of shares of Common Stock issuable upon conversion of any shares
of Series B Preferred Stock that have not yet been purchased under the Stock
Purchase Agreement, less (v) the number of Initial Shares transferred after
October 3, 1997 to any Person other than a Prudential Investor or an affiliate
thereof, less (vi) the number of Conversion Shares or Underlying Shares
transferred after October 3, 1997 to any Person other than a Prudential
Investor, in each case as such number of shares of Common Stock may be adjusted
to reflect stock splits, stock combinations, stock dividends, or similar
transactions. In the event that the number of outstanding shares of Common Stock
decreases, other than by reason of a stock combination affecting all shares of
Common Stock, the percentage referred to in clause (A) above shall be increased
by multiplying the percentage in effect immediately preceding such decrease by a
fraction, the numerator of which equals the number of shares of Common Stock
outstanding immediately prior to such decrease and the denominator of which
equals the number of shares of Common Stock outstanding immediately after such
decrease (the shares of Common Stock issuable upon conversion of Series B
Preferred Shares being deemed to be outstanding for purpose of this
calculation).
Exh. C-2
<PAGE> 1
EXHIBIT II
ASSIGNMENT AND ASSUMPTION OF ACQUISITION RIGHTS
THIS ASSIGNMENT AND ASSUMPTION OF ACQUISITION RIGHTS (this "ASSIGNMENT"),
is made by and among THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey
corporation ("ASSIGNOR"), STRATEGIC VALUE INVESTORS, LLC, a Delaware limited
liability company ("SVI-US"), STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC, a
Delaware limited liability company ("SVI-INTERNATIONAL"; each of SVI-US and
SVI-International, an "ASSIGNEE," and collectively, the "ASSIGNEES") and CHARLES
E. SMITH RESIDENTIAL REALTY, INC., a Maryland corporation ("SMITH").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Purchase Agreement (the "PURCHASE
AGREEMENT") dated as of September 17, 1997, by and between Assignor and Smith,
Smith has agreed to sell to Assignor (a) 1,450,000 shares of common stock of
Smith and (b) 1,216,666 shares of Series B Cumulative Convertible Redeemable
Preferred Stock of Smith (collectively, the "SECURITIES");
WHEREAS, pursuant to the terms of this Assignment and in accordance with
Section 7.2 of the Purchase Agreement, Assignor desires to assign all of its
rights and obligations with respect to certain of the Securities to the
Assignees;
WHEREAS, the Assignees desire to accept such assignment and assume all of
Assignor's rights and obligations with respect to such assigned Securities;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Assignment of Purchase Rights. Assignor hereby assigns, sets over and
transfers to each Assignee and each Assignee hereby assumes from Assignor, all
of Assignor's rights and obligations under the Purchase Agreement with respect
to those Securities identified as being assigned to such Assignee on Schedule I
attached hereto (the "ASSIGNED ACQUISITION RIGHTS").
2. Agreement of Smith. Smith, by its signature below, acknowledges and
consents to the transfer from Assignor to the Assignees of Assignor's rights and
obligations under the Purchase Agreement with respect to the Assigned
Acquisition Rights.
3. Dividend Adjustment. Assignor, SVI-US and SVI-International shall pay
to Smith, promptly after the receipt of dividends for the quarter ended
September 30, 1997, an amount equal to $118,776.00. Such amount shall be paid by
Assignor and
<PAGE> 2
each Assignee in proportion to their percentage interests in the Securities.
4. Counterparts. This Assignment may be executed in counterparts, each of
which shall be an original and all of which counterparts taken together shall
constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
2
<PAGE> 3
DATED, DELIVERED AND EFFECTIVE as of this 2nd day of October, 1997.
ASSIGNOR:
THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA, a New Jersey corporation
By: /s/ ROBERT W. GADSDEN
--------------------------------------------
Name: Robert W. Gadsden
Title: Vice President
ASSIGNEES:
STRATEGIC VALUE INVESTORS, LLC,
a Delaware limited liability company
By: The Prudential Investment
Corporation, a New Jersey
corporation, its attorney-in-fact
By: /s/ GARY H. PICONE
--------------------------------------------
Name: Gary H. Picone
Title: Vice President
STRATEGIC VALUE INVESTORS INTERNATIONAL,
LLC, a Delaware limited liability
company
By: Strategic Value Investors
International Ltd., a Cayman
Islands company, it manager
By: /s/ GARY H. PICONE
---------------------------------------
Name: Gary H. Picone
Title: Vice President
ACKNOWLEDGED AND AGREED:
CHARLES E. SMITH RESIDENTIAL REALTY,
INC., a Maryland corporation
By: /s/ ERNEST A. GERARDI, JR.
--------------------------------------------
Name: Ernest A. Gerardi, Jr.
Title: President
3
<PAGE> 4
SCHEDULE I
ASSIGNED ACQUISITION RIGHTS
<TABLE>
<CAPTION>
% Common Preferred
Assignee Assigned Shares Shares
- --------------------------- -------------- --------------- ----------------
<S> <C> <C> <C>
SVI-US 78.57% 1,139,286 955,952
SVI-International 10.93% 158,464 132,964
-------------- --------------- ----------------
Total 89.50%
Assigned:
Total Retained
By Assignor: 10.50% 152,250 127,750
============== =============== ================
Total
Securities: 100% 1,450,000 1,216,666
</TABLE>
4
<PAGE> 1
EXHIBIT III
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of October 3, 1997 (this
"Agreement"), by and between Charles E. Smith Residential Realty, Inc., a
Maryland corporation (the "Company"), The Prudential Insurance Company of
America, a New Jersey corporation ("Prudential"), Strategic Value Investors,
LLC, a Delaware limited liability company ("SVI-US") and Strategic Value
Investors International, LLC, a Delaware limited liability company
("SVI-International")(Prudential, SVI-US and SVI-International collectively, the
"Investors").
WHEREAS, pursuant to that certain Series B Cumulative Convertible
Redeemable Preferred Share Purchase Agreement, dated as of the date hereof (the
"Purchase Agreement"), by and between the Company and Prudential, Prudential has
agreed to acquire 1,450,000 shares of the Company's Common Stock, par value $.01
per share (the "Common Stock"), and 1,216,666 shares of Series B Cumulative
Convertible Redeemable Preferred Stock, par value $.01 per share, of the Company
(the "Preferred Stock" and, together with the Common Stock, the "Shares"), all
of which Preferred Stock may be converted into shares of Common Stock, pursuant
to the terms of and subject to certain limitations set forth in the Articles
Supplementary relating to the Preferred Stock; and
WHEREAS, in connection with the Purchase Agreement, the Company has
agreed to register for sale by Prudential and certain transferees, the shares of
Common Stock purchased by Prudential pursuant to the Purchase Agreement (the
"Initial Common Shares") and the shares of Common Stock received by Prudential
upon conversion of shares of Preferred Stock (the "Underlying Common Shares");
WHEREAS, pursuant to that certain Assignment and Assumption of Acquisition
Rights dated as of October 2, 1997, Prudential assigned and SVI-US and
SVI-International assumed certain of Prudential's rights and obligations under
the Purchase Agreement and the Company acknowledged and consented to such
assignment and assumption; and
WHEREAS, the parties hereto desire to enter into this Agreement to
evidence the foregoing agreement of the Company and the mutual covenants of the
parties relating thereto.
NOW, THEREFORE, in consideration of the foregoing and the covenants
of the parties set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, subject to the
terms and conditions set forth herein, the parties hereby agree as follows:
Section 1. Certain Definitions.
In this Agreement the following terms shall have the following
respective meanings:
"Accredited Investor" shall have the meaning set forth in Rule 501
of the General Rules and Regulations promulgated under the Securities Act.
"Affiliates" shall mean, when used with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
Person specified.
<PAGE> 2
"Articles Supplementary" shall mean the Articles Supplementary
Classifying and Designating the Series B Cumulative Convertible Redeemable
Preferred Stock, as filed with the Department of Assessments and Taxation of the
State of Maryland.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the relevant time.
"Holder" or "Holders" shall mean (i) the Investors and (ii) each
Person holding Registrable Shares as a result of a transfer or assignment to
that Person of Registrable Shares other than pursuant to an effective
registration statement or Rule 144 (or any successor provision) under the
Securities Act.
"Indemnified Party" shall have the meaning ascribed to it in Section
4(c) of this Agreement.
"Indemnifying Party" shall have the meaning ascribed to it in
Section 4(c) of this Agreement.
"Managing Underwriter" shall mean the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering, if any, as set forth in Section 3 hereof.
"Market Value" shall mean, with respect to the Common Stock on any
date of determination, the average of the closing prices of the Common Stock on
each of the preceding 10 trading days on the New York Stock Exchange.
"Person" shall mean an individual, corporation, partnership, estate,
trust, association, private foundation, joint stock company or other entity.
"Preferred Stock" shall have the meaning ascribed to it in the
recitals to this Agreement.
"Prospectus" shall mean the prospectus included in any Shelf
Registration Statement (including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A under the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Registrable Shares.
The terms "Register," "Registered" and "Registration" refer to a
registration effected by preparing and filing a Shelf Registration Statement
(and Prospectus) in compliance with the Securities Act providing for the sale by
the Holders in accordance with the method or methods of distribution designated
by the Holders, and the declaration or ordering of the effectiveness of such
registration statement by the Commission.
2
<PAGE> 3
"Registrable Shares" shall mean (i) the Initial Common Shares, (ii)
the Underlying Common Shares, and (iii) the shares of Common Stock issued upon
redemption of shares of Preferred Stock in accordance with Section 5(a) of the
Articles Supplementary classifying and designating the Preferred Stock;
provided, however, that any such shares of Common Stock shall cease to be
Registrable Shares when (A) a shelf registration statement with respect to the
sale of such shares shall have become effective under the Securities Act and all
such shares shall have been disposed of in accordance with such shelf
registration statement; (B) such shares shall have been resold by the Holder
thereof in accordance with Rule 144; (C) such shares shall have been otherwise
transferred and new certificates not subject to transfer restrictions under the
Securities Act and not bearing any legend restricting further transfer shall
have been delivered by the Company, and no other applicable and legally binding
restriction on transfer under the federal securities laws shall exist; or (D)
such shares may be sold in accordance with Rule 144(k) under the Securities Act.
"Registration Expenses" shall mean all out-of-pocket expenses
(excluding Selling Expenses) incurred by the Company in complying with Section 2
hereof, including, without limitation, the following: (a) all registration and
filing fees; (b) fees and expenses of compliance with federal and state
securities or real estate syndication laws (including, without limitation,
reasonable fees and disbursements of counsel in connection with state securities
and real estate syndication qualifications of the Registrable Shares under the
laws of such jurisdictions as the Holders may reasonably designate); (c)
printing (including, without limitation, expenses of printing or engraving
certificates representing the Registrable Shares in a form eligible for deposit
with The Depository Trust Company and otherwise meeting the requirements of any
securities exchange on which they are listed and of printing registration
statements and prospectuses), messenger, telephone, shipping and delivery
expenses; (d) fees and disbursements of counsel for the Company; (e) fees and
disbursements of all independent public accountants of the Company; (f)
Securities Act liability insurance if the Company so desires; (g) fees and
expenses of other Persons reasonably necessary in connection with the
registration, including any experts, retained by the Company; and (h) fees and
expenses incurred in connection with the listing of the Registrable Shares on
each securities exchange on which securities of the same class are then listed.
"Rule 144" shall mean Rule 144 promulgated by the Commission under
the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the relevant time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to any sale of Registrable
Shares.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2 hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 2 hereof filed
with the Commission which covers some or all of the Registrable Shares, as
applicable, on an appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the Commission, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
3
<PAGE> 4
Section 2. Shelf Registration.
(a) The Company shall, within 45 days following the date of initial
issuance (the "Issue Date") of the Shares, file with the Commission a Shelf
Registration Statement relating to the offer and sale of the Registrable Shares
by the Holders from time to time in accordance with the methods of distribution
elected by such Holders and set forth in such Shelf Registration Statement and,
thereafter, shall use its reasonable best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act as soon
as practicable and in no event later than 90 days after the Issue Date
(including, without limitation, the execution of an undertaking to file
post-effective amendments and appropriate qualification under applicable state
securities and real estate syndication laws); provided, however that no Holder
shall be entitled to have the Registrable Shares held by it covered by such
Shelf Registration unless such Holder is in compliance with Section 3(k) hereof.
(b) The Company shall (i) use its reasonable best efforts to keep
such Shelf Registration continuously effective in order to permit the Prospectus
forming part thereof to be usable by the Holders for so long as the aggregate
Market Value of the Registrable Shares is at least $10 million or such shorter
period that will terminate upon the earlier of the following: (A) the date when
all the Registrable Shares have been sold pursuant to such shelf registration
statement or Rule 144 and (B) the date on which, in the reasonable, written
opinion of counsel to the Holders and/or to the Company, all outstanding
Registrable Shares held by persons that are not affiliates of the Company may be
resold without registration under the Securities Act in accordance with Rule
144(k) or any successor provision thereto (in any such case, such period being
called the "Effectiveness Period") and (ii) after the effectiveness of the Shelf
Registration Statement, promptly upon the request of any Holder to take any
action reasonably necessary to register the sale of any Registrable Shares of
such Holder and to identify such Holder as a selling securityholder. The Company
shall be deemed not to have used their reasonable best efforts to keep the Shelf
Registration Statement effective during the requisite period if the Company
voluntarily takes any action that would result in Holders covered thereby not
being able to offer and sell any such Registrable Shares during that period,
unless (x) such action is required by applicable law or the rules of any
national securities exchange or other market on which any of the Registrable
Shares are then listed or quoted, or (y) any event contemplated by paragraph
3(c)(2)(iii) below occurs and the Company acts promptly in good faith and for
valid business reasons in suspending use of the Prospectus until the requisite
changes have been made and the Company thereafter promptly (and in no event
longer than 30 days) complies with the requirements of paragraph 3(i) below.
Notwithstanding the foregoing, the Company shall have the right (the
"Suspension Right") to defer such filing (or suspend sales under any filed
registration thereunder) for a period of not more than 90 days during any
12-month period, if the Company shall furnish to the Holders a certificate
signed by the President or any other executive officer of the Company stating
that, either (i) in the good faith judgment of the Company, the continued
effectiveness of the Shelf Registration Statement would require the Company to
disclose a material financing, acquisition or other corporate transaction, and
the Board of Directors shall have determined in good faith that it would be
detrimental to the Company and its shareholders to file such registration
statement or amendment thereto at such time (or continue sales under a filed
registration statement) or (ii) the Company plans to conduct an underwritten
offering of its equity securities during such 90-day period. and, in each case,
therefore, the Company has elected to defer the filing of such registration
statement (or suspend sales under a filed registration statement); provided
that, in the case of clause (ii), the Company shall terminate such deferral or
suspension, prior to the end of such 90-day period and following the thirtieth
day following the initial closing of any such underwritten offering, in the
event that during such period the average of the closing prices of the class of
equity
4
<PAGE> 5
securities sold by the Company in such offering during a period of 20
consecutive trading days is at least 110% of the initial public offering price
of such security in such offering.
Section 3. Registration Procedures.
(a) The Company shall furnish to the Holders , prior to the filing
thereof with the Commission, a copy of any Shelf Registration Statement, and
each amendment thereof or supplement, if any, to the Prospectus included therein
and shall use its reasonable efforts to reflect in each such document, when so
filed with the Commission, such comments at the Holders reasonably may propose.
(b) The Company shall take such action as may be necessary so that
(i) any Shelf Registration Statement and any amendment thereto and any
Prospectus forming part thereof and any amendment or supplement thereto (and
each report or other document incorporated therein by reference in each case)
complies in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the respective rules and regulations
thereunder, (ii) any Shelf Registration Statement and any amendment thereto does
not, when it becomes effective, contain an 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 and (iii) any Prospectus forming part
of any Shelf Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they were made, not misleading.
(c) (1) The Company shall advise the Holders: (i) when a Shelf
Registration Statement and any amendment thereto has been filed with the
Commission and when the Shelf Registration Statement or any post-effective
amendment thereto has become effective; and (ii) of any request by the
Commission for amendments or supplements to the Shelf Registration Statement or
the Prospectus included therein or for additional information.
(2) The Company shall advise the Holders of: (i) the issuance by the
Commission of any stop order suspending effectiveness of the Shelf Registration
Statement or the initiation of any proceedings for that purpose; (ii) the
receipt by the Company of any notification with respect to the suspension of the
qualification of the securities included therein for sale in any jurisdiction or
the initiation of any proceeding for such purpose; and (iii) the happening of
any event that requires the making of any changes in the Shelf Registration
Statement or the Prospectus so that, as of such date, the Shelf Registration
Statement and the Prospectus do not contain an untrue statement of a material
fact and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the Prospectus, in
light of the circumstances under which they were made) not misleading (which
advice shall be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made).
(d) The Company shall use its reasonable best efforts to prevent the
issuance, and if issued to obtain the withdrawal, of any order suspending the
effectiveness of any Shelf Registration Statement at the earliest possible time.
(e) The Company shall furnish to each Holder, without charge, at
least one copy of such Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, and, if the
Holder so requests in writing, all reports, other documents and exhibits
(including those incorporated by reference).
5
<PAGE> 6
(f) The Company shall, during the Effectiveness Period, deliver to
each Holder, without charge, as many copies of the Prospectus (including each
preliminary Prospectus) included in such Shelf Registration Statement and any
amendment or supplement thereto as such Holder may reasonably request; and the
Company consents (except upon and during the continuance of any event described
in paragraph 3(c)(2)(iii) above) to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Shares covered by the Prospectus or any
amendment or supplement thereto during the Shelf Registration Period.
(g) Prior to any offering of Registrable Shares pursuant to any
Shelf Registration Statement, the Company shall register or qualify or cooperate
with the Holders included therein and their respective counsel in connection
with the registration or qualification of such Registrable Shares for offer and
sale under the securities or blue sky laws of such jurisdictions as any such
Holders reasonably request in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such United States
jurisdictions of the Registrable Shares covered by such Shelf Registration
Statement; provided, however, that in no event shall the Company be obligated to
(i) qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to so qualify but for this
Section 3(g), (ii) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof then so subject or (iii)
subject itself to taxation in any such jurisdiction if it is not so subject.
(h) Unless any Registrable Shares shall be in book-entry only form,
the Company shall cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to be
sold pursuant to any Shelf Registration Statement free of any restrictive
legends and in such permitted denominations and registered in such names as
Holders may request in connection with the sale of Registrable Shares pursuant
to such Shelf Registration Statement.
(i) Upon the occurrence of any event contemplated by paragraph
3(c)(2)(iii) above, the Company shall promptly, and in any event within 30 days,
prepare a post-effective amendment to any Shelf Registration Statement or an
amendment or supplement to the related Prospectus or file any other required
document so that, as thereafter delivered to purchasers of the Registrable
Shares included therein, the Prospectus will not include an untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. If the Company notifies the Holders of the occurrence of
any event contemplated by paragraph 3(c)(2)(iii) above, the Holders shall
suspend the use of the Prospectus until the requisite changes to the Prospectus
have been made.
(j) The Company shall use its best efforts to comply with all
applicable rules and regulations of the Commission and shall make generally
available to their security holders or otherwise provide in accordance with
Section 11(a) of the Securities Act as soon as practicable after the effective
date of the applicable Shelf Registration Statement an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act.
(k) The Company may require each Holder to be sold pursuant to any
Shelf Registration Statement to furnish to the Company such information
regarding the Holder and the distribution of such Registrable Shares as the
Company may from time to time reasonably request for inclusion in such Shelf
Registration Statement and the Company may exclude from such registration the
Registrable Shares of any Holder that fails to furnish such information within a
reasonable time after receiving such request.
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<PAGE> 7
(l) The Company agrees to use its reasonable best efforts (including
the payment of any listing fees) to obtain the listing of all Registrable Shares
covered by the registration statement on each securities exchange on which
securities of the same class are then listed.
(m) If the Holders of at least 800,000 Registrable Shares (or such
fewer number as remain outstanding) shall propose to sell such Registrable
Shares in an underwritten public offering, such Holders shall be entitled to
select the underwriters for such offering, subject to the approval of the
Company, not to be unreasonably withheld (provided that the Holders shall not
require consent of the Company in order for Prudential Securities Incorporated
to be an underwriter) and the Company shall make available members of the
management of the Company and its Affiliates for reasonable assistance in
selling efforts relating to such offering for a public offering of such size
(including, without limitation, senior management attendance at due diligence
meetings with underwriters and their counsel and road shows) and shall enter
into underwriting agreements containing usual and customary terms and conditions
for such types of offerings [(including "blackout" periods following
consummation of any such offering, to the extent reasonably requested by the
Managing Underwriter in the circumstances and not inconsistent with the needs of
the Company to raise additional equity capital at such time)]; provided that (i)
the Company shall not be required to assist in an underwritten offering more
than once in any 12-month period or more than three times during the term of
this Agreement; (ii) the Company shall pay the Registration Expenses for one
underwritten offering; and (iii) upon request by an underwriter, the Company
shall waive the common stock ownership limitation contained in its Articles of
Incorporation to the extent necessary to permit such underwriter to purchase the
securities for the purpose of the distribution.
Section 4. Expenses of Registration.
The Company shall pay all Registration Expenses incurred in
connection with the registration of the Registrable Shares in accordance with
Sections 2 and 3 hereof. All Selling Expenses incurred in connection with the
offer and sale of Registrable Shares by any of the Holders shall be borne by the
Holder offering or selling such Registrable Shares pursuant to Section 7 of this
Agreement. Each Holder shall pay the expenses of its own counsel.
Section 5. Indemnification.
(a) In connection with any Shelf Registration Statement, the Company
shall indemnify and hold harmless each Holder and each of their respective
directors and officers and each person controlling such Holder within the
meaning of Section 15 of the Securities Act as follows:
(i) from and against any loss, liability, claim, damage and expense
whatsoever, including any amounts paid in settlement of any investigation,
litigation, proceeding or claim, joint or several, as incurred, arising
out of any untrue statement or alleged untrue statement of a material fact
contained in any Shelf Registration Statement (or any amendment thereto)
covering Registrable Shares, including all documents incorporated therein
by reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Prospectus (or any
amendment or supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, that the Company shall not be liable under this
clause (i) for any settlement
7
<PAGE> 8
of any action effected without its written consent, which consent shall
not be unreasonably withheld; and (ii) against any and all expenses
(including reasonable fees and disbursements of counsel chosen by any such
Holder (except to the extent otherwise expressly provided in Section 5(c)
hereof)), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any court or
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, as such expenses are incurred to the
extent that any such expense is not paid under subparagraph (i) of this
Section 5(a); provided further, that the indemnity provided for in this
Section 5(a) shall not apply to any loss, liability, claim, damage or
expense to the extent arising out of an untrue statement or omission or
alleged untrue statement or omission (i) made in reliance upon and in
conformity with written information furnished to the Company by such
Holder in writing expressly stating that such information is being
provided by such Holder for use in the Shelf Registration Statement (or
any amendment thereto) or any Prospectus (or any amendment or supplement
thereto) or (ii) contained in any preliminary prospectus or the Prospectus
if such Holder failed to send or deliver a copy of the Prospectus (or any
amendment or supplement thereto) to the Person asserting such losses,
claims, damages or liabilities on or prior to the delivery of written
confirmation of any sale of securities covered thereby to such Person in
any case where such Prospectus (or any amendment or supplement thereto)
corrected such untrue statement or omission. Any amounts advanced by the
Company to an indemnified party pursuant to this Section 5 as a result of
such losses shall be returned to the Company if it shall be finally
determined by such a court in a judgment not subject to appeal or final
review that such indemnified party was not entitled to indemnification by
the Company.
(b) Each Holder, severally and not jointly, shall indemnify and hold
harmless the Company and the other selling Holders and each of their respective
directors and officers (including each officer of the Company who signed the
Shelf Registration Statement) and each Person, if any, who controls the Company
or other selling Holder within the meaning of Section 15 of the Securities Act,
from and against any loss, liability, claim, damage and expense whatsoever
described in the indemnity contained in Section 5(a) hereof, as incurred, but
only with respect to untrue statements or omissions, or alleged untrue
statements or omissions, made in the Shelf Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such selling Holder in writing expressly stating that such
information is being provided by such Holder for use in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto); provided, however, that no such Holder shall be liable for
any claims hereunder in excess of the amount of net proceeds received by such
Holder from the sale of Registrable Shares pursuant to the Shelf Registration
Statement.
(c) Each party entitled to indemnification under this Section 5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, but the
omission to so notify the Indemnifying Party shall not relieve it from any
liability which it may have to the Indemnified Party pursuant to the provisions
of this Section 5 except to the extent of the actual damages suffered by such
delay in notification. The Indemnifying Party shall assume the defense of such
action, including the employment of counsel to be chosen by the Indemnifying
Party to be reasonably satisfactory to the Indemnified Party, and payment of
expenses. The Indemnified Party shall have the right to employ its own counsel
in any such case, but the legal fees and expenses of such counsel shall be at
the expense of the Indemnified Party, unless the employment of such counsel
shall have been authorized in writing by the Indemnifying Party in connection
with the defense of such action, or the Indemnifying Party shall not have
employed counsel to take charge of the defense of such action
8
<PAGE> 9
or the Indemnified Party shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to the Indemnifying Party (in which case the Indemnifying Party shall
not have the right to direct the defense of such action on behalf of the
Indemnified Party), in any of which events such fees and expenses shall be borne
by the Indemnifying Party. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation.
(d) If the indemnification provided for in this Section 5 is
unavailable to a party that would have been an Indemnified Party under this
Section 5 in respect of any expenses, claims, losses, damages and liabilities
referred to herein, then each party that would have been an Indemnifying Party
hereunder shall, in lieu of indemnifying such Indemnified Party, contribute to
the amount paid or payable by such Indemnified Party as a result of such
expenses, claims, losses, damages and liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party on the one
hand and such Indemnified Party on the other in connection with the statement or
omission which resulted in such expenses, claims, losses, damages and
liabilities, as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Indemnifying Party or such Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each Holder agrees that it would not be
just and equitable if contribution pursuant to this Section were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 5(d).
(e) 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.
Section 6. Information to be Furnished by Holders.
Each Holder shall furnish to the Company such information as the
Company may reasonably request and as shall be required in connection with the
Registration and related proceedings referred to in Sections 2 and 3 hereof. If
any Holder fails to provide the Company with such information within 15 business
days of the Company's request, the Company's obligations under Sections 2 and 3
hereof with respect to such Holder or the Registrable Shares owned by such
Holder shall be suspended until such Holder provides such information.
Section 7. Rule 144 Sales.
(a) The Company covenants that it will file the reports required to
be filed by the Company under the Exchange Act, so as to enable any Holder to
sell Registrable Shares pursuant to Rule 144 under the Securities Act.
(b) In connection with any sale, transfer or other disposition by
any Holder of any Registrable Shares pursuant to Rule 144 under the Securities
Act, the Company shall cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Shares to be
sold and not bearing any Securities Act legend, if deemed appropriate, and
enable certificates for such Registrable Shares to be for such number of shares
and registered in such names as the selling Holder
9
<PAGE> 10
may reasonably request, provided that such request is made at least two business
days prior to any sale of Registrable Shares.
Section 8. Miscellaneous.
(a) Governing Law. This Agreement shall he governed in all respects
by the laws of the State of Maryland (other than the choice of law rules
thereof).
(b) Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.
(c) Amendment. No supplement, modification, waiver or termination of
this Agreement shall be binding unless executed in writing by the party to be
bound thereby.
(d) Notices, etc. Each notice, demand, request, request for
approval, consent, approval, disapproval, designation or other communication
(each of the foregoing being referred to herein as a notice) required or desired
to be given or made under this Agreement shall be in writing (except as
otherwise provided in this Agreement), and shall be effective and deemed to have
been received (i) when delivered in person, (ii) when sent by facsimile with
receipt acknowledged, (iii) five (5) days after having been mailed by certified
or registered United States mail, postage prepaid, return receipt requested, or
(iv) the next business day after having been sent by a nationally recognized
overnight mail or courier service, receipt requested. Notices shall be addressed
as follows: (a) if to the Investors, at the Investor's address or fax number set
forth below its signature hereon, or at such other address or fax number as the
Investors shall have furnished to the Company in writing, or (b) if to any
assignee or transferee of the Investors, at such address or fax number as such
assignee or transferee shall have furnished the Company in writing, or (c) if to
the Company, at the address or fax number of its principal executive offices set
forth below its signature hereon or at such other address or fax number as the
Company shall have furnished to the Investors or any assignee or transferee. Any
notice or other communication required to be given hereunder to a Holder in
connection with a registration may instead be given to the designated
representative of such Holder.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by fewer than all of the parties
hereto (provided that each party executes one or more counterparts), each of
which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
(f) Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
(g) Section Titles. Section titles are for descriptive purposes only
and shall not control or alter the meaning of this Agreement as set forth in the
text.
(h) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns including, without the need for an express assignment or
any consent by the Company thereto, subsequent Holders. The Company hereby
agrees to extend the benefits of this Agreement to any Holder and any such
Holder may specifically enforce the provisions of this Agreement as if an
original party hereto.
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<PAGE> 11
(i) Remedies. The Company and the Investors acknowledge that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that the Company and each Holder,
in addition to any other remedy to which it may be entitled at law or in equity,
shall be entitled to compel specific performance of the obligations of another
party under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
(j) Attorneys' Fees. If the Company or any Holder brings an action
to enforce its rights under this Agreement, the prevailing party in the action
shall be entitled to recover its costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred in connection with such action,
including any appeal of such action.
[Page Break Intentionally Inserted]
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement as of the date first above written.
CHARLES E. SMITH RESIDENTIAL
REALTY, INC.
By: /s/ ERNEST A. GERARDI, JR.
-------------------------------------
Name: Ernest A. Gerardi, Jr.
-----------------------------------
Title: President
----------------------------------
2345 Crystal Drive
Crystal City
Arlington, Virginia 22202
Attention: Robert D. Zimet
Facsimile: (703) 769-1312
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ ROBERT W. GADSDEN
-------------------------------------
Name: Robert W. Gadsden
-----------------------------------
Title: Vice President
----------------------------------
8 Campus Drive
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: Jeffrey L. Danker
Facsimile: (201) 734-1472
12
<PAGE> 13
STRATEGIC VALUE INVESTORS, LLC
By: The Prudential Investment
Corporation, Its Attorney-In-Fact
By: /s/ GARY H. PICONE
-------------------------------------
Name: Gary H. Picone
-----------------------------------
Title: Vice President
----------------------------------
8 Campus Drive
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Facsimile: (201) 734-1472
STRATEGIC VALUE INVESTORS
INTERNATIONAL, LLC
By: Strategic Value Investors
International Ltd., Its Manager
By: /s/ GARY H. PICONE
-------------------------------------
Name: Gary H. Picone
-----------------------------------
Title: Vice President
----------------------------------
8 Campus Drive
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Facsimile: (201) 734-1472
13
<PAGE> 1
EXHIBIT IV
OPERATING AGREEMENT
0F
STRATEGIC VALUE INVESTORS, LLC
Dated as of October 2, 1997
<PAGE> 2
OPERATING AGREEMENT OF
STRATEGIC VALUE INVESTORS, LLC
A DELAWARE LIMITED LIABILITY COMPANY
TABLE OF CONTENTS
Page
----
ARTICLE 1.
DEFINITIONS ............................. 1
1.1 Defined Terms .................................................... 1
1.2 Construction ..................................................... 9
ARTICLE 2.
THE COMPANY .............................. 10
2.1 Formation Under Act .............................................. 10
2.2 Statutory Compliance ............................................. 10
2.3 Name of Company .................................................. 10
2.4 Purpose of Company ............................................... 10
2.5 Principal and Registered Office; Service of Process .............. 11
2.6 Expenses of Consideration of Investment by Member ................ 11
2.7 No Individual Authority .......................................... 11
2.8 No Member Responsible for Other's Commitments .................... 11
ARTICLE 3.
TERM ................................. 11
3.1 Term ............................................................. 11
ARTICLE 4.
MANAGEMENT OF THE COMPANY ....................... 12
4.1 The Investment Advisory Agreement ................................ 12
4.2 Management ....................................................... 12
ARTICLE 5.
FISCAL YEAR .............................. 12
5.1 Calendar Year .................................................... 12
ARTICLE 6.
MEMBERS ................................ 12
6.1 Liability ........................................................ 12
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6.2 Indemnification .................................................. 13
6.3 Appointment of Investment Advisor as Attorney-In-Fact ............ 13
6.4 Survival of Appointment .......................................... 14
ARTICLE 7.
MEETINGS ............................... 14
7.1 Meetings ......................................................... 14
7.2 Quorum ........................................................... 14
7.3 Manner of Acting ................................................. 15
7.4 Proxies .......................................................... 15
7.5 Action by Members Without a Meeting .............................. 15
7.6 Waiver of Notice ................................................. 15
ARTICLE 8.
CAPITAL COMMITMENTS AND CONTRIBUTIONS OF THE MEMBERS ..................... 15
8.1 Calls on Capital Commitments ..................................... 15
8.2 Allocation of Investment Securities Acquired ..................... 16
8.3 Defaults ......................................................... 16
8.4 Subsequent Fund Closings ......................................... 16
ARTICLE 9.
REDEMPTIONS .............................. 17
ARTICLE 10.
ALLOCATIONS AND DISTRIBUTIONS ..................... 17
10.1 Distributions .................................................... 17
10.2 Allocations ...................................................... 18
10.3 Allocation of Tax Items for Federal and State and Local Tax
Purposes ......................................................... 19
ARTICLE 11.
ASSIGNMENT; RESTRICTIONS ON TRANSFER OF INTERESTS ..................... 20
11.1 Transfers ........................................................ 20
11.2 Assumption by Assignee ........................................... 20
11.3 Other Assignments Void ........................................... 21
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ARTICLE 12.
INDEPENDENT REVIEWER ......................... 21
12.1 Independent Reviewer ............................................. 21
12.2 Initial Independent Reviewer ..................................... 21
ARTICLE 13.
BOOKS AND RECORDS, REPORTS, TAXES, ETC ............................. 22
13.1 Books; Reports ................................................... 22
13.2 Where Maintained ................................................. 22
13.3 Tax Returns ...................................................... 22
13.4 Section 754 Election ............................................. 22
ARTICLE 14.
DISSOLUTION .............................. 22
14.1 Dissolution ...................................................... 22
14.2 Procedures ....................................................... 23
14.3 Certificate of Cancellation ...................................... 23
14.4 No Action for Dissolution ........................................ 24
ARTICLE 15.
NOTICES ................................ 24
15.1 In Writing; Address .............................................. 24
ARTICLE 16.
MISCELLANEOUS ............................. 25
16.1 Governing Law .................................................... 25
16.2 Entire Agreement ................................................. 25
16.3 Headings ......................................................... 25
16.4 Parties in Interest .............................................. 25
16.5 Confidentiality .................................................. 25
16.6 Amendments; Waivers .............................................. 25
16.7 Severability ..................................................... 26
16.8 Qualification in Other States .................................... 26
16.9 Consent to Jurisdiction and Litigation ........................... 26
16.10 Partnership Tax Treatment; Tax Matters Partner ................... 27
16.11 Conflicts; Waiver ................................................ 27
16.12 Counterparts ..................................................... 27
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16.13 Waiver of Jury Trial ............................................. 27
iv
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OPERATING AGREEMENT OF
STRATEGIC VALUE INVESTORS, LLC
This Operating Agreement (this "Agreement") of STRATEGIC VALUE
INVESTORS, LLC (the "Company") is entered into and shall be effective as of the
2nd day of October, 1997, by and between THE PRUDENTIAL INSURANCE COMPANY OF
AMERICA ("Prudential"), and the other parties identified on the signature pages
hereof (Prudential and such other parties, collectively the "Members").
R E C I T A L S
WHEREAS, the Members desire to form a limited liability company
under the Delaware Limited Liability Company Act (the "Act") to invest in REIT
Shares or Partnership Units of REIT Partnerships (as such capitalized terms are
defined below);
WHEREAS, the Members desire to execute this Agreement to establish
the rules and procedures that are to govern the conduct of the business and
affairs of the Company as set forth below,
NOW, THEREFORE, in consideration the foregoing recitals, which are
incorporated into the operative provisions of this Agreement by this reference,
and for good and valuable consideration, the receipt and adequacy of which are
hereby conclusively acknowledged and intending to be legally bound thereby, the
Members hereby covenant and agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Accountants" means Price Waterhouse, LLP or any other accountancy
firm that has been retained by the Investment Advisor to serve as accountants to
the Company.
"Act" has the meaning set forth in the Recitals.
"Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the taxable year, after giving effect to the following adjustments:
(i) credit to such Capital Account any amount that such Member
is obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury
Regulations, as well as any addition thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(l) and (i)(5) of the Treasury Regulations,
after taking into account thereunder any changes
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during such year in minimum gain, as determined in accordance with
Sections 1.704-2(d) and 1.704-(i)(3) of the Treasury Regulations; and
(ii) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations.
This definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and 1.704-2, and will be interpreted consistently with those provisions.
"Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person.
"Agreement" means this Operating Agreement as the same shall be
amended or supplemented from time to time in accordance with the terms set forth
herein.
"Allocated Percentage" has the meaning set forth in the Investment
Advisory Agreement.
"Bankruptcy" means, with respect to any Person, the inability of
such Person generally to pay its debts as such debts become due, or an admission
in writing by such Person of its inability to pay its debts generally or a
general assignment by such Person for the benefit of creditors; the filing of
any petition or answer by such Person seeking to adjudicate it a bankrupt or
insolvent, or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of such Person or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking, consenting to, or acquiescing in the entry of an
order for relief or the appointment of a receiver, trustee, custodian, or other
similar official for such Person or for any substantial part of its property; or
corporate action taken by such Person to authorize any of the actions set forth
above.
"Base Rate" means, at any date, the prime rate then in effect for
The Chase Manhattan Bank (or, if unavailable, another major money center bank
selected by the Investment Advisor), plus 2% per annum per annum.
"Business Day" means a day other than a Saturday, Sunday or legal
holiday for commercial lenders under the laws of the States of Delaware, New
Jersey or New York.
"Capital Account" means, with respect to each Member, a single
capital account that shall be established for such Member and that shall be
maintained for such Member in accordance with the following provisions:
(i) To each Member's Capital Account there shall be credited
such Member's Capital Contributions, such Member's allocable share of
Profits, and any
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items in the nature of income or gain that are specially allocated
pursuant to Article 10 of this Agreement, and the amount of any Company
liabilities that are assumed by such Member or that are secured by any
Company property distributed to such Member.
(ii) To each Member's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any Company property
actually or deemed distributed to such Member pursuant to any provision of
this Agreement, such Member's allocable share of Losses, and any items in
the nature of expenses or Losses that are specially allocated pursuant to
Article 10 of this Agreement, and the amount of any liabilities of such
Member that are assumed by the Company or that are secured by any property
contributed by such Member to the Company.
(iii) In the event the Gross Asset Values of Company assets
are adjusted, the Capital Accounts of all Members shall be adjusted
simultaneously to reflect aggregate net adjustment as if the Company
recognized gain or loss equal to the amount of such aggregate net
adjustment.
(iv) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Treasury
Regulations.
(v) In the event any Interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed
to the Capital Account of the transferor to the extent it relates to the
transferred Interest.
"Capital Commitment" means, when referring to a dollar amount, (i)
with respect to any Member other than Prudential, an amount committed by such
Member pursuant to a Subscription Agreement and (ii) with respect to Prudential,
that amount which, when aggregated with all amounts referred to in clause (i)
above, equals 49% of the aggregate amount committed by the Members to the
Company.
"Capital Contribution" means, for each Member, the aggregate amount
contributed to the Company by such Member pursuant to Section 8.1 hereof;
provided that, in the case of Prudential, the value of any Investment Securities
contributed to the Company by Prudential (valued on the basis of the price
established in the investment transaction) shall be included in such amount.
"Certificate of Formation" means the Certificate of Formation of the
Company filed with the Delaware Secretary of State on September 10, 1997, as
amended or restated from time to time.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, or corresponding provisions of subsequent superseding
Federal revenue laws.
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"Commitment Period" means the period commencing on the closing of
the first purchase of Investment Securities by the Company and expiring on the
second anniversary of such date (or the third anniversary of such date if the
Commitment Period is extended) or, if earlier, on the date on which the Company
is terminated.
"Company Minimum Gain" has the meaning assigned to the term
partnership minimum gain in Treasury Regulations Section 1.704-2(b)(2) and
1.704-2(d)(1). In general, Company Minimum Gain equals the excess of the amount
by which a Nonrecourse Liability exceeds the adjusted tax basis of the Company
property it encumbers.
"Company Property" means all assets owned by the Company and forming
a part of, or in any way related to or used in connection with, the ownership,
and operation of the business of the Company, including all Investment
Securities held by the Company and any cash held in bank accounts or investments
held in the name of the Company.
"Defaulting Member" has the meaning set forth in Section 8.3.
"Depreciation" means, for each taxable year or other period, an
amount equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for the year or other period for federal
income tax purposes, except that if the Gross Asset Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of the
year or other period, Depreciation will be an amount that bears the same ratio
to the beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for the year or other period
bears to the beginning adjusted tax basis, provided that if the federal income
tax depreciation, amortization, or other cost recovery deduction for the year or
other period is zero, Depreciation will be determined with reference to the
beginning Gross Asset Value using any reasonable method selected by the Tax
Matters Partner.
"Disposition Proceeds" means all cash and non-cash proceeds received
by the Company for any sale or other disposition of any Investment Security or
portion thereof.
"Dissolution Events" has the meaning set forth in Section 14.1.
"Distributions" means all distributions made, or deemed to be made,
to the Members pursuant to Section 10.1.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, together with the rules and regulations promulgated thereunder.
"Fiscal Year" has the meaning set forth in Article 5.
"Governmental Plan" has the meaning set forth in Section 3(32) of
ERISA.
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"Gross Asset Value" means, with respect to any asset, the adjusted
basis of such asset for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by
a Member to the Company will be the fair market value of the asset (valued
on the basis of the price established in the investment transaction) on
the date of the contribution, as determined by the Investment Advisor.
(ii) The Investment Advisor shall adjust the Gross Asset
Values of all Company assets to equal the respective fair market values of
the assets, as reasonably determined by the Investment Advisor, as of (a)
the acquisition of an additional interest in the Company by any new or
existing Member in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Company to a Member of more than
a de minimis amount of Company property as consideration for an interest
in the Company if the Investment Advisor reasonably determines an
adjustment is necessary or appropriate to reflect the relative economic
interests of the Members in the Company and (c) the liquidation of the
Company within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g).
(iii) The Gross Asset Values of Company assets will be
increased or decreased to reflect any adjustment to the adjusted basis of
the assets under Code Sections 734(b) or 743(b), but only to the extent
that the adjustment is taken into account in determining Capital Accounts
under Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(iv) The Gross Asset Value of any Company asset distributed to
any Members will be the gross fair market value of the asset as determined
by the Investment Advisor on the date of distribution.
After the Gross Asset Value of any asset has been determined or
adjusted under subparagraphs (i), (ii), or (iii) above, the Gross Asset Value
will be adjusted by the Depreciation taken into account with respect to the
asset for purposes of computing Profits or Losses.
"Initial Closing Date" means the date on which the Company first
issues Interests to the Members.
"in-Interest" means, with respect to any percentage or fraction, the
Members voting for or against the related proposal or issue, as the case may be,
expressed in terms of a percentage or fraction of aggregate Capital Commitments.
"Interest" means with respect to any Member, the interest of such
Member in the Company, measured in terms of such Member's Capital Commitment.
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"Investment Advisor" means the Prudential Investment Corporation in
its capacity as investment advisor under the Investment Advisory Agreement,
which will fulfill its responsibilities through PREI.
"investment Advisor Fees" has the meaning set forth in the
Investment Advisory Agreement.
"Investment Advisory Agreement" has the meaning set forth in Section
4.1.
"Investment Company Act" means the Investment Company Act of 1940,
as amended from time to time.
"Investment Securities" means REIT Shares and Partnership Units,
collectively.
"Liquidator" has the meaning set forth in Section 14.2(a).
"Member" means each party that shall execute this Agreement or a
counterpart of this Agreement. "Member" means any of the Members.
"Member Nonrecourse Debt" means any nonrecourse debt of the Company
for which any Member bears the economic risk of loss, as described in Treasury
Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect
to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Treasury Regulations Section 1.704-2(i)(3).
"Member Nonrecourse Deductions" has the meaning assigned to the term
partner nonrecourse deductions in Treasury Regulations Section 1.704-2(i)(2). In
general, the amount of Member Nonrecourse Deductions with respect to a Member
Nonrecourse Debt for any tax year is the excess, if any, of the net increase
during such year in the amount of Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, over the aggregate amount of any
actual or deemed distributions during such year to the Member that bears the
economic risk of loss for such Member Nonrecourse Debt to the extent such
distributions are from the proceeds of such Member Nonrecourse Debt, and are
allocable to an increase in the Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt.
"Member's Share of Company Minimum Gain" generally means, as
described in Treasury Regulations Section 1.704-2(g)(1), the sum of Nonrecourse
Deductions allocated to such Member and the aggregate amount of distributions
made to such Member of proceeds of a Nonrecourse Liability that are allocable to
an increase in Company Minimum Gain, minus the aggregate of such Member's Share
of the Net Decrease in Company Minimum Gain.
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"Member's Share of Member Nonrecourse Debt Minimum Gains" generally
means, as described in Treasury Regulations Section 1.704-2(i)(5), an amount
determined in a manner consistent with Treasury Regulations Section
1.704-2(g)(1) with respect to each Member Nonrecourse Debt for which such Member
bears the economic risk of loss.
"Member's Share of the Net Decrease in Company Minimum Gain"
generally means, as described in Treasury Regulations Section 1.704-2(g)(2), an
amount equal to the total net decrease in Company Minimum Gain multiplied by a
ratio equal to such Member's Share of Company Minimum Gain at the end of the
immediately preceding taxable year over the total Company Minimum Gain at such
time.
"Member's Share of the Net Decrease of Member Nonrecourse Debt
Minimum Gain" generally means, as described in Treasury Regulations
1.704-2(i)(4), an amount determined in a manner consistent with Treasury
Regulations Section 1.704-2(g)(2).
"Memorandum" means the Private Placement Memorandum dated July 1,
1997, relating to the Company, as amended, restated, supplemented or otherwise
modified, pertaining to the offering of the Interests.
"Nonrecourse Deductions" has the meaning assigned to such term in
Treasury Regulations Section 1.704-2(c). In general, the amount of Nonrecourse
Deductions for a Company taxable year equals the excess of the net increase, if
any, in the amount of Company Minimum Gain during such year over the aggregate
amount of distributions during such year of proceeds of a Nonrecourse Liability
that are allocable to an increase in Company Minimum Gain.
"Nonrecourse Liability" means any debt of the Company to the extent
that no Member (or a Person related to a Member) bears the economic risk of loss
for that liability, as described in Treasury Regulations Sections 1.704-2(b)(3)
and 1.752-1s(a)(2).
"Notice of Default" has the meaning set forth in Section 8.3.
"Other Operating Agreements" has the meaning set forth in the
Investment Advisory Agreement.
"Partnership Units" means partnership interests in REIT
Partnerships.
"Performance Fees" has the meaning set forth in the Investment
Advisory Agreement.
"Person" means an association, a corporation, an individual, a
limited liability company, a partnership, a trust or any other entity or
organization, including a government or an agency, board, court, department,
official, political subdivision or representative thereof or any other
governmental entity.
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"PIMS" means Prudential Investment Management Services LLC, a
Delaware limited liability company.
"Portfolio Income" means all cash and non-cash dividends or other
actual or deemed distributions in respect of any Investment Securities or
portion thereof that do not constitute Disposition Proceeds.
"PREI" means Prudential Real Estate Investors, a division of
Prudential.
"Profits" and "Losses" mean, for each taxable year or other period,
an amount equal to the Company's federal taxable income or loss (as is
appropriate) for such year or other period, determined in accordance with Code
Section 703(a) (including all items of income, gain, loss or deduction required
to be stated separately under Section 703(a)(1) of the Code), with the following
adjustments:
(i) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses will be added to taxable income or loss;
(ii) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses, will be subtracted from
taxable income or loss;
(iii) Gain or loss resulting from any disposition of Company
property (with respect to which gain or loss is recognized for federal
income tax purposes) will be computed by reference to the Gross Asset
Value of the property, notwithstanding that the adjusted tax basis of the
property differs from its Gross Asset Value;
(iv) Any items that are specially allocated pursuant to
Section 5.2 shall be excluded from the determination of Profits and
Losses; and
(v) In lieu of depreciation, amortization, and other cost
recovery deductions taken into account in computing taxable income or
loss, there will be taken into account Depreciation for the taxable year
or other period.
"Public Investment Security" has the meaning set forth in the
Investment Advisory Agreement.
"Redemption Vehicles" has the meaning set forth in the Investment
Advisory Agreement.
"REIT" means any public or private real estate company or real
estate investment trust, whether or not such company qualifies as a real estate
investment trust under applicable provisions of the Code.
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"REIT Partnership" means any partnership in which a REIT owns
general partnership interests or other significant partnership interests.
"REIT Shares" means shares or equivalents thereof of REITs.
"Section 704(c) Property" means (i) each item of property that is
contributed to the Company and to which Section 704(c) of the Code or Section
1.704-3(a)(3) of the Treasury Regulations applies, and (ii) each item of Company
property that, as contemplated by Section 1.704-1(b)(4)(i) and other analogous
provisions of the Treasury Regulations, is governed by the principles of Section
704(c) of the Code (or principles contained in Section 704(c) of the Code).
"Securities Act" means the Securities Act of 1933, as the same may
be amended.
"Standard of Care" has the meaning set forth in the Investment
Advisory Agreement.
"Subscription Agreement" means one of the several Subscription
Agreements between the Company and a Member.
"Tax Matters Partner" means the person designated as "Tax Matters
Partner" pursuant to Section 16.10.
"Transfer" means (a) as a noun, any voluntary or involuntary, direct
or indirect, sale, conveyance, assignment, transfer, divestment, alienation,
pledge, hypothecation, creation of a security interest in, or other disposition,
or encumbrance, and (b) as a verb, voluntarily or involuntarily, directly or
indirectly, to sell, convey, assign, transfer, divest, alienate, pledge,
hypothecate, create a security interest in, or otherwise dispose of or encumber;
whether for consideration or gratuitously.
"Treasury Regulations" means the regulations implementing the Code,
as the same may be hereafter amended.
"Unaffiliated Member" means a Member other than Prudential.
"Unfunded Commitments" means any Member's Capital Commitments that
have not been called by the Investment Advisor and delivered by such Member plus
any capital contribution returned to such Member pursuant to Section 8.4.
"Venture Capital Operating Company" has the meaning set forth in
Department of Labor regulation 29 C.F.R. ss. 2510.3 - 101(d).
1.2 Construction. Any of the terms used herein may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. All words or terms used in this Agreement, regardless of the
number or gender in which they are used,
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shall include any other number or gender, as the context may require. The words
"herein", "hereof" and "hereunder" shall refer to this Agreement unless the
context otherwise requires. The word "including" shall mean "including, without
limitation," except where the context otherwise requires. References to
contracts, agreements, and other contractual instruments shall be deemed to
include all subsequent amendments, supplements and other modifications permitted
by the terms of this Agreement. References to specific statutes include (a)
successor statutes of similar purpose and import, and (b) all rules, regulations
and orders promulgated thereunder. The term "provisions," when used with respect
hereto or to any other document or instrument, shall be construed as if preceded
by the phrase "terms, covenants, agreements, requirements, conditions and/or".
This Agreement shall not be construed against any party hereto as the drafters
hereof. All references to "Articles," "Sections," "clauses," and "Exhibits" are
to Articles, Sections, clauses and Exhibits to this Agreement unless the context
otherwise requires. All Exhibits attached hereto are made a part hereof and are
incorporated herein by this reference.
ARTICLE 2.
THE COMPANY
2.1 Formation Under Act. The Members hereby associate themselves as
members in a limited liability company under the Act, upon the terms and
conditions contained in this Agreement. The Members hereby ratify and confirm
the Certificate of Formation, and resolve that the same was duly authorized,
executed, delivered and filed. The Investment Advisor shall, when required, file
such amendments to, or restatements of, the Certificate of Formation, in such
public offices in the State of Delaware or elsewhere as the Investment Advisor
deems advisable to give effect to the provisions of this Agreement and the
Certificate of Formation, and to preserve the character of the Company as a
limited liability company.
2.2 Statutory Compliance. The Company shall exist under and be
governed by, and this Agreement shall be construed in accordance with, the
applicable laws of the State of Delaware. In the event of any conflict between
any provision of this Agreement and any provision of the Act, such provision of
this Agreement shall control unless the contravention of such provision of the
Act is expressly prohibited by the Act. Members shall execute and file such
documents and instruments as may be necessary or appropriate in the sole
discretion of the Investment Advisor with respect to the formation of, and the
conduct of business by, the Company.
2.3 Name of Company. The Company will be conducted under the name
"Strategic Value Investors, LLC."
2.4 Purpose of Company. The purpose of the Company is to acquire,
sell, dispose of, and invest in Investment Securities and to engage in such
other activities as are permitted hereby. The Company shall not engage in any
other business. In connection with the
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foregoing, the Company may engage in all activities necessary, customary,
convenient or incident to such purpose, upon the terms and subject to the
conditions of this Agreement.
2.5 Principal and Registered Office; Service of Process. The
principal office of the Company shall be: 8 Campus Drive, 4th Floor, Arbor
Circle South, Parsippany, New Jersey 07054-4493 or such other place as the
Investment Advisor may from time to time determine. The registered address of
the Company shall be: 1023 Centre Road, Wilmington, Delaware 19805. The
registered agent of the Company at such address shall be Corporation Service
Company. The registered agent shall mail a copy of any process against the
Company served upon it to the Company at the address set forth above, and the
Investment Advisor shall deliver a copy of any such process received by the
Company to each of the Members. The Investment Advisor may elect to change the
Company's registered agent and the Company's registered and principal offices by
complying with the relevant requirements of the Act.
2.6 Expenses of Consideration of Investment by Member. Each Member
shall bear its own expenses in connection with its consideration of an
investment in the Company and its acquisition of Interests therein, including
the fees of any attorney, financial advisor, or other consultant utilized by
such Member.
2.7 No Individual Authority. No Member acting alone shall have any
authority to act for, or undertake, or assume any obligations or responsibility
on behalf of the other Members or the Company.
2.8 No Member Responsible for Other's Commitments. No Member shall
be responsible or liable for any obligation of any other Member hereunder,
including the obligation of any Member to the Company to make any Capital
Commitment hereunder.
ARTICLE 3.
TERM
3.1 Term. The term of the Company commenced upon the filing of the
Certificate of Formation in the office of the Delaware Secretary of State and
shall continue until the fifth anniversary of the first call on any Capital
Commitment unless earlier dissolved and terminated pursuant to Article 14.
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ARTICLE 4.
MANAGEMENT OF THE COMPANY
4.1 The Investment Advisory Agreement. The Company has,
contemporaneously herewith, entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with the Investment Advisor. The Investment
Advisory Agreement may be terminated by a vote of one-half in Interest of the
Unaffiliated Members (referred to therein as "Unaffiliated Investors") as
provided in the Investment Advisory Agreement.
4.2 Management. Pursuant to the Investment Advisory Agreement, PIC
will serve as investment advisor to, and manager of the Company, and will
fulfill its responsibilities through PREI. PREI will have the rights and
responsibilities as set forth in the Investment Advisory Agreement.
ARTICLE 5.
FISCAL YEAR
5.1 Calendar Year. The fiscal year (the "Fiscal Year") of the
Company shall be the calendar year, unless (subject to obtaining consent of the
Internal Revenue Service) the Investment Advisor shall otherwise decide.
ARTICLE 6.
MEMBERS
6.1 Liability. A Member shall not be personally liable for the
debts, liabilities or obligations of the Company and shall have no obligation to
make Capital Contributions in excess of its Capital Commitment (together with
Disposition Proceeds that may be recalled during the Reinvestment Period),
except to the extent required by the Act and Section 6.2.
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6.2 Indemnification.
(a) Except as otherwise required by law, the Investment
Advisor and its Affiliates, directors, officers, employees, shareholders,
assigns, representatives or agents shall not be liable, responsible or
accountable in damages or otherwise to the Company or any Member for any loss,
liability, damage, settlement cost, or other expense (including attorneys' fees)
incurred by reason of any act or omission or any such alleged act or omission
performed or omitted by such Person (including those in connection with serving
on boards of directors for companies in the Company's portfolio) if such Person
acted in a manner consistent with the Standard of Care.
(b) To the fullest extent permitted by applicable law, the
Investment Advisor, PIMS, PREI, the Independent Reviewer and any of their
respective officers, directors, agents, stockholders, partners, members,
employees, other Affiliates, and any other Person who serves at the request of
the Investment Advisor on behalf of the Company (each such Person being an
"Indemnitee") shall be held harmless and be indemnified by the Company for any
liability, loss (including amounts paid in settlement), damages or expenses
(including reasonable attorneys' fees and disbursements) incurred by such
Indemnitee on behalf of the Company or in furtherance of the interests of the
Company or otherwise arising out of, or in connection with, the Company;
provided that such Indemnitee acted in a manner consistent with the Standard of
Care.
(c) To the fullest extent permitted by law, expenses
(including legal fees) incurred by an Indemnitee in defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the Company
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an undertaking by or on behalf of the Indemnitee
to repay such amount if it shall be determined that the Indemnitee is not
entitled to be indemnified as authorized in this Section 6.2.
(d) The individual indemnity obligation of each Member will be
limited to the lesser of (i) the aggregate of: (x) such Member's Unfunded
Commitments; (y) Distributions (including Distributions in redemption)
previously made to such Member; and (z) the Member's Interest in the Company or
(ii) such Member's Capital Commitment.
6.3 Appointment of Investment Advisor as Attorney-In-Fact. Each
Member irrevocably constitutes and appoints the Investment Advisor, and any
replacement or substitute Investment Advisor, as such Member's true and lawful
attorney-in-fact and agent, with full power and authority in such Member's name,
place and stead, (a) to execute, acknowledge, deliver, file and record in the
appropriate public offices all certificates or other instruments (including
counterparts of this Agreement) that the Investment Advisor deems appropriate to
continue the Company as a limited liability company in the jurisdiction in which
the Company conducts business, including amendments to this Agreement necessary
to correct scriveners' errors, from and after the date on which such Member
becomes a Defaulting Member, all documents and instruments (including transfer
and sale documents) that the Investment Advisor deems necessary to implement the
rights and remedies set forth in Section 8.3, (b) to take all
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actions necessary and to execute and deliver all documents, certificates and
other instruments (including Other Operating Agreements) in connection with the
formation of Redemption Vehicles in accordance with Section 6(c) of the
Investment Advisory Agreement and the subsequent operation of such Redemption
Vehicles and (c) to take all actions as are necessary and appropriate to fulfill
the duties of Investment Advisor as set forth herein, as referenced in the
Investment Advisory Agreement and/or as described in the Memorandum.
6.4 Survival of Appointment. The appointment by all Members of the
Investment Advisor as attorney-in-fact set forth in Section 6.3 shall be deemed
to be a power coupled with an interest and with full power of substitution, in
recognition of the fact that each of the Members will be relying upon the
Investment Advisor to act as contemplated by this Agreement in any filing and
other action by the Investment Advisor on behalf of the Company, and such power
shall, to the extent permitted by law, survive the death, disability,
incompetency, withdrawal, removal, bankruptcy or insolvency of any Person hereby
giving such power and the transfer by a Member of all or part of its Interest.
The foregoing power of attorney of a transferor Member shall survive such
transfer only until such time as the transferee shall have been admitted to the
Company as a Member and all required documents and instruments shall have been
duly executed, filed and recorded to effect such substitution. Any Person
dealing with the Company may conclusively presume and rely upon the fact that
any such instrument executed by such agent and attorney-in-fact is authorized,
regular and binding without further inquiry.
ARTICLE 7.
MEETINGS
7.1 Meetings. Meetings of Members shall be called from time to time
by the Investment Advisor or one-third in-Interest of the Unaffiliated Members.
Any such meetings shall be held at the principal place of business of the
Company. Members may participate in meetings by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Such participation shall constitute presence in
person at the meeting.
7.2 Quorum. Attendance by a majority in-Interest of the Members,
represented in person or by proxy, shall constitute a quorum at any meeting of
Members. In the absence of a quorum at any such meeting, a majority of the
Interests so represented may adjourn the meeting from time to time for a period
not to exceed sixty (60) days without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally noticed.
Members present at a duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal during such meeting of Members
whose absence would cause less than a quorum to be present.
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7.3 Manner of Acting. If a quorum is present, the affirmative vote
of a majority in-Interest of the Members shall be the act of the Members, unless
the vote of a greater or lesser proportion or number is otherwise required by
the Act or by this Agreement. Unless otherwise expressly provided in this
Agreement or required under applicable law, Members who have an interest
(economic or otherwise) in the outcome of any particular matter upon which
Members vote or consent may vote or consent upon any such matter and their vote
shall be counted in the determination of whether the requisite matter was
approved by the Members.
7.4 Proxies. At all meetings of Members, a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Investment Advisor before
or at the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
7.5 Action by Members Without a Meeting. Action required or
permitted to be taken at a meeting of Members may be taken without a meeting,
without prior notice and without a vote if the action is evidenced by one or
more written consents describing the action taken, signed by all Members and
delivered to the Investment Advisor for inclusion in the minutes or for filing
with the Company records. Action taken under this Section 7.5 is effective when
all Members have signed the consent, unless the consent specifies a different
effective date. The record date for determining Members entitled to take action
without a meeting shall be the date the first Member signs a written consent.
7.6 Waiver of Notice. When any notice is required to be given to any
Member, a written waiver of notice signed by the Person entitled to such notice,
whether before, at, or after the time stated in the notice, shall be equivalent
to the giving of such notice.
ARTICLE 8.
CAPITAL COMMITMENTS AND CONTRIBUTIONS OF THE MEMBERS
8.1 Calls on Capital Commitments.
(a) Each Member shall make contributions to the capital of the
Company by contributing amounts, in installments when and as called by the
Investment Advisor, from time to time in accordance with Sections 3(e) and 4(d)
of the Investment Advisory Agreement, upon at least ten Business Days' prior
written notice; provided that, at initial closing, the Investment Advisor shall
not be required to provide ten Business Days notice but will provide notice in
as far advance of the initial closing as possible.
(b) At or prior to the first closing of a transaction to
acquire Investment Securities, and at or prior to each subsequent closing of a
transaction to acquire Investment Securities, the Capital Commitments will be
called in an aggregate amount sufficient to acquire
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the Investment Securities (and related closing costs) and, in the case of the
first transaction, the costs of organization of the Company.
8.2 Allocation of Investment Securities Acquired. Each of the
Investment Securities acquired by the Company shall be allocated on the books of
the Company (a) in the case of Investment Securities contributed by a Member to
the Company, to the Member contributing such Investment Securities, and (b)
otherwise, to the Members in proportion to their relative Capital Contributions
with respect to such Investment Securities; provided, however, that under no
circumstances shall Partnership Units be allocated to any Member other than
Prudential. In the case of any investment made by the Company both in the form
of REIT Shares and Partnership Units, Prudential shall be allocated all such
Partnership Units and that number of REIT Shares sufficient for Prudential to
have been allocated its proportionate amount of such investment, and the
remainder of such REIT Shares shall be allocated among the Members other than
Prudential in proportion to their relative capital contributions with respect to
such Investment Securities.
8.3 Defaults. If a Member (a "Defaulting Member") fails to pay when
due (a) any installment of its Capital Commitment and such failure continues for
ten days after written notice thereof from the Company (the "Notice of Default")
or (b) any fees it is required to pay pursuant to the Investment Advisory
Agreement and such failure continues for 30 days after an invoice therefor, the
Company may, in its sole discretion and in addition to any other legal and
equitable remedies the Company may have: (i) reduce the Capital Commitment of
the Defaulting Member by all or a portion of the sums so unpaid; (ii) commence
legal proceedings against the Defaulting Member to collect any sums due and
unpaid plus any collection expenses, including court costs and reasonable
attorneys' fees and disbursements; (iii) cancel without consideration, 20% of
any Interests held by the Defaulting Member and its Affiliates; and/or (iv)
determine that the Defaulting Member shall forfeit to the nondefaulting Members
all distributions except to the extent a distribution represents a return of a
capital call made by the Defaulting Member.
8.4 Subsequent Fund Closings. On each Subsequent Closing held
pursuant to Section 3(d) of the Investment Advisory Agreement, the Company may
admit additional Members to the Company or may permit Members to increase their
Capital Commitments to the Company. At each Subsequent Closing, each additional
Members will purchase Interests by contributing to the Company an amount
determined by the Investment Advisor based on the value of the Investment
Securities then held by the Company and as determined in accordance with Section
3(f) of the Investment Advisory Agreement. Each additional Member shall also
contribute to the Company an amount equal to its portion of costs and expenses
paid by the Company prior to the date of such Subsequent Closing, together with
interest on such costs and expenses at a rate equal to Base Rate. The amount
contributed to the Company at any Subsequent Closing will be distributed to
Unaffiliated Members admitted to the Company prior to such Subsequent Closing
Date, by the Investment Advisor within ten Business Days of receipt of same, and
distributed to each Unaffiliated Member ratably in proportion to their Capital
Commitments; provided that the Investment Advisor may direct a portion of such
amounts to instead be paid to SVI-International in order to equitably allocate
costs and expenses of SVI-
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International and the Company. All amounts so distributed may be recalled by the
Investment Advisor during the Commitment Period pursuant to Section 8.1(a) and
Sections 3(e) and 4(d) of the Investment Advisory Agreement. Each Member
purchasing Interests on a Subsequent Closing Date will agree to be bound by the
terms of this Agreement and to execute a counterpart to this Agreement in the
form of Exhibit A attached hereto.
ARTICLE 9.
REDEMPTIONS
Members shall have the rights to cause redemptions with respect to
their Allocated Percentages of Public Investment Securities (and, in the case of
Prudential, Partnership Units) set forth in Section 6 of the Investment Advisory
Agreement.
ARTICLE 10.
ALLOCATIONS AND DISTRIBUTIONS
10.1 Distributions.
(a) The Investment Advisor may, in its sole discretion, make
distributions ("Distributions") of cash, property or securities of the Company
to the Members at any time and from time to time.
(b) Distributions of Disposition Proceeds and Portfolio Income
in respect of Investment Securities acquired by the Company, net of any expenses
attributable thereto, shall be made to the Members to whom such Investment
Securities have been allocated by the Company pursuant to Section 8.2.
(c) Amounts distributed to a Member may be withheld until any
federal or state withholding obligations of the Company with respect to such
Member are satisfied. Any amount withheld under this Section 10.1(c) shall be
treated as having been distributed to the Member to whom such withholding
applies.
(d) Amounts distributed to a Member may be withheld to pay
Investment Advisor Fees or Performance Fees then due by such Investor. Any
amount withheld under this Section 10.1(d) shall be treated as having been
distributed to the Member from whom such Investment Advisor Fees or Performance
Fees were due.
(e) Notwithstanding anything to the contrary in this Agreement
or the Investment Advisory Agreement, no Distribution of Disposition Proceeds or
Portfolio Income in respect of Partnership Units shall be made to any Member
other than Prudential.
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10.2 Allocations.
(a) In General. Subject to paragraph (b) below, all Profits
and Losses of the Company shall be allocated to the Capital Accounts of the
Members as follows:
(i) Each item of income, gain, deduction or loss of the
Company attributable to an Investment Security of the Company (including,
without limitation, all Portfolio Income received with respect to such
Investment Security and all expenses attributable to the acquisition or
disposition of such Investment Security) shall be allocated to the Capital
Account of the Member to whom such Investment Security is allocated on the
books of the Company under Section 8.2. For this purpose, expenses of the
Independent Reviewer with respect to any Investment Securities shall be
allocated pro rata to the Members other than Prudential to whom such
Investment Securities are allocated pursuant to Section 8.2.
(ii) All other income, gain, deduction or loss of the
Company shall be allocated to the Capital Accounts of the Members in
proportion to their respective Capital Commitments.
(b) Regulatory Allocations.
(i) If there is a Net Decrease in Company Minimum Gain
during any fiscal year, each Member shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Member's Share of the Net Decrease in
Company Minimum Gain. Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Treasury Regulations Sections 1.704-2(f)(6)
and 1.704-2(j)(2). This clause (i) is intended to comply with the "minimum
gain chargeback" requirements of Treasury Regulations Section 1.704-2(f)
and shall be interpreted consistently therewith.
(ii) If there is a Net Decrease in Member Nonrecourse
Debt Minimum Gain during any fiscal year attributable to a Member
Nonrecourse Debt, each Member with a share of Member Nonrecourse Debt
Minimum Gain attributable to such debt at the beginning of such year shall
be specially allocated items of income and gain for such year (and, if
necessary, for subsequent years) in an amount equal to such Member's Share
of the Net Decrease in Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt. Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to
be allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2)(i). This clause (ii) is intended to comply
with the "partner minimum gain chargeback" requirements of Treasury
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
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(iii) If any Member unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which results in an Adjusted
Capital Account Deficit for the Member, such Member shall be allocated
items of income and book gain in an amount and manner sufficient to
eliminate such Adjusted Capital Account Deficit as quickly as possible;
provided, that an allocation pursuant to this clause (iii) shall be made
if and only to the extent that such Member would have an Adjusted Capital
Account Deficit after all other allocations provided in this Section 5.4
have been tentatively made as if this clause (iii) were not in this
Agreement. This clause (iii) is intended to constitute a "qualified income
offset" as provided by Treasury Regulations Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
(iv) Member Nonrecourse Deductions shall be allocated
among the Members who bear the "economic risk of loss" with respect to the
Member Nonrecourse Debt resulting in such Member Nonrecourse Deductions.
This clause (iv) is to be interpreted in a manner consistent with the
requirements of Treasury Regulations Section 1.704-2(b)(4) and (i)(1).
(v) The allocations set forth in this paragraph (b) (the
"Regulatory Allocations") are intended to comply with certain requirements
of the applicable Treasury Regulations promulgated under Code Section
704(b). Notwithstanding any other provision of this Section 10.2, the
Regulatory Allocations shall be taken into account in allocating other
operating Profits, Losses and other items of income, gain, loss and
deduction to the Members for Capital Account purposes so that, to the
extent possible, the net amount of such allocations of Profits, Losses and
other items shall be equal to the amount that would have been allocated to
each Member if the Regulatory Allocations had not occurred.
10.3 Allocation of Tax Items for Federal and State and Local Tax
Purposes.
(i) Subject to Sections 1.704-1(b)(4)(i) and
1.704-1(b)(2)(iv)(m) of the Treasury Regulations and the remaining
paragraphs of this Section 10.3, allocations of income, gain, loss,
deduction and credit for federal, state and local tax purposes shall be
allocated to the Members in the same manner and amounts as the book items
corresponding to such tax items are allocated for Capital Account
purposes.
(ii) Notwithstanding paragraph (a) hereof, any increase
or decrease in the amount of any items of income, gain, loss, deduction or
credit for tax purposes attributable to an adjustment to the basis of
Company assets made pursuant to a valid election or deemed election under
Sections 732(d), 734, 743, and 754 of the Code, and any increase or
decrease in the amount of any item of credit or tax preference
attributable to any such adjustment, shall be allocated to those Members
entitled thereto under such law. Such items shall be excluded in
determining the Capital Accounts of the Members, except as otherwise
provided by Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations.
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(iii) For purposes of determination of the Members'
share of the excess Nonrecourse Liabilities of the Company for purposes of
Section 1.752-3(a)(3) of the Treasury Regulations, each such liability
attributable to an Investment Security of the Company (as determined by
the Tax Matters Partner) shall be allocated to the Member to whom such
Investment Security has been allocated under Section 8.2 hereof, and any
other such liability shall be allocated to the Members' in proportion to
their respective Unrecovered Capital.
(iv) If the Company owns or acquires Section 704(c)
Property, or if the value of the assets of the Company are adjusted as
described in the definition of "Gross Asset Value" herein, then, solely
for tax purposes and not for Capital Account purposes, tax depreciation,
and any gain or loss, attributable to such Section 704(c) Property shall
be allocated between or among the Members in a manner that takes into
account the variation between such value and such adjusted tax basis, in
accordance with the principles of Code Section 704(c) and the "traditional
method with curative allocations" as set forth in Treasury Regulations
Section 1.704-3(b). To the extent permitted by law, such curative
allocations will be effected by allocating all income attributable to
Partnership Units to Prudential.
ARTICLE 11.
ASSIGNMENT; RESTRICTIONS ON TRANSFER OF INTERESTS
11.1 Transfers. The Members, or any assignee or successor in
interest of the Members, may only transfer their applicable Interests in the
Company, or in any part thereof, as provided in this Article 11. Interests may
not be Transferred without the prior written consent of the Investment Advisor.
Further, such consent will be withheld if such Transfer: (a) is not as permitted
under the Securities Act, and applicable state securities laws, pursuant to
registration or an exemption therefrom; (b) would cause the number of security
holders in the Company to exceed 100 persons, as determined pursuant to the
Investment Company Act; (c) would, if taken together with all Interests
previously Transferred, result in a Transfer of more than 79% of the Interests
in the Company; (d) calls into question the qualification of the Company or any
related vehicle as a Venture Capital Operating Company under ERISA; and (e)
would result in the Company being a publicly traded partnership within the
meaning of Section 7704 of the Code and the related Treasury Regulations. The
Investment Advisor's consent to any transfer, sale or assignment of any
Interests prior to the date all Capital Commitments have been drawn may also be
conditioned on the Investment Advisor's satisfaction with the creditworthiness
of the proposed transferee or upon the posting of security for any unpaid
installments of the transferor's Capital Commitment and any other sums owing.
Any such transferee shall be required to execute a certificate or questionnaire
in form and substance satisfactory to the Investment Advisor.
11.2 Assumption by Assignee. Any assignment of an Interest in the
Company permitted under this Article 11 shall be in writing, and shall be an
assignment and Transfer of
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all of the assignor's rights and obligations hereunder, and the assignee shall
expressly agree in writing to be bound by all of the terms of this Agreement and
assume and agree to perform all of the assignor's agreements and obligations
existing or arising at the time of and subsequent to such assignment. Upon any
such permitted assignment of the assignor's Interest, and after such assumption,
the assignor shall be relieved of its agreements and obligations hereunder
arising after such assignment and the assignee shall become a Member in place of
the assignor. It shall be a condition precedent to any transfer of any Interest
permitted under this Article 11 that all sums due and owing by the transferor
that remain unpaid are paid and that the transferee shall have executed and
delivered to the Investment Advisor an agreement in form and substance
satisfactory to it to the effect that the transferee agrees to be bound by all
of the terms and conditions of this Agreement, and that the transferee is
acquiring an interest in the Company subject hereto. The assignee shall pay all
expenses incurred by the Company in admitting the assignee as a Member.
11.3 Other Assignments Void.
(a) Except as otherwise provided in this Article 11, no other
Transfer by a Member of its Interest in the Company shall be permitted. Any
purported Transfer of an interest in the Company not otherwise permitted by this
Article 11 shall be null and void and of no effect whatsoever.
ARTICLE 12.
INDEPENDENT REVIEWER
12.1 Independent Reviewer. The Company will not undertake any
transaction to acquire Investment Securities unless the Independent Reviewer has
issued a fairness opinion with respect to the terms and conditions of the
proposed investment. It is not contemplated that the Independent Reviewer will
have a role with respect to any Investment Securities after the same have been
acquired. The Independent Reviewer will be independent of, and unaffiliated
with, the Investment Advisor, PREI and Prudential and will have significant
experience in the valuation, acquisition and trading of equity securities,
including securities similar to the Investment Securities.
12.2 Initial Independent Reviewer. The initial Independent Reviewer
will be Houlihan, Lokey, Howard & Zukin Financial Advisors Inc. If the initial
Independent Reviewer ceases to be the Independent Reviewer or is unable (as a
result of a conflicts of interest or otherwise) to act with respect to any
proposed investment, the Investment Advisor will select a replacement or
substitute Independent Reviewer, as the case may be. Any replacement or
substitute Independent Reviewer must be approved by Members, but will be deemed
approved unless one-third in-Interest of the Unaffiliated Members object in
writing to the proposed replacement or substitute within 15 days after notice
with respect thereto is sent to Members.
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ARTICLE 13.
BOOKS AND RECORDS, REPORTS, TAXES, ETC.
13.1 Books; Reports. The books and records of the Company shall be
maintained, and reports shall be provided to the Members, in accordance with
Section 8 of the Investment Advisory Agreement.
13.2 Where Maintained. The books, accounts and records of the
Company shall be at all times maintained at its principal office.
13.3 Tax Returns. The Company shall be treated and shall file its
tax returns as a partnership for Federal, state, municipal and other
governmental income tax and other tax purposes. The Investment Advisor shall
prepare or cause to be prepared, on an accrual basis, all Federal, state and
municipal partnership tax returns required to be filed. Such tax returns shall
be prepared by the Accountants, who shall sign such returns as preparers.
13.4 Section 754 Election. Subject to Section 16.10, at the request
of a Member, the Company shall make and file a timely election under Section 754
of the Code (and a corresponding election under applicable state or local law)
in the event of a transfer of an interest in the Company permitted hereunder.
Any adjustment resulting from such an election shall be reflected on the books
of the Company and in the Allocated Percentage of the Members in accordance with
Treasury Regulation Section 1.,704-1(b)(2)(iv)(m). Any Member or transferee
first requesting an election hereunder shall reimburse to the Company the
reasonable out-of-pocket expenses incurred by the Company in connection with
such election including, without limitation, any legal or accountants' fees;
thereafter, each transferee shall reimburse such expenses with respect to
adjustments under Section 743 of the Code in the proportion which the interest
of each transferee bears to the sum of the interests of all transferees; the
Company shall bear the expenses of any adjustments under Section 734 of the
Code.
ARTICLE 14.
DISSOLUTION
14.1 Dissolution. The Company shall dissolve and commence winding up
and liquidating upon the first to occur of the following ("Dissolution Events"):
(a) The fifth (5th) anniversary of the date of the first call
on any Capital Commitment)
(b) The sale or distribution of all or substantially all of
the Company's assets;
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(c) The unanimous written agreement of all Members to
dissolve, wind up, and liquidate the Company;
(d) The Bankruptcy of a Member, unless Members (other than the
Member subject to such Dissolution Event) both holding a majority in Interest of
the Members and whose Capital Account balances exceed fifty percent (50%) of the
aggregate Capital Account balances of all such Members (the "Remaining Members")
consent within one hundred twenty (120) days of the Dissolution Event to the
continuation of the business of the Company. If the Remaining Members consent to
the continuation of the business of the Company, the Member whose actions or
conduct resulted in such Dissolution Event ("Former Member") shall remain a
Member of the Company and any successor-in-interest or assignee, voluntary or
involuntary, of such Member shall have only rights to allocations and
distributions pursuant to Article 10; and
(e) The happening of any other event that makes it unlawful or
impossible to carry on the business of the Company.
The Members hereby agree that the Company shall not dissolve
prior to the occurrence of a Dissolution Event.
14.2 Procedures.
(a) Liquidation. If the Company is dissolved, the Members
shall appoint a liquidator, who shall be the Investment Advisor if the
Investment Advisory Agreement has not been terminated (the "Liquidator") and the
Liquidator shall cause the winding up of the affairs of the Company and the
liquidation of its assets as promptly as is consistent with obtaining the fair
value thereof.
(b) Liquidating Distributions. Following the payment of, or
provision for, all debts and liabilities of the Company and all expenses of
liquidation, and subject to the right of the person winding up the Company's
affairs to set up such cash reserves as reasonably necessary for any contingent
or unforeseen liabilities or obligations of the Company, the proceeds of the
liquidation will be distributed in cash (or, in the case of Investment
Securities that have not been sold or transferred, distributed in kind) to the
Members in accordance with their respective positive Capital Account balances,
after crediting or changing all amounts required to be credited or changed
thereto under this terms of this Agreement.
(c) No Recourse. Each Member will look solely to the assets of
the Company for all Distributions with respect to the Company, such Member's
Capital Contributions thereto and its share of profits or losses, and will have
no recourse therefor (upon dissolution of the Company or otherwise) against the
Liquidator or any other Member.
14.3 Certificate of Cancellation. Upon the completion of the winding
up of the affairs of the Company, the Liquidator shall cause to be filed in the
office of the Delaware Secretary of State a certificate of cancellation.
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14.4 No Action for Dissolution. Except as expressly permitted in
this Agreement, a Member shall not take any voluntary action that directly
causes a dissolution of the Company.
ARTICLE 15.
NOTICES
15.1 In Writing; Address. Unless otherwise expressly provided
herein, all notices, requests, demands and other communications required or
permitted under this Agreement shall (a) be in writing (including by telecopy),
(b) shall be given to the Company at the address set forth below or, in the case
of the Members, at the address set forth on the signature page, and (c) shall be
deemed to have been duly given, made and received when delivered against receipt
or upon actual receipt of registered or certified mail, postage prepaid, return
receipt requested, or, in the case of telecopy notice, when received in legible
form.
All notices to the Company shall be addressed as follows:
c/o Prudential Real Estate Investors
8 Campus Drive, 4th Floor
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Fax No.: (973) 683-1794
with a copy to:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Jacqueline A. Weiss, Esq.
Fax No.: (212) 326-2061
Any party may alter the address or telecopy number to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this Section 15.1 for the giving of
notice.
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ARTICLE 16.
MISCELLANEOUS
16.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without regard
to its conflict of law principles.
16.2 Entire Agreement. This instrument contains all of the
understandings and agreements of whatsoever kind and nature existing between the
parties hereto with respect to this Agreement and the rights, interests,
understandings, agreements and obligations of the respective parties pertaining
to the Company.
16.3 Headings. The descriptive headings of the Articles, Sections
and subsections of this Agreement are for convenience only and do not constitute
a part of this Agreement.
16.4 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of each party and their respective permitted successors and
assigns, and nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement, except that the Investors shall be third
party beneficiaries hereof.
16.5 Confidentiality. The terms and provisions of this Agreement
shall be kept confidential and shall not, without the Investment Advisor's prior
written consent (which shall not be unreasonably withheld), be disclosed by a
Member or by a Member's agents, managers, members, representatives and employees
to any person or entity that this Agreement has been signed and exists. No
publicity, media communications, press releases or other public announcements
concerning this Agreement or the transactions contemplated hereby shall be
issued or made by any Member without the prior written consent of the Investment
Advisor, which consent shall not be unreasonably withheld. Each Member will
maintain the confidentiality of information that is, to the knowledge of such
Member, non-public information furnished by the Investment Advisor or any Member
regarding the Company and the Investment Advisor (including information
regarding any REIT or REIT Partnership) in which the Company holds, or
contemplates acquiring or disposing of, any Investment Securities received by
such Member pursuant to this Agreement in accordance with such procedures as it
applies generally to information of this kind (including procedures relating to
information sharing with Affiliates), except (a) as otherwise required by
governmental regulatory agencies, self-regulating bodies, law, legal process, or
litigation in which such Member is a defendant, plaintiff or other named party
or (b) to directors, employees, representatives and advisors of such Member and
its Affiliates who need to know the information and who are informed of the
confidential nature of the information.
16.6 Amendments; Waivers. This Agreement may be amended only by
agreement in writing of a majority in-Interest of the Unaffiliated Members;
provided that any
25
<PAGE> 31
amendment that materially adversely affects the Members shall require the
approval of at least two-thirds in-Interest of Unaffiliated Members and
provided, further, that no such amendment shall be effective if the Investment
Advisor reasonably determines that such amendment could reasonably be expected
to materially and adversely affect the Fund taken as a whole. Except as
otherwise provided herein, no waiver of any provision nor consent to any
exception to the terms of this Agreement shall be effective unless in writing
and signed by the party to be bound and then only to the specific purpose,
extent and instance so provided. No failure on the part of any party to exercise
or delay in exercising any right hereunder shall be deemed a waiver thereof, nor
shall any single or partial exercise preclude any further or other exercise of
such or any other right.
16.7 Severability. If any provision of this Agreement is determined
to be invalid, illegal or unenforceable by any court of competent jurisdiction
or other governmental entity, the remaining provisions of this Agreement to the
extent permitted by law shall remain in full force and effect provided that the
essential terms and conditions of this Agreement for all parties remain valid,
binding and enforceable; provided that the economic and legal substance of the
transactions contemplated is not affected in any manner materially adverse to
any party. In event of any such determination, the parties agree to negotiate in
good faith to modify this Agreement to fulfill as closely as possible the
original intents and purposes hereof. To the extent permitted by law, the
parties hereby to the same extent waive any provision of law that renders any
provision hereof prohibited or unenforceable in any respect.
16.8 Qualification in Other States. If the business of the Company
is carried on or conducted in any states in addition to Delaware, then the
Members agree that the Company shall exist under the laws of each state in which
business is actually conducted by the Company, and they severally agree to
execute such other and further documents as may be required or requested in
order that the Members legally may qualify the Company in such states to the
extent possible.
16.9 Consent to Jurisdiction and Litigation. All litigation relating
to or arising under or in connection with this Agreement shall be brought only
in the federal or state courts of competent jurisdiction located in the State
and County of New York, which shall have exclusive jurisdiction to resolve any
disputes with respect to this Agreement. By execution and delivery of this
Agreement, each party hereto irrevocably and unconditionally consents to the
jurisdiction of such courts of any actions, suits or proceedings arising out of
or relating to this Agreement. The parties hereto irrevocably waive any
obligation of the laying of venue or based on the grounds of forum non
conveniens that it may now or hereafter have to the bringing of any action or
proceeding in such jurisdiction. No party hereto shall be entitled to immunity
whatsoever, whether characterized as sovereign immunity or otherwise, from any
legal proceedings to enforce the obligations hereunder. Subject to Section 6.2,
in the event of any breach of the provisions of this Agreement, the
non-breaching party shall be entitled to equitable relief, including in the form
of injunctions and orders for specific performance, where the applicable legal
standards for such relief in such courts are met, in addition to all other
remedies available to the non-breaching party with respect thereto at law or in
equity.
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<PAGE> 32
16.10 Partnership Tax Treatment: Tax Matters Partner. The Partners
intend for the Company to be treated as a partnership for U.S. federal income
tax purposes and no election to the contrary shall be made. Prudential shall
function as the "Tax Matters Partner" pursuant to Section 6231(a)(7) of the
Code, and shall have the exclusive authority and discretion to make any
elections required or permitted to be made by the Company under the Code or any
other tax laws. Contemporaneously herewith, Prudential shall execute a power of
attorney authorizing the Investment Advisor to act on its behalf as Tax Matters
Partner.
16.11 Conflicts; Waiver. The Investment Advisor and its Affiliates
or associates or any of their legal, financial or other advisors shall in no way
be prohibited from, and intend to, spend substantial time in connection with
other businesses or activities, including, managing investments, advising or
managing entities whose investment objectives are the same as or overlap with
those of the Company, participating in actual or potential investments of the
Company, providing consulting, merger and acquisition, structuring or financial
advisory services, including with respect to actual, contemplated or potential
investments of the Company, or acting as a director, officer or creditors'
committee member of, adviser to, or participant in, any corporation,
partnership, trust or other business entity. The Investment Advisor and its
Affiliates or associates or any of their legal, financial or other advisors may,
and expect to, receive fees or other compensation from third parties for such
activities, which fees will be for the benefit of their own account and not the
Company. Such fees may relate to actual, contemplated or potential investments
of the Company and may be payable by entities in which the Company directly or
indirectly, has invested or contemplates investing. Each Member waives any and
all rights of any nature whatsoever that any such Person may have to object to
or participate in any such activity.
16.12 Counterparts. This Agreement may be executed in any number of
counterparts by facsimile or other written form of communication, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
16.13 Waiver of Jury Trial. EACH PARTY HERETO, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OTHER AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
[Remainder of This Page Intentionally Left Blank]
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<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
as of the day and year first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/ KEVIN R. SMITH
-----------------------------------
Name: Kevin R. Smith
------------------------------
Title: Vice President
-----------------------------
S-1
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
as of the day and year first above written.
________________
By:___________________________________
Name:______________________________
Title:_____________________________
Notice Address: ___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
S-1
<PAGE> 35
EXHIBIT A
FORM OF COUNTERPART TO OPERATING AGREEMENT
This counterpart, dated as of ____________, _____ is delivered
pursuant to Section 8.4 of the Operating Agreement dated as of October 2, 1997,
by and among THE PRUDENTIAL INSURANCE COMPANY OF AMERICA and the Members
identified on the signature pages thereof. By execution of this counterpart, the
entity named below agrees to be bound by the terms and conditions of such
Operating Agreement, and to assume the rights and obligations of a Member
thereunder, as if such entity were an original signatory thereto, and agrees
that this Counterpart may be attached to the Operating Agreement and made a part
thereof.
MEMBER
______________________________________
By: _________________________________
Its: _________________________________
Notice Address: ___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
B-1
<PAGE> 1
Exhibit V
INVESTMENT ADVISORY AGREEMENT
Dated as of October 2, 1997
by and between
STRATEGIC VALUE INVESTORS, LLC
and
THE PRUDENTIAL INVESTMENT CORPORATION
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of October 2, 1997 (this
"Agreement"), is made by and between STRATEGIC VALUE INVESTORS, LLC, a Delaware
limited liability company ("SVI-U.S." and, together with any entities that
become parties hereto after the date hereof as described in Section 6, the "U.S.
Fund Entities"), and THE PRUDENTIAL INVESTMENT CORPORATION, a New Jersey
corporation (the "Investment Advisor"), and a wholly owned subsidiary of The
Prudential Insurance Company of America ("Prudential"). Each Person committing
capital to any U.S. Fund Entity (each, an "Investor") will sign an annex to this
Agreement ("Annex Number 1") confirming such Investor's understanding and
obligations with regard to the matters set forth herein and therein.
SECTION 1. Definitions.
As used in this Agreement, the following definitions shall apply,
unless the context requires otherwise:
"Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person.
"Affiliated Securities" is defined in Section 6(c).
"Agreement" is defined in the preamble.
"Allocated Percentage" means, with respect to any Investor, the
percentage of any Investment Security allocated to such Investor on the books of
any U.S. Fund Entity.
"Base Rate" means at any date, the prime rate then in effect for The
Chase Manhattan Bank (or, if unavailable, another major money center bank
selected by the Investment Advisor), plus 2% per annum.
"Capital Commitment" means, with respect to any Investor, such
Investor's capital commitment to SVI-U.S.
"Closing" means a closing of SVI-U.S.
"Code" means the Internal Revenue Code of 1986, as amended, together
with the rules and regulations promulgated thereunder.
<PAGE> 3
"Collection Accounts" is defined in Section 5(b).
"Contributed Capital" means, with respect to any Investor at any
date, (1) the aggregate amount of such Investor's Capital Commitment that has
been called by the Investment Advisor and delivered by the Investor on or prior
to such date, less (2) the sum of (A) the amount of such Investor's Capital
Commitments returned to the Investor on or prior to such date and (B) such
Investor's Allocated Percentage of any realized losses of the U.S. Fund
Entities.
"Disposition Proceeds" shall have the meaning set forth in the
Operating Agreement.
"Distributions" shall have the meaning set forth in the Operating
Agreement.
"Drawdown Date" is defined in Section 3(e).
"Drawdown Notice" is defined in Section 3(e).
"ERISA" means the Employee Retirement and Income Security Act of
1974, as amended, together with the rules and regulations promulgated
thereunder.
"Expenses" is defined in Section 11(a).
"Final Action Notice" is defined in Section 6(b).
"Final Redemption Date" is defined in Section 6(b).
"Final Redemption Request" is defined in Section 6(b).
"Final Redemption Request Date" is defined in Section 6(b).
"Fiscal Year" shall have the meaning set forth in the Operating
Agreement.
"Fund" means SVI-U.S., SVI-International, the co-investment
arrangement with Prudential Co-Investor, any Redemption Vehicle, any redemption
vehicle established in connection with SVI-International, and any similar
separate or "side" vehicle formed pursuant to the terms of any of the Other
Operating Agreements or the terms of the operating agreement of
SVI-International or of any redemption vehicle established by SVI-
International, collectively.
"Fund Entity" means any of SVI-U.S., SVI-International, Prudential
Co-Investor, any Redemption Vehicle, any redemption vehicle established in
connection with SVI-International, and any similar separate or "side" vehicle
formed pursuant to the terms
2
<PAGE> 4
of any of the Operating Agreements or the terms of the operating agreement of
SVI-International or of any redemption vehicle established by
SVI-International.
"Fund Investors" means any investor in the Fund.
"Fund Rate" is defined in Section 10(b).
"Identified Investment Security" is defined in Section 6(b).
"Indemnitee" is defined in Section 15(a).
"Independent Reviewer" means the Person selected by the Investment
Advisor to act as the independent reviewer for the Fund, including any
replacement or substitute therefor.
"Index Rate" means the NAREIT Equity Index (excluding healthcare
REITs) or, if such rate is unavailable for any partial monthly period, the S&P
REIT Index (excluding healthcare REITs).
"Initial Closing" is defined in Section 3(d).
"Initial Redemption Request Date" is defined in Section 6(b).
"in Interest" means, with respect to any percentage or fraction, the
Investors voting for or against the related proposal or issue, as the case may
be, expressed in terms of a percentage or fraction of the aggregate Capital
Commitments.
"Interest" means, with respect to any Investor, the interest of such
Investor in the U.S. Fund Entities, measured in terms of such Investor's Capital
Commitment.
"Investment Advisor" is defined in the preamble.
"Investment Advisor Fee" is defined in Section 10(a).
"Investment Period" means the 24 month period commencing at the
closing of the first acquisition on Investment Securities by SVI-U.S., which
period may be extended for another 12 months with the consent of two-thirds in
Interest of Unaffiliated Investors.
"Investment Proceeds" is defined in Section 5(b).
"Investment Securities" means REIT Shares and Partnership Units,
collectively.
3
<PAGE> 5
"Investor" is defined in the preamble.
"Line of Credit" is defined in Section 6(e).
"Memorandum" means the Private Placement Memorandum dated July 1,
1997, relating to SVI-U.S., as amended, restated, supplemented or otherwise
modified, pertaining to the offering of the Interests.
"Operating Agreement" means the Operating Agreement of SVI-U.S.
dated October 2, 1997.
"Operating Agreements" means the Operating Agreement and the Other
Operating Agreements, collectively.
"Other Operating Agreement" is defined in Section 6(c).
"Partnership Units" means partnership interests in REIT
Partnerships.
"Performance Fee" is defined in Section 10(b).
"Performance Fee Determination Date" is defined in Section 10(b).
"Person" means an association, a corporation, an individual, a
limited liability company, a partnership, a trust or any other entity or
organization, including a government or an agency, board, court, department,
official, political subdivision or representative thereof or any other
governmental entity.
"PIMS" means Prudential Investment Management Services LLC, a
Delaware limited liability company.
"PREI" means Prudential Real Estate Investors, a division of
Prudential.
"Preliminary Action Notice" is defined in Section 6(b).
"Private Investment Securities" means Investment Securities other
than Public Investment Securities.
"Prudential" is defined in the preamble.
"Prudential Co-Investor" means Prudential or an entity established
by Prudential through which Prudential will make certain investments alongside
SVI-International as described in the Memorandum.
4
<PAGE> 6
"Public Investment Securities" means publicly traded Investment
Securities that are freely transferrable by SVI-U.S. without further
registration under the Securities Act and shall not include Investment
Securities that are "restricted securities," Investment Securities acquired from
a REIT in circumstances that may cause SVI-U.S. to be treated as a statutory
underwriter in connection with any resale of such securities, or Investment
Securities subject to "lock-up agreements" or other holding periods (for so long
as such restrictions remain effective).
"Quarterly Contributed Capital" means, for any Investor with respect
to any Quarterly Payment Date, the average of such Investor's Contributed
Capital as at the last day of each month ending within the period to which such
Quarterly Payment Date relates.
"Quarterly Payment Date" is defined in Section 10(a).
"Redemption Vehicle" is defined in Section 6(c).
"Reinvestment Period" means, if the Capital Commitments are called
substantially in full prior to the second anniversary of the first purchase of
Investment Securities by SVI-U.S., the period commencing on the date on which
all Capital Commitments are called substantially in full and ending on such
second anniversary; provided that, if the Investment Period is extended,
references to "second anniversary" shall be deemed to be references to "third
anniversary."
"REIT" means any public or private real estate company or real
estate investment trust, whether or not such company qualifies as a real estate
investment trust under applicable provisions of the Code.
"REIT Partnership" means any partnership in which a REIT owns
general partnership interests or other significant partnership interests.
"REIT Shares" means shares or equivalents thereof of REITs.
"Sales Election" is defined in Section 7(a).
"Sales Election Deadline" is defined in Section 7(b).
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Shortfall Amount" is defined in Section 10(b).
"Standard of Care" is defined in Section 2(b).
5
<PAGE> 7
"Subsequent Closing" is defined in Section 3(d).
"SVI-International" means Strategic Value Investors International,
LLC, a Delaware limited liability company.
"SVI-U.S." is defined in the preamble.
"Unaffiliated Investor" means an Investor other than Prudential and
Prudential Co-Investor.
"Unfunded Commitments" means any Investor Capital Commitments that
have not been called by the Investment Advisor and delivered by such Investor
plus any capital contribution returned to such Investor pursuant to Section 8.4
of the Operating Agreement.
"U.S. Fund Entities" is defined in the preamble.
"Venture Capital Operating Company" has the meaning set forth in
Department of Labor regulation 29 C.F.R. ss. 2510.3 - 101(d).
SECTION 2. Appointment and Authorization; Standard of Care; Reliance
on Others.
a. Appointment and Authorization. Subject to and in accordance with
the terms of this Agreement, SVI-U.S. and any Redemption Vehicle that becomes
party hereto and the Investment Advisor hereby agree that the Investment Advisor
shall and is authorized to provide, on the terms set forth herein, the services
to SVI-U.S. and any such Redemption Vehicle as set forth herein, for the
compensation hereinafter described.
b. Standard of Care. The Prudential Investment Corporation, acting
solely in its capacity as investment advisor hereunder, is acting as a fiduciary
for SVI-U.S. The Investment Advisor shall discharge its duties hereunder solely
in the interests of the Investors and with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims (the "Standard of Care").
c. Reliance on Others. In performing its duties, the Investment
Advisor shall be entitled to rely on information, opinions, reports or
statements, including financial statements and other financial data, of the
following persons or groups unless they have knowledge concerning the matter in
question that would cause such reliance to be unwarranted and provided that the
Investment Advisor acts in good faith:
6
<PAGE> 8
i. one or more employees or other agents of Investment Advisor
whom the Investment Advisor reasonably believes to be reliable and
competent in the matters presented; or
ii. any attorney, independent accountant, valuation
consultant, or other person as to matters that the Investment Advisor
reasonably believes to be within such person's professional or expert
competence.
SECTION 3. Duties of the Investment Advisor.
a. Services to be Provided. The Investment Advisor shall direct,
manage and administer the operations of SVI-U.S. and any Redemption Vehicle. In
connection therewith the Investment Advisor shall evaluate, structure and
consummate investments for SVI-U.S., make calls on the Capital Commitments in
connection with the acquisition of Investment Securities or otherwise as
permitted herein; engage the Independent Reviewer; select any substitute or
replacement Independent Reviewer (subject to Section 3(c)); coordinate reviews
by the Independent Reviewer; manage the U.S. Fund Entities' portfolio of
Investment Securities; determine the timing and amount of dividends and
distributions to be made to Investors; cause the formation and maintenance, as
necessary and appropriate of Redemption Vehicles and the transfers of Investment
Securities thereto; effectuate borrowings and repayment of borrowings by
Redemption Vehicles in accordance with the terms hereof and of the Operating
Agreement; cause the dissolution of any vehicle constituting one of the U.S.
Fund Entities as permitted under this Agreement and the applicable operating
agreement of such vehicle or to cause the amendment of such operating agreements
pursuant to their respective terms; value the Investment Securities held by the
U.S. Fund Entities; determine whether to honor redemption requests in kind or in
cash or in some combination thereof and coordinate the execution of the same;
administer requests for redemptions; and prepare and distribute to Investors
reports, all in the manner generally contemplated and described in the
Memorandum; and take such actions as are necessary and appropriate to execute
the investment objectives of the U.S. Fund Entities and to fulfill the
obligations of the Investment Advisor as set forth herein, as referenced in the
Operating Agreement and/or as described in the Memorandum, including, without
limitation, actions in connection with the borrowing of funds and the
acquisition and disposition of Investment Securities.
b. Authority to Bind U.S. Fund Entities. Subject to Section 16, the
Investment Advisor shall have full power and authority to act on behalf of the
U.S. Fund Entities and to bind or obligate the U.S. Fund Entities. Nothing in
this Agreement shall be deemed to create a joint venture or partnership between
the parties with respect to the arrangements set forth in this Agreement. For
all purposes herein, the Investment Advisor shall be deemed to be an independent
contractor.
7
<PAGE> 9
c. Independent Reviewer.
i. The initial Independent Reviewer will be Houlihan, Lokey,
Howard and Zukin Financial Advisors Inc.
ii. If the Person serving as the Independent Reviewer ceases
to so serve or is unable (as a result of a conflicts of interest or
otherwise) to act with respect to any proposed investment, the Investment
Advisor shall select a replacement or substitute Independent Reviewer, as
the case may be, which replacement or substitute shall be a Person with
significant experience in the valuation, acquisition and trading of equity
securities, including securities similar to the Investment Securities
intended to be acquired by SVI-U.S., and shall be independent of, and
unaffiliated with, Prudential. The Investment Advisor shall give written
notice of such replacement or substitute to the Investors. Such
replacement or substitute Independent Reviewer will be deemed approved by
the Investors unless one-third or more in Interest of the Unaffiliated
Investors object in writing to such proposed replacement or substitute
within 15 days after notice with respect thereto is sent to the Investors.
Any replacement or substitute Independent Reviewer will be engaged on
terms and conditions substantially similar to those on which the initial
Independent Reviewer was engaged.
d. Closings.
i. The Investment Advisor may, in its sole direction, cause
SVI-U.S. to hold a closing (the "Initial Closing") subject to receipt of
Capital Commitments from Fund Investors other than Prudential totaling
$76.5 million or more.
ii. If at the Initial Closing, the Fund shall not have
received $510 million in Capital Commitments from Fund Investors other
than Prudential, the Investment Advisor may cause SVI-U.S. to hold
subsequent Closings (each, a "Subsequent Closing") during the next 12
months at which additional Interests may be purchased and Capital
Commitments delivered, until $510 million in Capital Commitments have been
obtained from Fund Investors other than Prudential.
iii. At the Initial Closing, Prudential's Capital Commitment
will equal 49% of all Capital Commitments to SVI-U.S. At each Subsequent
Closing, Prudential's Capital Commitment will be increased so that
Prudential's Capital Commitment will at all times equal 49% of all Capital
Commitments to SVI-U.S.
iv. Investors acquiring Interests at a Subsequent Closing
shall be required to purchase Interests at a price determined in
accordance with Section 8.4
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<PAGE> 10
of the Operating Agreement and to pay the expenses therein set forth and
the fees herein set forth.
v. Subsequent Closings may involve the purchase by SVI-U.S. of
Investment Securities from SVI-International or the sale by SVI-U.S. of
Investment Securities to SVI-International in order to generally maintain
the proportional relationship between SVI-U.S. and SVI-International.
vi. The amount contributed to SVI-U.S. at any Subsequent
Closing will be distributed to the Investors admitted to SVI-U.S. prior to
such Subsequent Closing ratably in proportion to their Capital
Commitments; provided that the Investment Advisor may direct a portion of
such amounts to instead be paid to SVI-International in order to
equitably allocate costs and expenses of SVI-U.S. and SVI-International.
e. Capital Calls.
i. Subject to subparagraph (iv) below, the Investment Advisor
may call for capital contributions from the Investors by giving Investors
written notice (each a "Drawdown Notice"), setting forth (i) the aggregate
amount drawn, (ii) each Investor's share thereof, (iii) the date on which
such amounts are due (the "Drawdown Date"), which shall be at least 10
business days after the date of such Drawdown Notice, (iv) the account
into which the funds drawn should be deposited and (v) with respect to
each Investor, such Investor's total Capital Commitment, the amount drawn
from such Investor to date, and the amount remaining to be drawn from such
Investor immediately following such Drawdown Date. Notwithstanding the
foregoing, at initial closing, the Investment Advisor shall not be
required to provide 10 business days' notice but will provide notice as
far in advance of the initial closing as possible.
ii. Each Investor shall be obligated to deliver to the account
so designated in immediately available funds such Investor's share of the
amount drawn prior to 10:00 a.m. (New York time) on the Drawdown Date.
iii. Any Investor who fails to fund such Investor's share of a
draw in conformity herewith shall be a "Defaulting Member" within the
meaning of Section 8.3 of the Operating Agreement.
iv. The Investment Advisor may call for capital only (y) in
connection with the proposed acquisition of Investment Securities, and the
payment of related Expenses, which draw must be made either (I) against
Unfunded Commitments or, (II) during a Reinvestment Period, in an
aggregate amount not in excess of Disposition Proceeds (net of deductions
for expenses) previously distributed
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<PAGE> 11
by the U.S. Fund Entities to the Investors, or (z) pursuant to and in
conformity with Section 6.2 of the Operating Agreement and Section 15.
Notwithstanding the foregoing, all amounts contributed to the U.S. Fund
Entities at a Subsequent Closing and distributed to the existing Investors
admitted to a U.S. Fund Entity prior to such Subsequent Closing may be
drawn down from such Investors at any time during the Commitment Period.
f. Valuations. The Investment Advisor shall value Investment
Securities quarterly for reporting purposes, and as and when necessary for other
purposes.
i. The Investment Advisor shall value Public Investment
Securities and any short-term marketable securities without discounts for
liquidity, block size or otherwise, at the average closing sales price for
such security for the five trading days prior to the valuation date, as
published in The Wall Street Journal.
ii. The Investment Advisor shall value Private Investment
Securities based on the value given to such Private Investment Securities
by Prudential's Comptroller's Department, Institutional Valuation Unit.
Absent known material circumstances, the Investment Advisor may base
valuation of such Private Investment Securities on valuations made by
third party appraisers or market participants, recent trades of securities
determined by the Investment Advisor to be substantially similar for such
purposes and other customary methods of valuing private or illiquid
securities; provided that Partnership Units which are, or are expected to
become, exchangeable for Public Investment Securities will be valued at
the value of such Public Investment Securities. Valuations of private
companies and their real estate are subject to numerous and various
assumptions and limitations. Many different individual assumptions may be
supportable and reasonable, but the interplay between different
assumptions, or the use of different accepted methodologies, may produce
different estimates of value for the same company or property. Valuations
should be considered only estimates of value, and not a measure of
realizable value, and are subject to change with the passage of time.
g. PREI to Fulfill Duties.
i. The Investment Advisor will fulfill its responsibilities
hereunder through PREI. In addition, the Investment Advisor and PREI may
arrange to have certain services the Investment Advisor is obligated to
provide performed by Prudential or any of its Affiliates. The Investment
Advisor may also assign its rights and obligations under this Agreement to
another entity that is wholly owned, directly or indirectly, by
Prudential, or to Prudential, so long as the personnel responsible for
providing such services are not substantially changed and such assignee is
a registered investment advisor.
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ii. If at any time Bernard Winograd ceases to be a portfolio
manager for the Fund, the Investors shall have no further obligations to
contribute capital to SVI-U.S. for the purpose of purchasing Investment
Securities and SVI-U.S. shall have no further right to purchase Investment
Securities, except, in each case, for the purchase of Investment
Securities that are subject to commitment letters or other documentation
at such time.
h. Other Service Providers. The Investment Advisor may from time to
time engage other service providers, including securities advisors, consultants,
architects, engineers, appraisers, legal and accounting firms, custodians, and
transfer agents. Each service provider shall be compensated by the U.S. Fund
Entities in such proportions, on such terms and at such rates as the Investment
Advisor deems appropriate in light of the services provided. The Investment
Advisor may engage Affiliates or utilize in-house staff of Prudential or any of
its Affiliates as service providers provided that (i) the Investment Advisor
reasonably believes that engaging an Affiliate or utilizing in-house staff of
Prudential or its Affiliate is in the best interests of the U.S. Fund Entities;
(ii) the compensation of such Affiliate or in-house staff of Prudential or its
Affiliate is comparable to that charged by unaffiliated third parties for
similar services; and (iii) the Investment Advisor notifies the Investors of the
retention of such an Affiliate or the use of in-house staff.
SECTION 4. Investments of the U.S. Fund Entities.
a. Permitted Investments. The Investment Advisor shall invest the
Capital Commitments in REIT Shares and Partnership Units in connection with, or
incidentally to, the sale of real estate by Prudential to the relevant REITs or
the contribution of real estate by Prudential to related REIT Partnerships, and,
in each case, in a manner consistent with the Memorandum.
b. Fairness Opinion. Before the acquisition by SVI-U.S. of
Investment Securities of a REIT or REIT Partnership, the Investment Advisor
shall require the Independent Reviewer to issue a fairness opinion with respect
to the terms and conditions of such proposed acquisition.
c. Investment Restrictions. The Investment Advisor shall cause a
substantial majority of the U.S. Fund Entities' investments to be in entities
that qualify for taxation as real estate investment trusts (as defined in
Section 856 of the Code). The Investment Advisor shall cause the Fund to acquire
no more than 40% in the aggregate of the Investment Securities of any one REIT
and its related REIT Partnerships. No more than 49% of the total Investment
Securities acquired by SVI-U.S. in respect of any one REIT and its related REIT
Partnerships will be in the form of Partnership Units of the related REIT
Partnerships.
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d. Investment Mechanics.
i. At or shortly prior to the closing of the first acquisition
of Investment Securities by SVI-U.S., the Investment Advisor will draw the
Capital Commitments ratably in proportion to Capital Commitments in an
amount sufficient to pay organizational costs of SVI-U.S.
ii. SVI-U.S. may acquire Investment Securities directly for
cash or, in circumstances in which Prudential has received Investment
Securities from the REIT or REIT Partnership whose Investment Securities
are to be acquired by SVI-U.S., SVI-U.S. may acquire such Investment
Securities in part for cash and in part as a contribution from Prudential.
iii. In the case of the acquisition of Investment Securities
solely for cash, the Investment Advisor shall call Capital Commitments
ratably in proportion to Capital Commitments in an aggregate amount
sufficient to acquire the Investment Securities (and to pay related costs
and expenses).
iv. In the case of the acquisition of Prudential's share of
the Investment Securities as a contribution from Prudential, the
Investment Advisor shall call Capital Commitments of the Unaffiliated
Investors ratably in proportion to Capital Commitments of such
Unaffiliated Investors, in an aggregate amount sufficient to purchase the
Investment Securities allocable to such Unaffiliated Investors, and
Prudential will contribute to SVI-U.S. Investment Securities (valued on
the basis of the price established in the investment transaction) such
that 49% of the full amount of the Investment Securities so contributed
and so purchased will be allocable to Prudential. In such case, the
Investment Advisor may call for additional amounts to pay related costs
and expenses.
v. In the case of the acquisition of Prudential's share of the
Investment Securities in part as a contribution from Prudential and in
part for cash, the Investment Advisor shall cause SVI-U.S. to take the
actions described in subparagraphs (iii) and (iv) above in such
combination as the Investment Advisor deems appropriate.
e. Allocation of Expenses. The Investment Advisor shall cause
investments and expenses to be allocated between the U.S. Fund Entities (subject
to Section 11), on the one hand, and SVI-International and Prudential
Co-Investor, on the other, pro rata in accordance with the aggregate amounts of
capital commitments of each.
f. Sale of Investment Securities Prior to Termination. The
Investment Advisor shall endeavor, prior to the termination of this Agreement,
to cause all Private Investment Securities to be sold or otherwise disposed of
for cash; provided, however, that
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such Investment Securities not theretofore sold or disposed of will be
distributed in kind to the applicable Investors on a pro rata basis as is
appropriate.
SECTION 5. Distributions.
a. Operating Agreement. The Investment Advisor shall cause the U.S.
Fund Entities to make Distributions to the Investors in accordance with the
provisions of the Operating Agreements. The Investment Advisor may withhold from
any such Distribution to an Investor (i) any Investment Advisor Fees or
Performance Fees then due by such Investor, (ii), subject to Section 11(a), such
Investor's share of any amounts then owing for Expenses of the U.S. Fund
Entities, (iii) such Investor's share of any capital call made in conformity
with Section 3(e) that is then pending, (iv) any taxes required to be withheld
by the pertinent U.S. Fund Entity in respect of such Investor, and (v) any
amount that the Investment Advisor deems is advisable to hold as a reserve for
expenses and liabilities of the U.S. Fund Entities, subject to Section 11(a).
Any amounts withheld under clauses (i), (iii) and (iv) above shall be deemed to
have been distributed for all purposes under this Agreement and the Operating
Agreements. Any amount withheld and deemed distributed under clause (iii) and
the preceding sentence shall be deemed to have been recontributed by the
pertinent Investor in response to the pertinent capital call. Such distributions
shall be made as and when determined by the Investment Advisor, in its sole
discretion, but in any event no later than the termination of the U.S. Fund
Entities.
b. Collection Account. The Investment Advisor shall cause the U.S.
Fund Entities to deposit dividends received on Investment Securities and
proceeds received by the U.S. Fund Entities from the sale of Investment
Securities (other than proceeds from sales in connection with repayments of
indebtedness of Redemption Vehicles) (such proceeds, "Investment Proceeds") into
one or more accounts for the U.S. Fund Entities ("Collection Accounts") or
invest such amounts in short-term, investment grade securities. The Investment
Advisor shall, in its sole discretion, withdraw and apply such amounts in
payment of the Expenses of the U.S. Fund Entities or hold such amounts in the
Collection Account in order to create reserves for anticipated costs and
expenses of the U.S. Fund Entities.
SECTION 6. Redemptions.
a. Generally. Investors may request redemptions with respect to all,
but not less than all, of their Allocated Percentages of any Public Investment
Securities, and, in addition, Prudential may request a redemption with respect
to all, but not less than all, of its Allocated Percentage of any Investment
Security that consists of Partnership Units that relate to Investment Securities
that are Public Investment Securities, by, in any such case, complying with the
notice requirements of Section 6(b). In addition, whenever any Unaffiliated
Investors request redemptions with respect to any Public Investment Securities,
Prudential shall be deemed to have requested a redemption with respect to the
same Public
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Investment Securities (or, in the event Prudential has an interest through
SVI-U.S. in any Partnership Units obtained in connection with the transactions
in which SVI-U.S. acquired such Public Investment Securities, a redemption with
respect to a combination of such Partnership Units and such Public Investment
Securities (in such proportions as Prudential shall designate)) in the minimum
amount required so that, following all such redemptions, both Prudential's
aggregate percentage interest in the profits and contributed capital of SVI-
U.S. and Prudential's percentage interest in the profits and capital of the
Redemption Vehicle formed to effectuate such redemption shall be not more than
49%. Subject to Section 6(f), the Investment Advisor may in its sole discretion
respond to any actual (or, in the case of Prudential, a deemed) redemption
request with respect to Public Investment Securities by distributing to the
pertinent Investor (i) such Investor's Allocated Percentage thereof in kind,
(ii) the value in cash, determined as set forth in Section 3(f), of such
Investor's Allocated Percentage of such Public Investment Securities or (iii)
some combination of (i) and (ii) above. The Investment Advisor shall respond to
any redemption request by Prudential in respect of Partnership Units by
distributing the Partnership Units subject thereto to Prudential. Subject to the
preceding sentence, the Investment Advisor shall honor all redemption requests
with respect to a particular Investment Securities ratably and with the same
consideration.
b. Notices -- Preliminary and Final. Redemptions may be requested,
on March 15 and September 15 of each year (each an "Initial Redemption Request
Date"), in accordance with the following procedures:
i. An Investor who wishes to request a redemption should send
a notice to such effect to the Investment Advisor within 30 days prior to
the applicable Initial Redemption Request Date. The notice must be
received on or before the relevant Initial Redemption Request Date and
must specify (a) one or more securities with respect to which redemption
is sought (any such security, an "Identified Investment Security") and (b)
if the Investment Advisor determines to make a cash payment, whether the
Investor wishes to receive its redemption proceeds by wire transfer to an
identified account of the Investor at any domestic commercial bank that is
a member of the Federal Reserve System, or by check.
ii. Within 10 business days after the applicable Initial
Redemption Request Date, the Investment Advisor shall forward to each
Investor a notice (the "Preliminary Action Notice") setting forth (i) each
redemption request received or deemed received (including the identity of
the Fund Investors requesting a redemption), (ii) a description of any
changes in the rights associated with the pertinent Investment Securities
as a result of the redemption, (iii) whether the Investment Advisor has
preliminarily elected to effect redemptions pursuant thereto in cash or in
kind and (iv) if the redemption may be effected in cash, to the extent
available, a description of any Line of Credit to be utilized and an
explanation of the rationale for leveraging the Investment Securities.
Each Investor shall have an
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opportunity to re-evaluate its redemption request or its failure to
request a redemption in light of the initial proposed action specified in
the Preliminary Action Notice. Not later than five (5) business days after
the date of the Preliminary Action Notice (such date the "Final Redemption
Request Date"), each Investor that wishes to cancel or modify its
redemption request and each Investor that failed to submit a redemption
request must notify the Investment Advisor by sending a new or modified
redemption request (a "Final Redemption Request") specifying the
Investment Securities with respect to which such Investor has finally
decided to request redemption, and containing the other information
required to be contained in the redemption request made on or before the
Initial Redemption Request Date. If a Final Redemption Request in proper
form is not received from an Investor on or before the Final Redemption
Request Date, such Investor shall be deemed to have made its request as
set forth in the request made on or before the Initial Redemption Request
Date or, if no such request had been made, to waive its right to redeem
during the period in question.
iii. Within five (5) business days after the Final Redemption
Request Date, the Investment Advisor shall determine, in its sole
discretion, how to best satisfy the redemption requests, and will forward
a notice to each Investor (the "Final Action Notice") advising as to such
action and as to the approximate date on which distributions or payments
are intended to be made (the "Final Redemption Date"). Such action may be
different than as stated in the Preliminary Action Notice.
c. Redemption Vehicles. Whenever a redemption is to be effectuated
with respect to Partnership Units or with respect to Public Investment
Securities held by SVI-U.S., the Investment Advisor shall cause to be formed a
new entity (a "Redemption Vehicle") for the purpose of holding, for the account
of the nonredeeming Investors and, in cases in which it has an interest in
Public Investment Securities with respect to which it has not requested
redemption, Prudential, (i) in the case of a redemption with respect to
Partnership Units, the Investment Securities of issuers affiliated with the
issuer of such Partnership Units ("Affiliated Securities") that are not to be
distributed to Investors in connection with such redemption and (ii) in the case
of a redemption with respect to Public Investment Securities, the Identified
Investment Securities that are not to be distributed to Investors in connection
with such redemption. Each Redemption Vehicle shall be a limited liability
company governed by an operating agreement (each, an "Other Operating
Agreement") with terms substantially the same as those of the Operating
Agreement (except as relates to Closings, Partnership Units and other matters
not relevant to such Redemption Vehicle or not required to be reiterated in such
Other Operating Agreement). The Investment Advisor shall cause each Redemption
Vehicle to become a party to this Agreement. No Redemption Vehicle shall hold
securities of more than one issuer or affiliate group of issuers. Redemption
Vehicles shall be formed in connection with redemptions as follows:
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i. In the case of a Final Action Notice that specifies that a
redemption will be made solely with respect to an Identified Investment
Security that is a Public Investment Security, the Investment Advisor will
cause SVI-U.S. to form the relevant Redemption Vehicle, contribute the
pertinent Identified Investment Securities to such Redemption Vehicle,
distribute interests in the Redemption Vehicle to Investors in proportion
to their Allocated Percentages in such Identified Investment Securities,
and cause such Redemption Vehicle to make the redemptions specified in the
Final Action Notice in cash, in kind, or in combination, as so specified.
If any redemption is to be made in cash, the pertinent Redemption Vehicle
shall borrow the cash as described in Section 6(e) at any time after the
Investors have been distributed their respective interests in the
Redemption Vehicle.
ii. In the case of a Final Action Notice that specifies that a
redemption will be made solely with respect to an Identified Investment
Security that consists of Partnership Units, the Investment Advisor will
cause SVI-U.S. to distribute to Prudential all of the Partnership Units
constituting the Identified Investment Securities and will thereafter
cause SVI-U.S. to form the relevant Redemption Vehicle, contribute the
Affiliated Securities to such Redemption Vehicle, and distribute interests
in such Redemption Vehicle to the Unaffiliated Investors in proportion to
their Allocated Percentages in the Affiliated Securities.
iii. In the case of a Final Action Notice that specifies that
a redemption will be made both with respect to an Identified Investment
Security that consists of Partnership Units and with respect to an
Identified Investment Security that consists of the related Affiliated
Securities, the Investment Advisor shall cause SVI-U.S. to form the
relevant Redemption Vehicle, contribute the Affiliated Securities to such
Redemption Vehicle, distribute to Prudential all of the Partnership Units
in question, distribute interests in the Redemption Vehicle to
Unaffiliated Investors in proportion to their Allocated Percentages in the
Affiliated Securities, and cause such Redemption Vehicle to make the
redemptions specified in the Final Action Notice in cash, in kind, or in
combination as so specified.
Notwithstanding the foregoing, the Investment Advisor may
cause a Redemption Vehicle to hold Partnership Units so long as (i) no
indebtedness is incurred by such Redemption Vehicle in connection with
such redemption or (ii) any indebtedness incurred by such Redemption
Vehicle is equally and ratably secured by Partnership Units and REIT
Shares.
d. Subsequent Redemptions by Redemption Vehicles. In the case of a
Final Action Notice that specifies that a redemption will be made with respect
to an Identified Investment Security held by a Redemption Vehicle, the
Investment Advisor will cause the Redemption Vehicle in question to make the
redemptions specified in such Final Action Notice, in cash, in kind, or in
combination, as so specified.
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e. Line of Credit.
i. The Investment Advisor shall cause any Redemption Vehicles
that is to make a redemption in cash to obtain a line of credit (the "Line
of Credit") to provide funds for such redemption. Such Line of Credit
shall be from a lender unaffiliated with Prudential, and shall be on such
terms as the Investment Advisor deems appropriate under the circumstances.
If necessary, the Investment Advisor may cause the U.S. Fund Entities to
pledge their interests in REIT Shares to a lender under a Line of Credit
to secure loan commitment related to such Line of Credit. No Redemption
Vehicle shall borrow in excess of 50% of the value of its assets as of the
date of the borrowing. The Investment Advisor shall take steps it deems
necessary (including selling a portion of the pertinent Investment
Securities and repaying all or a portion of such indebtedness) so that the
indebtedness incurred pursuant to the Line of Credit obtained by a
Redemption Vehicle is maintained at a level that does not exceed 50% of
the value of the assets of such Redemption Vehicle; provided that the
Investment Advisor shall not be required to take such steps if such ratio
is not met due to temporary market fluctuations.
ii. The Investment Advisor may secure the Line of Credit in
whole or part with the Investment Securities and cash held by the
Redemption Vehicle borrowing thereunder.
iii. Expenses related to the Line of Credit and debt service
on amounts borrowed thereunder shall be expenses of the pertinent
Redemption Vehicle, and shall be payable out of the proceeds from the sale
Investment Securities held by the Redemption Vehicle or dividends or other
Distributions payable in respect of such Investment Securities.
f. Limitations on Redemptions. The Investment Advisor may deny any
redemption request if the Investment Advisor determines in its reasonable
discretion that making a redemption pursuant thereto may (i) adversely affect
the ability of any U.S. Entity (including the Redemption Vehicle that would be
formed in connection with such redemption) to qualify as a "Venture Capital
Operating Company" within the meaning of ERISA; or (ii) have material adverse
tax or regulatory consequences for Investors.
SECTION 7. Sales Election.
a. Generally. If the Investment Advisor determines to sell or
transfer any Investment Security other than a sale or transfer (i) to a
Redemption Vehicle, (ii) of Partnership Units in connection with any redemption,
or (iii) to pay debt service in respect of a borrowing by a Redemption Vehicle,
each Investor may elect instead to receive a distribution in kind of its
Allocated Percentage of such Investment Security (a "Sales Election").
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b. Notice to Investor; Election. The Investment Advisor shall notify
each Investor in writing of the Investment Advisor's decision to sell or
transfer a specified Investment Security, and shall include in such notification
the Investment Advisor's best estimate of the approximate price to be received
and the anticipated timing of the proposed sale or series of sales. No later
than 5 business days from the date of each such notice (such fifth day, the
"Sales Election Deadline"), each Investor shall have the right to elect in
writing to receive its Allocated Percentage of the Investment Securities in
question. The actual price and timing of sales may vary from the Investment
Advisor's estimates as set forth in its notice to Investors. No such variance
shall require the Investment Advisor to make an additional notice or give rise
to any further election by Investors with respect to the Investment Securities
in question.
c. Distribution. Simultaneous with the consummation of the sale of
the specified Investment Securities, the Investment Advisor shall cause the
pertinent U.S. Fund Entity to distribute to each Investor making a Sales
Election, such Investor's Allocated Percentage of the amount sold of such
Investment Securities. For all purposes of this Agreement and the Operating
Agreements, such distribution shall be deemed to be a distribution of the value,
determined by reference to the sale of the specified Investment Securities, of
the Investment Securities distributed.
d. Holdback. No Investor shall sell, transfer or otherwise dispose
of any portion of its interest in any Investment Security received pursuant to a
Sales Election or any other security of the issuer of such Investment Security
held by such Investor, until the earlier of (i) 6 months after the Sales
Election Deadline or (ii) the date on which the pertinent U.S. Fund Entity has
sold, transferred or otherwise disposed of all of its interest in such
Investment Securities.
SECTION 8. Reports.
a. The books and records of the U.S. Fund Entities shall be kept
according to the accrual method of accounting, and shall be audited as of the
end of each Fiscal Year by a firm of independent certified public accountants of
national recognition and standing selected by the Investment Advisor. Within 60
days after the end of each Fiscal Year, the Investment Advisor shall cause to be
prepared and mailed to the Investors a report of such accountants, setting forth
as at the end of such Fiscal Year:
i. a balance sheet of the U.S. Fund Entities;
ii. a statement of the net income or net loss for such year
and such Investor's share thereof;
iii. a statement of cash flow;
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iv. a statement of such Investor's Capital Account; and
v. the amount of such Investor's share in each U.S. Fund
Entity's taxable income or loss for each year, in the form required by the
Code and applicable regulations and in sufficient detail to enable it to
timely prepare its federal, state and other tax returns;
In addition, concurrently with the report of such accountants, the Investment
Advisor shall cause to be mailed to the Investors, if not already contained in
such report to be provided to the Investors by such accountants, a report
containing a statement of any fees received by the Investment Advisor or any of
its Affiliates in connection with Fund's activity.
The Investment Advisor shall also cause to be delivered to any
Investor upon request such other information as shall be needed by such Investor
in order to enable it to timely file any of its tax returns and will also from
time to time furnish such other information as any Investor may reasonably
request for the purpose of enabling it to timely comply with any reporting or
filing requirements imposed or permitted by any statute, rule, regulation or
otherwise by any governmental agency or authority, or to furnish to, or
otherwise be used in connection with its relationship with, any regulatory
authority.
b. Within 45 days after the end of each of the first three fiscal
quarters in each Fiscal Year, the Investment Advisor shall cause to be prepared
and mailed to each Investor a report of the Investment Advisor setting forth the
(unaudited) information described in Section 8(a)(i)-(v) and a report containing
a statement of fees received by the Investment Advisor or any of its Affiliates
in connection with the Fund's activities.
SECTION 9. Tax and ERISA Matters.
a. Pursuant to the delegation of authority more particularly
described in the Operating Agreement, the Investment Advisor shall function as
the "Tax Matters Partner" for purposes of Section 6231 of the Code of each U.S.
Fund Entity and will have the exclusive authority and discretion to make any
elections required or permitted to be made by any U.S. Fund Entity under the
Code or any other tax laws; provided that the Investment Advisor shall not cause
any U.S. Fund Entity to be excluded from the partnership taxation provisions of
Subchapter K of the Code.
b. The Investment Advisor shall use its reasonable best efforts to
cause each U.S. Fund Entity to qualify as a Venture Capital Operating Company.
Concurrently with the closing of the first acquisition of Investment Securities
by SVI-U.S., the Investment Advisor shall obtain an opinion of counsel which
opinion shall state whether SVI-U.S. should qualify as a Venture Capital
Operating Company on the date of such closing.
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Annually, the Investment Advisor shall provide a certificate to each Investor
stating that the Investment Advisor believes that SVI-U.S. and each Redemption
Vehicle should have qualified as a Venture Capital Operating Company on the
applicable day of such "annual valuation period" or otherwise is not deemed to
have "Plan Assets" under ERISA.
c. If the Investment Advisor determines that the same is required to
prevent legal restrictions or requirements applicable to any Investor or any
U.S. Fund Entity from having a material adverse effect on any such Investor or
entity, the Investment Advisor may, in its sole discretion: (i) cause the U.S.
Fund Entity in question to dissolve and distribute its assets in accordance with
the Operating Agreement or the pertinent Other Operating Agreement; (ii) cause
all or a portion of the Interests of any Investor to be redeemed in a manner
generally consistent with Section 6; or (iii) cause the Operating Agreement, any
Other Operating Agreement or this Agreement to be amended (provided that no such
amendment may be made unilaterally if such amendment would have a material
adverse effect on any Investor).
SECTION 10. Compensation.
a. Investment Advisor Fee. Each Investor shall pay to the Investment
Advisor a fee (the "Investment Advisor Fee") based on such Investor's
Contributed Capital from time to time. The Investment Advisor Fee shall be
payable quarterly in arrears on the last day of each calendar quarter (each a
"Quarterly Payment Date") or, if such day is not a business day, the next
succeeding business day. The amount due on each Quarterly Payment Date will be
equal to one-fourth of the sum of (i) 60 basis points times the amount of such
Investor's Quarterly Contributed Capital not in excess of $50 million as at such
date; (ii) 50 basis points times the amount of such Investor's Quarterly
Contributed Capital in excess of $50 million but not in excess of $100 million
as at such date; and (iii) 40 basis points times the amount of such Investor's
Quarterly Contributed Capital in excess of $100 million as at such date. If the
Investment Advisor Fee has not been paid within 30 days of the applicable
Quarterly Payment Date the pertinent Investor shall be deemed to be a
"Defaulting Member" within the meaning of Section 8.3 of the Operating
Agreement.
b. Performance Fee.
i. Each Investor shall pay to the Investment Advisor a fee
(the "Performance Fee") based upon such Investor's return on its
investment. The Performance Fee shall be payable by an Investor on the
date of (a) any actual or deemed Distribution (other than a Distribution
made in connection with a Subsequent Closing) to such Investor of cash
proceeds from the sale of Investment Securities by any U.S. Fund Entity
and (b) any Distribution of Investment Securities to such Investor by any
U.S. Fund Entity (any such date, a "Performance Fee Determination Date").
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ii. The Performance Fee with respect to any Investor will be
equal to the sum of (a) 20% of the relevant Investor's return (after
costs, expenses and the Investment Advisor Fee but before the Performance
Fee) in excess of the return such Investor would have realized had such
Investor's Capital Contributions been invested at the Index Rate and (b)
an additional 10% of the relevant Investor's return (after costs, expenses
and the Investment Advisor Fee but before the Performance Fee) in excess
of the return such Investor would have realized had such Investor's
Capital Contributions been invested at a rate equal to the Index Rate plus
500 basis points.
iii. On each Performance Fee Determination Date with respect
to any Investor, the Performance Fee will be determined with respect to
any Investment Securities distributed on such date and any Investment
Securities proceeds with respect to which are distributed or deemed
distributed on such date. The Performance Fee will be determined by (a)
future valuing to the Performance Fee Determination Date, at the Index
Rate, each Capital Contribution made by the relevant Investor with respect
to the pertinent Investment Securities; (b) future valuing to the
Performance Fee Determination Date, at the Index Rate plus 500 basis
points, each capital contribution made by the relevant Investor with
respect to the pertinent Investment Securities; (c) future valuing to the
Performance Fee Determination Date, at the Index Rate, the amount of any
Shortfall Amount in respect of the prior Performance Fee Determination
Date, and (d) future valuing to the Performance Fee Determination Date, at
the Fund Rate, each distribution or deemed distribution (other than any
distribution that itself triggered a Performance Fee Determination Date)
made to the relevant Investor with respect to the pertinent Investment
Securities. The Performance Fee will equal the sum of (i) 20% of the
amount, if any, by which (I) the sum of the distribution being made in
respect of the pertinent Investment Securities on the Performance Fee
Determination Date plus the amount described in clause (d) above exceeds
(II) the sum of the amounts described in clauses (a) and (c) above; plus
(ii) 10% of the amount, if any, by which (III) the sum of the distribution
being made in respect of the pertinent Investment Securities on the
Performance Fee Determination Date plus the amount described in clause (d)
above exceeds (IV) the sum of the amounts described in clauses (b) and (c)
above. If on any Performance Fee Determination Date the amount described
in clause (II) above exceeds the amount described in clause (I) above, no
Performance Fee will be due and such excess will be carried forward to the
next Performance Fee Determination Date as a "Shortfall Amount." If on the
last Performance Fee Determination Date with respect to any Investor,
there exists a Shortfall Amount the Investment Advisor will rebate to such
Investor, without interest, an amount of Performance Fees previously paid
to the Investment Advisor with respect to such Investor equal to the
lesser of the amount of such Shortfall Amount and the amount of such
Performance Fees previously paid. For the purposes of calculating the
Performance Fee, (x) the "Fund Rate" shall mean the aggregate internal
rate of return earned by the U.S. Fund Entities' investments through the
applicable
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Performance Fee Determination Date assuming a sale of all investments for
their respective fair market values as of such date and monthly
compounding and (y) any distribution that was in fact reduced by the
withholding of a payment of the Investment Advisor Fee will be treated as
having been so reduced, and any payment of the Investment Advisor Fee made
directly by the pertinent Investor and not previously treated as a
reduction of a distribution pursuant to this clause will be subtracted
from the amount of the distribution being made on the Performance Fee
Determination Date.
iv. All future value computations shall be made using monthly
compounding and the actual number of days elapsed in each month.
v. If the Performance Fee has not been paid within 30 days the
pertinent Investor shall be deemed to be a "Defaulting Member" within the
meaning of Section 8.3 of the Operating Agreement.
vi. Notwithstanding the foregoing, if, on the last Performance
Fee Determination Date with respect to any Investor, the aggregate amount
of capital contributed, and fees paid, by such Investor exceeds the sum of
the aggregate amount of cash and the value of all property actually
distributed to such Investor, the Investment Advisor will rebate to such
Investor Performance Fees previously paid by such Investor in an amount
equal to the lesser of (y) such excess and (z) Performance Fees received
by the Investment Advisor from such Investor.
c. Invoices. The Investment Advisor will provide each Investor with
an invoice for each of the Investment Advisor Fee and the Performance Fee due
from such Investor reflecting any amounts not deducted from Distributions. Each
invoice shall reflect the amount of the Investment Advisor Fee or Performance
Fee, as the case may be, that has been paid up to the date of such invoice. Any
amount that has not been deducted as reflected in any such invoice and that is
not paid within 10 days of the date of such invoice shall bear interest at the
Base Rate.
SECTION 11. Expenses.
a. Expenses of the U.S. Fund Entities. Each of the U.S. Fund
Entities shall bear its share of organizational costs and expenses and the U.S.
Fund Entities, collectively, shall bear their share of all costs and expenses of
operating the Fund. The costs and expenses associated with operating the Fund
(collectively, "Expenses") will include, without limitation, (i) costs and
expenses of meetings of Investors, and of preparing, printing and mailing
reports to Investors and of amending organizational documents when necessary;
(ii) brokers' commissions and fees of transfer agents chargeable in connection
with any securities transactions; (iii) fees and expenses of service providers,
whether affiliated with Prudential
22
<PAGE> 24
or not, including, without limitation, securities advisors, attorneys
(including, without limitation, SVI-U.S.'s share of a one time fee of $15,000.00
to reimburse PREI for the cost of its in-house counsel for services in
connection with creation of Fund), accountants, appraisers, contractors,
architects, engineers, consultants, insurance consultants, custodians and other
agents; and (iv) to the extent not included in the foregoing or paid out of
other sources, the costs and expenses connected with the acquisition,
disposition and ownership of the Investment Securities, and the termination of
the U.S. Fund Entities. All such Expenses shall be allocated among U.S. Fund
Entities and among Investors in accordance with the following principles: (1)
Expenses that relate to a particular U.S. Fund Entity or to the Investment
Securities held thereby shall be allocated to such U.S. Fund Entity and to the
Investors therein in proportion to their Allocated Percentages therein at the
time the Expense is incurred; (2) Expenses that relate to Partnership Units
shall be allocated to Prudential; (3) Expenses that relate to Affiliated
Securities shall be allocated to the Investors with Allocated Percentages with
respect thereto in proportion to such percentages; (4) Expenses that relate to
unconsummated investment transactions shall be allocated to SVI-U.S. and to the
Investors therein in proportion to their Allocated Percentages; and (5) Expenses
that relate to the Independent Reviewer shall be allocated to the Unaffiliated
Investors in proportion to their Allocated Percentages.
b. Expenses of the Investment Advisor and Administrative Services.
At its expense, the Investment Advisor, Prudential and/or PREI, shall pay the
compensation of their respective employees who provide services to the Fund,
including, without limitation, administration and portfolio management services,
provide adequate office space and any necessary office furnishings and
equipment, together with telephone service, heat, utilities, supplies and
similar miscellaneous office expenses and shall provide other necessary items of
an overhead and administrative nature.
SECTION 12. Conflicts; Waiver.
The Investment Advisor and its Affiliates or associates or any of
their legal, financial or other advisors shall in no way be prohibited from, and
intend to, spend substantial time in connection with other businesses or
activities, including, but not limited to, managing investments, advising or
managing entities whose investment objectives are the same as or overlap with
those of the Fund, participating in actual or potential investments of the Fund,
providing consulting, merger and acquisition, structuring or financial advisory
services, including with respect to actual, contemplated or potential
investments of the Fund, or acting as a director, officer or creditors'
committee member of, adviser to, or participant in, any corporation,
partnership, trust or other business entity. The Investment Advisor and its
Affiliates or associates or any of their legal, financial or other advisors may,
and expect to, receive fees or other compensation from third parties for such
activities, which fees will be for the benefit of their own account and not the
Fund. Such fees may relate to actual, contemplated or potential investments of
the Fund and may be payable by entities in which the Fund directly or
indirectly, has invested or contemplates investing. Each U.S. Fund
23
<PAGE> 25
Entity and each Investor waives any and all rights of any nature whatsoever that
any such Person may have to object to or participate or any such activity.
SECTION 13. Representations and Warranties of the Investment
Advisor.
The Investment Advisor hereby represents and warrants to SVI-U.S. as
of the date hereof as follows:
a. The Investment Advisor is a corporation, duly incorporated
and validly existing under the laws of the State of New Jersey, has
the full power and authority to transact the business in which it is
presently engaged and is duly qualified under the laws of each
jurisdiction where the conduct of its business requires, or the
performance of its obligations under this Agreement would require,
such qualification.
b. The Investment Advisor has full corporate power and
authority and has obtained all necessary authorization to execute,
deliver and perform this Agreement on the terms and conditions
hereof. No consent of any other Person and no license, permit,
approval or authorization of, exemption by, notice or report to, or
registration, fling or declaration with, any governmental authority
is required by the Investment Advisor in connection with this
Agreement or the execution, delivery, performance, validity or
enforceability hereof. This Agreement constitutes the legal, valid
and binding obligation of the Investment Advisor enforceable against
the Investment Advisor in accordance with its terms, subject to
bankruptcy, insolvency moratorium or similar laws affecting
generally the enforcement of creditors' rights and general equitable
principles.
c. The Investment Advisor's execution, delivery and
performance of this Agreement and any documents and instruments
required hereunder shall not violate any provision of any existing
law or regulation binding on the Investment Advisor, or any order,
judgment, award or decree of any court, arbitrator or governmental
authority binding on the Investment Advisor, or of any mortgage,
indenture, lease, contract or other agreement, instrument or
undertaking to which the Investment Advisor is a party or by which
the Investment Advisor or any of its assets may be bound, and shall
not result in or require the creation or imposition of any lien on
any of its property, assets or revenues pursuant to the provisions
of any such mortgage, indenture, lease, contract or other agreement,
instrument or undertaking.
24
<PAGE> 26
d. SVI-U.S. is a limited liability company, duly formed and
validly existing under the laws of the State of Delaware, has the
full power and authority to transact the business in which it is
presently engaged and is duly qualified under the laws of each
jurisdiction where the conduct of its business requires, or the
performance of its obligations would require, such qualification.
SECTION 14. Liability of the Investment Advisor.
Except as otherwise required by law, the Investment Advisor and any
of its Affiliates, directors, officers, employees, shareholders, assigns,
representatives or agents shall not be liable, responsible or accountable in
damages or otherwise to the Fund or any Investor for any loss, liability,
damage, settlement cost, or other expense (including attorneys' fees) incurred
by reason of any act or omission or any such alleged act or omission performed
or omitted by such Person (including those in connection with serving on boards
of directors for companies in the Fund's portfolio) if such Person acted in a
manner consistent with the Standard of Care.
SECTION 15. Indemnification.
a. Indemnity. To the fullest extent permitted by applicable law, the
Investment Advisor, PIMS, PREI, the Independent Reviewer and any of their
respective officers, directors, agents, stockholders, partners, members,
employees, other Affiliates, and any other Person who serves at the request of
the Investment Advisor on behalf of any of the U.S. Fund Entities (each such
Person being an "Indemnitee") shall be held harmless and be indemnified by the
U.S. Fund Entities for any liability, loss (including amounts paid in
settlement), damages or expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred by such Indemnitee on behalf of the
U.S. Fund Entities or in furtherance of the interests of the U.S. Fund Entities
or otherwise arising out of, or in connection, with the U.S. Fund Entities;
provided that such Indemnitee acted in a manner consistent with the Standard of
Care.
b. Advances. To the fullest extent permitted by law, expenses
(including, without limitation, legal fees) incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the U.S. Fund Entities prior to the final disposition of
such claim, demand, action, suit or proceeding upon receipt by the U.S. Fund
Entities of an undertaking by or on behalf of the Indemnitee to repay such
amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 15.
c. Limitation on Liability. The individual indemnity obligation of
each Investor will be limited to the lesser of (i) the aggregate of: (x) such
Investor's Unfunded
25
<PAGE> 27
Commitments; (y) Distributions (including Distributions in redemption)
previously made to such Investor; and (z) the Investor's Interest in the U.S.
Fund Entities or (ii) such Investor's Capital Commitment. The Investment Advisor
shall not call capital for the purpose of satisfying the foregoing obligations
in an amount in excess of the sum of such Investor's Unfunded Commitment and
Distributions to such Investor that represent returns of capital.
SECTION 16. Term of Agreement; Survival of Certain Terms.
a. Initial Term. Unless terminated in accordance with its terms this
Agreement shall remain in effect with respect to each U.S. Fund Entity until the
termination of such U.S. Fund Entity.
b. Termination. This Agreement may be terminated at any time with or
without cause upon 90 days' prior written notice by (i) SVI-U.S. (upon the vote
of a majority in Interest of the Unaffiliated Investors therein) or (ii) the
Investment Advisor (but in the latter case, subject to Section 9(c), only if
this Agreement is so terminated with respect to all U.S. Fund Entities). Upon
such termination, the Investment Advisor shall be entitled to receive all
compensation it has earned through the effective date of such termination,
including any accrued but unpaid Investment Advisor Fee and Performance Fee.
c. Survival. Notwithstanding anything herein to the contrary,
Sections 10, 11, 15 and 16 of this Agreement shall survive any termination
hereof.
SECTION 17. Notices.
Unless expressly provided otherwise herein, all notices, requests,
demands and other communications required or permitted under this Agreement
shall be in writing (including by telecopy) and shall be deemed to have been
duly given, made and received when delivered against receipt or upon actual
receipt of registered or certified mail, postage prepaid, return receipt
requested, or, in the case of telecopy notice, when received in legible form,
addressed as set forth below:
If to SVI-U.S.:
c/o Prudential Real Estate Investors
8 Campus Drive, 4th Floor
Arbor Circle South
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Fax: (973) 683-1794
26
<PAGE> 28
with a copy to:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Jacqueline A. Weiss, Esq.
Fax: (212) 326-2061
If to the Investment Advisor:
Prudential Real Estate Investors
8 Campus Drive, 4th Floor
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Fax: (973) 683-1794
with a copy to:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Jacqueline A. Weiss, Esq.
Fax: (212) 326-2061
Any party may alter the address or telecopy number to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this Section 17 for the giving of
notice.
SECTION 18. Amendments; Waivers.
Subject to Section 9, this Agreement may be amended only by
agreement in writing of the Investment Advisor and a majority in Interest of the
Unaffiliated Investors, provided that any amendment that materially adversely
affects the Investors shall require the approval of at least two-thirds in
Interest of the Unaffiliated Investor, and provided further that no such
amendment shall be effective if the Investment Advisor reasonably determines
that such amendment could reasonably be expected to materially adversely affect
the Fund taken as a whole. The Investment Advisor shall cause the effectuation
of any such amendment duly approved by the appropriate Investors. Except as
otherwise provided herein, no waiver of any provision nor consent to any
exception to the terms of this Agreement shall be effective unless in writing
and signed by the party to be bound and then only to the specific purpose,
extent and instance so provided. No failure on the part of any party to exercise
or delay in exercising any right hereunder shall be deemed a waiver
27
<PAGE> 29
thereof, nor shall any single or partial exercise preclude any further or other
exercise of such or any other right.
SECTION 19. Governing Law.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to conflict of law
principles.
SECTION 20. Assignment.
Neither this Agreement nor any rights or obligations under it are
assignable, except that the Investment Advisor may assign its obligations
hereunder as set forth in Section 3(g).
SECTION 21. Headings.
The descriptive headings of the Articles, Sections and subsections
of this Agreement are for convenience only and do not constitute a part of this
Agreement.
SECTION 22. Parties in Interest.
This Agreement shall be binding upon and inure to the benefit of
each party and their respective permitted successors and assigns, and nothing in
this Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement, except that the Investors shall be third party beneficiaries hereof.
SECTION 23. Consent to Jurisdiction and Litigation.
All litigation relating to or arising under or in connection with
this Agreement shall be brought only in the federal or state courts of competent
jurisdiction located in the State and County of New York, which shall have
exclusive jurisdiction to resolve any disputes with respect to this Agreement.
By execution and delivery of this Agreement, each party hereto irrevocably and
unconditionally consents to the jurisdiction of such courts for any actions,
suits or proceedings arising out of or relating to this Agreement. The parties
hereto irrevocably waive any obligation of the laying of venue or based on the
grounds of forum non conveniens that it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction. No party hereto shall
be entitled to immunity whatsoever, whether characterized as sovereign immunity
or otherwise, from any legal proceedings to enforce the obligations hereunder.
Subject to Section 15, in the event of any breach of the provisions of this
Agreement, the non-breaching party shall be entitled to equitable relief,
including in the form of injunctions and orders for specific performance, where
the
28
<PAGE> 30
applicable legal standards for such relief in such courts are met, in addition
to all other remedies available to the non-breaching party with respect thereto
at law or in equity.
SECTION 24. Attorney's Fees.
In the event of any action for the breach of this Agreement or
misrepresentation by any party, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses incurred in such action.
SECTION 25. Representation By Counsel.
Each party hereto acknowledges that such party to this Agreement has
been represented by counsel in connection with this Agreement and the
transactions contemplated by this Agreement. Accordingly, any rule of law or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived.
SECTION 26. Interpretation.
The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of the parties hereto. Any of the terms
used herein may, unless the context otherwise requires be used in the singular
or the plural depending on the reference. All words or terms used in this
Agreement, regardless of the number or gender in which they are used, shall
include any other number or gender, as the context may require. Further,
"hereof," "herein," "hereunder," "hereto," "this Agreement" and comparable terms
refer to the entire instrument, including any exhibits or schedules to the
instrument, and not to any particular article, section or other subdivision of
the instrument. All references to SVI-U.S. shall include all parallel or
subsidiary vehicles including Redemption Vehicles, if any, that may be utilized.
In such circumstances, references to the Operating Agreement shall be deemed to
include references to the applicable Other Operating Agreements. References to
actions to be taken by any U.S. Fund Entity shall mean such actions to be taken
by the Investment Manager on behalf of such U.S. Fund Entity or, if applicable,
to the Investment Manager causing such U.S. Fund Entity to take such action,
unless the context clearly requires otherwise.
SECTION 27. Further Assurances.
Each party agrees to execute and deliver (or to cause the execution
and delivery of) such further instruments and to do such further acts as the
Investment Advisor deems necessary or advisable to better effectuate this
Agreement.
29
<PAGE> 31
SECTION 28. Severability.
If any provision of this Agreement is determined to be invalid,
illegal or unenforceable by any court of competent jurisdiction or other
governmental entity, the remaining provisions of this Agreement to the extent
permitted by law shall remain in full force and effect provided that the
essential terms and conditions of this Agreement for all parties remain valid,
binding and enforceable; provided that the economic and legal substance of the
transactions contemplated is not affected in any manner materially adverse to
any party. In event of any such determination, the parties agree to negotiate in
good faith to modify this Agreement to fulfill as closely as possible the
original intents and purposes hereof. To the extent permitted by law, the
parties hereby to the same extent waive any provision of law that renders any
provision hereof prohibited or unenforceable in any respect.
SECTION 29. Counterparts.
This Agreement may be executed in any number of counterparts by
facsimile or other written form of communication, each of which shall be deemed
to be an original as against any party whose signature appears thereon, and all
of which shall together constitute one and the same instrument. This Agreement
shall become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
SECTION 30. WAIVER OF JURY TRIAL.
EACH PARTY HERETO, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
[Remainder of Page Intentionally Left Blank]
30
<PAGE> 32
IN WITNESS WHEREOF, each of the parties hereto has caused this
Investment Advisory Agreement to be executed by its duly authorized officers as
of the day and year first above written.
STRATEGIC VALUE INVESTORS, LLC
By: The Prudential Investment Corporation
Its: Attorney-in-Fact
By: /s/ JOSEPH D. MARGOLIS
--------------------------------------
Name: Joseph D. Margolis
Title: Vice President
THE PRUDENTIAL INVESTMENT CORPORATION
By: /s/ JOSEPH D. MARGOLIS
--------------------------------------
Name: Joseph D. Margolis
Title: Vice President
S-1
<PAGE> 33
ANNEX NUMBER 1 TO INVESTMENT ADVISORY AGREEMENT
Date: ___________, 199__
The undersigned acknowledges and agrees as follows:
1. This Annex Number 1 is part of the Investment Advisory Agreement dated
October 2, 1997, to which it is attached.
2. The undersigned is a party to and a "Member" under the Operating Agreement
and or one or more Other Operating Agreements, and its notice address for
purposes hereof it as set forth thereunder.
3. The undersigned has reviewed this Annex Number 1 and the Investment
Advisory Agreement and is represented by counsel in connection therewith.
4. The undersigned will pay the Investment Advisor Fee and the Performance
Fee in accordance with the Investment Advisory Agreement.
5. The Investment Advisor may deduct or withhold from Distributions to the
undersigned any amounts payable by the undersigned in respect of any fees
or expenses relating to the Investment Advisory Agreement.
6. No Indemnitee shall be liable to the undersigned and the undersigned shall
indemnify each Indemnitee, all as set forth in Section 15 of the
Investment Advisory Agreement, and the Investment Advisor may deduct,
withhold or make capital calls for any amounts payable by the undersigned
in respect thereof.
7. The undersigned shall fulfill any other obligations it may have under
Sections 7, 10, 11 or 15 of the Investment Advisory Agreement.
8. Appointment of Investment Advisor as Attorney-in-Fact:
The undersigned irrevocably constitutes and appoints the Investment
Advisor, and any replacement or substitute Investment Advisor, as the
undersigned's true and lawful attorney-in-fact and agent, with full power
and authority in the undersigned's name, place and stead (a) the execute,
acknowledge, deliver, file and record in the appropriate public offices
all certificates or other instruments (including counterparts
A-1
<PAGE> 34
of the Operating Agreement) that the Investment Advisor deems appropriate
to continue SVI-U.S. as a limited liability company in the jurisdiction in
which SVI-U.S. conducts business, including amendments to the Operating
Agreement necessary to correct scriveners' errors, and from and after the
date on which the undersigned becomes a Defaulting Member, all documents
and instruments (including transfer and sale documents) that the
Investment Advisor deemed necessary to implement the rights and remedies
set forth in Section 8.3 of the Operating Agreement, (b) to take all
actions necessary and to execute and deliver all documents, certificates
and other instruments (including Other Operating Agreements) in connection
with the formation of Redemption Vehicles in accordance with Section 6(c)
of the Investment Advisory Agreement and the subsequent operation of such
Redemption Vehicles and (c) to take all actions as are necessary and
appropriate to fulfill the duties of Investment Advisor as referenced in
the Investment Advisory Agreement and the Operating Agreement and/or as
described in the Memorandum, including, without limitation, actions in
connection with the borrowing of funds and the acquisition and disposition
of Investment Securities.
The appointment by the undersigned of the Investment Advisor as
attorney-in-fact set forth shall be deemed to be a power coupled with an
interest and with full power of substitution, in recognition of the fact
that the undersigned will be relying upon the Investment Advisor to act as
contemplated by the Investment Advisory Agreement and the Operating
Agreement in any filing and other action by the Investment Advisor on
behalf of SVI-U.S., and such power shall, to the extent permitted by law,
survive the death, disability, incompetency, withdrawal, removal,
bankruptcy or insolvency of any Person hereby giving such power and the
transfer by the undersigned of all or part of its Interest. The foregoing
power of attorney of a transferor undersigned shall survive such transfer
only until such time as the transferee shall have been admitted to
SVI-U.S. as a member and all required documents and instruments shall have
been duly executed, filed and recorded to effect such substitution. Any
Person dealing with SVI-U.S. may conclusively presume and rely upon the
fact that any such instrument executed by such agent and attorney-in-fact
is authorized, regular and binding without further inquiry.
A-2
<PAGE> 35
9. This Annex Number 1 shall survive the termination of the Investment
Advisory Agreement.
-------------------------
By:
-------------------------------------
Name:
Title:
Notice Address:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Attention:
----------------------------------
Fax:
----------------------------------------
A-3
<PAGE> 1
EXHIBIT VI
OPERATING AGREEMENT
OF
STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC
Dated as of October 2, 1997
<PAGE> 2
OPERATING AGREEMENT OF
STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC
A DELAWARE LIMITED LIABILITY COMPANY
TABLE OF CONTENTS
Page
----
ARTICLE 1.
DEFINITIONS............................... 1
1.1 Defined Terms........................................................ 1
1.2 Construction......................................................... 10
ARTICLE 2.
THE COMPANY............................... 10
2.1 Formation Under Act.................................................. 10
2.2 Statutory Compliance................................................. 11
2.3 Name of Company...................................................... 11
2.4 Purpose of Company................................................... 11
2.5 Principal and Registered Office; Service of Process.................. 11
2.6 Expenses of Consideration of Investment by Member.................... 11
2.7 No Individual Authority.............................................. 11
2.8 No Member Responsible for Other's Commitments........................ 11
ARTICLE 3.
TERM................................... 12
3.1 Term................................................................. 12
ARTICLE 4.
MANAGEMENT OF THE COMPANY........................ 12
4.1 The Investment Advisory Agreement.................................... 12
4.2 Management........................................................... 12
4.3 Performance of Duties................................................ 13
4.4 Activities in the United States...................................... 13
4.5 Limited Liability.................................................... 13
ARTICLE 5.
FISCAL YEAR............................... 13
5.1 Calendar Year........................................................ 13
i
<PAGE> 3
Page
----
ARTICLE 6.
MEMBERS................................. 14
6.1 Liability............................................................ 14
6.2 Indemnification...................................................... 14
6.3 Appointment of Manager as Attorney-In-Fact........................... 15
6.4 Survival of Appointment of Manager as Attorney-In-Fact............... 15
ARTICLE 7.
MEETINGS................................. 15
7.1 Meetings............................................................. 15
7.2 Quorum............................................................... 16
7.3 Manner of Acting..................................................... 16
7.4 Proxies.............................................................. 16
7.5 Action by Members Without a Meeting.................................. 16
7.6 Waiver of Notice..................................................... 16
ARTICLE 8.
CAPITAL COMMITMENTS AND CONTRIBUTIONS OF THE MEMBERS........... 17
8.1 Calls on Capital Commitments......................................... 17
8.2 Allocation of Investment Securities Acquired......................... 18
8.3 Defaults............................................................. 18
8.4 Subsequent Fund Closings............................................. 18
8.5 Portfolio Manager.................................................... 18
ARTICLE 9.
REDEMPTIONS............................... 19
9.1 Generally............................................................ 19
9.2 Notices -- Preliminary and Final..................................... 19
9.3 Redemption Vehicles.................................................. 20
9.4 Subsequent Redemptions by Redemption Vehicles........................ 20
9.5 Line of Credit....................................................... 21
9.6 Limitations on Redemptions........................................... 21
ARTICLE 10.
SALES ELECTION.............................. 21
10.1 Generally............................................................ 21
10.2 Notice to Member; Election........................................... 21
ii
<PAGE> 4
Page
----
10.3 Distribution......................................................... 22
10.4 Holdback............................................................. 22
ARTICLE 11.
ALLOCATIONS AND DISTRIBUTIONS...................... 22
11.1 Distributions........................................................ 22
11.2 Allocations.......................................................... 23
11.3 Allocation of Tax Items for Federal and State and Local Tax
Purposes............................................................. 25
ARTICLE 12.
ASSIGNMENT; RESTRICTIONS ON TRANSFER OF INTERESTS............ 25
12.1 Transfers............................................................ 25
12.2 Assumption by Assignee............................................... 26
12.3 Other Assignments Void............................................... 26
ARTICLE 13.
INDEPENDENT REVIEWER........................... 26
13.1 Independent Reviewer................................................. 26
13.2 Initial Independent Reviewer......................................... 27
ARTICLE 14.
BOOKS AND RECORDS, REPORTS, TAXES, ETC.................. 27
14.1 Books; Reports....................................................... 27
14.2 Where Maintained..................................................... 28
14.3 Tax Returns.......................................................... 28
14.4 Section 754 Election................................................. 28
ARTICLE 15.
DISSOLUTION............................... 29
15.1 Dissolution.......................................................... 29
15.2 Procedures........................................................... 29
15.3 Certificate of Cancellation.......................................... 30
15.4 No Action for Dissolution............................................ 30
iii
<PAGE> 5
Page
----
ARTICLE 16.
REMOVAL OF MANAGER............................ 30
ARTICLE 17.
NOTICES................................. 30
17.1 In Writing; Address.................................................. 30
ARTICLE 18.
MISCELLANEOUS.............................. 31
18.1 Governing Law........................................................ 31
18.2 Entire Agreement..................................................... 31
18.3 Headings............................................................. 32
18.4 Parties in Interest.................................................. 32
18.5 Confidentiality...................................................... 32
18.6 Amendments; Waivers.................................................. 32
18.7 Severability......................................................... 32
18.8 Consent to Jurisdiction and Litigation............................... 33
18.9 Partnership Tax Treatment; Tax Matters Partner....................... 33
18.10 Conflicts; Waiver.................................................... 33
18.11 Counterparts......................................................... 34
18.12 Waiver of Jury Trial................................................. 34
iv
<PAGE> 6
OPERATING AGREEMENT OF
STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC
This Operating Agreement (this "Agreement") of STRATEGIC VALUE
INVESTORS INTERNATIONAL, LLC (the "Company") is entered into and shall be
effective as of the 2nd day of October, 1997, by and among STRATEGIC VALUE
INVESTORS INTERNATIONAL LTD., a Cayman Islands company (the "Manager"), and the
other parties identified on the signature pages hereof (collectively, the
"Members").
R E C I T A L S
WHEREAS, the Members desire to form a limited liability company
under the Delaware Limited Liability Company Act (the "Act") to make investments
from outside the United States in REIT Shares (as such capitalized term is
defined below);
WHEREAS, the Members desire to execute this Agreement to establish
the rules and procedures that are to govern the conduct of the investment
activities and related affairs of the Company as set forth below;
NOW, THEREFORE, in consideration of the foregoing recitals, which
are incorporated into the operative provisions of this Agreement by this
reference, and for good and valuable consideration, the receipt and adequacy of
which are hereby conclusively acknowledged and intending to be legally bound
thereby, the Members hereby covenant and agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Accountants" means Price Waterhouse, LLP or any other accountancy
firm that has been retained by the Manager to serve as accountants to the
Company.
"Act" has the meaning set forth in the Recitals.
"Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of the
end of the taxable year, after giving effect to the following adjustments:
(i) credit to such Capital Account any amount that such Member
is obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the Treasury
Regulations, as well as any addition thereto pursuant to the next to last
sentence of Sections 1.704-2(g)(1) and (i)(5) of the Treasury Regulations,
after taking into account thereunder any changes
1
<PAGE> 7
during such year in minimum gain, as determined in accordance with
Sections 1.704-2(d) and 1.704-(i)(3) of the Treasury Regulations; and
(ii) debit to such Capital Account the items described in
Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury
Regulations.
This definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulations Section 1.704-l(b)(2)(ii)(d)
and 1.704-2, and will be interpreted consistently with those provisions.
"Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person.
"Agreement" means this Operating Agreement as the same shall be
amended or supplemented from time to time in accordance with the terms set forth
herein.
"Allocated Percentage" means, with respect to any Member, the
percentage of any Investment Security allocated to such Member on the books of
the Company.
"Bankruptcy" means, with respect to any Person, the inability of
such Person generally to pay its debts as such debts become due, or an admission
in writing by such Person of its inability to pay its debts generally or a
general assignment by such Person for the benefit of creditors; the filing of
any petition or answer by such Person seeking to adjudicate it a bankrupt or
insolvent, or seeking for itself any liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of such Person or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking, consenting to, or acquiescing in the entry of an
order for relief or the appointment of a receiver, trustee, custodian, or other
similar official for such Person or for any substantial part of its property; or
corporate action taken by such Person to authorize any of the actions set forth
above.
"Base Rate" means, at any date, the prime rate then in effect for
The Chase Manhattan Bank (or, if unavailable, another major money center bank
selected by the Manager), plus 2% per annum.
"Business Day" means a day other than a Saturday, Sunday or legal
holiday for commercial lenders under the laws of the States of Delaware, New
Jersey or New York.
"Capital Account" means, with respect to each Member, a single
capital account that shall be established for such Member and that shall be
maintained for such Member in accordance with the following provisions:
(i) To each Member's Capital Account there shall be credited
such Member's Capital Contributions, such Member's allocable share of
Profits, and any
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items in the nature of income or gain that are specially allocated
pursuant to Article 11 of this Agreement, and the amount of any Company
liabilities that are assumed by such Member or that are secured by any
Company property distributed to such Member.
(ii) To each Member's Capital Account there shall be debited
the amount of cash and the Gross Asset Value of any Company property
actually or deemed distributed to such Member pursuant to any provision of
this Agreement, such Member's allocable share of Losses, and any items in
the nature of expenses or Losses that are specially allocated pursuant to
Article 11 of this Agreement, and the amount of any liabilities of such
Member that are assumed by the Company or that are secured by any property
contributed by such Member to the Company.
(iii) In the event the Gross Asset Values of Company assets
are adjusted, the Capital Accounts of all Members shall be adjusted
simultaneously to reflect aggregate net adjustment as if the Company
recognized gain or loss equal to the amount of such aggregate net
adjustment.
(iv) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations Section 1.704-1(b), and shall be
interpreted and applied in a manner consistent with such Treasury
Regulations.
(v) In the event any Interest in the Company is transferred in
accordance with the terms of this Agreement, the transferee shall succeed
to the Capital Account of the transferor to the extent it relates to the
transferred Interest.
"Capital Commitment" means, when referring to a dollar amount, an
amount committed by any Member pursuant to a Subscription Agreement.
"Capital Contribution" means, for each Member, the aggregate amount
contributed to the Company by such Member pursuant to Section 8.1 hereof.
"Certificate of Formation" means the Certificate of Formation of the
Company filed with the Delaware Secretary of State on September 10, 1997, as
amended or restated from time to time.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, or corresponding provisions of subsequent superseding
Federal revenue laws.
"Collection Account" has the meaning set forth in Section 11.1(f).
"Commitment Period" means the period commencing on the closing of
the first purchase of Investment Securities by the Company and expiring on the
second anniversary of such date (or the third anniversary of such date if the
Commitment Period is extended with the consent of two-thirds in Interest), or,
if earlier, on the date on which the Company is terminated.
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"Company Minimum Gain" has the meaning assigned to the term
partnership minimum gain in Treasury Regulations Section 1.704-2(b)(2) and
1.704-2(d)(1). In general, Company Minimum Gain equals the excess of the amount
by which a Nonrecourse Liability exceeds the adjusted tax basis of the Company
property it encumbers.
"Defaulting Member" has the meaning set forth in Section 8.3.
"Depreciation" means, for each taxable year or other period, an
amount equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for the year or other period for federal
income tax purposes, except that if the Gross Asset Value of an asset differs
from its adjusted basis for federal income tax purposes at the beginning of the
year or other period, Depreciation will be an amount that bears the same ratio
to the beginning Gross Asset Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for the year or other period
bears to the beginning adjusted tax basis, provided that if the federal income
tax depreciation, amortization, or other cost recovery deduction for the year or
other period is zero, Depreciation will be determined with reference to the
beginning Gross Asset Value using any reasonable method selected by the Tax
Matters Partner.
"Disposition Proceeds" means all cash and non-cash proceeds received
by the Company for any sale or other disposition of any Investment Security or
portion thereof.
"Dissolution Events" has the meaning set forth in Section 15.1.
"Distributions" means all distributions made, or deemed to be made,
to the Members pursuant to Section 11.1.
"Expenses" has the meaning set forth in the Investment Advisory
Agreement.
"Final Action Notice" has the meaning set forth in Section 9.2.
"Final Redemption Date" has the meaning set forth in Section 9.2.
"Final Redemption Request" has the meaning set forth in Section 9.2.
"Final Redemption Request Date" has the meaning set forth in Section
9.2.
"Fiscal Year" has the meaning set forth in Article 5.
"Fund" means SVI-U.S., the Company, the co-investment arrangement
with Prudential Co-Investor, any Redemption Vehicle, any redemption vehicle
established in connection with SVI-U.S., and any similar separate or "side"
vehicle formed pursuant to the terms of any of the Other Operating Agreements or
the terms of the operating agreement of SVI-U.S. or of any redemption vehicle
established in connection with SVI-U.S., collectively.
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"Gross Asset Value" means, with respect to any asset, the adjusted
basis of such asset for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by
a Member to the Company will be the fair market value of the asset (valued
on the basis of the price established in the investment transaction) on
the date of the contribution, as determined by the Manager.
(ii) The Manager shall adjust the Gross Asset Values of all
Company assets to equal the respective fair market values of the assets,
as reasonably determined by the Manager, as of (a) the acquisition of an
additional interest in the Company by any new or existing Member in
exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Company to a Member of more than a de minimis amount
of Company property as consideration for an interest in the Company if the
Manager reasonably determines an adjustment is necessary or appropriate to
reflect the relative economic interests of the Members in the Company and
(c) the liquidation of the Company within the meaning of Treasury
Regulations Section 1.704-1(b)(2)(ii)(g).
(iii) The Gross Asset Values of Company assets will be
increased or decreased to reflect any adjustment to the adjusted basis of
the assets under Code Sections 734(b) or 743(b), but only to the extent
that the adjustment is taken into account in determining Capital Accounts
under Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(iv) The Gross Asset Value of any Company asset distributed to
any Members will be the gross fair market value of the asset as determined
by the Manager on the date of distribution.
After the Gross Asset Value of any asset has been determined or
adjusted under subparagraphs (i), (ii), or (iii) above, the Gross Asset Value
will be adjusted by the Depreciation taken into account with respect to the
asset for purposes of computing Profits or Losses.
"Initial Closing Date" means the date on which the Company first
issues Interests to the Members.
"Initial Redemption Request Date" has the meaning set forth in
Section 9.2.
"in-Interest" means, with respect to any percentage or fraction, the
Members voting for or against the related proposal or issue, as the case may be,
expressed in terms of a percentage or fraction of aggregate Capital Commitments.
"Interest" means with respect to any Member, the interest of such
Member in the Company, measured in terms of such Member's Capital Commitment.
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"Investment Advisor" means the Prudential Investment Corporation in
its capacity as investment advisor under the Investment Advisory Agreement,
which will fulfill its responsibilities through PREI.
"Investment Advisor Fees" has the meaning set forth in the
Investment Advisory Agreement.
"Investment Advisory Agreement" has the meaning set forth in Section
4.1.
"Investment Company Act" means the Investment Company Act of 1940,
as amended from time to time.
"Investment Proceeds" has the meaning set forth Section 11.1(f).
"Investment Securities" means REIT Shares.
"Line of Credit" has the meaning set forth in Section 9.5.
"Liquidator" has the meaning set forth in Section 15.2(a).
"Manager" shall mean Strategic Value Investors International Ltd., a
Cayman Islands company, and each replacement Manager appointed or elected by the
Members in accordance with this Agreement.
"Member" means each party (other than the Manager) that shall
execute this Agreement or a counterpart of this Agreement.
"Member Nonrecourse Debt" means any nonrecourse debt of the Company
for which any Member bears the economic risk of loss, as described in Treasury
Regulations Section 1.704-2(b)(4).
"Member Nonrecourse Debt Minimum Gain" means an amount, with respect
to each Member Nonrecourse Debt, equal to the Company Minimum Gain that would
result if such Member Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Treasury Regulations Section 1.704-2(i)(3).
"Member Nonrecourse Deductions" has the meaning assigned to the term
partner nonrecourse deductions in Treasury Regulations Section 1.704-2(i)(2). In
general, the amount of Member Nonrecourse Deductions with respect to a Member
Nonrecourse Debt for any tax year is the excess, if any, of the net increase
during such year in the amount of Member Nonrecourse Debt Minimum Gain
attributable to such Member Nonrecourse Debt, over the aggregate amount of any
actual or deemed distributions during such year to the Member that bears the
economic risk of loss for such Member Nonrecourse Debt to the extent such
distributions are from the proceeds of such Member Nonrecourse Debt, and are
allocable to an
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increase in the Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt.
"Member's Share of Company Minimum Gain" generally means, as
described in Treasury Regulations Section 1.704-2(g)(1), the sum of Nonrecourse
Deductions allocated to such Member and the aggregate amount of distributions
made to such Member of proceeds of a Nonrecourse Liability that are allocable to
an increase in Company Minimum Gain, minus the aggregate of such Member's Share
of the Net Decrease in Company Minimum Gain.
"Member's Share of Member Nonrecourse Debt Minimum Gains" generally
means, as described in Treasury Regulations Section 1.704-2(i)(5), an amount
determined in a manner consistent with Treasury Regulations Section
1.704-2(g)(1) with respect to each Member Nonrecourse Debt for which such Member
bears the economic risk of loss.
"Member's Share of the Net Decrease in Company Minimum Gain"
generally means, as described in Treasury Regulations Section 1.704-2(g)(2), an
amount equal to the total net decrease in Company Minimum Gain multiplied by a
ratio equal to such Member's Share of Company Minimum Gain at the end of the
immediately preceding taxable year over the total Company Minimum Gain at such
time.
"Member's Share of the Net Decrease of Member Nonrecourse Debt
Minimum Gain" generally means, as described in Treasury Regulations
1.704-2(i)(4), an amount determined in a manner consistent with Treasury
Regulations Section 1.704-2(g)(2).
"Memorandum" means the Private Placement Memorandum dated July 1,
1997, relating to the Company, as supplemented by General Supplement No. 1 for
the Company pertaining to the offering of the Interests.
"Nonrecourse Deductions" has the meaning assigned to such term in
Treasury Regulations Section 1.704-2(c). In general, the amount of Nonrecourse
Deductions for a Company taxable year equals the excess of the net increase, if
any, in the amount of Company Minimum Gain during such year over the aggregate
amount of distributions during such year of proceeds of a Nonrecourse Liability
that are allocable to an increase in Company Minimum Gain.
"Nonrecourse Liability" means any debt of the Company to the extent
that no Member (or a Person related to a Member) bears the economic risk of loss
for that liability, as described in Treasury Regulations Sections 1.704-2(b)(3)
and 1.752-l(a)(2).
"Notice of Default" has the meaning set forth in Section 8.3.
"Other Operating Agreements" has the meaning set forth in Section
9.3.
"Performance Fees" has the meaning set forth in the Investment
Advisory Agreement.
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"Person" means an association, a corporation, an individual, a
limited liability company, a partnership, a trust or any other entity or
organization, including a government or an agency, board, court, department,
official, political subdivision or representative thereof or any other
governmental entity.
"PIMS" means Prudential Investment Management Services LLC, a
Delaware limited liability company.
"Portfolio Income" means all cash and non-cash dividends or other
actual or deemed distributions in respect of any Investment Securities or
portion thereof that do not constitute Disposition Proceeds.
"PREI" means Prudential Real Estate Investors, a division of
Prudential.
"Preliminary Action Notice" has the meaning set forth in Section
9.2.
"Profits" and "Losses" mean, for each taxable year or other period,
an amount equal to the Company's federal taxable income or loss (as is
appropriate) for such year or other period, determined in accordance with Code
Section 703(a) (including all items of income, gain, loss or deduction required
to be stated separately under Section 703(a)(1) of the Code), with the following
adjustments:
(i) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses will be added to taxable income or loss;
(ii) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures under
Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses, will be subtracted from
taxable income or loss;
(iii) Gain or loss resulting from any disposition of Company
property (with respect to which gain or loss is recognized for federal
income tax purposes) will be computed by reference to the Gross Asset
Value of the property, notwithstanding that the adjusted tax basis of the
property differs from its Gross Asset Value;
(iv) Any items that are specially allocated pursuant to
Section 11.2 shall be excluded from the determination of Profits and
Losses; and
(v) In lieu of depreciation, amortization, and other cost
recovery deductions taken into account in computing taxable income or
loss, there will be taken into account Depreciation for the taxable year
or other period.
"Prudential" means The Prudential Insurance Company of America.
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"Prudential Co-Investor" means Prudential or an entity established
by Prudential through which Prudential or such entity will directly make certain
investments in parallel with the Company.
"Public Investment Security" has the meaning set forth in the
Investment Advisory Agreement.
"Redemption Vehicles" has the meaning set forth in Section 9.3.
"Reinvestment Period" means, if the Capital Commitments are called
substantially in full prior to the second anniversary of the first purchase of
Investment Securities by the Company, the period commencing on the date on which
all Capital Commitments are called substantially in full and ending on such
second anniversary; provided that, if the Commitment Period is extended,
references to "second anniversary" shall be deemed to be references to "third
anniversary".
"REIT" means any public or private real estate company or real
estate investment trust, whether or not such company qualifies as a real estate
investment trust under applicable provisions of the Code, provided such entity
is classified as a corporation for federal income tax purposes.
"REIT Shares" means shares of REITs or securities convertible,
exchangeable or exercisable into shares of REITs.
"Sales Election" has the meaning set forth in Section 10.1.
"Sales Election Deadline" has the meaning set forth in Section 10.2.
"Section 704(c) Property" means (i) each item of property that is
contributed to the Company and to which Section 704(c) of the Code or Section
1.704-3(a)(3) of the Treasury Regulations applies, and (ii) each item of Company
property that, as contemplated by Section 1.704-1(b)(4)(i) and other analogous
provisions of the Treasury Regulations, is governed by the principles of Section
704(c) of the Code (or principles contained in Section 704(c) of the Code).
"Securities Act" means the Securities Act of 1933, as the same may
be amended.
"Standard of Care" has the meaning set forth in Section 4.3.
"Subscription Agreement" means one of the several Subscription
Agreements between the Company and a Member.
"SVI-U.S." means Strategic Value Investors, LLC, a Delaware limited
liability company.
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"Tax Matters Partner" means the person designated as "Tax Matters
Partner" pursuant to Section 18.9.
"Transfer" means (a) as a noun, any voluntary or involuntary, direct
or indirect, sale, conveyance, assignment, transfer, divestment, alienation,
pledge, hypothecation, creation of a security interest in, or other disposition,
or encumbrance, and (b) as a verb, voluntarily or involuntarily, directly or
indirectly, to sell, convey, assign, transfer, divest, alienate, pledge,
hypothecate, create a security interest in, or otherwise dispose of or encumber;
whether for consideration or gratuitously.
"Treasury Regulations" means the regulations implementing the Code,
as the same may be hereafter amended.
"Unfunded Commitments" means any Member's Capital Commitments that
have not been called by the Manager and delivered by such Member to the Company,
plus any capital contribution returned to such Member pursuant to Section 8.4.
1.2 Construction. Any of the terms used herein may, unless the
context otherwise requires, be used in the singular or the plural depending on
the reference. All words or terms used in this Agreement, regardless of the
number or gender in which they are used, shall include any other number or
gender, as the context may require. The words "herein", "hereof" and "hereunder"
shall refer to this Agreement unless the context otherwise requires. The word
"including" shall mean "including, without limitation," except where the context
otherwise requires. References to contracts, agreements, and other contractual
instruments shall be deemed to include all subsequent amendments, supplements
and other modifications permitted by the terms of this Agreement. References to
specific statutes include (a) successor statutes of similar purpose and import,
and (b) all rules, regulations and orders promulgated thereunder. The term
"provisions," when used with respect hereto or to any other document or
instrument, shall be construed as if preceded by the phrase "terms, covenants,
agreements, requirements, conditions and/or". This Agreement shall not be
construed against any party hereto as the drafters hereof. All references to
"Articles," "Sections," "clauses," and "Exhibits" are to Articles, Sections,
clauses and Exhibits to this Agreement unless the context otherwise requires.
All Exhibits attached hereto are made a part hereof and are incorporated herein
by this reference.
ARTICLE 2.
THE COMPANY
2.1 Formation Under Act. The Members hereby associate themselves as
members in a limited liability company under the Act, upon the terms and
conditions contained in this Agreement. The Members hereby ratify and confirm
the Certificate of Formation, and resolve that the same was duly authorized,
executed, delivered and filed. The Manager shall, when required, file such
amendments to, or restatements of, the Certificate of Formation, in
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<PAGE> 16
such public offices in the State of Delaware, the Cayman Islands, or elsewhere
as the Manager deems advisable to give effect to the provisions of this
Agreement and the Certificate of Formation, and to preserve the character of the
Company as a limited liability company.
2.2 Statutory Compliance. The Company shall exist under and be
governed by, and this Agreement shall be construed in accordance with, the
applicable laws of the State of Delaware. In the event of any conflict between
any provision of this Agreement and any provision of the Act, such provision of
this Agreement shall control unless the contravention of such provision of the
Act is expressly prohibited by the Act. Members shall execute and file such
documents and instruments as may be necessary or appropriate in the sole
discretion of the Manager with respect to the formation of, and the conduct of
business by, the Company.
2.3 Name of Company. The Company will be conducted under the name
"Strategic Value Investors International, LLC."
2.4 Purpose of Company. The purpose of the Company is to acquire,
sell, dispose of, and invest in Investment Securities from the Cayman Islands
and to engage in such other activities as are permitted hereby. The Company
shall not engage in any other business or in any business within the United
States. In connection with the foregoing, the Company may engage in all
activities necessary, customary, convenient or incident to such purpose, upon
the terms and subject to the conditions of this Agreement.
2.5 Principal and Registered Office; Service of Process. The
principal office and principal place of business of the Company shall be:
[insert Cayman Islands address] or such other place as the Manager may from time
to time determine. The registered address of the Company in Delaware shall be:
1023 Centre Road, Wilmington, Delaware 19805. The registered agent of the
Company at such address shall be Corporation Service Company. The registered
agent shall mail a copy of any process against the Company served upon it to the
Company at the address set forth above, and Manager shall deliver a copy of any
such process received by the Company to each of the Members. The Manager may
elect to change the Company's registered agent and the Company's registered and
principal offices by complying with the relevant requirements of the Act.
2.6 Expenses of Consideration of Investment by Member. Each Member
shall bear its own expenses in connection with its consideration of an
investment in the Company and its acquisition of Interests therein, including
the fees of any attorney, financial advisor, or other consultant utilized by
such Member.
2.7 No Individual Authority. No Member acting alone shall have any
authority to act for, or undertake, or assume any obligations or responsibility
on behalf of the other Members or the Company.
2.8 No Member Responsible for Other's Commitments. No Member shall
be responsible or liable for any obligation of any other Member hereunder,
including the obligation of any Member to the Company to make any Capital
Commitment hereunder.
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ARTICLE 3.
TERM
3.1 Term. The term of the Company commenced upon the filing of the
Certificate of Formation in the office of the Delaware Secretary of State and
shall continue until the fifth anniversary of the first call on any Capital
Commitment unless earlier dissolved and terminated pursuant to Article 15.
ARTICLE 4.
MANAGEMENT OF THE COMPANY
4.1 The Investment Advisory Agreement. The Company has,
contemporaneously herewith, entered into an Investment Advisory Agreement (the
"Investment Advisory Agreement") with the Investment Advisor. The Investment
Advisory Agreement may be terminated by a vote of a majority in Interest of the
Members as provided in the Investment Advisory Agreement. Pursuant to the
Investment Advisory Agreement, the Investment Advisor will serve as investment
advisor to the Company, and will fulfill its responsibilities through PREI.
4.2 Management. The Manager will have general managerial authority
over affairs of the Company including the right to approve investments for the
Company, form, maintain, and manage, as necessary and appropriate, Redemption
Vehicles, transfer Investment Securities thereto, cause the amendment of this
Agreement and the Other Operating Agreements, determine whether to honor
redemption requests in kind or in cash or in some combination thereof and
coordinate the execution of the same, administer requests for redemptions and
engage the services of the Investment Advisor pursuant to the Investment
Advisory Agreement. The duties of the Manager shall include (i) communicating
with Members (including the furnishing of financial reports), (ii) communicating
with the general public, (iii) soliciting sales of interests in the Company,
(iv) accepting the subscriptions of new Members, (v) maintaining the Company's
principal corporate records and books of account, (vi) auditing the Company's
books of account, (vii) disbursing payments of dividends, legal fees, accounting
fees, and officers' salaries, if any, (viii) publishing or furnishing the
offering and redemption price of the Interests issued by the Company, (ix)
conducting meetings of the Company's Members, and (x) making redemptions of the
Interests issued by the Company. Each Member agrees to be bound by any
determination made by the Manager. No other Member shall have any power or
authority to participate in the management of the Company or to bind or act on
behalf of the Company, except as expressly authorized by this Agreement or as
expressly required under the Act. Each Member will pay the Manager its share of
an annual fee of $2,000 and its share of expenses incurred by the Manager in
connection with the discharge of its duties hereunder.
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4.3 Performance of Duties.
(i) Standards. The Manager shall discharge its duties hereunder
solely in the interests of the Members with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims (the "Standard of Care"). The
Manager shall be entitled to delegate such of its powers, authority and
responsibilities under this Agreement as it may deem appropriate from time to
time.
(ii) Reliance on Others. In performing its duties, the Manager shall
be entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, of the following persons or
groups unless they have knowledge concerning the matter in question that would
cause such reliance to be unwarranted and provided that the Manager acts in good
faith:
(a) one or more employees or other agents of the Company or the
Manager whom the Manager reasonably believes to be reliable
and competent in the matters presented; or
(b) any attorney, independent accountant, valuation consultant, or
other person as to matters that the Manager reasonably
believes to be within such person's professional or expert
competence.
4.4 Activities in the United States. Activity in the United States
of any officer, director or employee of the Manager or the Company acting in
such capacities shall be limited to gathering, assessing and communicating
information regarding the Company's investments and proposed opportunities for
investment, approval or disapproval thereof, monitoring the Investment Advisor's
activities on the Company's behalf under the Investment Advisory Agreement, and
acts required to be performed under this Agreement.
4.5 Limited Liability. The Manager shall not be personally liable
under any judgment of a court, or in any other manner, for any debt, obligation,
or liability of the Company, whether that liability or obligation arises in
contract, tort, or otherwise, solely by reason of being a Manager of the
Company.
ARTICLE 5.
FISCAL YEAR
5.1 Calendar Year. The fiscal year (the "Fiscal Year") of the
Company shall be the calendar year, unless (subject to obtaining consent of the
Internal Revenue Service) the Manager shall otherwise decide.
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ARTICLE 6.
MEMBERS
6.1 Liability. A Member shall not be personally liable for the
debts, liabilities or obligations of the Company and shall have no obligation to
make Capital Contributions in excess of its Capital Commitment (together with
Disposition Proceeds that may be recalled during a Reinvestment Period), except
to the extent required by the Act, Section 6.2 and Section 8.1(a)(iv).
6.2 Indemnification.
(a) Except as otherwise required by law, the Manager and its
Affiliates, directors, officers, employees, shareholders, assigns,
representatives or agents shall not be liable, responsible or accountable in
damages or otherwise to the Company or any Member for any loss, liability,
damage, settlement cost, or other expense (including attorneys' fees) incurred
by reason of any act or omission or any such alleged act or omission performed
or omitted by such Person (including those in connection with serving on boards
of directors for companies in the Company's portfolio) if such Person acted in a
manner consistent with the Standard of Care.
(b) To the fullest extent permitted by applicable law, the
Investment Advisor, the Manager, PIMS, PREI, the Independent Reviewer and any of
their respective officers, directors, agents, stockholders, partners, members,
employees, other Affiliates, and any other Person who serves at the request of
the Investment Advisor or the Manager on behalf of the Company (each such Person
being an "Indemnitee") shall be held harmless and be indemnified by the Company
for any liability, loss (including amounts paid in settlement), damages or
expenses (including reasonable attorneys' fees and disbursements) incurred by
such Indemnitee on behalf of the Company or in furtherance of the interests of
the Company or otherwise arising out of, or in connection with, the Company;
provided, that such Indemnitee acted in a manner consistent with the Standard of
Care.
(c) To the fullest extent permitted by law, expenses
(including legal fees) incurred by an Indemnitee in defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the Company
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an undertaking by or on behalf of the Indemnitee
to repay such amount if it shall be determined that the Indemnitee is not
entitled to be indemnified as authorized in this Section 6.2.
(d) The individual indemnity obligation of each Member will be
limited to the lesser of (i) the aggregate of: (x) such Member's Unfunded
Commitments; (y) Distributions (including Distributions in redemption)
previously made to such Member; and (z) the Member's Interest in the Company or
(ii) such Member's Unfunded Commitment. The Manager shall not call capital for
purpose of satisfying the foregoing obligations in an amount
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in excess of the sum of such Investor's Unfunded Commitments and Distributions
to such Investor that represent returns of capital.
6.3 Appointment of Manager as Attorney-In-Fact. Each Member
irrevocably constitutes and appoints the Manager, and any replacement or
substitute Manager, as such Member's true and lawful attorney-in-fact and agent,
with full power and authority in such Member's name, place and stead, (a) to
execute, acknowledge, deliver, file and record in the appropriate public offices
all certificates or other instruments (including counterparts of this Agreement)
that the Manager deems appropriate to continue the Company as a limited
liability company in the jurisdiction in which the Company conducts business,
including amendments to this Agreement necessary to correct scriveners' errors,
from and after the date on which such Member becomes a Defaulting Member, all
documents and instruments (including transfer and sale documents) that the
Manager deems necessary to implement the rights and remedies set forth in
Section 8.3, (b) to take all actions necessary and to execute and deliver all
documents, certificates and other instruments (including Other Operating
Agreements) in connection with the formation of Redemption Vehicles as described
in Section 9.3 of this Agreement and the subsequent operation of such Redemption
Vehicles and (c) to execute and deliver amendments to this Agreement and the
Other Operating Agreements in accordance with their terms.
6.4 Survival of Appointment of Manager as Attorney-In-Fact. The
appointment by all Members of the Manager as attorney-in-fact set forth in
Section 6.3 shall be deemed to be a power coupled with an interest and with full
power of substitution, in recognition of the fact that each of the Members will
be relying upon the Manager to act as contemplated by this Agreement in any
action by the Manager on behalf of the Company, and such power shall, to the
extent permitted by law, survive the death, disability, incompetency,
withdrawal, removal, bankruptcy or insolvency of any Person hereby giving such
power and the transfer by a Member of all or part of its Interest. The foregoing
power of attorney of a transferor Member shall survive such transfer only until
such time as the transferee shall have been admitted to the Company as a Member
and all required documents and instruments shall have been duly executed, filed
and recorded to effect such substitution. Any Person dealing with the Company
may conclusively presume and rely upon the fact that any such instrument
executed by such agent and attorney-in-fact is authorized, regular and binding
without further inquiry.
ARTICLE 7.
MEETINGS
7.1 Meetings. Meetings of Members shall be called from time to time
by the Manager or one-third in-Interest of the Members. Any such meetings shall
be held at the principal place of business of the Company. Members may
participate in meetings by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at the meeting.
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7.2 Quorum. Attendance by a majority in-Interest of the Members,
represented in person or by proxy, shall constitute a quorum at any meeting of
Members. In the absence of a quorum at any such meeting, a majority of the
Interests so represented may adjourn the meeting from time to time for a period
not to exceed sixty (60) days without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally noticed.
Members present at a duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal during such meeting of Members
whose absence would cause less than a quorum to be present.
7.3 Manner of Acting. If a quorum is present, the affirmative vote
of a majority in-Interest of the Members shall be the act of the Members, unless
the vote of a greater or lesser proportion or number is otherwise required by
the Act or by this Agreement. Unless otherwise expressly provided in this
Agreement or required under applicable law, Members who have an interest
(economic or otherwise) in the outcome of any particular matter upon which
Members vote or consent may vote or consent upon any such matter and their vote
shall be counted in the determination of whether the requisite matter was
approved by the Members.
7.4 Proxies. At all meetings of Members, a Member may vote in person
or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Manager or before or at the
time of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
7.5 Action by Members Without a Meeting. Action required or
permitted to be taken at a meeting of Members may be taken without a meeting,
without prior notice and without a vote if the action is evidenced by one or
more written consents describing the action taken, signed by Members holding the
requisite amount of Interests necessary to take such action and delivered to the
Manager for inclusion in the minutes or for filing with the Company records.
Action taken under this Section 7.5 is effective when all Members have signed
the consent, unless the consent specifies a different effective date. The record
date for determining Members entitled to take action without a meeting shall be
the date the first Member signs a written consent.
7.6 Waiver of Notice. When any notice is required to be given to any
Member, a written waiver of notice signed by the Person entitled to such notice,
whether before, at, or after the time stated in the notice, shall be equivalent
to the giving of such notice.
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ARTICLE 8.
CAPITAL COMMITMENTS AND CONTRIBUTIONS OF THE MEMBERS
8.1 Calls on Capital Commitments.
(a) Each Member shall make contributions to the capital of the
Company by contributing amounts in installments, when and as called by the
Manager, in accordance with this Agreement.
(i) Subject to subparagraph (iv) below and the balance of this
Section 8.1, the Manager may call for capital contributions from the
Members by giving Members written notice (each a "Drawdown Notice"),
setting forth (i) the aggregate amount drawn, (ii) each Member's share of
such amount, (iii) the date on which such amounts are due (the "Drawdown
Date"), which shall be at least 10 business days after the date of such
Drawdown Notice, (iv) the account into which the funds drawn should be
deposited and (v) with respect to each Member, such Member's total Capital
Commitment, the amount drawn from such Member to date, and the amount
remaining to be drawn from such Member immediately following such Drawdown
Date. Notwithstanding the foregoing, at initial closing, the Manager shall
not be required to provide 10 Business Days' notice but will provide
notice as far in advance of the initial closing as possible.
(ii) Each Member shall be obligated to deliver to the account so
designated in immediately available funds such Member's share of the
amount drawn prior to 10:00 a.m. (New York time) on the Drawdown Date.
(iii) Any Member who fails to fund such Member's share of a draw in
conformity herewith shall be a "Defaulting Member" within the meaning of
Section 8.3 of this Agreement.
(iv) The Manager may call for capital only (y) in connection with
the proposed acquisition of Investment Securities, and the payment of
related Expenses, which draw must be made either (I) against Unfunded
Commitments or, (II) during a Reinvestment Period, in an aggregate amount
not in excess of Disposition Proceeds (net of deductions for expenses)
previously distributed by the Company to the Members, or (z) pursuant to
and in conformity with Section 6.2 of this Agreement or Section 10 of the
Investment Advisory Agreement. Notwithstanding the foregoing, all amounts
contributed to the Company at a Subsequent Closing and distributed to the
existing Members admitted to the Company prior to such Subsequent Closing
may be drawn down from such Members at any time during the Commitment
Period.
(b) The Manager shall call against Capital Commitments ratably
in proportion to Commitments in an aggregate amount sufficient to acquire the
Investment
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Securities and to pay related costs and expenses including costs and expenses of
the Independent Reviewer.
8.2 Allocation of Investment Securities Acquired. Each of the
Investment Securities acquired by the Company shall be allocated on the books of
the Company to the Members in proportion to their relative Capital Contributions
with respect to such Investment Securities.
8.3 Defaults. If a Member (a "Defaulting Member") fails to pay when
due (a) any installment of its Capital Commitment and such failure continues for
ten days after written notice thereof from the Company (the "Notice of Default")
or (b) any fees it is required to pay pursuant to the Investment Advisory
Agreement and such failure continues for 30 days after an invoice therefor, the
Company may, in its sole discretion and in addition to any other legal and
equitable remedies the Company may have: (i) reduce the Capital Commitment of
the Defaulting Member by all or a portion of the sums so unpaid; (ii) commence
legal proceedings against the Defaulting Member to collect any sums due and
unpaid plus any collection expenses, including court costs and reasonable
attorneys' fees and disbursements; (iii) cancel without consideration, 20% of
any Interests held by the Defaulting Member and its Affiliates; and/or (iv)
determine that the Defaulting Member shall forfeit to the nondefaulting Members
all distributions except to the extent a distribution represents a return of a
capital call made by the Defaulting Member.
8.4 Subsequent Fund Closings. On each Subsequent Closing held
pursuant to Section 3(e) of the Investment Advisory Agreement, the Company may
admit additional Members to the Company or may permit Members to increase their
Capital Commitments to the Company. At each Subsequent Closing, each additional
Member will purchase Interests by contributing to the Company an amount
determined by the Investment Advisor based on the value of the Investment
Securities then held by the Company and as determined in accordance with Section
3(f) of the Investment Advisory Agreement. Each additional Member shall also
contribute to the Company an amount equal to its portion of costs and expenses
paid by the Company prior to the date of such Subsequent Closing, together with
interest on such costs and expenses at a rate equal to Base Rate. The amount
contributed to the Company at any Subsequent Closing will be distributed to the
Members admitted to the Company prior to such Subsequent Closing ratably in
proportion to their Capital Commitments; provided that the Investment Advisor
may direct a portion of such amounts to instead be paid to SVI-U.S. in order to
equitably allocate costs and expenses of SVI-U.S. and the Company. All amounts
so distributed may be recalled by the Manager during the Commitment Period
pursuant to Section 8.1(a) of this Agreement. Each Member purchasing Interests
on a Subsequent Closing Date will agree to be bound by the terms of this
Agreement and to execute a counterpart to this Agreement in the form of Exhibit
A attached hereto.
8.5 Portfolio Manager. If at any time Bernard Winograd ceases to be
a portfolio manager for the Fund, the Members shall have no further obligations
to contribute capital to the Company for the purpose of purchasing Investment
Securities and the Company shall have no further right to purchase Investment
Securities, except, in each case, for the
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purchase of Investment Securities that are subject to commitment letters or
other documentation at such time.
ARTICLE 9.
REDEMPTIONS
9.1 Generally. Members may request redemptions with respect to all,
but not less than all, of their Allocated Percentages of any Public Investment
Security by complying with the notice requirements of Section 9.2. Subject to
Section 9.6, the Manager will respond to any redemption request with respect to
Public Investment Securities by causing a Redemption Vehicle to distribute to
such Member (i) the pertinent Member's Allocated Percentage thereof in kind,
(ii) the value, in cash, determined as set forth in Section 3(f) of the
Investment Advisory Agreement, of such Member's Allocated Percentage of such
Public Investment Securities, or (iii) some combination of (i) and (ii) above.
The pertinent Redemption Vehicle shall honor all redemption requests with
respect to a particular Investment Security ratably and with the same
consideration.
9.2 Notices -- Preliminary and Final. Redemptions may be requested,
on March 15 and September 15 of each year (each an "Initial Redemption Request
Date"), in accordance with the following procedures:
(a) A Member who wishes to request a redemption should send a
notice to such effect to the Manager within 30 days prior to the
applicable Initial Redemption Request Date. The notice must be received on
or before the relevant Initial Redemption Request Date and must specify
(a) one or more securities with respect to which redemption is sought (any
such security, an "Identified Investment Security") and (b) if the Manager
determines to form a Redemption Vehicle which will make a cash payment,
whether the Member wishes to receive its redemption proceeds by wire
transfer to an identified account of the Member at any domestic commercial
bank that is a member of the Federal Reserve System, or by check.
(b) Within 10 business days after the applicable Initial
Redemption Request Date, the Manager shall forward to each Member a notice
(the "Preliminary Action Notice") setting forth (i) each redemption
request received (including the identity of investors in the Fund
requesting a redemption), (ii) a description of any changes in the rights
associated with the pertinent Investment Securities as a result of the
redemption, (iii) whether the Investment Advisor has preliminarily elected
to effect redemptions pursuant thereto in cash or in kind and (iv) if the
redemption may be effected in cash, to the extent available, a description
of any Line of Credit to be utilized and an explanation of the rationale
for leveraging the Investment Securities. Each Member shall have an
opportunity to re-evaluate its redemption request or its failure to
request a redemption in light of the initial proposed action specified in
the Preliminary Action Notice. Not later than five (5) Business Days after
the date of the Preliminary Action Notice (such date the "Final Redemption
Request Date"), each Member that wishes to
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cancel or modify its redemption request and each Member that failed to
submit a redemption request must notify the Manager by sending a new or
modified redemption request (a "Final Redemption Request") specifying the
Investment Securities with respect to which such Member has finally
decided to request redemption, and containing the other information
required to be contained in the redemption request made on or before the
Initial Redemption Request Date. If a Final Redemption Request in proper
form is not received from an Member on or before the Final Redemption
Request Date, such Member shall be deemed to have made its request as set
forth in the request made on or before the Initial Redemption Request Date
or, if no such request had been made, to waive its right to redeem during
the period in question.
(c) Within five (5) Business Days after the Final Redemption
Request Date, the Manager shall determine, in its sole discretion, how to
best satisfy the redemption requests, and will forward a notice to each
Member (the "Final Action Notice") advising as to such action and as to
the approximate date on which distributions or payments are intended to be
made (the "Final Redemption Date"). Such action may be different than as
stated in the Preliminary Action Notice.
9.3 Redemption Vehicles. Whenever a redemption is to be effectuated
with respect to Public Investment Securities held by the Company, the Manager
shall form a new entity (a "Redemption Vehicle") for the purpose of holding, for
the account of the nonredeeming Members, the Identified Investment Securities
that are not to be distributed to Members in connection with such redemption.
Each Redemption Vehicle shall be a limited liability company governed by an
operating agreement (each, an "Other Operating Agreement") with terms
substantially the same as those of the Operating Agreement (except as otherwise
specified herein or as relates to closings and other matters not relevant to
such Redemption Vehicle or not required to be reiterated in such Other Operating
Agreement). Each Redemption Vehicle shall become a party to the Investment
Advisory Agreement. No Redemption Vehicle shall hold securities of more than one
issuer or affiliate group of issuers. The Manager shall form the relevant
Redemption Vehicle and contribute the pertinent Identified Investment Securities
to such Redemption Vehicle. The Company shall distribute interests in the
Redemption Vehicle to Members in proportion to their Allocated Percentages in
such Identified Investment Securities; and the Redemption Vehicle will make the
redemptions specified in the Final Action Notice in cash, in kind, or in
combination, as so specified. If any redemption is to be made in cash, the
pertinent Redemption Vehicle shall borrow the cash as described in Section 9.5
at any time after the Members have been distributed their respective interests
in the Redemption Vehicle.
9.4 Subsequent Redemptions by Redemption Vehicles. In the case of a
Final Action Notice that specifies that a redemption will be made with respect
to an Identified Investment Security held by a Redemption Vehicle, the operating
agreement of the Redemption Vehicle in question will provide for the redemptions
specified in such Final Action Notice, in cash, in kind, or in combination, as
so specified.
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9.5 Line of Credit.
(a) Any Redemption Vehicle that is to make a redemption in
cash shall obtain a line of credit (the "Line of Credit") to provide funds
for such redemption. Such Line of Credit shall be from a lender
unaffiliated with Prudential, and shall be on such terms as the Manager
deems appropriate under the circumstances. If necessary, the Manager may
cause the Company to pledge its interests in REIT Shares to a lender under
a Line of Credit to secure a loan commitment related to such Line of
Credit. No Redemption Vehicle shall borrow in excess of 50% of the value
of its assets as of the date of the borrowing. The Manager shall take
appropriate steps it deems necessary (including selling a portion of the
pertinent Investment Securities and repaying all or a portion of such
indebtedness) so that the indebtedness incurred pursuant to the Line of
Credit obtained by a Redemption Vehicle is maintained at a level that does
not exceed 50% of the value of the assets of such Redemption Vehicle;
provided that the Manager shall not be required to take such steps if such
ratio is not met due to temporary market fluctuations.
(b) The Redemption Vehicle may secure the Line of Credit in
whole or part with the Investment Securities and cash held by the
Redemption Vehicle borrowing thereunder.
(c) Expenses related to the Line of Credit and debt service on
amounts borrowed thereunder shall be expenses of the pertinent Redemption
Vehicle, and shall be payable out of the proceeds from the sale of
Investment Securities held by the Redemption Vehicle or dividends or other
Distributions payable in respect of such Investment Securities.
9.6 Limitations on Redemptions. The Manager may deny any redemption
request if the Manager determines in its reasonable discretion that making a
redemption pursuant thereto may have material adverse tax or regulatory
consequences for Members.
ARTICLE 10.
SALES ELECTION
10.1 Generally. If the Company or any Redemption Vehicle determines
to sell or transfer any Investment Security other than a sale or transfer (i) to
a Redemption Vehicle or (ii) to pay debt service in respect of a borrowing by a
Redemption Vehicle, each Member may elect instead to receive a distribution in
kind of its Allocated Percentage of such Investment Security (a "Sales
Election").
10.2 Notice to Member; Election. The Manager shall notify each
Member in writing of the decision to sell or transfer a specified Investment
Security, and shall include in such notification the Investment Advisor's best
estimate of the approximate price to be received
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and the anticipated timing of the proposed sale or series of sales. No later
than five Business Days from the date of each such notice (such fifth day, the
"Sales Election Deadline"), each Member shall have the right to elect in writing
to receive its Allocated Percentage of the Investment Securities in question.
The actual price and timing of sales may vary from the estimates as set forth in
its notice to Members. No such variance shall require the Manager to make an
additional notice or give rise to any further election by Members with respect
to the Investment Securities in question.
10.3 Distribution. Simultaneous with the consummation of the sale of
the specified Investment Securities, the Company shall distribute to each Member
making a Sales Election, such Member's ratable share of the amount sold of such
Investment Securities. For all purposes of this Agreement and the Investment
Advisory Agreement, such distribution shall be deemed to be a distribution of
the value, determined by reference to the sale of the specified Investment
Securities, of the Investment Securities distributed.
10.4 Holdback. No Member shall sell, transfer or otherwise dispose
of any portion of its interest in any Investment Security received pursuant to a
Sales Election or any other security of the issuer of such Investment Security
held by such Investor until the earlier of (i) 6 months after the Sales Election
Deadline or (ii) the date on which the pertinent Redemption Vehicle has sold,
transferred or otherwise disposed of all of its interest in such Investment
Securities.
ARTICLE 11.
ALLOCATIONS AND DISTRIBUTIONS
11.1 Distributions.
(a) The Manager may, in its sole discretion, make
Distributions of cash, property or securities of the Company to the Members at
any time and from time to time.
(b) Distributions of Disposition Proceeds and Portfolio Income
in respect of Investment Securities acquired by the Company, net of any expenses
attributable thereto, shall be made to the Members to whom such Investment
Securities have been allocated by the Company pursuant to Section 8.2.
(c) Amounts distributed to a Member may be withheld until any
federal, state or foreign withholding obligations of the Company with respect to
such Member are satisfied. Any amount withheld under this Section 11.1(c) shall
be treated as having been distributed to the Member to whom such withholding
applies.
(d) Amounts distributed to a Member may be withheld to pay
Investment Advisor Fees or Performance Fees then due by such Investor. Any
amount withheld
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under this Section 11.1(d) shall be treated as having been distributed to the
Member from whom such Investment Advisor Fees or Performance Fees were due.
(e) Amounts distributed to a Member may be withheld to pay
such Member's Allocated Percentage of any capital call made by the Manager in
accordance with this Agreement that is then pending. Any amount withheld under
this Section 11.1(e) shall be treated as having been distributed to the
pertinent Member and recontributed by such Member in response to the pertinent
capital call.
(f) The Manager shall deposit dividends received on Investment
Securities and proceeds received by the Company from the sale of Investment
Securities (other than proceeds from sales in connection with repayments of
indebtedness of Redemption Vehicles)(such proceeds, "Investment Proceeds") into
one or more accounts maintained in the Cayman Islands for the Company
("Collection Accounts") or invest such amounts in short-term, investment grade
securities. The Manager shall, in sole discretion, withdraw and apply such
amounts in payment of the Expenses of the Company or hold such amounts in the
Collection Account in order to create reserves for anticipated costs and
expenses of the Company.
11.2 Allocations.
(a) In General. Subject to paragraph (b) below, all Profits
and Losses of the Company shall be allocated to the Capital Accounts of the
Members as follows:
(i) Each item of income, gain, deduction or loss of the
Company attributable to an Investment Security of the Company (including,
without limitation, all Portfolio Income received with respect to such
Investment Security and all expenses attributable to the acquisition or
disposition of such Investment Security) shall be allocated to the Capital
Account of the Member to whom such Investment Security is allocated on the
books of the Company under Section 8.2.
(ii) All other income, gain, deduction or loss of the
Company shall be allocated to the Capital Accounts of the Members in
proportion to their respective Capital Commitments.
(b) Regulatory Allocations.
(i) If there is a Net Decrease in Company Minimum Gain
during any fiscal year, each Member shall be specially allocated items of
Company income and gain for such year (and, if necessary, subsequent
years) in an amount equal to such Member's Share of the Net Decrease in
Company Minimum Gain. Allocations pursuant to the previous sentence shall
be made in proportion to the respective amounts required to be allocated
to each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Treasury Regulations Sections 1.704-2(f)(6)
and 1.704-2(j)(2). This clause (i) is intended to comply with the "minimum
gain chargeback"
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requirements of Treasury Regulations Section 1.704-2(f) and shall be
interpreted consistently therewith.
(ii) If there is a Net Decrease in Member Nonrecourse
Debt Minimum Gain during any fiscal year attributable to a Member
Nonrecourse Debt, each Member with a share of Member Nonrecourse Debt
Minimum Gain attributable to such debt at the beginning of such year shall
be specially allocated items of income and gain for such year (and, if
necessary, for subsequent years) in an amount equal to such Member's Share
of the Net Decrease in Member Nonrecourse Debt Minimum Gain attributable
to such Member Nonrecourse Debt. Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to
be allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2)(i). This clause (ii) is intended to comply
with the "partner minimum gain chargeback" requirements of Treasury
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(iii) If any Member unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which results in an Adjusted
Capital Account Deficit for the Member, such Member shall be allocated
items of income and book gain in an amount and manner sufficient to
eliminate such Adjusted Capital Account Deficit as quickly as possible;
provided, that an allocation pursuant to this clause (iii) shall be made
if and only to the extent that such Member would have an Adjusted Capital
Account Deficit after all other allocations provided in this Section
11.2(b) have been tentatively made as if this clause (iii) were not in
this Agreement. This clause (iii) is intended to constitute a "qualified
income offset" as provided by Treasury Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(iv) Member Nonrecourse Deductions shall be allocated
among the Members who bear the "economic risk of loss" with respect to the
Member Nonrecourse Debt resulting in such Member Nonrecourse Deductions.
This clause (iv) is to be interpreted in a manner consistent with the
requirements of Treasury Regulations Section 1.704-2(b)(4) and (i)(1).
(v) The allocations set forth in this paragraph (b) (the
"Regulatory Allocations") are intended to comply with certain requirements
of the applicable Treasury Regulations promulgated under Code Section
704(b). Notwithstanding any other provision of this Section 11.2, the
Regulatory Allocations shall be taken into account in allocating other
operating Profits, Losses and other items of income, gain, loss and
deduction to the Members for Capital Account purposes so that, to the
extent possible, the net amount of such allocations of Profits, Losses and
other items shall be equal to the amount that would have been allocated to
each Member if the Regulatory Allocations had not occurred.
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11.3 Allocation of Tax Items for Federal and State and Local Tax
Purposes.
(i) Subject to Sections 1.704-1(b)(4)(i) and
1.704-1(b)(2)(iv)(m) of the Treasury Regulations and the remaining
paragraphs of this Section 11.3, allocations of income, gain, loss,
deduction and credit for federal, state and local tax purposes shall be
allocated to the Members in the same manner and amounts as the book items
corresponding to such tax items are allocated for Capital Account
purposes.
(ii) Notwithstanding paragraph (a) hereof, any increase
or decrease in the amount of any items of income, gain, loss, deduction or
credit for tax purposes attributable to an adjustment to the basis of
Company assets made pursuant to a valid election or deemed election under
Sections 732(d), 734, 743, and 754 of the Code, and any increase or
decrease in the amount of any item of credit or tax preference
attributable to any such adjustment, shall be allocated to those Members
entitled thereto under such law. Such items shall be excluded in
determining the Capital Accounts of the Members, except as otherwise
provided by Section 1.704-1(b)(2)(iv)(m) of the Treasury Regulations.
(iii) For purposes of determination of the Members'
share of the excess Nonrecourse Liabilities of the Company for purposes of
Section 1.752-3(a)(3) of the Treasury Regulations, each such liability
attributable to an Investment Security of the Company (as determined by
the Tax Matters Partner) shall be allocated to the Member to whom such
Investment Security has been allocated under Section 8.2 hereof, and any
other such liability shall be allocated to the Members' in proportion to
their respective Unrecovered Capital.
(iv) If the Company owns or acquires Section 704(c)
Property, or if the value of the assets of the Company are adjusted as
described in the definition of "Gross Asset Value" herein, then, solely
for tax purposes and not for Capital Account purposes, tax depreciation,
and any gain or loss, attributable to such Section 704(c) Property shall
be allocated between or among the Members in a manner that takes into
account the variation between such value and such adjusted tax basis, in
accordance with the principles of Code Section 704(c) and the "traditional
method with curative allocations" as set forth in Treasury Regulations
Section 1.704-3(b).
ARTICLE 12.
ASSIGNMENT; RESTRICTIONS ON TRANSFER OF INTERESTS
12.1 Transfers. The Members, or any assignee or successor in
interest of the Members, may only transfer their applicable Interests in the
Company, or in any part thereof, as provided in this Article 12. Interests may
not be Transferred without the prior written consent of the Manager. Further,
such consent will be withheld if such Transfer: (a) is not as permitted under
the Securities Act, and applicable state or foreign securities laws, pursuant to
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registration or an exemption therefrom; (b) would cause the number of security
holders in the Company to exceed 100 persons, as determined pursuant to the
Investment Company Act; (c) would, if taken together with all Interests
previously Transferred, result in a Transfer of more than 79% of the Interests
in the Company; or (d) would result in the Company being a publicly traded
partnership within the meaning of Section 7704 of the Code and the related
Treasury Regulations. The Manager's consent to any transfer, sale or assignment
of any Interests prior to the date all Capital Commitments have been drawn may
also be conditioned on the Manager's satisfaction with the creditworthiness of
the proposed transferee or upon the posting of security for any unpaid
installments of the transferor's Capital Commitment and any other sums owing.
Any such transferee shall be required to execute a certificate or questionnaire
in form and substance satisfactory to the Manager.
12.2 Assumption by Assignee. Any assignment of an Interest in the
Company permitted under this Article 12 shall be in writing, and shall be an
assignment and Transfer of all of the assignor's rights and obligations
hereunder, and the assignee shall expressly agree in writing to be bound by all
of the terms of this Agreement and assume and agree to perform all of the
assignor's agreements and obligations existing or arising at the time of and
subsequent to such assignment. Upon any such permitted assignment of the
assignor's Interest, and after such assumption, the assignor shall be relieved
of its agreements and obligations hereunder arising after such assignment and
the assignee shall become a Member in place of the assignor. It shall be a
condition precedent to any transfer of any Interest permitted under this Article
12 that all sums due and owing by the transferor that remain unpaid are paid and
that the transferee shall have executed and delivered to the Manager an
agreement in form and substance satisfactory to it to the effect that the
transferee agrees to be bound by all of the terms and conditions of this
Agreement, and that the transferee is acquiring an interest in the Company
subject hereto. The assignee shall pay all expenses incurred by the Company in
admitting the assignee as a Member.
12.3 Other Assignments Void.
(a) Except as otherwise provided in this Article 12, no other
Transfer by a Member of its Interest in the Company shall be permitted. Any
purported Transfer of an interest in the Company not otherwise permitted by this
Article 12 shall be null and void and of no effect whatsoever.
ARTICLE 13.
INDEPENDENT REVIEWER
13.1 Independent Reviewer. The Company will not undertake any
transaction to acquire Investment Securities unless the Independent Reviewer has
issued a fairness opinion with respect to the terms and conditions of the
proposed investment. It is not contemplated that the Independent Reviewer will
have a role with respect to any Investment Securities after the same have been
acquired. The Independent Reviewer will be independent of, and unaffiliated
with, the Manager, the Investment Advisor, PREI and Prudential and will have
significant
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experience in the valuation, acquisition and trading of equity securities,
including securities similar to the Investment Securities.
13.2 Initial Independent Reviewer. The initial Independent Reviewer
will be Houlihan, Lokey, Howard & Zukin Financial Advisors Inc. If the initial
Independent Reviewer ceases to be the Independent Reviewer or is unable (as a
result of a conflicts of interest or otherwise) to act with respect to any
proposed investment, the Investment Advisor will select a replacement or
substitute Independent Reviewer, as the case may be. Any replacement or
substitute Independent Reviewer must be approved by Members, but will be deemed
approved unless one-third in-Interest of the Members object in writing to the
proposed replacement or substitute within 15 days after notice with respect
thereto is sent to Members.
ARTICLE 14.
BOOKS AND RECORDS, REPORTS, TAXES, ETC.
14.1 Books; Reports. (a) The books and records of the Company shall
be maintained, and reports shall be provided to the Members by the Manager. The
books and records of the Company shall be kept according to the accrual method
of accounting, and shall be audited as of the end of each Fiscal Year by a firm
of independent certified public accountants of national recognition and standing
selected by the Manager. Within 60 days after the end of each Fiscal Year, the
Manager shall cause to be prepared and mailed to the Members a report of such
accountants, setting forth as at the end of such Fiscal Year:
(i) a balance sheet of the Company;
(ii) a statement of the net income or net loss for such year and
such Member's share thereof;
(iii) a statement of cash flow;
(iv) a statement of such Member's account; and
(v) the amount of such Member's share in the Company's taxable
income or loss for each year, in the form required by the Code
and applicable regulations and in sufficient detail to enable
it to timely prepare its federal, state and other tax returns;
In addition, concurrently with the report of such accountants, the Manager shall
cause to be mailed to the Members, if not already contained in such report to be
provided to the Members by such accountants, a report containing a statement of
any fees received by the Investment Advisor or any of its Affiliates in
connection with the Company's activity.
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The Manager shall also cause to be delivered to any Member upon
request such other information as shall be needed by such Member in order to
enable it to timely file any of its tax returns and will also from time to time
furnish such other information as any Member may reasonably request for the
purpose of enabling it to timely comply with any reporting or filing
requirements imposed or permitted by any statute, rule, regulation or otherwise
by any governmental agency or authority, or to furnish to, or otherwise be used
in connection with its relationship with, any regulatory authority.
(b) Within 45 days after the end of each of the first three fiscal
quarters in each Fiscal Year, the Manager shall cause to be prepared and mailed
to each Member a report of the Manager setting forth the (unaudited) information
described in Section 14.1(a)(i)-(v) and a report containing a statement of fees
received by the Investment Advisor or any of its Affiliates in connection with
the Fund's activities.
14.2 Where Maintained. The books, accounts and records of the
Company shall be at all times maintained at its principal office.
14.3 Tax Returns. The Company shall be treated and shall file its
tax returns as a partnership for federal, state, municipal and other
governmental income tax and other tax purposes. The Manager shall prepare or
cause to be prepared, on an accrual basis, all federal, state and municipal
partnership tax returns required to be filed. Such tax returns shall be prepared
by the Accountants, who shall sign such returns as preparers.
14.4 Section 754 Election. Subject to Section 18.9, at the request
of a Member, the Company shall make and file a timely election under Section 754
of the Code (and a corresponding election under applicable state or local law)
in the event of a transfer of an interest in the Company permitted hereunder.
Any adjustment resulting from such an election shall be reflected on the books
of the Company and in the Allocated Percentage of the Members in accordance with
Treasury Regulation Section 1.,704-1(b)(2)(iv)(m). Any Member or transferee
first requesting an election hereunder shall reimburse to the Company the
reasonable out-of-pocket expenses incurred by the Company in connection with
such election including, without limitation, any legal or accountants' fees;
thereafter, each transferee shall reimburse such expenses with respect to
adjustments under Section 743 of the Code in the proportion which the interest
of each transferee bears to the sum of the interests of all transferees; the
Company shall bear the expenses of any adjustments under Section 734 of the
Code.
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<PAGE> 34
ARTICLE 15.
DISSOLUTION
15.1 Dissolution. The Company shall dissolve and commence winding up
and liquidating upon the first to occur of the following ("Dissolution Events"):
(a) The fifth (5th) anniversary of the date of the first call
on any Capital Commitment;
(b) The sale or distribution of all or substantially all of
the Company's assets;
(c) The unanimous written agreement of all Members to
dissolve, wind up, and liquidate the Company;
(d) The Bankruptcy of a Member, unless Members (other than the
Member subject to such Dissolution Event) both holding a majority in Interest of
the Members and whose Capital Account balances exceed fifty percent (50%) of the
aggregate Capital Account balances of all such Members (the "Remaining Members")
consent within one hundred twenty (120) days of the Dissolution Event to the
continuation of the business of the Company. If the Remaining Members consent to
the continuation of the business of the Company, the Member whose actions or
conduct resulted in such Dissolution Event ("Former Member") shall remain a
Member of the Company and any successor-in-interest or assignee, voluntary or
involuntary, of such Member shall have only rights to allocations and
distributions pursuant to Article 11; and
(e) The happening of any other event that makes it unlawful or
impossible to carry on the business of the Company.
The Members hereby agree that the Company shall not dissolve
prior to the occurrence of a Dissolution Event.
15.2 Procedures.
(a) Liquidation. If the Company is dissolved, the Members
shall appoint a liquidator, who shall be the Manager, unless the Manager has
been removed (the "Liquidator") and the Liquidator shall cause the winding up of
the affairs of the Company and the liquidation of its assets as promptly as is
consistent with obtaining the fair value thereof.
(b) Liquidating Distributions. Following the payment of, or
provision for, all debts and liabilities of the Company and all expenses of
liquidation, and subject to the right of the person winding up the Company's
affairs to set up such cash reserves as reasonably necessary for any contingent
or unforeseen liabilities or obligations of the Company, the proceeds of the
liquidation will be distributed in cash (or, in the case of Investment
Securities
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<PAGE> 35
that have not been sold or transferred, distributed in kind) to the Members in
accordance with their respective positive Capital Account balances, after
crediting or changing all amounts required to be credited or changed thereto
under this terms of this Agreement.
(c) No Recourse. Each Member will look solely to the assets of
the Company for all Distributions with respect to the Company, such Member's
Capital Contributions thereto and its share of profits or losses, and will have
no recourse therefor (upon dissolution of the Company or otherwise) against the
Liquidator, the Manager or any Member.
15.3 Certificate of Cancellation. Upon the completion of the winding
up of the affairs of the Company, the Manager shall cause to be filed in the
office of the Delaware Secretary of State a certificate of cancellation.
15.4 No Action for Dissolution. Except as expressly permitted in
this Agreement, a Member shall not take any voluntary action that directly
causes a dissolution of the Company.
ARTICLE 16.
REMOVAL OF MANAGER
16.1 Unless otherwise expressly provided herein, the Manager shall
not be removed except (a) by the vote of a majority in Interest of the Members
or (b) if the Investment Advisory Agreement has been terminated.
ARTICLE 17.
NOTICES
17.1 In Writing; Address. Unless otherwise expressly provided
herein, all notices, requests, demands and other communications required or
permitted under this Agreement shall (a) be in writing (including by telecopy),
(b) shall be given to the Company at the address set forth below or, in the case
of the Members, at the address set forth on the signature pages hereof, and (c)
shall be deemed to have been duly given, made and received when delivered
against receipt or upon actual receipt of registered or certified mail, postage
prepaid, return receipt requested, or, in the case of telecopy notice, when
received in legible form.
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<PAGE> 36
All notices to the Manager or the Company shall be addressed as
follows:
Strategic Value Investors International Ltd.
c/o Coutts (Cayman) Limited
Coutts House
P.O. Box 707
Grand Cayman, B.W.I.
Attention: Andrew Galloway
Fax No.: (345) 945-4799
with a copy to:
Prudential Real Estate Investors
8 Campus Drive, 4th Floor
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Fax No.: (973) 683-1794
and to:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Jacqueline A. Weiss, Esq.
Fax No.: (212) 326-2061
Any party may alter the address or telecopy number to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this Section 17.1 for the giving of
notice.
ARTICLE 18.
MISCELLANEOUS
18.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without regard
to its conflict of law principles.
18.2 Entire Agreement. This instrument contains all of the
understandings and agreements of whatsoever kind and nature existing between the
parties hereto with respect to this Agreement and the rights, interests,
understandings, agreements and obligations of the respective parties pertaining
to the Company.
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18.3 Headings. The descriptive headings of the Articles, Sections
and subsections of this Agreement are for convenience only and do not constitute
a part of this Agreement.
18.4 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of each party and their respective permitted successors and
assigns, and nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement, except that the Investors shall be third
party beneficiaries hereof.
18.5 Confidentiality. The terms and provisions of this Agreement
shall be kept confidential and shall not, without the Investment Advisor's prior
written consent (which shall not be unreasonably withheld), be disclosed by a
Member or by a Member's agents, managers, members, representatives and employees
to any person or entity (other than an Affiliate of such Member) that this
Agreement has been signed and exists. No publicity, media communications, press
releases or other public announcements concerning this Agreement or the
transactions contemplated hereby shall be issued or made by any Member without
the prior written consent of the Manager, which consent shall not be
unreasonably withheld. Each Member will maintain the confidentiality of
information that is, to the knowledge of such Member, non-public information
furnished by the Manager or any Member regarding the Company and the Investment
Advisor (including information regarding any REIT) in which the Company holds,
or contemplates acquiring or disposing of, any Investment Securities received by
such Member pursuant to this Agreement in accordance with such procedures as it
applies generally to information of this kind (including procedures relating to
information sharing with Affiliates), except (a) as otherwise required by
governmental regulatory agencies, self-regulating bodies, law, legal process, or
litigation in which such Member is a defendant, plaintiff or other named party
or (b) to directors, employees, representatives and advisors of such Member and
its Affiliates who need to know the information and who are informed of the
confidential nature of the information.
18.6 Amendments; Waivers. This Agreement may be amended only by
agreement in writing of a majority in-Interest of the Members; provided that any
amendment that materially adversely affects the Members shall require the
approval of at least two-thirds in-Interest of Members and provided, further,
that no such amendment shall be effective if the Investment Advisor reasonably
determines that such amendment could reasonably be expected to materially and
adversely affect the Fund taken as a whole. Except as otherwise provided herein,
no waiver of any provision nor consent to any exception to the terms of this
Agreement shall be effective unless in writing and signed by the party to be
bound and then only to the specific purpose, extent and instance so provided. No
failure on the part of any party to exercise or delay in exercising any right
hereunder shall be deemed a waiver thereof, nor shall any single or partial
exercise preclude any further or other exercise of such or any other right.
18.7 Severability. If any provision of this Agreement is determined
to be
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invalid, illegal or unenforceable by any court of competent jurisdiction or
other governmental entity, the remaining provisions of this Agreement to the
extent permitted by law shall remain in full force and effect provided that the
essential terms and conditions of this Agreement for all parties remain valid,
binding and enforceable; provided that the economic and legal substance of the
transactions contemplated is not affected in any manner materially adverse to
any party. In event of any such determination, the parties agree to negotiate in
good faith to modify this Agreement to fulfill as closely as possible the
original intents and purposes hereof. To the extent permitted by law, the
parties hereby to the same extent waive any provision of law that renders any
provision hereof prohibited or unenforceable in any respect.
18.8 Consent to Jurisdiction and Litigation. All litigation relating
to or arising under or in connection with this Agreement shall be brought only
in the federal or state courts of competent jurisdiction located in the State
and County of New York, which shall have exclusive jurisdiction to resolve any
disputes with respect to this Agreement. By execution and delivery of this
Agreement, each party hereto irrevocably and unconditionally consents to the
jurisdiction of such courts of any actions, suits or proceedings arising out of
or relating to this Agreement. The parties hereto irrevocably waive any
obligation of the laying of venue or based on the grounds of forum non
conveniens that it may now or hereafter have to the bringing of any action or
proceeding in such jurisdiction. No party hereto shall be entitled to immunity
whatsoever, whether characterized as sovereign immunity or otherwise, from any
legal proceedings to enforce the obligations hereunder. Subject to Section 6.2,
in the event of any breach of the provisions of this Agreement, the
non-breaching party shall be entitled to equitable relief, including in the form
of injunctions and orders for specific performance, where the applicable legal
standards for such relief in such courts are met, in addition to all other
remedies available to the non-breaching party with respect thereto at law or in
equity.
18.9 Partnership Tax Treatment; Tax Matters Partner. The Members
intend for the Company to be treated as a partnership for U.S. federal income
tax purposes and no election to the contrary shall be made. The Manager shall
function as the "Tax Matters Partner" pursuant to Section 6231(a)(7) of the
Code, and shall have the exclusive authority and discretion to make any
elections required or permitted to be made by the Company under the Code or any
other tax laws. Contemporaneously herewith, the Manager shall execute a power of
attorney authorizing the Investment Advisor to act on its behalf as Tax Matters
Partner.
18.10 Conflicts; Waiver. The Investment Advisor, the Manager and
their Affiliates or associates or any of their legal, financial or other
advisors shall in no way be prohibited from, and intend to, spend substantial
time in connection with other businesses or activities, including, managing
investments, advising or managing entities whose investment objectives are the
same as or overlap with those of the Company, participating in actual or
potential investments of the Company, providing consulting, merger and
acquisition, structuring or financial advisory services, including with respect
to actual, contemplated or potential investments of the Company, or acting as a
director, officer or creditors' committee member of, adviser to, or participant
in, any corporation, partnership, trust or other business entity. The Investment
Advisor, the Manager and their Affiliates or associates or any of their legal,
financial or other advisors may, and expect to, receive fees or other
compensation from third parties for
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<PAGE> 39
such activities, which fees will be for the benefit of their own account and not
the Company. Such fees may relate to actual, contemplated or potential
investments of the Company and may be payable by entities in which the Company
directly or indirectly, has invested or contemplates investing. Each Member
waives any and all rights of any nature whatsoever that any such Person may have
to object to or participate in any such activity.
18.11 Counterparts. This Agreement may be executed in any number of
counterparts by facsimile or other written form of communication, each of which
shall be deemed to be an original as against any party whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of the parties
reflected hereon as the signatories.
18.12 Waiver of Jury Trial. EACH PARTY HERETO, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OTHER AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
[Remainder of This Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
as of the day and year first above written.
STRATEGIC VALUE INVESTORS
INTERNATIONAL LTD.,
as Manager
By: /s/ TERENCE McHUGH
-----------------------------------
Name: Terence McHugh
-----------------------------
Title: Vice President
----------------------------
S-1
<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
as of the day and year first above written.
__________________________
By: __________________________________
Name: ____________________________
Title: ___________________________
Notice Address: __________________________________
__________________________________
__________________________________
__________________________________
__________________________________
S-2
<PAGE> 1
EXHIBIT VII
INVESTMENT ADVISORY AGREEMENT
Dated as of October 2, 1997
by and among
STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA,
STRATEGIC VALUE INVESTORS INTERNATIONAL LTD.,
and
THE PRUDENTIAL INVESTMENT CORPORATION
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT dated as of October 2, 1997 (this
"Agreement"), is made by and among STRATEGIC VALUE INVESTORS INTERNATIONAL, LLC,
a Delaware limited liability company ("SVI-International" and, together with
Prudential Co-Investor (as defined below) and any entities that become parties
hereto after the date hereof as described in Article 9 of the Operating
Agreement, the "International Fund Entities"), THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation, (together with its successors and assigns,
"Prudential Co-Investor"), STRATEGIC VALUE INVESTORS INTERNATIONAL LTD., a
Cayman Islands company (the "Manager"), and THE PRUDENTIAL INVESTMENT
CORPORATION, a New Jersey corporation (the "Investment Advisor"), and a wholly
owned subsidiary of The Prudential Insurance Company of America ("Prudential").
Each Person committing capital to any International Fund Entity (each, an
"Investor") will sign an annex to this Agreement ("Annex Number 1") confirming
such Investor's understanding and obligations with regard to the matters set
forth herein and therein.
SECTION 1. Definitions.
As used in this Agreement, the following definitions shall apply,
unless the context requires otherwise:
"Affiliate" means a Person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified Person.
"Agreement" is defined in the preamble.
"Allocated Percentage" means, with respect to any Investor, the
percentage of any Investment Security allocated to such Investor on the books of
any International Fund Entity.
"Base Rate" means, at any date, the prime rate then in effect for
The Chase Manhattan Bank (or, if unavailable, another major money center bank
selected by the Investment Advisor), plus 2% per annum.
"Capital Commitment" means, with respect to any Investor, such
Investor's capital commitment to SVI-International.
"Closing" means a closing of SVI-International.
<PAGE> 3
"Code" means the Internal Revenue Code of 1986, as amended, together
with the rules and regulations promulgated thereunder.
"Contributed Capital" means, with respect to any Investor at any
date, (1) the aggregate amount of such Investor's Capital Commitment that has
been called and delivered by the Investor, less (2) the sum of (A) the amount of
such Investor's capital contributions returned to the Investor and (B) such
Investor's Allocated Percentage of any realized losses of the International Fund
Entities.
"Distributions" is defined in the Operating Agreement.
"Expenses" is defined in Section 6(a).
"Fund" means SVI-U.S., SVI-International, the co-investment
arrangement with Prudential Co-Investor, any Redemption Vehicle, any redemption
vehicle established in connection with SVI-U.S., and any similar separate or
"side" vehicle formed pursuant to the terms of any of the Other Operating
Agreements or the terms of the operating agreement of SVI-U.S. or of any
redemption vehicle established in connection with SVI-U.S., collectively.
"Fund Entity" means any of SVI-U.S., SVI-International, Prudential
Co-Investor, any Redemption Vehicle, any redemption vehicle established in
connection with SVI-U.S., and any similar separate or "side" vehicle formed
pursuant to the terms of any of the Other Operating Agreements or the terms of
the operating agreement of SVI-U.S. or any redemption vehicle established in
connection with SVI-U.S.
"Fund Investors" means any investor in the Fund.
"Fund Rate" is defined in Section 5(b).
"Indemnitee" is defined in Section 10(a).
"Independent Reviewer" means the Person selected by the Investment
Advisor to act as the independent reviewer for the Fund, including any
replacement or substitute therefor.
"Index Rate" means the NAREIT Equity Index (excluding healthcare
REITs) or, if such rate is unavailable for any period, the S&P REIT Index
(excluding healthcare REITs).
"Initial Closing" is defined in Section 3(e).
2
<PAGE> 4
"in Interest" means, with respect to any percentage or fraction, the
Investors voting for or against the related proposal or issue, as the case may
be, expressed in terms of a percentage or fraction of the aggregate Capital
Commitments.
"Interest" means, with respect to any Investor, the interest of such
Investor in the International Fund Entities, measured in terms of such
Investor's Capital Commitment.
"International Fund Entities" is defined in the preamble.
"Investment Advisor" is defined in the preamble.
"Investment Advisor Fee" is defined in Section 5(a).
"Investment Securities" means REIT Shares.
"Investor" is defined in the preamble.
"Manager" is defined in the preamble.
"Memorandum" means the Private Placement Memorandum dated July 1,
1997, relating to SVI-International, as supplemented by General Supplement No. 1
for SVI-International, pertaining to the offering of the Interests.
"Operating Agreement" means the Operating Agreement of
SVI-International dated October 2, 1997.
"Operating Agreements" means the Operating Agreement and the Other
Operating Agreements, collectively.
"Other Operating Agreement" is defined in the Operating Agreement.
"Partnership Units" means partnership interests in REIT
Partnerships.
"Performance Fee" is defined in Section 5(b).
"Performance Fee Determination Date" is defined in Section 5(b).
"Person" means an association, a corporation, an individual, a
limited liability company, a partnership, a trust or any other entity or
organization, including a government or an agency, board, court, department,
official, political subdivision or representative thereof or any other
governmental entity.
3
<PAGE> 5
"PIMS" means Prudential Investment Management Services LLC, a
Delaware limited liability company.
"PREI" means Prudential Real Estate Investors, a division of
Prudential.
"Private Investment Securities" means Investment Securities other
than Public Investment Securities.
"Prudential" is defined in the preamble.
"Prudential Co-Investor" is defined in the preamble.
"Public Investment Securities" means publicly traded Investment
Securities that are freely transferrable by SVI-International without further
registration under the Securities Act and shall not include Investment
Securities that are "restricted securities," Investment Securities acquired from
a REIT in circumstances that may cause SVI-International to be treated as a
statutory underwriter in connection with any resale of such securities, or
Investment Securities subject to "lock-up agreements" or other holding periods
(for so long as such restrictions remain effective).
"Quarterly Contributed Capital" means, for any Investor with respect
to any Quarterly Payment Date, the average of such Investor's Contributed
Capital as at the last day of each month ending within the period to which such
Quarterly Payment Date relates.
"Quarterly Payment Date" is defined in Section 5(a).
"Redemption Vehicle" is defined in the Operating Agreement.
"REIT" means any public or private real estate company or real
estate investment trust, whether or not such company qualifies as a real estate
investment trust under applicable provisions of the Code.
"REIT Partnership" means any partnership in which a REIT owns
general partnership interests or other significant partnership interests.
"REIT Shares" means shares of REITs or securities convertible,
exchangeable or exercisable into shares of REITs.
4
<PAGE> 6
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Shortfall Amount" is defined in Section 5(b).
"Standard of Care" is defined in Section 2(b).
"Subsequent Closing" is defined in Section 3(e).
"SVI-International" is defined in the preamble.
"SVI-U.S." means Strategic Value Investors, LLC, a Delaware limited
liability company.
"Unaffiliated Investor" means an Investor other than Prudential or
Prudential Co-Investor.
"Unfunded Commitments" means any Investor Capital Commitments that
have not been called and delivered by such Investor, plus any capital
contribution returned to such Investor pursuant to Section 8.4 of the Operating
Agreement.
SECTION 2. Appointment and Authorization; Standard of Care.
a. Appointment and Authorization. Subject to and in accordance with
the terms of this Agreement, SVI-International, the Manager, Prudential
Co-Investor and any Redemption Vehicle that becomes party hereto, on the one
hand, and the Investment Advisor, on the other, hereby agree that the Investment
Advisor shall and is authorized to provide, on the terms set forth herein, the
services to SVI-International and any such Redemption Vehicle as set forth
herein, for the compensation hereinafter described.
b. Standard of Care. The Prudential Investment Corporation, acting
solely in its capacity as investment advisor hereunder, is acting as a fiduciary
for SVI-U.S. The Investment Advisor shall discharge its duties hereunder solely
in the interests of the Investors and with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims (the "Standard of Care").
c. Reliance on Others. In performing its duties, the Investment
Advisor shall be entitled to rely on information, opinions, reports or
statements, including financial statements and other financial data, of the
following persons or groups unless they have
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<PAGE> 7
knowledge concerning the matter in question that would cause such reliance to be
unwarranted and provided that the Investment Advisor acts in good faith:
i. one or more employees or other agents of Investment Advisor
whom the Investment Advisor reasonably believes to be reliable and
competent in the matters presented; or
ii. any attorney, independent accountant, valuation
consultant, or other person as to matters that the Investment Advisor
reasonably believes to be within such person's professional or expert
competence.
SECTION 3. Duties of the Investment Advisor.
a. Services to be Provided. Subject to the approval of the Manager,
the Investment Advisor shall evaluate, structure and cause SVI-International to
consummate investments; facilitate the transfer of Investment Securities to
Redemption Vehicles formed by the Manager and SVI-International; engage the
Independent Reviewer; select any substitute or replacement Independent Reviewer
(subject to Section 3(d)); coordinate reviews by the Independent Reviewer;
manage the International Fund Entities' portfolio of Investment Securities;
effectuate borrowings and repayment of borrowings by Redemption Vehicles in
accordance with the terms hereof and of the Operating Agreement; cause the
dissolution of any vehicle constituting one of the International Fund Entities
as permitted under this Agreement and the applicable operating agreement of such
vehicle; value the Investment Securities held by the International Fund
Entities; and take such actions as are necessary and appropriate to execute the
investment objectives of the International Fund Entities and to fulfill the
obligations of the Investment Advisor as set forth herein, as referenced in the
Operating Agreement and/or as described in the Memorandum, including, without
limitation, actions in connection with the borrowing of funds and the
acquisition and disposition of Investment Securities.
b. Authority to Bind International Fund Entities. Unless revoked by
the Manager, in its sole discretion, the Investment Advisor shall have a power
of attorney pursuant to which it may execute on behalf of any International Fund
Entity, all documentation necessary or appropriate to the investigation,
acquisition, holding and disposition of Investment Securities and the borrowing
of money. Nothing in this Agreement shall be deemed to create a joint venture or
partnership between the parties with respect to the arrangements set forth in
this Agreement. For all purposes herein, the Investment Advisor shall be deemed
to be an independent contractor and independent agent, and shall act as an
independent agent in all activities undertaken with respect to the Manager and
the International Fund Entities.
6
<PAGE> 8
c. All Investments Require Manager's Written Approval. The Manager's
specific consent and approval in writing shall be required for all Investments
made by SVI-International. SVI-International shall not make any Investment for
which such consent and approval has not been obtained in accordance with the
policies of the Manager for giving such consent and approval.
d. Independent Reviewer.
i. The initial Independent Reviewer will be Houlihan, Lokey,
Howard & Zukin Financial Advisors Inc.
ii. If the Person serving as the Independent Reviewer ceases
to so serve or is unable (as a result of a conflicts of interest or
otherwise) to act with respect to any proposed investment, the Investment
Advisor shall select a replacement or substitute Independent Reviewer, as
the case may be, which replacement or substitute shall be a Person with
significant experience in the valuation, acquisition and trading of equity
securities, including securities similar to the Investment Securities
intended to be acquired by SVI-International, and shall be independent of,
and unaffiliated with, Prudential. The Investment Advisor shall give
written notice of such replacement or substitute to the Investors. Such
replacement or substitute Independent Reviewer will be deemed approved by
the Investors unless one-third or more in Interest of the Unaffiliated
Investors object in writing to such proposed replacement or substitute
within 15 days after notice with respect thereto is sent to the Investors.
Any replacement or substitute Independent Reviewer will be engaged on
terms and conditions substantially similar to those on which the initial
Independent Reviewer was engaged.
e. Closings.
i. At the direction of the Manager, the Investment Advisor
shall take such steps as may be necessary to facilitate the consummation
by SVI-International of an initial closing (the "Initial Closing") subject
to receipt of Capital Commitments from Fund Investors other than
Prudential totaling $76.5 million or more.
ii. If at the Initial Closing, the Fund shall not have
received $510 million in Capital Commitments from Fund Investors other
than Prudential, at the direction of the Manager, the Investment Advisor
shall take such steps as may be necessary to facilitate the consummation
by SVI-International of subsequent Closings (each, a "Subsequent Closing")
during the next 12 months at which additional Interests may be purchased
and Capital Commitments delivered, until $510 million in Capital
Commitments have been obtained from Fund Investors other than Prudential.
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<PAGE> 9
iii. Investors acquiring Interests at a Subsequent Closing
shall be required to purchase Interests in accordance with Section 8.4 of
the Operating Agreement and to pay the expenses therein set forth and the
fees herein set forth.
iv. Subsequent Closings may involve the purchase by
SVI-International of Investment Securities from SVI-US or the sale by
SVI-International of Investment Securities to SVI-US in order to generally
maintain the proportional relationship between SVI-US and
SVI-International.
v. The amount contributed to SVI-International at any
Subsequent Closing will be distributed to the Investors admitted to
SVI-International prior to such Subsequent Closing ratably in proportion to
their Capital Commitments; provided that the Investment Advisor may direct a
portion of such amounts to instead be paid to SVI-International in order to
equitably allocate costs and expenses of SVI-International and SVI-US.
f. Valuations. The Investment Advisor shall value Investment
Securities quarterly for reporting purposes, and as and when necessary for other
purposes.
i. The Investment Advisor shall value Public Investment
Securities and any short-term marketable securities without discounts for
liquidity, block size or otherwise, at the average closing sales price for
such security for the five trading days prior to the valuation date, as
published in The Wall Street Journal.
ii. The Investment Advisor shall value Private Investment
Securities based on the value given to such Private Investment Securities
by Prudential's Comptroller's Department, Institutional Valuation Unit.
Absent known material circumstances, the Investment Advisor may base
valuation of such Private Investment Securities on valuations made by
third party appraisers or market participants, recent trades of securities
determined by the Investment Advisor to be substantially similar for such
purposes and other customary methods of valuing private or illiquid
securities; provided that Partnership Units, which are, or are expected to
become exchangeable for Public Investment Securities will be valued at the
value of such Public Investment Securities. Valuations of private
companies and their real estate are subject to numerous and various
assumptions and limitations. Many different individual assumptions may be
supportable and reasonable, but the interplay between different
assumptions, or the use of different accepted methodologies, may produce
different estimates of value for the same company or property. Valuations
should be considered only estimates of value, and not a measure of
realizable value, and are subject to change with the passage of time.
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<PAGE> 10
g. PREI to Fulfill Duties. The Investment Advisor will fulfill its
responsibilities hereunder through PREI. In addition, the Investment Advisor and
PREI may arrange to have certain services the Investment Advisor is obligated to
provide performed by Prudential or any of its Affiliates. With the consent of
the Manager, the Investment Advisor may also assign its rights and obligations
under this Agreement to another entity that is wholly owned, directly or
indirectly, by Prudential, or to Prudential, so long as the personnel
responsible for providing such services are not substantially changed, such
assignee is a registered investment advisor, and such assignee is an independent
agent with respect to the International Fund Entities.
h. Other Service Providers. With the consent of the Manager, the
Investment Advisor may from time to time engage other service providers,
including securities advisors, consultants, architects, engineers, appraisers,
legal and accounting firms, custodians, and transfer agents. Each service
provider shall be compensated by the International Fund Entities in such
proportions, on such terms and at such rates as the Investment Advisor deems
appropriate in light of the services provided subject to the consent of the
Manager. The Investment Advisor may engage Affiliates or utilize in-house staff
of Prudential or any of its Affiliates as service providers; provided that (i)
the Investment Advisor reasonably believes that engaging an Affiliate or
utilizing in-house staff of Prudential or its Affiliate is in the best interests
of the International Fund Entities; (ii) the compensation of such Affiliate or
in-house staff of Prudential or its Affiliate is comparable to that charged by
unaffiliated third parties for similar services; and (iii) the Investment
Advisor notifies the Investors of the retention of such an Affiliate or the use
of in-house staff.
SECTION 4. Investments of the International Fund Entities.
a. Permitted Investments. Proceeds from draws on Capital Commitments
and co-investment by the Prudential Co-Investor may be invested in REIT Shares
and Partnership Units in connection with, or incidentally to, the sale of real
estate by Prudential to the relevant REITs or the contribution of real estate by
Prudential to related REIT Partnerships, and, in each case, in a manner
consistent with the Memorandum.
b. Proportionate Investment. It is the intention of the Investment
Advisor that investments of SVI-International and SVI-U.S. will be made in
parallel in Investment Securities so that, to the extent practicable, Fund
Investors will each participate in investments in Investment Securities in
proportion to their Capital Commitments.
c. Fairness Opinion. Before the acquisition by SVI-International of
Investment Securities of a REIT, SVI-International shall have received a
fairness opinion with respect to the terms and conditions of such proposed
acquisition from the Independent Reviewer.
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<PAGE> 11
d. Investment Restrictions. A substantial majority of the
International Fund Entities' investments shall be in entities that qualify for
taxation as real estate investment trusts (as defined in Section 856 of the
Code). International Fund Entities shall not acquire more than 40% in the
aggregate of the Investment Securities of any one REIT and its related REIT
Partnerships. Any Partnership Units to be acquired by International Fund
Entities shall be acquired and held solely by Prudential Co-Investor.
e. Allocation of Expenses. The Investment Advisor shall cause
investments and expenses to be allocated between the International Fund Entities
(subject to Section 6), on the one hand, and the U.S. Fund Entities, on the
other, pro rata in accordance with aggregate capital commitments or
contributions, as appropriate.
f. Sale of Investment Securities Prior to Termination. The
Investment Advisor shall, prior to the termination of this Agreement, endeavor
to identify opportunities for the sale, for cash, of all Private Investment
Securities; provided, however, that such Investment Securities not theretofore
sold or disposed of will be distributed in kind to the applicable Investors on a
pro rata basis as is appropriate.
g. Co-Investment by Prudential Co-Investor. Whenever the Investment
Advisor proposes that SVI-International make an investment in Investment
Securities and the Manager approves such investment, the Prudential Co-Investor
shall acquire and hold an amount of the pertinent Investment Securities and/or
Partnership Units issued by affiliates of the issuer of such Investment
Securities such that the Investment Securities and/or Partnership Units held by
Prudential Co-Investor shall at all times equal 49% of the sum of the amount of
Investment Securities acquired by SVI-International and the amount of Investment
Securities and Partnership Units acquired by Prudential Co-Investor (in each
case valued on the basis of the price established in the pertinent investment
transaction).
SECTION 5. Compensation.
a. Investment Advisor Fee. Each Investor shall pay to the Investment
Advisor a fee (the "Investment Advisor Fee") based on such Investor's
Contributed Capital from time to time. The Investment Advisor Fee shall be
payable quarterly in arrears on the last day of each calendar quarter (each a
"Quarterly Payment Date") or, if such day is not a business day, the next
succeeding business day. The amount due on each Quarterly Payment Date will be
equal to one-fourth of the sum of (i) 60 basis points times the amount of such
Investor's Quarterly Contributed Capital not in excess of $50 million as at such
date; (ii) 50 basis points times the amount of such Investor's Quarterly
Contributed Capital in excess of $50 million but not in excess of $100 million
as at such date; and (iii) 40 basis points times the amount of such Investor's
Quarterly Contributed Capital in excess of $100 million as at such date. If the
Investment Advisor Fee has not been paid within 30 days of
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<PAGE> 12
the applicable Quarterly Payment Date the pertinent Investor shall be deemed to
be a "Defaulting Member" within the meaning of Section 8.3 of the Operating
Agreement.
b. Performance Fee.
i. Each Investor shall pay to the Investment Advisor a fee
(the "Performance Fee") based upon such Investor's return on its
investment. The Performance Fee shall be payable by an Investor on the
date of (a) any actual or deemed Distribution (other than a Distribution
made in connection with a Subsequent Closing) to such Investor of cash
proceeds from the sale of Investment Securities by any International Fund
Entity and (b) any Distribution of Investment Securities to such Investor
by any International Fund Entity (any such date, a "Performance Fee
Determination Date").
ii. The Performance Fee with respect to any Investor will be
equal to the sum of (a) 20% of the relevant Investor's return (after
costs, expenses and the Investment Advisor Fee but before the Performance
Fee) in excess of the return such Investor would have realized had such
Investor's Capital Contributions been invested at the Index Rate and (b)
an additional 10% of the relevant Investor's return (after costs, expenses
and the Investment Advisor Fee but before the Performance Fee) in excess
of the return such Investor would have realized had such Investor's
Capital Contributions been invested at a rate equal to the Index Rate plus
500 basis points.
iii. On each Performance Fee Determination Date with respect
to any Investor, the Performance Fee will be determined with respect to
any Investment Securities distributed on such date and any Investment
Securities proceeds with respect to which are distributed or deemed
distributed on such date. The Performance Fee will be determined by (a)
future valuing to the Performance Fee Determination Date, at the Index
Rate, each Capital Contribution made by the relevant Investor with respect
to the pertinent Investment Securities; (b) future valuing to the
Performance Fee Determination Date, at the Index Rate plus 500 basis
points, each capital contribution made by the relevant Investor with
respect to the pertinent Investment Securities; (c) future valuing to the
Performance Fee Determination Date, at the Index Rate, the amount of any
Shortfall Amount in respect of the prior Performance Fee Determination
Date, and (d) future valuing to the Performance Fee Determination Date, at
the Fund Rate, each distribution or deemed distribution (other than any
distribution that itself triggered a Performance Fee Determination Date)
made to the relevant Investor with respect to the pertinent Investment
Securities. The Performance Fee will equal the sum of (i) 20% of the
amount, if any, by which (I) the sum of the distribution being made in
respect of the pertinent Investment Securities on the Performance Fee
Determination Date plus the amount described in clause (d) above exceeds
(II) the sum of the amounts described in clauses (a) and (c) above; plus
(ii) 10% of the amount, if any, by which (III) the
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<PAGE> 13
sum of the distribution being made in respect of the pertinent Investment
Securities on the Performance Fee Determination Date plus the amount
described in clause (d) above exceeds (IV) the sum of the amounts
described in clauses (b) and (c) above. If on any Performance Fee
Determination Date the amount described in clause (II) above exceeds the
amount described in clause (I) above, no Performance Fee will be due and
such excess will be carried forward to the next Performance Fee
Determination Date as a "Shortfall Amount." If on the last Performance Fee
Determination Date with respect to any Investor, there exists a Shortfall
Amount the Investment Advisor will rebate to such Investor, without
interest, an amount of Performance Fees previously paid to the Investment
Advisor with respect to such Investor equal to the lesser of the amount of
such Shortfall Amount and the amount of such Performance Fees previously
paid. For the purposes of calculating the Performance Fee, (x) the "Fund
Rate" shall mean the aggregate internal rate of return earned (i) in the
case of Prudential Co-Investor, by Prudential Co-Investor's investments
and (ii) in the case of any other investment by the International Fund
Entities, by such investments, in either case, through the applicable
Performance Fee Determination Date, assuming a sale of all such
investments for their respective fair market values as of such date and
monthly compounding and (y) any distribution that was in fact reduced by
the withholding of a payment of the Investment Advisor Fee will be treated
as having been so reduced, and any payment of the Investment Advisor Fee
made directly by the pertinent Investor and not previously treated as a
reduction of a distribution pursuant to this clause will be subtracted
from the amount of the distribution being made on the Performance Fee
Determination Date.
iv. All future value computations shall be made using monthly
compounding and the actual number of days elapsed in each month.
v. If the Performance Fee has not been paid within 30 days the
pertinent Investor shall be deemed to be a "Defaulting Member" within the
meaning of Section 8.3 of the Operating Agreement.
vi. Notwithstanding the foregoing, if, on the last Performance
Fee Determination Date with respect to any Investor, the aggregate amount
of capital contributed, and fees paid, by such Investor exceeds the sum of
the aggregate amount of cash and the value of all property actually
distributed to such Investor, the Investment Advisor will rebate to such
Investor Performance Fees previously paid by such Investor in an amount
equal to the lesser of (y) such excess and (z) Performance Fees received
by the Investment Advisor from such Investor.
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c. Invoices. The Investment Advisor will provide each Investor with
an invoice for each of the Investment Advisor Fee and the Performance Fee due
from such Investor reflecting any amounts not deducted from Distributions. Each
invoice shall reflect the amount of the Investment Advisor Fee or Performance
Fee, as the case may be, that has been paid up to the date of such invoice. Any
amount that has not been deducted as reflected in any such invoice and that is
not paid within 10 days of the date of such invoice shall bear interest at the
Base Rate.
SECTION 6. Expenses.
a. Expenses of the International Fund Entities. Each of the
International Fund Entities shall bear its share of organizational costs and
expenses and the International Fund Entities, collectively, shall bear their
share of all costs and expenses of operating the Fund. The costs and expenses
associated with operating the Fund (collectively, "Expenses") will include,
without limitation, (i) costs and expenses of meetings of Investors, and of
preparing, printing and mailing reports to Investors and of amending
organizational documents when necessary; (ii) brokers' commissions and fees of
transfer agents chargeable in connection with any securities transactions; (iii)
fees and expenses of service providers, whether affiliated with Prudential or
not, including, without limitation, securities advisors, attorneys (including,
without limitation, SVI-International's share of a one time fee of $15,000.00 to
reimburse PREI for the cost of its in-house counsel for services in connection
with creation of Fund), accountants, appraisers, contractors, architects,
engineers, consultants, insurance consultants, custodians and other agents; and
(iv) to the extent not included in the foregoing or paid out of other sources,
the costs and expenses connected with the acquisition, disposition and ownership
of the Investment Securities, and the termination of the International Fund
Entities. All such Expenses shall be allocated among International Fund Entities
and among Investors in accordance with the following principles: (1) Expenses
that relate to a particular International Fund Entity or to the Investment
Securities held thereby shall be allocated to such International Fund Entity and
to the Investors therein in proportion to their Allocated Percentages therein at
the time the Expense is incurred; (2) Expenses that relate to unconsummated
investment transactions shall be allocated to SVI-International and to the
Investors therein in proportion to their Allocated Percentages; and (3) Expenses
that relate to the Independent Reviewer shall be allocated to the Unaffiliated
Investors in proportion to their Allocated Percentages.
b. Expenses of the Investment Advisor and Administrative Services.
At its expense, the Investment Advisor, Prudential and/or PREI, shall pay the
compensation of their respective employees who provide services to the Fund,
including, without limitation, administration and portfolio management services,
provide adequate office space and any necessary office furnishings and
equipment, together with telephone service, heat, utilities, supplies and
similar miscellaneous office expenses and shall provide other necessary items of
an overhead and administrative nature.
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<PAGE> 15
SECTION 7. Conflicts; Waiver.
The Investment Advisor and its Affiliates or associates or any of
their legal, financial or other advisors shall in no way be prohibited from, and
intend to, spend substantial time in connection with other businesses or
activities for third parties unrelated to SVI-International, including, but not
limited to, managing investments, advising or managing entities whose investment
objectives are the same as or overlap with those of the Fund, participating in
actual or potential investments of the Fund, providing consulting, merger and
acquisition, structuring or financial advisory services, including with respect
to actual, contemplated or potential investments of the Fund, or acting as a
director, officer or creditors' committee member of, adviser to, or participant
in, any corporation, partnership, trust or other business entity. The Investment
Advisor and its Affiliates or associates or any of their legal, financial or
other advisors may, and expect to, receive fees or other compensation from third
parties for such activities, which fees will be for the benefit of their own
account and not the Fund. Such fees may relate to actual, contemplated or
potential investments of the Fund and may be payable by entities in which the
Fund directly or indirectly, has invested or contemplates investing. Each
International Fund Entity and each Investor waives any and all rights of any
nature whatsoever that any such Person may have to object to or participate or
any such activity.
SECTION 8. Representations and Warranties of the Investment Advisor.
The Investment Advisor hereby represents and warrants to
SVI-International as of the date hereof as follows:
a. The Investment Advisor is a corporation, duly incorporated
and validly existing under the laws of the State of New Jersey, has
the full power and authority to transact the business in which it is
presently engaged and is duly qualified under the laws of each
jurisdiction where the conduct of its business requires, or the
performance of its obligations under this Agreement would require,
such qualification.
b. The Investment Advisor has full corporate power and
authority and has obtained all necessary authorization to execute,
deliver and perform this Agreement on the terms and conditions
hereof. No consent of any other Person and no license, permit,
approval or authorization of, exemption by, notice or report to, or
registration, fling or declaration with, any governmental authority
is required by the Investment Advisor in connection with this
Agreement or the execution, delivery, performance, validity or
enforceability hereof. This Agreement constitutes the legal, valid
and binding obligation of the Investment Advisor enforceable against
the Investment Advisor in accordance with its terms, subject to
bankruptcy, insolvency moratorium or
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<PAGE> 16
similar laws affecting generally the enforcement of creditors'
rights and general equitable principles.
c. The Investment Advisor's execution, delivery and
performance of this Agreement and any documents and instruments
required hereunder shall not violate any provision of any existing
law or regulation binding on the Investment Advisor, or any order,
judgment, award or decree of any court, arbitrator or governmental
authority binding on the Investment Advisor, or of any mortgage,
indenture, lease, contract or other agreement, instrument or
undertaking to which the Investment Advisor is a party or by which
the Investment Advisor or any of its assets may be bound, and shall
not result in or require the creation or imposition of any lien on
any of its property, assets or revenues pursuant to the provisions
of any such mortgage, indenture, lease, contract or other agreement,
instrument or undertaking.
d. SVI-International is a limited liability company, duly
formed and validly existing under the laws of the State of Delaware,
has the full power and authority to transact the business in which
it is presently engaged and is duly qualified under the laws of each
jurisdiction where the conduct of its business requires or the
performance of its obligations would require, such qualification.
e. The Manager has full power and authority and has obtained
all necessary authorization to execute, deliver and perform the
Operating Agreement on the terms and conditions thereof. No consent
of any other Person and no license, permit, approval or
authorization of, exemption by, notice or report to, or
registration, fling or declaration with, any governmental authority
is required by the Manager in connection with the Operating
Agreement or the execution, delivery, performance or validity
thereof. The Operating Agreement constitutes the legal, valid and
binding obligation of the Manager enforceable against the Manager in
accordance with its terms, subject to bankruptcy, insolvency
moratorium or similar laws affecting generally the enforcement of
creditors' rights and general equitable principles.
f. The Manager's execution, delivery and performance of the
Operating Agreement and any documents and instruments required
hereunder shall not violate any provision of any existing law or
regulation binding on the Manager, or any order, judgment, award or
decree of any court, arbitrator or government authority binding on
the Manager, or of any mortgage, indenture lease, contract or other
agreement, instrument or undertaking to which the Manager is a party
or by which the Manager, or any of its assets may be bound, and
shall not result in or require the creation or imposition of any
lien on any of its property, assets or revenues pursuant to the
provisions of any
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<PAGE> 17
such mortgage, indenture, lease, contract or other agreement,
instrument or undertaking.
SECTION 9. Liability of the Investment Advisor.
Except as otherwise required by law, the Investment Advisor and any
of its Affiliates, directors, officers, employees, shareholders, assigns,
representatives or agents shall not be liable, responsible or accountable in
damages or otherwise to the Fund or any Investor for any loss, liability,
damage, settlement cost, or other expense (including attorneys' fees) incurred
by reason of any act or omission or any such alleged act or omission performed
or omitted by such Person (including those in connection with serving on boards
of directors for companies in the Fund's portfolio) if such Person acted in a
manner consistent with the Standard of Care.
SECTION 10. Indemnification.
a. Indemnity. To the fullest extent permitted by applicable law, the
Investment Advisor, PIMS, PREI, the Independent Reviewer and any of their
respective officers, directors, agents, stockholders, partners, members,
employees, other Affiliates, and any other Person who serves at the request of
the Investment Advisor on behalf of any of the International Fund Entities (each
such Person being an "Indemnitee") shall be held harmless and be indemnified by
the International Fund Entities for any liability, loss (including amounts paid
in settlement), damages or expenses (including, without limitation, reasonable
attorneys' fees and disbursements) incurred by such Indemnitee on behalf of the
International Fund Entities or in furtherance of the interests of the
International Fund Entities or otherwise arising out of, or in connection, with
the International Fund Entities; provided, that such Indemnitee acted in a
manner consistent with the Standard of Care.
b. Advances. To the fullest extent permitted by law, expenses
(including, without limitation, legal fees) incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the International Fund Entities prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the International Fund Entities of an undertaking by or on behalf of the
Indemnitee to repay such amount if it shall be determined that the Indemnitee is
not entitled to be indemnified as authorized in this Section 10.
c. Limitation on Liability. The individual indemnity obligation of
each Investor will be limited to (i) the lesser of the aggregate of: (x) such
Investor's Unfunded Commitments; (y) Distributions (including Distributions in
redemption) previously made to such Investor; and (z) the Investor's Interest in
the International Fund Entities or (ii) such Investor's Capital Commitment.
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<PAGE> 18
SECTION 11. Term of Agreement; Survival of Certain Terms.
a. Initial Term. Unless terminated in accordance with its terms this
Agreement shall remain in effect with respect to each International Fund Entity
until the termination of such International Fund Entity.
b. Termination. This Agreement may be terminated at any time with or
without cause upon 90 days' prior written notice (i) by SVI-International, (upon
the vote of a majority in Interest of the Unaffiliated Investors therein) or
(ii) by the Investment Advisor (but in the latter case only if this Agreement is
so terminated with respect to all International Fund Entities). Upon such
termination, the Investment Advisor shall be entitled to receive all
compensation it has earned through the effective date of such termination,
including any accrued but unpaid Investment Advisor Fee and Performance Fee.
c. Survival. Notwithstanding anything herein to the contrary,
Sections 5, 6, 10 and 11 of this Agreement shall survive any termination hereof.
SECTION 12. Notices.
Unless expressly provided otherwise herein, all notices, requests,
demands and other communications required or permitted under this Agreement
shall be in writing (including by telecopy) and shall be deemed to have been
duly given, made and received when delivered against receipt or upon actual
receipt of registered or certified mail, postage prepaid, return receipt
requested, or, in the case of telecopy notice, when received in legible form,
addressed as set forth below:
If to SVI-International or the Manager:
Strategic Value Investors International Ltd.
c/o Coutts (Cayman) Limited
Coutts House
P.O. Box 707
Grand Cayman, B.W.I.
Attention: Andrew Galloway
Fax: (345) 945-4799
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with a copy to:
Prudential Real Estate Investors
8 Campus Drive, 4th Floor
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Fax: (973) 683-1794
and to:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Jacqueline A. Weiss, Esq.
Fax: (212) 326-2061
If to the Investment Advisor or the Prudential Co-Investor:
Prudential Real Estate Investors
8 Campus Drive, 4th Floor
Parsippany, New Jersey 07054-4493
Attention: SVI Portfolio Manager
Fax: (973) 683-1794
with a copy to:
O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Jacqueline A. Weiss, Esq.
Fax: (212) 326-2061
Any party may alter the address or telecopy number to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this Section 12 for the giving of
notice.
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SECTION 13. Amendments; Waivers.
This Agreement may be amended only by agreement in writing of the
Investment Advisor and a majority in Interest of the Unaffiliated Investors,
provided that any amendment that materially adversely affects the Investors
shall require the approval of at least two-thirds in Interest of the
Unaffiliated Investor, and provided further that no such amendment shall be
effective if the Investment Advisor reasonably determines that such amendment
could reasonably be expected to materially adversely affect the Fund taken as a
whole. The Investment Advisor shall cause the effectuation of any such amendment
duly approved by the appropriate Investors. Except as otherwise provided herein,
no waiver of any provision nor consent to any exception to the terms of this
Agreement shall be effective unless in writing and signed by the party to be
bound and then only to the specific purpose, extent and instance so provided. No
failure on the part of any party to exercise or delay in exercising any right
hereunder shall be deemed a waiver thereof, nor shall any single or partial
exercise preclude any further or other exercise of such or any other right.
SECTION 14. Governing Law.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to conflict of law
principles.
SECTION 15. Assignment.
Neither this Agreement nor any rights or obligations under it are
assignable, except that the Investment Advisor may assign its obligations
hereunder as set forth in Section 3(h).
SECTION 16. Headings.
The descriptive headings of the Articles, Sections and subsections
of this Agreement are for convenience only and do not constitute a part of this
Agreement.
SECTION 17. Parties in Interest.
This Agreement shall be binding upon and inure to the benefit of
each party and their respective permitted successors and assigns, and nothing in
this Agreement, express or implied, is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this
Agreement, except that the Investors shall be third party beneficiaries hereof.
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SECTION 18. Consent to Jurisdiction and Litigation.
All litigation relating to or arising under or in connection with
this Agreement shall be brought only in the federal or state courts of competent
jurisdiction located in the State and County of New York, which shall have
exclusive jurisdiction to resolve any disputes with respect to this Agreement.
By execution and delivery of this Agreement, each party hereto irrevocably and
unconditionally consents to the jurisdiction of such courts for any actions,
suits or proceedings arising out of or relating to this Agreement. The parties
hereto irrevocably waive any obligation of the laying of venue or based on the
grounds of forum non conveniens that it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction. No party hereto shall
be entitled to immunity whatsoever, whether characterized as sovereign immunity
or otherwise, from any legal proceedings to enforce the obligations hereunder.
Subject to Section 10, in the event of any breach of the provisions of this
Agreement, the non-breaching party shall be entitled to equitable relief,
including in the form of injunctions and orders for specific performance, where
the applicable legal standards for such relief in such courts are met, in
addition to all other remedies available to the non-breaching party with respect
thereto at law or in equity.
SECTION 19. Attorney's Fees.
In the event of any action for the breach of this Agreement or
misrepresentation by any party, the prevailing party shall be entitled to
reasonable attorney's fees, costs and expenses incurred in such action.
SECTION 20. Representation By Counsel.
Each party hereto acknowledges that such party to this Agreement has
been represented by counsel in connection with this Agreement and the
transactions contemplated by this Agreement. Accordingly, any rule of law or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it has no application and is
expressly waived.
SECTION 21. Interpretation.
The provisions of this Agreement shall be interpreted in a
reasonable manner to effect the intent of the parties hereto. Any of the terms
used herein may, unless the context otherwise requires be used in the singular
or the plural depending on the reference. All words or terms used in this
Agreement, regardless of the number or gender in which they are used, shall
include any other number or gender, as the context may require. Further,
"hereof," "herein," "hereunder," "hereto," "this Agreement" and comparable terms
refer to the entire instrument, including any exhibits or schedules to the
instrument, and not to any particular article, section or other subdivision of
the instrument. All references to SVI-International shall include all parallel
or subsidiary vehicles including Redemption
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<PAGE> 22
Vehicles, if any, that may be utilized. In such circumstances, references to the
Operating Agreement shall be deemed to include references to the applicable
Other Operating Agreements. References to actions to be taken by any
International Fund Entity shall mean such actions to be taken by the Investment
Manager on behalf of such International Fund Entity or, if applicable, to the
Investment Manager causing such International Fund Entity to take such action,
unless the context clearly requires otherwise.
SECTION 22. Further Assurances.
Each party agrees to execute and deliver (or to cause the execution
and delivery of) such further instruments and to do such further acts as the
Investment Advisor deems necessary or advisable to better effectuate this
Agreement.
SECTION 23. Severability.
If any provision of this Agreement is determined to be invalid,
illegal or unenforceable by any court of competent jurisdiction or other
governmental entity, the remaining provisions of this Agreement to the extent
permitted by law shall remain in full force and effect provided that the
essential terms and conditions of this Agreement for all parties remain valid,
binding and enforceable; provided that the economic and legal substance of the
transactions contemplated is not affected in any manner materially adverse to
any party. In event of any such determination, the parties agree to negotiate in
good faith to modify this Agreement to fulfill as closely as possible the
original intents and purposes hereof. To the extent permitted by law, the
parties hereby to the same extent waive any provision of law that renders any
provision hereof prohibited or unenforceable in any respect.
SECTION 24. Counterparts.
This Agreement may be executed in any number of counterparts by
facsimile or other written form of communication, each of which shall be deemed
to be an original as against any party whose signature appears thereon, and all
of which shall together constitute one and the same instrument. This Agreement
shall become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as
the signatories.
SECTION 25. WAIVER OF JURY TRIAL.
EACH PARTY HERETO, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
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<PAGE> 23
IN WITNESS WHEREOF, each of the parties hereto has caused this
Investment Advisory Agreement to be executed by its duly authorized officers as
of the day and year first above written.
STRATEGIC VALUE INVESTORS
INTERNATIONAL, LLC
By: Strategic Value Investors International Ltd.
Its: Manager
By: /s/ TERENCE McHUGH
-------------------------------
Name: Terence McHugh
Title: Vice President
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ KEVIN R. SMITH
-------------------------------
Name: Kevin R. Smith
Title: Vice President
STRATEGIC VALUE INVESTORS
INTERNATIONAL LTD.
By: /s/ TERENCE McHUGH
-------------------------------
Name: Terence McHugh
Title: Vice President
THE PRUDENTIAL INVESTMENT CORPORATION
By: /s/ JOSEPH D. MARGOLIS
-------------------------------
Name: Joseph D. Margolis
Title: Vice President
S-1
<PAGE> 24
ANNEX NUMBER 1 TO INVESTMENT ADVISORY AGREEMENT
Date: ______________, 199__
The undersigned acknowledges and agrees as follows:
1. This Annex Number 1 is part of the Investment Advisory Agreement dated
October 2, 1997, to which it is attached.
2. The undersigned is a party to and a "Member" under the Operating Agreement
and or one or more Other Operating Agreements, and its notice address for
purposes hereof it as set forth thereunder.
3. The undersigned has reviewed this Annex Number 1 and the Investment
Advisory Agreement and is represented by counsel in connection therewith.
4. The undersigned will pay the Investment Advisor Fee and the Performance
Fee in accordance with the Investment Advisory Agreement.
5. The Investment Advisor may deduct or withhold from Distributions to the
undersigned any amounts payable by the undersigned in respect of any fees
or expenses relating to the Investment Advisory Agreement.
6. No Indemnitee shall be liable to the undersigned and the undersigned shall
indemnify each Indemnitee, all as set forth in Section 14 of the
Investment Advisory Agreement, and the Investment Advisor may deduct,
withhold or make capital calls for any amounts payable by the undersigned
in respect thereof.
7. The undersigned shall fulfill any other obligations it may have under
Sections 9, 10 or 14 of the Investment Advisory Agreement.
8. This Annex Number 1 shall survive the termination of the Investment
Advisory Agreement.
9. Appointment of Investment Advisor as Attorney-in-Fact: The undersigned
constitutes and appoints the Investment Advisor, and any replacement or
substitute Investment Advisor, as the undersigned's true and lawful
attorney-in-fact and agent, with full power and authority in the
undersigned's name, place and stead and to take all actions as are
necessary and appropriate to fulfill the duties of Investment Advisor as
referenced in the Investment Advisory Agreement
A-1
<PAGE> 25
and the Operating Agreement and/or as described in the Memorandum,
including, without limitation, actions in connection with the borrowing of
funds and the acquisition and disposition of Investment Securities.
The appointment by the undersigned of the Investment Advisor as
attorney-in-fact set forth shall be deemed to be a power coupled with an
interest and with full power of substitution, in recognition of the fact
that the undersigned will be relying upon the Investment Advisor to act as
contemplated by the Investment Advisory Agreement and the Operating
Agreement in any filing and other action by the Investment Advisor on
behalf of SVI-International, and such power shall, to the extent permitted
by law, survive the death, disability, incompetency, withdrawal, removal,
bankruptcy or insolvency of any Person hereby giving such power and the
transfer by the undersigned of all or part of its Interest. The foregoing
power of attorney of a transferor shall survive such transfer only until
such time as the transferee shall have been admitted to SVI-International
as a member and all required documents and instruments shall have been
duly executed, filed and recorded to effect such substitution. Any Person
dealing with SVI-International may conclusively presume and rely upon the
fact that any such instrument executed by such agent and attorney-in-fact
is authorized, regular and binding without further inquiry.
-----------------------------------
By: _________________________________
Name:
Title:
Notice Address:
_____________________________________________
_____________________________________________
_____________________________________________
Attention: __________________________________
Fax: ________________________________________
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