<PAGE>
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PACIFIC GATEWAY PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
PACIFIC GATEWAY PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
/X/ No filing fee needed.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
- ------------------------
* Set forth the amount on which the filing is calculated and state how it was
determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
----------------
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
---------------------
September , 1998
Dear Shareholder:
You are cordially invited to attend the Special in Lieu of Annual Meeting of
Shareholders of Pacific Gateway Properties, Inc., to be held on October 26,
1998, at 900 North Michigan Avenue, Suite 1900, Chicago, Illinois.
While the meeting begins promptly at 9:00 a.m., the doors will be open at
8:30 a.m. Members of the Board of Directors and the officers of the Company
welcome the opportunity to visit with shareholders on an informal basis during
the time preceding the meeting.
At the meeting you will be asked: To elect directors for the coming year; to
consider a proposal by the Board of Directors to reincorporate the Company as a
Maryland corporation and convert the Company to a real estate investment trust
("REIT") by making the appropriate elections under federal tax laws; and to
consider and vote on such other business as may properly come before the
meeting. These matters are described in the accompanying proxy statement. In
addition, there will be a discussion of corporate events followed by a question
and answer period.
One of the requirements for REIT status relates to the percentage ownership
of the Company by the five largest shareholders of the Company. If you (either
directly or constructively, as described below) own more than 2% of the
outstanding Common Stock (about 85,000 shares), significant limitations may
apply to any shares owned in excess of the 2.0% limit. It is extremely important
for any shareholder who owns more than 85,000 shares to contact the Company as
soon as possible in order to allow time to discuss whether these limitations can
be waived as to a particular shareholder. For these purposes, shares owned by
corporations, partnerships, and limited liability companies may be treated as
owned by their shareholders, partners, and members, respectively, and vice
versa. Furthermore, the share ownership of one or more family members, such as
siblings and spouses, may be aggregated, and treated as owned by one person.
At this time, I would like to recognize the contributions of Marshall A.
Jacobs, a director of the Company and friend, who resigned from our Board of
Directors in August. Mr. Jacobs served as a member of the Board of Directors
since the Company's inception in 1984. His contributions as a board member,
legal counsel, and advisor to many of the Company's Chief Executives has been
invaluable. On behalf of the Company's shareholders, board, management and staff
we wish him continued success in his future endeavors, and many years of good
health and happiness during his retirement.
It is important that your shares are represented at the meeting whether or
not you plan to attend. Accordingly, please take a moment now to fill in, sign,
date and mail the enclosed proxy in the envelope provided.
Your cooperation is appreciated.
Sincerely,
Raymond V. Marino,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
930 MONTGOMERY STREET, 4TH FLOOR
SAN FRANCISCO, CA 94133
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 26, 1998
------------------------
To the Shareholders of Pacific Gateway Properties, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Pacific
Gateway Properties, Inc. (the "Company") will be held on October 26, 1998 at
9:00 a.m. at 900 North Michigan Avenue, Suite 1900, Chicago, Illinois, for the
following purposes:
(a) To elect eight directors;
(b) To consider a proposal by the Board of Directors to reincorporate the
Company as a Maryland corporation and convert the Company to a real
estate investment trust ("REIT") by making the appropriate elections
under federal tax laws; and
(c) Consideration of such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on September 21, 1998
as the record date for the determination of shareholders entitled to vote at the
meeting.
Shareholders who do not expect to attend in person and who wish their shares
to be voted are urged to fill in, sign, date and return the accompanying form of
proxy in the enclosed envelope, to which no postage need be affixed if mailed in
the United States.
By Order of the Board of Directors,
Stephen J. LoPresti,
SECRETARY
September , 1998
San Francisco, California
The Annual Report of the Company on Form 10-K, including financial
statements for 1997, and quarterly reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998, are being sent to shareholders concurrently
with this Notice.
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC.
930 MONTGOMERY STREET, 4TH FLOOR
SAN FRANCISCO, CA 94113
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 26, 1998
This Proxy Statement is furnished to the holders of Common Stock (the
"Common Stock") and Series 1 Preferred Stock (the "Series 1 Preferred Stock"),
of Pacific Gateway Properties, Inc. (the "Company") in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company to be
voted at the Annual Meeting of Shareholders to be held at 900 North Michigan
Avenue, Chicago, Illinois, on October 26, 1998 and at any adjournment or
adjournments thereof (the "Annual Meeting") for the purposes set forth in the
accompanying Notice of Annual Meeting of Shareholders.
This Proxy Statement is being furnished by the Company to the holders of
Common Stock and Series 1 Preferred Stock in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Annual Meeting
to vote in favor of: (1) the election of the individuals named herein as
Directors of the Company and (2) reincorporation of the Company in the State of
Maryland (the "Reincorporation"). Approval of the Reincorporation is being
sought in connection with the Company's plans to elect to be treated as a real
estate investment trust ("REIT") for federal income tax purposes and its
adoption of an umbrella partnership real estate investment trust ("UPREIT")
structure. To effect the Reincorporation, the existing Company, currently
organized as a corporation under the laws of New York (the "New York Company"),
will be merged into a new corporation organized under the laws of Maryland (the
"Maryland Company") (the "Merger"), pursuant to an Agreement and Plan of Merger
by and between the New York Company and the Maryland Company (the
"Reincorporation Agreement"). The Board of Directors has unanimously approved
the Reincorporation Agreement. If the Merger becomes effective, (i) the New York
Company will cease to exist, (ii) the Maryland Company will succeed, to the
fullest extent permitted by law, to all of the business, assets and liabilities
of the New York Company, and (iii) each share of Common Stock of the New York
Company (the "New York Common") will be converted automatically into one share
of common stock of the Maryland Company (the "Maryland Common"), and each share
of Series 1 Preferred Stock of the New York Company (the "New York Preferred" or
the "Series 1 Preferred") will be converted automatically into one share of
Series 1 Preferred Stock of the Maryland Company (the "Maryland Preferred"). The
Reincorporation will not result in a change in the Company's business,
management, capitalization, assets, liabilities or net worth. The Maryland
Common will continue to be listed on the American Stock Exchange ("AMEX"). The
Board of Directors will retain discretion to delay, abandon or terminate the
Reincorporation after receipt of shareholder consent. As a REIT, the only
business of the Company will be the Company's present business.
If the accompanying form of proxy is executed and returned, it may
nevertheless be revoked at any time insofar as it has not been exercised. All
properly executed, unrevoked proxies in the enclosed form which are received in
time will be voted in accordance with the shareholders' directions and, unless
contrary directions are given, will be voted for: (1) the election as Directors
of the nominees named below and (2) in favor of approval of the Reincorporation
Agreement and all related transactions including adoption of the Maryland
Articles of Incorporation and the Maryland Bylaws. It is anticipated that this
Proxy Statement and the enclosed proxy will be first mailed to record holders of
the Company's Common Stock on or about , 1998.
1
<PAGE>
The Board of Directors has fixed the close of business on September 21, 1998
as the record date for the determination of shareholders entitled to receive
notice of and vote at the Annual Meeting. As of September 21, 1998, the Company
had outstanding 3,933,536 shares of Common Stock and 300,000 shares of Series 1
Preferred Stock. Each share of Common Stock and Series 1 Preferred Stock is
entitled to one vote on all matters being considered at the Annual Meeting. The
Preferred Stock and the Common Stock will vote as a single class in the election
of directors and as separate classes on the Reincorporation.
The principal executive offices of the Company are located at 930 Montgomery
Street, 4th Floor, San Francisco, CA 94133. The telephone number of the Company
at such address is (415) 398-4800.
VOTES REQUIRED. The holders of a majority of the number of shares of New
York Common and New York Preferred issued, outstanding and entitled to vote on
any matter constitutes a quorum at the Annual Meeting. Shares of New York Common
and New York Preferred present in person or represented by proxy (including
shares which abstain or do not vote with respect to the matters presented for
shareholder approval) will be counted for purposes of determining whether a
quorum is present. The approval of the Reincorporation requires the affirmative
votes of the holders of two-thirds of the outstanding shares of New York Common
and New York Preferred, voting as separate classes. Shares which abstain from
voting, and shares held in street name by brokers or nominees who indicate on
their proxy that they do not have discretionary authority to vote such shares as
to the Reincorporation, will not be counted as votes in favor of such matter.
Accordingly, abstentions and "broker non-votes" with respect to voting on the
Reincorporation proposal will have the effect of a vote against the proposal.
Richard M. Osborne and his affiliates and other members of the Board of
Directors of the Company, who hold in the aggregate 56% of the outstanding
Common Stock entitled to vote at the Annual Meeting have indicated that they
intend to vote for the Reincorporation and the transactions related thereto. GEM
Value/PGP, LLC, which owns all the Series 1 Preferred Stock, has agreed to vote
for the Reincorporation and the transactions related thereto.
ELECTION OF DIRECTORS
Eight directors are to be elected at the Meeting, each to hold office until
the next Annual Meeting of Shareholders and until his successor is chosen and
qualified. The Board of Directors does not contemplate that any nominee will be
unable to serve as a director for any reason; however, if that should occur
prior to the Annual Meeting, the proxy holders may select another nominee to
stand for election in his place and stead. For so long as the holders of the New
York Preferred retain at least 20% of the New York Preferred (or the New York
Common issuable upon conversion thereof) or until a change of control of the
Company, which ever first occurs, the Company has agreed to use its best efforts
to nominate a person selected by the holders of the New York Preferred to serve
on the Company's Board of Directors. The holders of the New York Preferred have
designated Mr. Norman S. Geller as their representative.
The following table sets forth certain information concerning the nominees
for director:
<TABLE>
<CAPTION>
NOMINEES
- ------------------------------------------
<S> <C>
Steven A.Calabrese........................ Age 37; director of the Company since June 1997; since prior to 1992,
managing partner of Calabrese, Racek and Markos, Inc., CRM
Construction Inc. and CRM Environmental Services, Inc., firms which
specialize in evaluations, management, construction and environmental
assessment services for commercial and industrial real estate; owner
and manager of a real estate portfolio. (A)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NOMINEES
- ------------------------------------------
<S> <C>
Mark D. Grossi............................ Age 44; director of the Company since June 1997; Executive Vice
President and director of Charter One Financial, Inc., a savings and
loan holding company, and Executive Vice President and Chief Retail
Banking Officer of its subsidiary, Charter One Bank; since prior to
1992, holder of various senior executive positions with Charter One
Bank and its predecessor. (A)
Lawrence B. Helzel........................ Age 50; director of the Company since May 1995; since prior to 1992,
member, Pacific Stock Exchange, Inc. (self employed market maker,
options floor); co-founder Buylar Investments, Inc., a real estate
investment company. (A)
Christopher L. Jarratt.................... Age 36; director of the Company since May 1997; since prior to 1992,
President, Jarratt Associates, Inc., a company engaged in commercial
mortgage banking and commercial real estate investment activities and
since September 1996, Chief Executive Officer of Third Capital, LLC,
a company engaged in various real estate investment and advisory
activities; Chairman and Chief Executive Officer of JB Oxford
Holdings.
Raymond V. Marino......................... Age 40; director of the Company since March 1996 and President and
Chief Executive Officer since January 1996; prior thereto from August
1992, Vice President of the Company; prior thereto, Vice President of
Finance and Controller, Hunting Gate Investments, Inc., a real estate
investment and management company.
Richard M. Osborne........................ Age 52; director and Chairman of the Board of Directors of the
Company since May 1997; since prior to 1992 President and Chief
Executive Officer of OsAir, Inc., a manufacturer of industrial gases
for pipeline delivery and a real property developer; director of
Brandywine Realty Trust and Great Lakes Bank; director of GLB
Bancorp, Inc.; director of Central Reserve Life Corporation; director
of T.I.S. Investment Company. (B)
Martin S. Roher........................... Age 48; director of the Company since May 1995; since prior to 1992,
general partner and managing partner of MSR Capital Partners, a
limited partnership engaged in securities investments. (B)
Norman S. Geller.......................... Age 41. Mr. Geller is a co-founder of GEM Investors, Inc., and since
June 1994 he has served as Executive Vice President of GEM Investors,
Inc. He also serves as one of three members of the investment
committee of Gem Value Fund, L.P. and as an executive vice president
of the Fund's general partner, GEM Value Partners, L.L.C. Prior to
December 1997, Mr. Geller also served as Executive Vice President of
JMB Realty Corporation.
</TABLE>
- ------------------------
(A) Member of the Audit Committee.
(B) Member of the Compensation Committee
Directors who are not officers of the Company receive an annual fee of
$7,500 and supplemental fees of $750 for each meeting of the Board or a
committee thereof attended, and $375 for each telephone
3
<PAGE>
meeting, plus out-of-pocket expenses incurred in connection with services
rendered to the Company and travel and lodging for each Board meeting.
The Board of Directors of the Company held five meetings in 1997. The Board
does not have a Nominating Committee. The duties of the Audit Committee of the
Board are to oversee the audit function of the Company's independent certified
public accountants, to periodically review significant financial information
relating to the Company and to act as a communication link between the Board and
such certified public accountants. The duties of the Compensation Committee of
the Board are to make recommendations to the Board with respect to the
compensation package of the Chief Executive Officer, to review the Chief
Executive Officer's recommendations as to the compensation packages of the other
officers of the Company and to award grants under and otherwise administer the
Company's stock option plans. The Audit Committee met two times in 1997. The
Compensation Committee met once in 1997. During 1997, each director attended all
of the meetings of the Board of Directors and committees of which he was a
member.
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information concerning the beneficial
ownership of shares of Common Stock of the Company by persons who the Company
knows to own beneficially more than 5% of the outstanding Common Stock (assuming
conversion of the outstanding New York Preferred) and by the directors, nominees
for election as directors and executive officers of the Company.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED(1) CLASS
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
GEM Value/PGP LLC..................................................... 401,700(6) 9.5
900 North Michigan Avenue
Suite 1900
Chicago, Illinois 60611
Richard M. Osborne Trust.............................................. 1,576,938(2) 37.3
Turkey Vulture Fund XIII, Ltd.
and Liberty Self Store, Ltd.
7001 Center Street
Mentor, OH 44060
Third Capital, LLC.................................................... 200,000(3) 4.7
314 Church Street
Nashville, TN 37201
Steven A. Calabrese................................................... 39,800 *
Mark D. Grossi........................................................ 264,800 6.3
30962 Riviera Lane
Westlake, OH 44145
Lawrence B. Helzel.................................................... 40,000 *
Christopher L. Jarratt................................................ 200,000(3) 4.7
Stephen J. LoPresti................................................... -- *
Raymond V. Marino..................................................... 99,940(4) 2.3
Richard M. Osborne.................................................... 1,576,938(2) 37.3
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME AND ADDRESS OWNED(1) CLASS
- ---------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Martin S. Roher....................................................... 175,000(5) 4.1
Norman S. Geller(6)................................................... 401,700 9.5
All directors, nominees and executive officers (9 persons) as a
group(7)............................................................ 2,598,178 60.0
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is the direct or indirect ownership of Common Stock of
the Company including the right to control the vote or investment of or
acquire such Common Stock within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934. Unless otherwise indicated, each beneficial
owner has sole voting and investment power with respect to the shares shown
and reported ownership is as of September 21, 1998.
(2) According to information provided in Amendment No. 1 to Schedule 13D dated
April 28, 1997 filed by the Richard M. Osborne Trust (the "Trust"), Turkey
Vulture Fund XIII, Ltd. (the "Fund") and Liberty Self Store, Ltd.
("Liberty") as a group, and other information provided to the Company, the
Trust beneficially owns 100 shares, the Fund beneficially owns 305,432
shares and Liberty beneficially owns 1,271,406 shares. Richard M. Osborne as
sole trustee of the Trust, sole manager of the Fund and sole managing member
of Liberty may be deemed to beneficially own all of said 1,576,938 shares.
(3) Based upon information provided in Schedule 13D dated May 19, 1997 filed by
Third Capital, LLC. Represents shares of Common Stock issuable upon exercise
of presently exercisable warrants issued to Third Capital, LLC by the
Richard M. Osborne Trust and related entities. Christopher L. Jarratt is
Chief Executive Officer of Third Capital, LLC and may be deemed to
beneficially own said securities.
(4) Represents shares issuable upon exercise of options to purchase Common Stock
which were exercisable at August 31, 1998 or which may become exercisable
within 60 days thereafter.
(5) The shares are owned by MSR Capital Partners. Mr. Roher is the sole general
partner of MSR Capital Partners and may be considered to beneficially own
such shares.
(6) Consists of 300,000 shares of New York Preferred owned by Gem Value/PGP LLC
and 101,700 of New York Common owned by GEM Value Fund, L.P., which are
affiliates of Mr. Geller and in which he has an interest.
(7) Includes shares owned by GEM Value Fund, L.P. and GEM Value/PGP LLC. Mr.
Geller, an affiliate of both entities, is a nominee for director of the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon reports it has received and other information, the Company
believes that all of its security holders, directors and officers who were
required to file reports of beneficial ownership of the Company's Common Stock
under Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
in respect of 1997 and prior periods have done so and their filings for 1997
were on a timely basis.
5
<PAGE>
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth individual compensation
information for each of the Company's last three fiscal years of the Chief
Executive Officer ("CEO") and other most highly paid executive officers who were
serving as such at the end of the Company's fiscal year ended December 31, 1997,
and whose total annual salary and bonus for such fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
-------------------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- -------------------------------------------------- --------- ---------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Raymond V. Marino(2) ............................. 1997 $ 150,000 $ 25,000 -- $ --
President and CEO 1996 150,000 50,000 100,000 --
1995 95,000 30,000 -- 2,850
Christopher M. Watson(3) ......................... 1997 $ 100,000 -- -- 95,687
Executive Vice President 1996 70,000 30,000 35,000 34,906
1995 70,000 30,000 -- 22,459
</TABLE>
- ------------------------
(1) Other compensation in the form of personal benefits to the named person has
been omitted because it does not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus to each.
(2) Mr. Marino became President and CEO as of January 1996. Mr. Marino had been
a Vice President of the Company since August 1992. His other compensation in
1995 is a simplified employee pension contribution.
(3) Mr. Watson joined the Company as a Vice President in September 1992 and
became Executive Vice President as of January 1996. His other compensation
consisted of lease commissions of $92,687 in 1997, $31,906 in 1996 and
$17,359 in 1995 and an auto allowance of $3,000 in each year, and $2,100 for
a simplified employee pension contribution in 1995. Mr. Watson resigned as
an officer in July 1998.
OPTION TABLES
There were no options to purchase Common Stock of the Company granted to the
two officers named above during 1997.
The following table sets forth the values at the end of 1996 of the options
to purchase Common Stock of the Company held by the two officers named above.
None of these officers exercised any options in 1997. Mr. Stephen J. LoPresti
was hired as Vice President of Finance in November 1997 following the
resignation of Andrew T. Gorayeb. Mr. LoPresti was granted options to purchase
30,000 shares of Common Stock on November 10, 1997 at $4.938 per share. None of
Mr. LoPresti's options were exercisable at December 31, 1997.
6
<PAGE>
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUES OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
12/31/97 12/31/97 $(1)
--------------- ----------------
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- --------------- ----------------
<S> <C> <C>
Raymond V. Marino......................................... 98,705/22,470 213,743/47,848
Christopher M. Watson(2).................................. 25,705/30,470 49,210/67,753
</TABLE>
- ------------------------
(1) The closing sale price for the Company's Common Stock on December 31, 1997
as reported on the American Stock Exchange consolidated reporting system was
$4.88 per share.
(2) Mr. Watson resigned as an officer in July, 1998. Upon his resignation, Mr.
Watson exercised options covering 33,940 shares of Common Stock with an
aggregate exercise price of $98,611 (approximately $2.91 per share). The
closing price of the Common Stock of the Company on the date he exercised
the options was $10.19 per share.
EMPLOYMENT CONTRACT WITH EXECUTIVE. Raymond V. Marino was employed by the
Company in 1996 under an employment agreement which was renewed on slightly
modified terms to apply to future years and pursuant to which Mr. Marino is to
be the chief executive officer, president and a director of the Company at an
annual base salary of $150,000 plus a bonus determined by the Board of
Directors. The current employment agreement is for an initial term of two years
commencing January 2, 1997, and will automatically be extended for additional
one-year terms unless either party elects not to extend the term. If the Company
makes the election, Mr. Marino will be entitled (i) to receive his base salary
for a period of 24 months following expiration and a bonus equal to the average
of any annual bonuses he may have earned with respect to the immediately
preceding two full calendar years of his employment or, if greater, the bonus,
if any, Mr. Marino has received in respect of his 1996 employment, and (ii) to
exercise all vested options which have been granted to him for a period of 12
months from the date of expiration. If the Company otherwise terminates the
employment agreement without cause or if Mr. Marino terminates the employment
agreement because of a reduction in his responsibilities or compensation or a
change in his employment location, Mr. Marino will be entitled to receive the
termination compensation described above and the vesting period of any unvested
options granted to Mr. Marino will accelerate and such options and all
previously vested options will be exercisable for a period of 12 months from the
date of termination. In the event of a termination of Mr. Marino's employment at
his election within 12 months following a change in control of the Company (as
defined in the employment agreement), he will be entitled to receive the
termination compensation described above, including the acceleration of the
vesting of his options, but the period for exercising any options will be three
months from termination. If, following change in control, Mr. Marino agrees to
remain employed under different terms of employment than those contained in his
employment agreement, he will be entitled to be paid in addition to his
compensation under the new employment arrangement his base salary for the
remainder of his then current employment term. In March 1998, the Board of
Directors extended the term of Mr. Marino's employment agreement through January
1, 2000 and increased his base salary, effective as of January 1, 1998, to
$175,000. Mr. Marino was granted an option to purchase 20,000 shares of Common
Stock in March 1998 at an exercise price of $6.06 per share and exercisable in
two equal cumulative installments on January 1, 1999 and December 31, 1999.
Mr. LoPresti has a severance arrangement with the Company under which he is
entitled to receive one year's base salary if the Company terminates his
employment within one year following a change in control.
7
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The responsibilities of the Compensation Committee include making
recommendations to the Board concerning the compensation package of the chief
executive officer and reviewing his recommendations concerning compensation of
other Company officers. The Committee also administers the Company's stock
option plans.
The Committee favors the fairly typical structure of a compensation package
for executive officers comprised of a base salary, short-term incentive
compensation in the form of an annual bonus and long-term incentive compensation
through the grant of Common Stock purchase options. The Company is relatively
small with only two executive officers and the levels of compensation for them
have been fixed largely based upon perceptions of compensation levels of
comparable personnel in the San Francisco Bay area.
The Committee believes that the executive officers were effective in 1997 in
achieving improved rentals for the Company's properties, and in identifying and
completing the acquisition of two new properties for the Company. The Company
does not have a formal bonus plan.
CHIEF EXECUTIVE OFFICER COMPENSATION. In March 1998, the Company reached
agreement with Mr. Marino concerning his employment as chief executive officer
retroactive to January 1998 in recognition of the positive performance of the
Company and extended the agreement on a slightly modified basis through January
1, 2000. The terms of the agreement as now in effect are described above under
the caption "EMPLOYMENT CONTRACT WITH EXECUTIVE". Mr. Marino's base salary and
option grant were established through arm's length negotiations at levels which
were believed, without independent study, to be comparable to what would have
been available to Mr. Marino at a company similar to the Company. The 1997 bonus
for Mr. Marino of $25,000 (16.7% of his base salary) was based upon the
Committee's opinion of his contribution to the Company's 1997 performance.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to each of the company's chief executive officer and the four other most
highly compensated executive officers. Because of the range of compensation paid
by the Company to its executive officers, the Compensation Committee has not
established any policy regarding annual compensation to such executive officers
in excess of $1,000,000.
THE COMPENSATION COMMITTEE
Richard M. Osborne, CHAIRMAN
Marshall A. Jacobs
Martin S. Roher
8
<PAGE>
PACIFIC GATEWAY PROPERTIES, INC. (PGP)
PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG PGP, DOW JONES GLOBAL MARKET INDEX-US AND DOW JONES REAL
ESTATE INVESTMENT INDEX-US**
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PACIFIC GATEWAY
PROPERTIES DOW JONES GLOBAL-US INDEX DOW JONES REAL ESTATE MARKET INDEX
<S> <C> <C> <C>
1992 $100 $100 $100
1993 $143 $110 $117
1994 $152 $111 $111
1995 $110 $152 $138
1996 $124 $188 $185
1997 $183 $251 $221
</TABLE>
- ------------------------
Assumes $100 invested on 12/31/92 in PGP Common Stock, the Dow Jones Global
Market Index-US and the Dow Jones Real Estate Investment Index-US.
* Total return assumes reinvestment of dividends.
** Fiscal year ending December 31.
The above graph compares the performance of the Company with that of the Dow
Jones Global Market Index-US (formerly the Dow Jones Equity Market Index) and
the Dow Jones Real Estate Investment Index-US.
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THE REINCORPORATION
The following discussion summarizes certain aspects of the proposed
Reincorporation pursuant to the Reincorporation Agreement. This summary is not
intended to be complete and is subject to, and is qualified in its entirety by,
reference to the Maryland General Corporation Law ("MGCL"), the New York
Business Corporation Law (the "NYBCL"), the Company's Articles of Incorporation
(the "Articles"), the Company's Bylaws (the "Bylaws"), the Reincorporation
Agreement, a copy of which is attached to this Proxy Statement as Exhibit A, the
Articles of Incorporation of the Maryland Company (the "Maryland Articles"), a
copy of which is attached to this Proxy Statement as Exhibit B, and the Bylaws
of the Maryland Company (the "Maryland Bylaws"), a copy of which is attached to
this Proxy Statement as Exhibit C. The Board of Directors of the Company
recommends that the shareholders vote FOR approval of the Reincorporation.
BACKGROUND
Commencing operations in April 1984, the Company historically has acquired,
held, managed and disposed of income-producing real estate located throughout
the United States. The Company's portfolio of commercial properties currently
includes: (1) Walnut Creek Executive Park, a 419,000 square foot office park;
(2) South Bay Office Tower, a 161,000 square foot office building; (3) North
Tucson Business Center, a 91,000 square foot office/industrial building; (4)
Weston Office Building, a 15,000 square foot office building; (5) 410 First
Avenue, a 38,000 square foot office/industrial building; (6) West Valley
Executive Park, a 164,000 square foot office park; and (7) 930 Montgomery
Street, a 23,000 square foot office building. In addition, the Company owns a
23% interest in a partnership formed to develop Rincon Center, a mixed-use
(retail, office and apartment) complex in downtown San Francisco. The Company
only engages in the management of its own properties.
PRINCIPAL REASONS FOR THE REINCORPORATION AND REIT ELECTION
The Company is currently taxable as a "C corporation" for federal income tax
purposes, and accordingly, its income is subject to a corporate-level tax when
earned and also to a shareholder-level tax on any distribution of those
earnings. For a number of years, however, the Company has been able to utilize
net operating losses ("NOLs") to eliminate most of this corporate-level tax.
Thus, the Company's earnings were effectively subject to only a
shareholder-level tax, although the Company has not paid any dividends since the
third quarter of 1990. The Company anticipates that its NOLs may be fully
utilized over the next several years, and thus, unless the Company restructures,
the Company's earnings will potentially become subject to two levels of
taxation. Because REITs generally are not subject to entity-level taxation, the
Company's Board has determined that the Company's qualification and election to
be taxed as a REIT for federal income tax purposes would be economically
beneficial to the Company and its shareholders. The Company believes that after
the Reincorporation it will be organized and will operate in such a manner as to
qualify for taxation as a REIT under the Code.
Management also believes that other benefits will result from the Company's
election of REIT status. Specifically, Management believes that investors
currently consider investments in REITs more favorably than investments in other
entities that own real estate (such as C corporations or limited partnerships).
Because REITs must distribute to their shareholders at least 95% of their
taxable income (with certain adjustments), election of REIT status will result
in the commencement of distributions by the Company. Additionally, based upon
the large amounts of capital raised by REITs during the past several years, the
potentially greater level of holdings by institutional investors and the greater
number of research analysts and brokerage firms following REITs than in the
past, depending on market conditions, the Company may have greater access to
public and private sources of debt and equity capital than it now has,
potentially enabling the Company to raise capital on more favorable terms than
are now available. Because the Company's strategy is to continue to acquire
properties to increase earnings and dividends, the ability to access more, lower
cost capital should facilitate the Company's growth plans. Finally, following
the
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Reincorporation, the Company intends to transfer a majority of the assets
currently held in its operating subsidiaries to an umbrella limited partnership
(an "Operating Partnership") and adopt an "UPREIT" structure, as described
below. The limited partnership interests ("Units") in the Operating Partnership
could be issued to acquire property in transactions that would not trigger
immediate tax obligations for certain sellers and, as a result, the Company's
opportunities for acquisitions may be expanded. See "Federal Income Tax
Consequences of the Merger, Reincorporation and REIT Election--Tax Aspects of
Interests in Partnerships and Qualified REIT Subsidiaries--UPREIT Structure." It
is expected that, in order to comply with the requirements imposed by the
Company's lenders, the Company will retain two properties, the North Tucson
Business Center and the South Bay Office Tower in directly owned operating
subsidiaries.
Because the State of Maryland has for a number of years encouraged REITs to
incorporate in that state and has adopted comprehensive, modern and flexible
corporate laws which are periodically updated and revised to meet changing
business needs, the Company has been advised that it would be beneficial to the
Company and its shareholders to change its domicile to Maryland. The Maryland
courts have developed expertise in dealing with corporate issues and issues
relating to REITs and a substantial body of case law has developed construing
applicable Maryland law. In particular, so-called "excess share" provisions
commonly included in REIT certificates of incorporation have been upheld by the
Maryland courts. As a result, a number of REITs have been incorporated in
Maryland. The Board of Directors believes that reincorporation in Maryland
should provide greater predictability with respect to the Company's corporate
affairs as a REIT.
To take advantage of the benefits of REIT status, management has proposed
that the Company effect the Reincorporation and elect to be treated as a REIT
for federal income tax purposes. The Board of Directors of the Company
considered and unanimously approved the Reincorporation Agreement pursuant to
which the Reincorporation will be effected. Accordingly, the Maryland Company
has been duly incorporated and the New York Company and the Maryland Company
have entered into the Reincorporation Agreement, which provides for the
consummation of the Reincorporation, subject to the approval of the
shareholders.
As noted above, the Reincorporation providing for the Merger has been
unanimously approved by the Board of Directors. The Reincorporation Agreement
provides, however, that the Board of Directors may terminate the Reincorporation
Agreement and abandon or delay the implementation of the Merger if for any
reason, including, but not limited to, changes in legislation affecting REITs,
negotiations regarding the debt restructuring of Rincon Center (see the
discussion regarding Rincon in the Company's Form 10-K under Item 3, Legal
Proceedings and Note 2 to the Company's Consolidated Financial Statements and
updated information in the Company's Form 10-Q quarterly reports accompanying
this Proxy Statement) and the number of shares for which appraisal rights have
been exercised and the cost to the Company thereof, the Board of Directors
determines that it is inadvisable to proceed with the Merger or that the
implementation of the Merger should be delayed. See "Rights of Dissenting
Shareholders" below.
CONSEQUENCES OF REIT ELECTION
As a REIT, the Company will operate in a manner intended to maintain REIT
status for federal income tax purposes. The continued qualification of the
Company as a REIT will depend on the Company's continued satisfaction of certain
asset, income, organizational, distribution and shareholder ownership
requirements. See "Federal Income Tax Consequences of the Merger,
Reincorporation and REIT Election--Requirements for Qualification." The REIT
rules require that most of the Company's income be derived from real
estate-related sources, such as "rents from real property", and from other
sources of passive income. Furthermore, as a REIT, the Company would generally
be prohibited from providing more than a DE MINIMIS amount of non-customary
services to tenants and may be limited in its ability to dispose of properties,
including properties acquired through foreclosure or deed in lieu of
foreclosure. In addition, the Company will be required to distribute annually at
least 95% of its taxable
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<PAGE>
income (excluding any net capital gain) in order to avoid corporate income
taxation of the earnings distributed.
In order to qualify as a REIT, for all taxable years beginning with the
Company's second taxable year as a REIT, the beneficial ownership of the Company
must be held by 100 or more persons, and not more than 50% in value of the
outstanding shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code) during the last half of each taxable year.
To monitor compliance with the ownership requirements, the Company will be
required to maintain records regarding actual ownership of shares of Common
Stock. In addition, the Maryland Articles provides for certain restrictions on
the ownership of shares which are designed to keep the Company in compliance
with the stock ownership tests. See "Description of Capital Stock--Restrictions
on Transfer and Ownership." The Maryland Articles provide that, subject to
certain specified exceptions, no person or entity may own or be deemed to own,
by virtue of the applicable constructive ownership provisions of the Code: (i)
more than the "Ownership Limit," which is either 2% with respect to Maryland
Common (by value or number of shares, whichever is more restrictive) (the
"General Ownership Limit") or 2.5% of the value of the outstanding shares of
Capital Stock (the "Aggregate Ownership Limit"), whichever is more restrictive,
or (ii) any amount of Maryland Common or Preferred which would cause the Company
to be "closely held" within the meaning of Section 856(h) of the Code.
Furthermore, the Maryland Articles prohibit the transfer of shares of stock of
the Company if such transfer would result in shares of stock of the Company's
being owned by fewer than 100 persons. The Board of Directors may, but in no
event will be required to, waive the Ownership Limit with respect to a
particular stockholder if it determines that such stockholder's ownership will
not jeopardize the Company's status as a REIT, and the Board of Directors
otherwise decides that such action would be in the best interests of the
Company, Although the Board of Directors currently expects to waive the
ownership limit as to certain large existing shareholders, such waiver will be
conditioned upon the receipt of undertakings and representations from these
shareholders which are reasonably necessary to conclude that such ownership will
not cause the Company to fail to qualify as a REIT. Nevertheless, no other
shareholders should plan to acquire shares in the Company that would violate the
Ownership Limit.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax on its taxable income at regular
corporate rates, and distributions to shareholders would not be deductible in
computing the Company's taxable income. Thus, distributions to shareholders
could be significantly less than if the Company were a REIT.
REORGANIZATION AS AN UPREIT
GENERAL. Upon completion of the Reincorporation, the Company plans to
reorganize itself as an UPREIT. The reorganization is expected to be
accomplished through the contribution of a majority of the assets currently held
in the Company's operating subsidiaries to the Operating Partnership in a
tax-free transaction (other than certain state transfer taxes). In exchange for
its assets, the Company will receive Units in the Operating Partnership. The
North Tucson Business Center and the South Bay Office Tower will continue to be
held in wholly-owned operating subsidiaries of the Company. The Company plans to
make all future purchases of investment properties through the Operating
Partnership. Upon the initial formation of the Operating Partnership, the
Company will be the sole general partner and will own, directly or indirectly,
all of the interests in the Operating Partnership. As additional limited
partners are admitted to the Operating Partnership in exchange for the
contribution of properties, the Company's percentage ownership in the Operating
Partnership will decline.
After the reorganization, the Operating Partnership will be the entity
through which the Company conducts substantially all of its business and owns
substantially all of its assets (either directly or though subsidiaries). The
Board of Directors of the Company will manage the affairs of the Operating
Partnership by directing the affairs of the Company as general partner of the
Operating Partnership. The Company's limited and general partnership interests
in the Operating Partnership will entitle it to share in cash distributions
from, and in the profits and losses of, the Operating Partnership in proportion
to its
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<PAGE>
percentage interest therein and will entitle the Company to vote on all matters
requiring a vote of the limited partners.
RISKS OF UPREIT CONVERSION. To ensure that a seller is able to contribute
properties to the Operating Partnership on a tax-deferred basis, the seller of
such properties may require the Company to agree to maintain a certain level of
minimum debt at the Operating Partnership level and refrain from selling such
properties for a period of time. Adoption of the UPREIT structure, therefore,
could inhibit the Company from selling properties or retiring debt that would
otherwise be in the best interest of the Company.
Upon the admission of additional limited partners to the Operating
Partnership, the Company (as general partner) would owe a fiduciary obligation
to the limited partners. In most cases, the interests of the limited partners
would coincide with the interests of the Company and its shareholders because
(i) the Company would own a majority of the limited partner interests in the
Operating Partnership and (ii) the limited partners will generally receive
shares of the Company's Common Stock upon redemption of their Units.
Nevertheless, under certain circumstances, the interests of the limited partners
might conflict with those of the shareholders. For example, the sale of certain
properties or the sale or merger of the Company could cause adverse tax
consequences to particular limited partners.
ANTICIPATED FORM OF PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
THE FOLLOWING SUMMARY OF THE PROPOSED PARTNERSHIP AGREEMENT OF THE OPERATING
PARTNERSHIP (THE "OPERATING PARTNERSHIP AGREEMENT") AND THE DESCRIPTION OF
CERTAIN PROVISIONS SET FORTH ELSEWHERE IN THIS PROXY STATEMENT ARE QUALIFIED IN
THEIR ENTIRETY BY REFERENCE TO SUCH FORM OF OPERATING PARTNERSHIP AGREEMENT,
WHICH IS ATTACHED AS EXHIBIT D TO THIS PROXY STATEMENT. THE OPERATING
PARTNERSHIP WILL BE FORMED UNDER THE DELAWARE REVISED UNIFORM LIMITED
PARTNERSHIP ACT, AS AMENDED.
MANAGEMENT. As the sole general partner of the Operating Partnership, the
Company generally will have the exclusive right, responsibility and discretion
in the management and control of the Operating Partnership. The limited partners
of the Operating Partnership generally will have no authority to transact
business or take any action on behalf of, or make any decision for, the
Operating Partnership.
ALLOCATION OF DISTRIBUTIONS, PROFITS AND LOSSES. The Operating Partnership
Agreement provides that, except as set forth below, the net operating cash of
the Operating Partnership available for distribution will be distributed from
time to time as determined by the Company, pro rata in accordance with the
partners' percentage interests. Profits and losses for tax purposes also
generally will be allocated among the partners in accordance with their
percentage interests, subject to compliance with certain requirements of the
Code.
TRANSFERABILITY OF INTERESTS. The Operating Partnership Agreement generally
provides that the Company may not withdraw from the Operating Partnership, or
transfer or assign its interest in the Operating Partnership. The limited
partners generally may transfer all or a portion of their interests in the
Operating Partnership to a transferee. No transferee, however, will be admitted
to the Operating Partnership as a substitute limited partner having the rights
of a limited partner without the consent of the Company and the satisfaction of
other conditions, including agreeing to be bound by the terms and conditions of
the Operating Partnership Agreement. Notwithstanding the foregoing, no transfer
shall be effective to the extent it would, by treating the Units so transferred
as if they had been exchanged for shares of Common Stock, violate the
limitations on ownership set forth in the Articles of Incorporation in order to
protect and preserve the Company's status as a REIT.
ADDITIONAL CAPITAL CONTRIBUTIONS. No limited partner is required under the
terms of the Operating Partnership Agreement to make additional capital
contributions to the Operating Partnership.
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INDEMNIFICATION AND FIDUCIARY STANDARDS. The Operating Partnership
Agreement provides that the general partner and each person designated or
delegated by the general partner will discharge its duties in a manner
reasonably believed to be in the best interest of the Operating Partnership. The
Operating Partnership Agreement also provides that all such individuals will be
indemnified and held harmless by the Operating Partnership for any act performed
for or on behalf of the Operating Partnership, or in furtherance of the
Operating Partnership's business, provided that such individual acted in a
manner believed to be in or not opposed to the best interests of the Operating
Partnership, and with respect to any criminal action, as to which such
individual had no reasonable cause to believe the conduct was unlawful. The
Operating Partnership Agreement also provides that no such individual will have
a personal liability to the Operating Partnership or its partners for monetary
damages for breach of fiduciary duty except for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law.
TERM. The term of the Operating Partnership continues until December 31,
2098, or until sooner dissolved pursuant to the terms of the Operating
Partnership Agreement.
CONDITIONS TO THE REINCORPORATION
The obligations of the Company and the Maryland Company to effect the
Reincorporation are each subject to (i) no statute, rule, regulation, executive
order, decree, injunction or other order having been executed, entered,
promulgated or enforced by any court or governmental authority which is in
effect and has the effect of prohibiting consummation of the Reincorporation and
(ii) the approval of the shareholders by an affirmative vote of two-thirds of
the outstanding shares of stock entitled to vote at the Annual Meeting or
subsequent special meeting called to continue the business of the Annual
Meeting. The Company and the Maryland Company are not aware of any regulatory
approvals required in connection with the Reincorporation. If any such
regulatory approvals are required, the Company and the Maryland Company intend
to seek such approvals as promptly as practicable.
CERTAIN CONSEQUENCES OF THE MERGER
The Reincorporation will be effected by the Merger of the New York Company
with and into the Maryland Company, which will be incorporated under Maryland
law for purposes of the Merger. The Maryland Company will be the surviving
corporation in the Merger and will continue under the name Pacific Gateway
Properties, Inc. The New York Company will cease to exist as a result of the
Merger.
The Merger will not become effective until the Articles of Merger are
accepted by the Department of Assessments and Taxation of the State of Maryland
and a Certificate of Merger is accepted by the Department of State of the State
of New York. At the effective time of the Merger, the Company will be governed
by the Maryland Articles, the Maryland Bylaws and the MGCL.
Upon completion of the Merger, each outstanding share of New York Common
will be converted automatically into one share of common stock of the Maryland
Company and each share of New York Preferred will be converted automatically
into one share of Preferred Stock of the Maryland Company. As a result, the
existing holders of the New York Common and New York Preferred automatically
will become shareholders of the Maryland Company, the New York Company will
cease to exist and the Maryland Company will continue to operate the business of
the Company under the name Pacific Gateway Properties, Inc.
The stock certificates of the New York Company will be deemed to represent
the same number of Maryland Company shares as were represented by the Company's
stock certificates prior to the Reincorporation. It therefore is anticipated
that it will not be necessary for shareholders of the New York Company to
surrender or exchange their existing stock certificates for new stock
certificates of Maryland Common. Following the Reincorporation and as a
condition of the Merger, the Maryland Common will be listed on the American
Stock Exchange ("AMEX") and it is expected that delivery of certificates
representing shares of New York Common will constitute "good delivery" for
subsequent transactions. If
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the rules, regulations or directives of the AMEX require surrender of the
certificates representing shares of New York Common, each shareholder will be
entitled to receive a certificate representing one (1) share of Maryland Common
for each share of New York Common represented by the New York Common
certificate.
The Reincorporation will result in no changes in the operations, business or
management of the Company. The consolidated financial condition and results of
operations of the Company immediately after the consummation of the
Reincorporation will be identical to that of the Company immediately prior to
the Reincorporation. All outstanding shares of the New York Company capital
stock will be converted upon the Merger on a one-for-one basis into identical
shares of Maryland Company capital stock having the same rights and privileges.
In addition, at the effective time of the Merger, the Board of Directors of the
Maryland Company will consist of those persons serving as Directors of the
Company immediately before the Merger, who are the persons described in this
Proxy Statement. In addition, the individuals serving as executive officers of
the Company immediately before the Merger will serve as executive officers of
the Maryland Company upon effectiveness of the Merger. The Maryland Company will
assume the existing stock option plans of the New York Company, and outstanding
options to acquire New York Company capital stock will be converted into options
to acquire Maryland Company capital stock on a one-for-one basis. The Maryland
Company will also assume the New York Company's 401(k) plan and other employee
benefit plans.
EFFECTS OF THE REINCORPORATION ON THE RIGHTS OF SHAREHOLDERS; CHANGES TO THE
ARTICLES AND BYLAWS
Under the Articles, the Company is formed for the purpose of engaging in any
lawful act or activity under New York law. Since its formation, with the
exception of its ownership of a hotel and provision of management services to
third parties, the Company's operations have substantially consisted and
continue to consist of investments and activities which would be suitable for a
REIT, as that term is now defined by the Code. The Maryland Articles define the
purpose of the Company to engage in the business of a REIT. Accordingly, the
Maryland Company will need to restrict its ownership to particular types of
properties and limit the provision of third party management services. Under the
Maryland Articles, however, the Maryland Company also is permitted to engage in
any lawful act or activity permitted of Maryland corporations. As a result, the
Board of Directors of the Maryland Company will have latitude to determine the
appropriate investments and activities for the Maryland Company, including, if
the Board of Directors believe it is in the best interests of the shareholders,
undertaking activities or investments which may cause the Company to fail to
qualify as a REIT.
The Maryland Articles contain certain provisions intended to assist the
Company in complying with Code requirements applicable to REITs. A discussion of
the material similarities and differences to the Company and its shareholders,
directors and officers resulting from the Reincorporation appears below. This
discussion does not address each difference between Maryland and New York law,
but focuses on those differences which the Board of Directors believes are most
relevant to existing shareholders. This discussion is not intended to be
complete and is qualified in its entirety by reference to the Maryland Articles
and Maryland Bylaws attached hereto as Exhibit B and Exhibit C respectively, and
to the MGCL, the NYBCL, the Articles and the Bylaws. The Board of Directors of
the Company has the right, prior to filing the Maryland Articles with the
appropriate Maryland regulatory authorities, to make ministerial changes and
such other changes as the Board determines in order to permit the Company to
comply fully with Maryland law, the laws and rules relating to qualification as
a REIT for federal income tax purposes, and to conform to the provisions of the
Articles.
LIABILITY OF SHAREHOLDERS. Under the NYBCL, a shareholder or subscriber of
shares is not liable to the corporation, except for the obligation to pay any
unpaid portion of his subscription. Similarly, under the MGCL, in most cases, a
shareholder or subscriber for shares is not obligated or liable to a Maryland
corporation or its creditors except for any unpaid subscription price or unpaid
consideration or unless liability is imposed pursuant to another provision of
the MGCL. This limitation of liability of shareholders
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of Maryland corporations is recognized in all jurisdictions in which the Company
conducts operations. Common law theories of "piercing the corporate veil" may,
however, be used to impose liability on shareholders in certain instances.
INSPECTION RIGHTS. Neither the Company's Articles nor the Maryland Articles
explicitly provide shareholders a right of inspection of the Company's books and
records, although under the NYBCL, shareholders owning at least 5% of the
outstanding stock of any class of a New York corporation have certain rights to
inspect the books and records. Similarly, under Maryland law, one or more
shareholders who together have been shareholders of record for at least six
months and who together hold at least 5% of the outstanding stock of any class
may inspect the corporation's books of account and stock ledger, request a
statement of the corporation's affairs and request a shareholders list. Any
shareholder may inspect the bylaws, minutes of proceedings of the shareholders,
annual statement of affairs and voting trust agreement on file of a Maryland
corporation and may request a statement showing all stock and securities issued
by the corporation during a specified period of not more than 12 months before
the date of the request.
SPECIAL MEETINGS OF SHAREHOLDERS. The Company's Bylaws provide that with
the exception of a special meeting called for the purpose of electing directors,
a special meeting of shareholders may be called only by a majority vote of the
entire Board of Directors. Under the Maryland Articles, a special meeting of
shareholders of the Maryland Company may be called by the Chairman of the Board,
the President, the Board of Directors pursuant to a resolution adopted by a
majority of the directors, or the Secretary upon the written request of holders
of not less than a majority of all shares of stock then outstanding and entitled
to vote at such meeting.
SHAREHOLDER ACTION WITHOUT A MEETING. The Company's Bylaws and the Maryland
Bylaws both provide that shareholders may take action without a meeting only by
unanimous written consent of the holders of all outstanding shares of stock
entitled to vote on such matter. This is consistent with the MGCL, which
provides that shareholders may take such action only upon unanimous written
consent, a requirement unattainable by a public company in most circumstances.
This provision of Maryland law may deter hostile takeovers, as a holder or group
of holders controlling a majority in interest of the Maryland Company's stock
will not be able to amend the Maryland Bylaws or remove directors pursuant to a
shareholders' written consent unless they call a special meeting of the
shareholders. However, the Company does not believe that this provision will
have any material effect on the operation of the Company because the rules of
AMEX limit listed companies in using written consents in lieu of shareholder
meetings.
PREEMPTIVE RIGHTS. Neither the Maryland Articles nor the Company's Articles
provide any shareholder with any preemptive right to subscribe for any
newly-issued stock or other securities of the Maryland Company or the New York
Company, respectively. Accordingly, neither entity offers shareholders a prior
right to purchase any new issue of the Company's Common Stock in order to
maintain their proportionate ownership.
VOTE FOR EXTRAORDINARY TRANSACTIONS. The Company's New York Articles and
Bylaws do not contain specific provisions regarding the approval of
extraordinary transactions, however, the NYBCL provides that a merger,
consolidation, dissolution, or disposition of substantially all of a
corporation's assets must be approved by the holders of two-thirds of all
outstanding shares entitled to vote thereon. The MGCL provides that the
affirmative vote of two-thirds of all the votes entitled to be cast is required
to approve a consolidation, merger, share exchange or transfer of assets,
subject to certain exceptions. However, the MGCL also allows a corporation to
reduce the proportion necessary to approve such a transaction, except that the
proportion cannot be less than a majority of all the votes entitled to be cast
on the matter. Accordingly, the Maryland Articles expressly require a majority
of the aggregate voting power of the outstanding shares to approve certain
extraordinary transactions. Under the NYBCL, the holders of the New York
Preferred vote as a separate class on certain transactions, such as the
Reincorporation. The MGCL does not require a separate class vote in these
circumstances. The holders of the Maryland
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Preferred will vote with the Common Stock on all matters as a single class,
except for amendments affecting only the Maryland Preferred.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL. The Company's Articles authorize the Company to issue
12,000,000 shares of stock, divided into 2,000,000 shares of Preferred Stock and
10,000,000 shares of Common Stock. The Articles give the Board of Directors
authority to issue the Preferred Stock in one or more series and to fix the
number, rights, preferences, privileges, voting rights and restrictions of any
such series. Of the shares of Preferred Stock authorized by the Articles,
300,000 shares have been designated Series 1 Preferred Stock. As of the date
hereof, 300,000 shares of Series 1 Preferred Stock have been issued by the
Company.
The Series 1 Preferred Stock has a liquidation preference of $10 per share.
The Series 1 Preferred Stock also is entitled to receive preferential
distributions from sale or refinancing proceeds (as defined in the Articles) up
to the amount of the liquidation preference. Upon payment of the liquidation
preference, additional distributions from sale or refinancing proceeds in an
equivalent amount per share are payable to the holders of the Common Stock. Any
additional distributions from sale or refinancing proceeds are payable ratably
to the holders of the Series 1 Preferred Stock and the Common Stock on an as
converted basis. The Articles do not require the Company to make any such
distributions, but the Company may not make distributions to shareholders from
sale or refinancing proceeds until the liquidation preference on the Series 1
Preferred Stock has been paid. Distributions from other sources are not
prohibited. The Series 1 Preferred Stock is convertible into Common Stock
initially on a one-for-one basis. The conversion ratio is subject to adjustment
for stock splits, combinations, stock dividends and recapitalizations. Upon
conversion of the Series 1 Preferred Stock into Common Stock, the holders of the
Series 1 Preferred Stock are required to repay any preferential distribution
received back to the Company net of any distributions from sale or refinancing
proceeds to the holders of the Common Stock. The Company has agreed to use its
best efforts to nominate a representative of the holders of the Series 1
Preferred Stock to serve as a member of the Company's Board of Directors until
the earlier of a change of control of the Company (as defined in the Articles)
or such time as the holders of the Series 1 Preferred Stock beneficially own
less than 100,000 shares of Series 1 Preferred Stock (or shares Common Stock
issued upon conversion thereof) and Common Stock otherwise beneficially owned.
The Series 1 Preferred Stock is entitled to receive dividends on an as-converted
basis with the Common Stock. The holders of the Series 1 Preferred Stock have
demand and piggyback registration rights. The holders of the Series 1 Preferred
Stock and certain major holders of the Company's Common Stock have entered into
an agreement permitting the holders to participate, on a proportionate basis, in
any sale by the major holders. If a change of control transaction is proposed
prior to the reincorporation, then to the extent the holders of the Series 1
Preferred Stock are entitled to a class vote under New York law, the holders of
the Series 1 Preferred Stock have agreed to vote their shares of Series 1
Preferred Stock (voting as a separate class) in the same proportion as the vote
of the holders of the Common Stock with respect to the proposed transaction.
This provision permits the holders of the Series 1 Preferred Stock to cast their
vote as they wish voting as a single class with the Common Stock. The effect of
this provision is that if the transaction is approved by the requisite
percentage of the shares voting on the proposed transaction, the holders of the
Series 1 Preferred Stock could not defeat the transaction through a separate
class vote. In connection with the sale of the Series 1 Preferred Stock, an
affiliate of the purchaser was relieved of certain contractual restrictions on
the acquisition of additional stock of the Company.
Like the NYBCL, the MGCL does not permit a corporation to issue an unlimited
number of shares of stock, and requires a corporation's articles of
incorporation to include the total number shares of stock of all classes which
the corporation has authority to issue and the number of shares comprising each
class. The Maryland Articles authorize the Company to issue 10,000,000 shares of
Maryland Common and 2,000,000 shares of preferred stock in one or more series,
with such rights, preferences, privileges and restrictions as designated by the
Board of Directors. The Maryland Articles authorize the Board of
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Directors to classify or reclassify any unissued stock by designating or
amending the designation of the preferences, conversion or other rights, voting
powers, restrictions (including restrictions on transfer), dividend rights,
qualifications and redemption rights of such unissued stock.
Of the 2,000,000 shares initially classified as preferred stock, 300,000
shares have been designated in the Maryland Articles as Series 1 Preferred
Stock, having rights, preferences and privileges substantially identical to the
outstanding Series 1 Preferred Stock. Like the outstanding Series 1 Preferred
Stock the Maryland Preferred generally will vote as a single class with the
Maryland Common, except for certain amendments affecting the par value, rights,
preferences and privileges of the Maryland Preferred; amendments changing the
number of authorized shares of Series 1 Preferred Stock; and amendments relating
to the authorization or issuance of other shares of capital stock having a
preference equal to or senior to the Series 1 Preferred Stock. In addition,
although the NYBCL may require a class vote in certain circumstances, the MGCL
contains no similar requirement and the Maryland Articles provide that the
holders of the Maryland Preferred have no voting rights other than as
specifically set forth in the Articles.
RESTRICTIONS ON TRANSFER AND OWNERSHIP. For the Company to qualify as a
REIT under the Code, no more than 50% in value of its outstanding shares of
stock may be owned, actually or constructively, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year (other than the first year for which an election to be treated as a
REIT has been made). In addition, if the Company, or an owner of 10% or more of
the Company, actually or constructively owns 10% or more of a tenant of the
Company (or a tenant of any partnership in which the Company is a partner), the
rent received by the Company (either directly or through any such partnership)
from such tenant will not be qualifying income for purposes of the gross income
tests for REITs contained in the Code. A REIT's stock must also be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of
twelve months or during a proportionate part of a shorter taxable year (other
than the first year for which an election to be treated as a REIT has been
made). Because the Company expects to qualify as a REIT, the Articles of
Incorporation contain restrictions on the ownership and transfer of shares of
Common Stock which are intended to assist the Company in complying with these
requirements. Such provisions are common among REITs, and are designed, among
other things, to ensure that no five individual shareholders may own more than
50% of the outstanding shares of stock of a REIT, by prohibiting any one
shareholder from owning more than a specified percentage of the REIT's shares of
stock. The Maryland Articles provide that no shareholder may own, directly or
indirectly: (i) more than the "Ownership Limit," which is 2% with respect to
Common Stock (the "General Ownership Limit") or 2.5% of the value of the
outstanding shares of Capital Stock (the "Aggregate Ownership Limit"), whichever
is more restrictive, or (ii) any amount of Common Stock or Preferred Stock which
would cause the Company to be "closely held" within the meaning of Section
856(h) of the Code. Any transfer or acquisition which would result in a
violation of any of these restrictions is void AB INITIO, as is any transfer or
acquisition which would result in the beneficial ownership of the Company by
fewer than 100 persons. The Ownership Limit set forth in the Maryland Articles
provides that, subject to certain specified exceptions, no person or entity may
own, or be deemed to own by application of the constructive ownership provisions
of the Code, (a) more than 2% of the outstanding Maryland Common (the "General
Ownership Limit") or (b) 2.5% of the value of the outstanding shares of Capital
Stock (the "Aggregate Ownership Limit"), whichever is more restrictive. The
constructive ownership rules are complex, and may cause shares of the Maryland
Common or Maryland Preferred to be owned actually or constructively by a group
of related individuals and/or entities to be constructively owned by one
individual or entity. As a result, the acquisition of less than 2% of the shares
of the Maryland Common (or the acquisition of an interest in an entity that
owns, actually or constructively, shares of the Maryland Common or Maryland
Preferred) by the individual or entity, could, nevertheless cause that
individual or entity, or another individual or entity, to own constructively in
excess of the 2.5% limit as applicable and thus violate the Aggregate Ownership
Limit, or such other limit set forth by the Board of Directors.
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The Ownership Limit will not apply if the Board of Directors determines that
it is no longer in the best interests of the Company to attempt to qualify, or
to continue to qualify, as a REIT or that compliance with the restrictions and
limitations on ownership and transfers and acquisitions of Maryland Common or
Maryland Preferred set forth in the Maryland Articles no longer is required for
the Company to qualify as a REIT.
Pursuant to the Articles of Incorporation, if any purported transfer of
shares of Capital Stock of the Company or any other event would otherwise result
in any person violating the Ownership Limit or such other limit as permitted by
the Board of Directors, then any such purported transfer will be void and of no
force or effect with respect to the purported transferee (the "Prohibited
Transferee") as to that number of shares of Capital Stock in excess of the
Ownership Limit or such other limit, and the Prohibited Transferee shall acquire
no right to interest (or, in the case of any event other than a purported
transfer, the person or entity holding record title to any such excess shares of
Capital Stock (the "Prohibited Owner") shall cease to own any right or interest)
in such excess shares. Any such excess shares described above will be
transferred automatically, by operation of law, to a trust, the beneficiary of
which will be a qualified charitable organization selected by the Company (the
"Beneficiary"). Such automatic transfer shall be deemed to be effective as of
the close of business on the business day prior to the date of such violative
transfer. Within 20 days of receiving notice from the Company of the transfer of
shares of Capital Stock to the trust, the trustee of the trust (who shall be
designated by the Company and be unaffiliated with the company and any
Prohibited Transferee or Prohibited Owner) will be required to sell such excess
shares of Capital Stock to a person or entity who could own such shares without
violating the Ownership Limit, or such other limit as permitted by the Board of
Directors, and distribute to the Prohibited Transferee or Prohibited Owner, as
applicable, an amount equal to the lesser of the price paid by the Prohibited
Transferee or Prohibited Owner for such excess shares or the sales proceeds
received by the trust for such excess shares, except that in the case of a
Prohibited Owner who is a Prohibited Owner solely as a result of the
Reincorporation, then such Prohibited Owner shall be distributed the Market
Price of such shares on the effective date of the Formation Transaction. In the
case of any excess shares of Capital Stock resulting from any event other than a
transfer, or from a transfer for no consideration (such as a gift), the trustee
will be required to sell such excess shares to a qualified person or entity and
distribute to the Prohibited Owner or Prohibited Transferee, as applicable, an
amount equal to the lesser of the Market Price (as defined in the Company's
Articles of Incorporation) of such excess shares of Common Stock as of the date
of such event or the sales proceeds received by the trust for such excess
shares, except that in the case of a Prohibited Owner who is a Prohibited Owner
solely as a result of the Reincorporation, then such Prohibited Owner shall be
distributed the Market Price of such shares on the effective date of the
Formation Transaction. In either case, any proceeds in excess of the amount
distributable to the Prohibited Transferee or Prohibited Owner, as applicable,
will be distributed to the Beneficiary. Prior to a sale of any such excess
shares of Capital Stock by the trust, the trustee will be entitled to receive,
in trust for the Beneficiary, all dividends and other distributions paid by the
Company with respect to such excess shares, and also will be entitled to
exercise all voting rights with respect to such excess shares. Subject to
Maryland law, effective as of the date that such shares of Capital Stock have
been transferred to the trust, the trustee shall have the authority (at the
trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Transferee or Prohibited Owner, as applicable, prior to the discovery by the
Company that such shares of Capital Stock should have been automatically
transferred to the trust and (ii) to recast such vote in accordance with the
desires of the trustee acting for the benefit of the Beneficiary. However, if
the Company has already taken irreversible corporate action, then the trustee
shall not have the authority to rescind and recast such vote. Any dividend or
other distribution paid to the Prohibited Transferee or Prohibited Owner (prior
to the discovery by the Company that such shares of Capital Stock had been
automatically transferred to a trust as described above) will be required to be
repaid to the trustee upon demand for distribution to the Beneficiary. In the
event that the transfer to the trust as described above is not automatically
effective (for any reason) to prevent violation of the Ownership Limit or such
other limit as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of
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Directors, then the Articles of Incorporation provide that the transfer of the
excess shares will be void AB INITIO.
In addition, shares of Common Stock held in the trust shall be deemed to
have been offered for sale to the Company, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that resulted
in such transfer to the trust (or, in the case of a devise or gift, the market
price at the time of such devise or gift) and (ii) the Market Price on the date
the Company, or its designee, accepts such offer except that in the case of a
Prohibited Transferee who is a Prohibited Transferee solely as a result of the
Reincorporation, then at a price per share equal to the Market Price on the
effective date of the Reincorporation. The Company shall have the right to
accept such offer until the trustee has sold the shares held in the trust. Upon
such a sale to the Company, the interest of the Beneficiary in the shares sold
shall terminate and the trustee shall distribute the net proceeds of the sale to
the Prohibited Transferee or Prohibited Owner.
If any purported transfer of shares would cause the Company to be
beneficially owned by fewer than 100 persons, such transfer will be null and
void in its entirety and the intended transferee will acquire no rights to the
stock.
All certificates representing shares will bear a legend referring to the
restrictions described above. The foregoing ownership limitations could delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for the shares or otherwise be in the best interest of
stockholders.
Under the Articles of Incorporation, every owner of at least a specified
percentage of the outstanding shares must file a completed questionnaire with
the Company containing information regarding ownership of such shares, as set
forth in the Treasury Regulations. Under current Treasury Regulations, the
percentage will be set between 0.5% and 5.0% depending upon the number of record
holders of the Common Stock. In addition, each stockholder shall upon demand be
required to disclose to the Company in writing such information as the Company
may request in order to determine the effect, if any, of such stockholder's
actual and constructive ownership of shares of Common Stock on the Company's
status as a REIT and to ensure compliance with the Ownership Limit, or such
other limit as provided in the Articles of Incorporation or as otherwise
permitted by the Board of Directors.
The Maryland Articles grant the Directors discretion to waive or modify the
Ownership Limit under certain conditions. The Board of Directors may, but in no
event will be required to, waive the Ownership Limit with respect to a
particular shareholder if it determines that such ownership will not jeopardize
the Company's status as a REIT and the Board of Directors otherwise decides such
action would be in the best interests of the Company. As a condition of such
waiver, the Board of Directors may require an opinion of counsel satisfactory to
it and/or undertakings or representations from the applicant with respect to
preserving the REIT status of the Company. The Board of Directors is expected to
exempt, subject to certain conditions designed to insure compliance with the
REIT requirements, the following persons from the Ownership Limit: (1) Richard
M. Osborne Trust (the "Trust"), the registered owner of less than 1% of the
Company's Common Stock); (2) Turkey Vulture Fund XIII, Ltd. (the "Fund"), the
registered owner of 7.2% of the Company's outstanding Common Stock; (3) Liberty
Self Stor, Ltd. ("Liberty"), the registered owner of 30.0% of the Company's
outstanding Common Stock; (4) GEM Value/PGP, LLC, the owner of 9.5% of the
Company's Common Stock (assuming conversion of the Series 1 Preferred Stock);
(5) Richard M. Osborne, the Company's Chairman of the Board, who beneficially
owns 37.3% of the Company's outstanding Common Stock; (6) Mark D. Grossi, one of
the Company's directors, who beneficially owns 6.3% of the Company's Common
Stock; (7) Raymond V. Marino, who would own slightly more than 3% if he
exercised all his options upon vesting and (8) Lawrence B. Helzel, who together
with members of his family, owns approximately 4% for purposes of the Code.
However, such waiver will be conditioned upon the receipt of undertakings or
representations from these shareholders requested by the Board of
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Directors which are reasonably necessary to conclude that such ownership will
not cause the Company to fail to qualify as a REIT.
REDEMPTION AND RETIREMENT. The Company's Articles are silent with respect
to the Company's ability to repurchase its own stock. The NYBCL permits
repurchases of shares out of surplus except when the corporation is insolvent or
would be made insolvent thereby and permits a corporation to purchase its own
shares out of stated capital, except when the corporation is insolvent or would
be made insolvent thereby, if the purchase is made for the purpose of (i)
eliminating fractions of shares; (ii) collecting or compromising indebtedness to
the corporation; or (iii) paying shareholders entitled to receive payment for
their shares under the appraisal provisions of the NYBCL. Under the MGCL, a
corporation may purchase or acquire its own stock, unless (i) the corporation
would not be able to pay its debts as they become due in the usual course of
business or (ii) the corporation's total assets would be less than the sum of
the corporation's total liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time of the purchase or acquisition, to
satisfy the preferential rights upon dissolution of shareholders whose
preferential rights on dissolution are superior to those whose shares are
purchased or acquired. Under the Maryland Articles, the Company is granted a
90-day option to purchase Excess Stock (as that term is defined in the Maryland
Articles), as provided in the Maryland Articles.
DIVIDENDS. The Company's Articles contain no limitation on the amount and
timing of dividend payments, although the NYBCL places certain restrictions on
dividend payments. The Maryland Articles provide that the holders of shares of
Common Stock are entitled to receive dividends, out of the assets legally
available, as declared by the Board of Directors. The MGCL permits the payment
of dividends unless (i) the corporation would not be able to pay its debts as
they become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of the corporation's total liabilities plus
the amount that would be needed, if the corporation were to be dissolved at the
time of payment of such dividends, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights upon dissolution are
superior to those receiving the dividends.
DISSENTER'S RIGHTS. The NYBCL provides that a dissenting shareholder has
the right to receive the fair value of his shares if he objects to: (i) certain
mergers and consolidations; (ii) certain dispositions of assets requiring
shareholder approval; (iii) certain share exchanges; or (iv) certain amendments
to the certificate of incorporation which adversely affect the rights of such
shareholder. The MGCL gives a shareholder the right to receive the payment of
the fair value of his shares if he objects to: (i) a merger or consolidation;
(ii) a share exchange; (iii) a transfer of substantially all of a corporation's
assets; (iv) amendment of the charter in a way which alters the contract rights
of any outstanding stock, unless the right to do so is reserved by the charter;
or (v) a transaction governed by the supermajority vote provisions for certain
business combinations. The availability of appraisal rights to shareholders of
the Company who dissent from the Merger is discussed under "Rights of Dissenting
Shareholders" below.
BOARD OF DIRECTORS
NUMBER AND ELECTION. The Company's Articles provide that the number of
Directors initially is eight and may be increased or decreased by the Bylaws.
The Maryland Articles provide that the number of Directors will be no fewer than
three and no more than 13.
The Bylaws provide for the election of Directors by a plurality of the votes
cast. Similarly, under Maryland law, the Maryland Articles and the Maryland
Bylaws, Directors are elected by a plurality vote of the shareholders, which
means that those nominees receiving the greatest number of votes are elected as
Directors, whether or not any nominee for Director receives a majority of the
votes entitled to be cast on the matter and present in person or represented by
proxy. The Maryland Articles require that at least two members of the Board of
Directors be Independent Directors. Independent Directors are defined as persons
who are not officers of the Maryland Company or its subsidiaries or significant
shareholders of the Maryland Company or close relatives of any such persons.
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REMOVAL AND VACANCIES. The Articles provide that, subject to the right of
any holders of any series of Preferred Stock to elect additional directors (or
remove such additional directors, once elected), a Director may be removed from
office only for cause and only with the authorization by the affirmative vote of
the holders of two-thirds of the outstanding shares of stock of the Company
entitled to vote thereon. The Maryland Articles also provide that Directors can
be removed only for cause by the affirmative vote of the shareholders holding
two-thirds of the aggregate voting power of the outstanding shares of stock of
the Corporation entitled to vote thereon, except that when, by the provisions of
the Articles of Incorporation, the holders of shares of Preferred Stock or any
series thereof voting as a class are entitled to elect any one or more
directors, the directors so elected may be removed only by the applicable vote
of the holders of the Preferred Stock or such series voting as a class.
The Bylaws provide that any vacancy on the Board, however occurring, will be
filled by a majority vote of the entire Board. The Maryland Articles similarly
provide that vacancies resulting from death, resignation, removal or an increase
in the size of the Board of Directors may be filled by the affirmative vote of a
majority of the entire Board of Directors. Under both the Bylaws and the
Maryland Articles, directors selected by the Board of Directors to fill
vacancies serve until the next annual meeting of shareholders and until their
successors are elected and qualified.
LIMITATIONS ON LIABILITY. The Articles provide that generally no Director
will be liable to the Company for any act or omission arising from the
performance of his or her duty to the Company. However, under the Articles, a
Director may be held liable for his intentional misconduct, bad faith, action
for illegal personal gain or for certain other specific actions enumerated in
the NYBCL, including the declaration of an improper dividend or distribution,
the making of an improper loan to a director, or an improper redemption of
shares.
The Maryland Articles protect Directors from liability to the extent
permissible under Maryland law and specifically provides that no Director or
officer will be liable to the Company or to its shareholders for money damages.
Maryland law provides for limitation on liability except for: (i) actual receipt
of an improper personal benefit in money, property or service; and (ii) active
and deliberate dishonesty established by a final judgment as being material to
the cause of action. The Maryland Articles provide that neither amendment nor
repeal of the liability limitation, nor adoption of any charter or bylaw
provision inconsistent with the liability limitation will apply to or affect in
any respect the applicability of the liability limitation to any act or omission
which occurred prior to such amendment, repeal or adoption.
There is no pending or, to the Company's knowledge, threatened litigation to
which any of its Directors or officers is a party in which the rights of the
Company or its shareholders would be affected if the Company already were
subject to the provisions of Maryland law rather than New York law.
INDEMNIFICATION. The Bylaws provide for indemnification of Directors,
officers, employees and agents of the Company against claims or liabilities, as
provided in the Bylaws and to the extent allowed by the NYBCL. The Maryland
Articles and the Maryland Bylaws provide indemnification to the extent
authorized by applicable law, as currently in effect and thereafter amended, and
the Maryland Articles provide that neither amendment nor repeal of the
indemnification provision contained therein, nor adoption of any charter or
bylaw provision inconsistent with that provision will apply to or affect in any
respect the indemnification right applicable to any act or omission which
occurred prior to such amendment, repeal or adoption. The Maryland Articles,
Maryland Bylaws and the Company's Bylaws state that the indemnification
provisions found in those documents are nonexclusive.
The Bylaws provide that any Director or officer of the Company who is made a
party to any action by or in the right of the Company is indemnified against the
reasonable expenses actually and necessarily incurred by him in connection with
the defense of such action or in connection with an appeal, except where such
director is adjudged to have breached his statutory duty to the corporation. The
Bylaws also provide that any Director or officer of the Company who is made a
party to any action, suit or proceeding or against whom a claim or liability is
asserted as a result of such person acting on behalf of the Company
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other than one by or in the right of the Company will be indemnified and held
harmless by the Company against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred as a result of such action, suit or proceeding or appeal therein, if
such Director or officer acted in good faith for a purpose which he reasonably
believed to be in the best interests of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful.
The indemnification provisions are consistent with the NYBCL. The statute
also prohibits indemnification to cover any amount paid in settlement without
court approval or expenses incurred in connection with a matter that settled
without court approval. The NYBCL provides that the termination of any action by
judgment, settlement, conviction or upon a plea of NOLO CONTENDERE shall not in
itself create a presumption that the director did not act in good faith or in
the interest of the corporation. A director is entitled to indemnification if he
has been successful on the merits or otherwise. In other cases, a director may
be indemnified, in the absence of a court order, only if the Board of Directors
acting by a quorum approves it (not including the votes of the involved
directors), or, if a quorum is unobtainable or a quorum of disinterested
directors so directs, the Board receives written advice from independent legal
counsel that the indemnification is proper or the shareholders find that the
director met the applicable standard of care.
The MGCL provides that a corporation may indemnify any director made a party
to any proceeding by reason of service in that capacity against judgments,
penalties, fines, settlements, and reasonable expenses actually incurred by the
director in connection with the proceeding unless it is established that: (i)
the act or omission of the director was material to the matter giving rise to
the proceeding and (A) was committed in bad faith or (B) was the result of
active and deliberate dishonesty; or (ii) the director actually received an
improper personal benefit in money, property, or services; or (iii) in the case
of a criminal proceeding, the director had reasonable cause to believe that the
act or omission was unlawful. The MGCL also prohibits indemnification if the
person has been adjudged liable to the corporation in a proceeding brought by or
in the right of the corporation. The MGCL provides that the termination of any
proceeding by judgment, order or settlement does not create a presumption that
the director did not meet the requisite standard of conduct to be indemnified,
and the termination of any proceeding by conviction or plea of nolo contendere,
or its equivalent, or an entry of an order of probation prior to judgment,
creates a rebuttable presumption that the director did not meet the requisite
standard of conduct to be indemnified.
ADVANCEMENT OF EXPENSES. Consistent with the NYBCL, the Bylaws provide for
advancement of expenses to any indemnified person, provided that such person has
delivered to the Company a written undertaking to reimburse the Company in the
event it is determined that such person was not entitled to indemnification.
Similarly, the MGCL and the Maryland Bylaws provide for advancement of expenses
actually and reasonably incurred by an indemnified person upon receipt of an
undertaking by or on behalf of the authorized representative to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation.
AMENDMENT OF CHARTER AND BYLAWS
AMENDMENT OF CHARTER. The New York Articles provide that an amendment
thereto must receive: (i) in the case of an amendment, alteration, modification,
change or repeal of Article IV thereof (relating to the number of authorized
shares of stock) the affirmative vote of such percentage (not less than a
majority) as the Board of Directors shall determine of any series of the
authorized Preferred Stock in addition to any other required vote; (ii) in the
case of an amendment, repeal or adoption of any provision inconsistent with
Article VIII (relating to approval of certain Interested Shareholder
transactions), the affirmative vote of the holders of 80% or more of the shares
of then outstanding Voting Stock (as defined in the Articles); or (iii) in the
case of an amendment or change to Articles VI (relating to the number of
directors), VII (relating to the removal of directors for cause), IX (relating
to the amendment of the Bylaws), X (establishing the power to call special
meetings), and XIII (establishing these amendment requirements), the affirmative
vote of the holders of at least 70% of all outstanding shares of the Company. If
the Board
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of Directors is authorized to amend or change any provision of the Articles,
such amendment or change would require the vote of a majority of the entire
Board of Directors.
In order to amend the charter, the MGCL requires both: (i) the Board of
Directors to adopt a resolution recommending any amendment to the corporation's
articles of incorporation and (ii) a vote of two-thirds of all votes entitled to
be cast on the matter by shareholders of the corporation approving any such
amendment after receiving proper notice of the proposed amendment. The charter
may provide for shareholder approval by a lower percentage, but not less than a
majority of all the votes entitled to be cast on the matter. The Maryland
Articles generally require approval of any amendment by the affirmative vote of
shareholders holding a majority of the aggregate voting power of the outstanding
shares of the Maryland Company, except that an affirmative vote of shareholders
holding at least 70% of the outstanding shares of stock of the Maryland Company
entitled to vote thereon is required to amend the provisions of the Maryland
Articles relating to the number and removal of directors, certain amendments to
the bylaws, amendments relating to special meetings of shareholders and
amendments to the provisions relating to amendment of the Maryland Articles.
AMENDMENT OF BYLAWS. Generally, the Bylaws grant the Board of Directors the
power to adopt, amend or repeal the Bylaws by the vote of a majority of the
entire Board. However, an amendment or repeal of certain sections of the Bylaws
relating to the power to call special meetings of the shareholders, nominations
of individuals for election as Directors, and filling vacancies on the Board of
Directors requires the affirmative vote of at least 70% of all outstanding
shares of the Company. In addition, the Bylaws also provide, with the exception
of the enumerated provisions, that the Bylaws can be amended or repealed, or new
Bylaws adopted, by the vote of the holders of a majority of all outstanding
shares. Under the MGCL the power to adopt, amend or repeal bylaws is vested in
the shareholders, unless the articles of incorporation confer such power to the
Board of Directors. The MGCL provides, however, that conferring such power to
the Board of Directors does not divest the shareholders of their power to alter,
amend or repeal a corporation's bylaws, and the Maryland Articles expressly
confirm that authority subject to the provisions of the MGCL. The Maryland
Bylaws also grant both the shareholders and the Board of Directors the authority
to repeal, alter or amend the Bylaws or adopt new Bylaws by a majority vote of
the voting power of the stock entitled to vote or of the entire Board of
Directors, respectively. The Maryland Articles and Bylaws, however, do limit the
ability of shareholders, in certain circumstances, to alter the number of votes
required for shareholder action pursuant to the Bylaws or an amendment to the
Bylaws.
BUSINESS COMBINATIONS
INTERESTED SHAREHOLDER TRANSACTIONS. The MGCL establishes special
requirements with respect to "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance of reclassification of equity securities) between a Maryland
corporation and any person who is the beneficial owner, directly or indirectly,
of 10% or more of the outstanding voting power of the corporation's shares or is
an affiliate or associate of the corporation and was, at any time during the
two-year period prior to the date in question, the beneficial owner, either
directly or indirectly of 10% or more of the outstanding voting power of the
corporation's shares (an "Interested Shareholder"), subject to certain
exemptions. In general, an Interested Shareholder or any affiliate thereof may
not engage in a "business combination" with the corporation for a period of five
years following the date the Interested Shareholder becomes an Interested
Shareholder. Thereafter, such transactions must be (i) recommended by the Board
of Directors of such corporation and (ii) approved by the affirmative vote of at
least (a) 80% of the votes entitled to be cast by holders of the outstanding
voting shares of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of the outstanding voting shares of the corporation other than
the shares held by the Interested Shareholder who will (or whose affiliate or
associate will) be a party to the business combination. These provisions of the
MGCL do not apply, however, to business combinations where shareholders receive
certain statutorily determined value for their shares or business combinations
that are approved or exempted by the Board of Directors of such corporation
prior to the time that
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the Interested Shareholder becomes an Interested Shareholder. These provisions
of the MGCL do not apply to Richard Osborne, the Richard M. Osborne Trust,
Turkey Vulture Fund XIII, Ltd., Liberty Self Store, Ltd., Third Capital, LLC,
Mark Grossi, Raymond V. Marino and GEM Value/PGP, LLC.
The NYBCL contains similar provisions regarding business combinations with
interested shareholders. Accordingly, the Articles have provisions (the
"Interested Shareholder Provisions") which require that certain transactions
involving Interested Shareholders (defined in the Articles as the beneficial
owners of 10% or more of the outstanding Voting Stock or an Affiliate of the
Company that was at any time within the two-year period immediately prior to the
relevant date the beneficial owner of 10% or more of the then outstanding Voting
Stock) be approved by the affirmative vote of 80% of the then outstanding Voting
Stock. Certain transactions otherwise covered by the Interested Shareholder
Provisions are exempted under certain circumstances, and then require only the
affirmative vote required elsewhere in the Articles or by law.
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast by shareholders, excluding shares owned by the acquirer and
officers and directors who are employees of the corporation. "Control shares"
are shares which, if aggregated with all other shares previously acquired which
the person is entitled to vote, would entitle the acquirer to vote (i) 20% or
more but less than one-third; (ii) one-third or more but less than a majority;
or (iii) a majority of the total voting power of outstanding shares. Control
shares do not include shares that the acquiring person is entitled to vote on
the basis of prior shareholder approval. A "control share acquisition" means the
acquisition of control shares subject to certain exemptions. The NYBCL does not
contain similar "control share" provisions and thus there will be additional
impediments to a change of control of the Maryland Company.
Under Maryland law, a person who has made or proposes to make a control
share acquisition, upon satisfaction of certain conditions (including an
undertaking to pay expenses), may compel the Board of Directors to call a
special meeting of shareholders to be held within 50 days of demand to consider
the voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any shareholders' meeting. If
voting rights are not approved at the meeting or if the acquiring person does
not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to voting rights, as of
the date of the last control share acquisition or of any meeting of shareholders
at which the voting rights of such are considered and not approved. If voting
rights for control shares are approved at a shareholders' meeting and the
acquirer becomes entitled to vote a majority of the shares entitled to vote, all
other shareholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of such appraisal rights may not be less than the
highest price per share paid in the control share acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition. The control
share acquisition statute does not apply to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation. The control share acquisition statute could have the effect of
discouraging offers to acquire the Maryland Company and of increasing the
difficulty of consummating any such offers.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION, MERGER AND REIT ELECTION
The following is a summary of certain of the material federal income tax
considerations regarding the Reincorporation and election by the Company to be
taxed as a REIT and is based on current law, is for general information only and
is not tax advice. This discussion does not address the particular federal
income tax consequences that may be relevant to certain types of taxpayers
subject to special treatment under the federal income tax laws (such as life
insurance companies, banks, tax-exempt organizations,
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foreign corporations and nonresident aliens). Each shareholder of the Company
should consult its own tax advisor as to the specific federal income tax
consequences of the purchase, ownership, and disposition of securities and the
applicability and effect of any state, local, foreign or other tax laws and of
any potential changes in the applicable tax laws after the date hereof.
The Reincorporation and Merger is intended to be tax-free under the Code.
Accordingly, assuming no greater than 1% of the total shareholders under the
NYBCL receive cash in exchange of their shares of New York Common or New York
Preferred no gain or loss will be recognized by the holders of shares of the
Company's Common Stock as a result of the Reincorporation, and no gain or loss
will be recognized by the Company or the Maryland Company. Each former holder of
shares of the Company's stock will have the same tax basis in the Maryland stock
received by such holder pursuant to the Merger and Reincorporation as such
holder has in the shares of the Company's stock held by such holder at the
effective time of the Merger. Each shareholder's holding period with respect to
the Maryland Common or Maryland Preferred will include the period during which
such holder held the shares of Common Stock or Preferred Stock, so long as the
latter were held by such holder as a capital asset at the effective time of the
Merger. The Company has not obtained, and does not intend to obtain, a ruling
from the Internal Revenue Service with respect to the tax consequences of the
Merger and Reincorporation.
Pursuant to the Merger, the Maryland Company will succeed to the assets and
liabilities of the New York Company, including the potential tax liabilities.
While the Company structured the Merger to qualify as a tax-free reorganization
under the Code, there can be no assurance that the Merger qualifies as such. If
the Merger does not qualify as a tax-free reorganization under the Code, it
would be treated as a taxable sale by the New York Company of its assets to the
Maryland Company in exchange for shares of the Maryland Common, followed by the
New York Company's distribution to its shareholders of such shares in a taxable
liquidation of the New York Company. In this case, the New York Company would
recognize gain on this deemed taxable sale. The Company will receive an opinion
from Gibson, Dunn & Crutcher LLP that the Merger will qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Code, subject to
certain assumptions and qualifications. No rulings or opinions have been
requested from the IRS with respect to any aspects of the Reincorporation and
Merger, and an opinion of counsel is not binding on the IRS.
TAXATION OF THE COMPANY
GENERAL. Assuming the Reincorporation and Merger are approved by the
shareholders representing at least two-thirds of the outstanding shares entitled
to vote, the Company presently intends to make an election to be taxed as a REIT
under Sections 856 through 860 of the Code, commencing with its taxable year
ending December 31, 1998. As noted above, the Company may decide to defer the
Reincorporation and Merger under certain circumstances. Subject to the above,
the Company believes that, commencing with its taxable year ending December 31,
1998, it will be organized and will operate in such a manner as to qualify for
taxation as a REIT under the Code, and the Company intends to continue to
operate in such a manner, but no assurance can be given that it will operate in
a manner so as to qualify or remain qualified.
The sections of the Code and the corresponding Treasury Regulations dealing
with REITs are highly technical and complex. The following sets forth the
material aspects of the rules that govern the federal income tax treatment of a
REIT and its shareholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
Gibson, Dunn & Crutcher LLP has acted as tax counsel to the Company in
connection with the Reincorporation and Merger and the Company's election to be
taxed as a REIT. In the opinion of Gibson, Dunn & Crutcher LLP, commencing with
the Company's taxable year ending December 31, 1998, the Company will be
organized in conformity with the requirements for qualification as a REIT, and
its proposed method of operation will enable it to meet the requirements for
qualification and taxation as a
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REIT under the Code. It must be emphasized that this opinion is based on various
assumptions and is conditioned upon certain representations made by the Company
and certain other persons as to factual matters. In addition, this opinion is
based upon the factual representations of the Company concerning its business
and properties as set forth in this Proxy Statement, and assumes that the
actions described in this Proxy Statement are completed in a timely fashion.
Moreover, such qualification and taxation as a REIT depends upon the Company's
ability to meet (through actual annual operating results, distribution levels
and diversity of share ownership) the various qualification tests imposed under
the Code discussed below, the results of which will not be reviewed by Gibson,
Dunn & Crutcher LLP. Accordingly, no assurance can be given that the actual
results of the Company's operations for any particular taxable year will satisfy
such requirements. Further, the anticipated income tax treatment described in
this Proxy Statement may be changed, perhaps retroactively, by legislative,
administrative or judicial action at any time. See "--Failure of the Company to
Qualify as a REIT."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially eliminates the "double
taxation" (at the corporate and shareholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows. First, the Company will be taxed at regular
corporate rates on any undistributed "REIT taxable income," including
undistributed net capital gains. However, provided that the Company properly
elects to retain and pay tax on its net capital gains, shareholders will receive
a credit or refund, as the case may be, for their proportionate share of the tax
liability attributable to such undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference to the extent that tax exceeds its regular
tax. Third, if the Company has (i) net income from the sale or other disposition
of "foreclosure property" (defined generally as property acquired by the Company
through foreclosure or otherwise after a default on a loan secured by the
property or a lease of the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any appreciated asset (a
"Built-In Gain Asset") acquired by the Company from a corporation which is or
has been a C corporation (i.e., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the Built-In Gain
Asset in the hands of the Company is determined by reference to the basis of the
asset in the hands of the C corporation, if the Company recognizes gain on the
disposition of such asset during the 10-year period (the "Recognition Period")
beginning on the date on which such asset was acquired by the Company, then, to
the extent of the Built-In Gain (i.e., the excess of (a) the fair market value
of such asset over (b) the Company's adjusted basis in such asset, determined as
of the beginning of the Recognition Period), such gain will be subject to tax at
the highest regular corporate rate pursuant to Treasury Regulations that have
not yet been promulgated. The results described above with respect to the
recognition of Built-In Gain assume that the Company will make an election
pursuant to IRS Notice 88-19. The New York Company, a C Corporation, currently
owns significantly appreciated assets. Assuming the Reincorporation and Merger
qualifies as a tax-free reorganization, the basis of these assets acquired from
the New York Company will be determined by reference to
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the basis of the asset in the hands of the New York Company. Because the
Maryland Company will be acquiring substantially appreciated Built-In Gain
Assets from the New York Company, the Maryland Company will make a protective
election pursuant to IRS Notice 88-19 in order to avoid having to recognize such
appreciation upon the occurrence of the Reincorporation and Merger.
On February 2, 1998, the Clinton Administration proposed legislation that,
if enacted, would result in the elimination of the election under Notice 88-19
for those corporations, such as the Company, that are worth more than $5 million
and that elect to be taxed as REITs for taxable years beginning after January 1,
1999 (or the tax year 2000 for calendar year taxpayers). In such a case, the
Company would be required to pay tax on any unrealized appreciation attributable
to its Built-In Gain Assets upon the occurrence of the Reincorporation and
Merger. Because the unrealized appreciation of the Company's Built-In Gain
Assets is substantial, such tax would also be significant. Accordingly, if the
proposed legislation is enacted, and if the Reincorporation and Merger occurs
after the effective date of the legislation, the Company might incur a
substantial tax liability on the recognition of the Built-In Gain associated
with the Built-In Gain Assets.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation, but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets and the amount of its
distributions. The Code provides that conditions (i) to (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (v) and (vi) will not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of conditions (v) and (vi), pension funds and certain other
tax-exempt entities are treated as individuals, subject to a "look-through"
exception in the case of condition (vi).
The Company believes that it has issued sufficient shares of Common Stock
with sufficient diversity of ownership to allow it to satisfy conditions (v) and
(vi). In addition, the Maryland Articles provide for restrictions regarding the
transfer and ownership of shares, which restrictions, among other things,
prevent a shareholder of the Company from owning more than (a) 2% of the
outstanding shares of any class of Common Stock (the "General Ownership Limit")
or (b) 2.5% of the value of the outstanding shares of Capital Stock of the
Company (the "Aggregate Ownership Limit"), whichever limit is more restrictive.
Waivers from such limits will only be issued if the Board of Directors
determines that continued compliance with the share ownership requirements
described in (v) and (vi) above will not be threatened. Such ownership and
transfer restrictions are described under "Description of Capital
Stock--Restrictions on Transfer and Ownership." These restrictions, however, may
not ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described above.
To monitor the Company's compliance with the share ownership requirements,
the Company is required to maintain records regarding the actual ownership of
its shares. To do so, the Company must demand written statements each year from
the record holders of certain percentages of its shares of stock in which the
record holders are to disclose the actual owners of the shares (i.e., the
persons required to include in gross income the REIT dividends). A REIT with
2,000 or more record shareholders must demand statements from record holders of
5% or more of its shares, one with less than 2,000, but more than 200 record
shareholders must demand statements from record holders of 1% or more of the
shares, while a REIT with 200 or fewer record shareholders must demand
statements from record holders of 0.5% or more of the shares. A list of those
persons failing or refusing to comply with this demand must be maintained as
part of the Company's records. A shareholder who fails or refuses to comply with
the
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demand must submit a statement with its tax return disclosing the actual
ownership of the shares and certain other information. If the Company fails to
satisfy the share ownership requirements, the Company's status as a REIT will
terminate unless the Company complies with the demand letter and recordkeeping
requirements described above, and if it does not know, and exercising reasonable
diligence would not have known, whether it failed to meet the requirement in
condition (vi) above. In addition, a corporation may not elect to become a REIT
unless its taxable year is the calendar year. The Company has a calendar taxable
year.
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue
(subject to a 1% DE MINIMIS exception); provided, however, the Company may
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company will not, and
as general partner of the Operating Partnership, will not permit the Operating
Partnership (or any subsidiary partnerships) to (i) charge rent for any property
that is based in whole or in part on the income or profits of any person (except
by reason of being based on a percentage of receipts or sales, as described
above), (ii) rent any property to a Related Party Tenant, (iii) derive rental
income attributable to personal property (other than personal property leased in
connection with the lease of real property, the amount of which is less than 15%
of the total rent received under the lease), or (iv) perform services considered
to be rendered to the occupant of the property, other than through an
independent contractor from whom the Company derives no revenue. Notwithstanding
the foregoing, the Company may take certain of the actions set forth in (i)
through (iv) above to the extent such actions will not, based on the advice of
tax counsel to the Company, jeopardize the Company's status as a REIT.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. The Company does not expect to derive significant amounts of interest
that will not qualify under the 75% and 95% gross income tests.
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The Company owns an interest in Rincon Center Associates ("RCA") that it
intends to transfer to the Operating Partnership. RCA may provide certain
management or leasing services to the Operating Partnership as well as to third
parties. The fees derived by these services, however, will be nonqualifying
income to the Company under both the 95% and 75% REIT income tests. While RCA
currently offers non-customary services to tenants of the Rincon Towers
corporate suites, payments received with respect to this property are included
as "rents from real property" because such services are provided through an
independent contractor (from whom neither RCA nor the Company derives any
revenue). The Company will monitor the amount of such nonqualifying income as
described above, and will attempt to take actions to keep this income (and any
other nonqualifying income) within the limitations of the REIT income tests.
However, since the Company does not control RCA, there can be no assurance that
RCA will not take actions that could jeopardize the Company's status as a REIT.
Accordingly, there can be no assurance that such actions will in all cases
prevent the Company from violating a REIT requirement.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company would not qualify as a REIT. As discussed above in "Taxation of the
Company--General," even if these relief provisions apply, a 100% tax would be
imposed on an amount equal to (a) the gross income attributable to the greater
of the amount by which the Company failed the 75% or 95% test multiplied by (b)
a fraction intended to reflect the Company's profitability.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership or any subsidiary partnership thereof) will be treated
as income from a prohibited transaction that is subject to a 100% penalty tax.
Such prohibited transaction income may also have an adverse effect upon the
Company's ability to satisfy the income tests for qualification as a REIT. Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. The Company expects to hold directly or indirectly real properties
which are, or have been, subject to a lease from which the Company has derived
or is deriving revenue whether directly or indirectly ("Properties") for
investment with a view to long-term appreciation. The Company also expects to
engage in the business of acquiring, developing, owning, and operating the
Properties (and other properties) and to make such occasional sales of the
Properties as are consistent with the Company's investment objectives. There can
be no assurance, however, that the IRS might not contend that one or more of
such sales is subject to the 100% penalty tax.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not
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exceed 5% of the value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including as a result of the
Company increasing its interest in the Operating Partnership), the failure can
be cured by the disposition of sufficient nonqualifying assets within 30 days
after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within 30 days after the close of any quarter as may
be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and by excluding the Company's net capital gain) and (b) 95% of the
excess of the net income, if any, from foreclosure property over the tax imposed
on such income, minus (ii) the excess of the sum of certain items of non-cash
income over 5% of "REIT taxable income." In addition, if the Company disposes of
any Built-In Gain Asset during its Recognition Period, the Company will be
required, pursuant to Treasury Regulations which have not yet been promulgated,
to distribute at least 95% of the Built-In Gain (after tax), if any, recognized
on the disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Company timely files its tax return for such year and if paid on or before
the first regular dividend payment after such declaration. Such distributions
are taxable to holders of Common Stock and Preferred Stock (other than
tax-exempt entities, as discussed below) in the year in which paid, even though
such distributions relate to the prior year for purposes of the Company's 95%
distribution requirement. The amount distributed must not be preferential within
a class--e.g., each holder of shares of Common Stock and Preferred Stock must
receive the same distribution per share as other shares of Common Stock and
Preferred Stock, respectively. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. The Company
expects to make timely distributions sufficient to satisfy these annual
distribution requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement described above for a year by paying
"deficiency dividends" to shareholders in a later year, which may be included in
the Company's deduction for dividends paid for the earlier year. Thus, the
Company may be able to avoid being taxed on amounts distributed as deficiency
dividends; however, the Company will be required to pay interest based upon the
amount of any deduction taken for deficiency dividends.
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Furthermore, if the Company should fail to distribute during each calendar
year (or in the case of distributions with declaration and record dates falling
in the last three months of the calendar year, by the end of January immediately
following such year) at least the sum of (i) 85% of its REIT ordinary income for
such year, (ii) 95% of its REIT capital gain income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Any REIT taxable income and net capital gain on which this
excise tax is imposed for any year is treated as an amount distributed during
that year for purposes of calculating such tax.
EARNINGS AND PROFITS DISTRIBUTION REQUIREMENT. In order to qualify as a
REIT, the Company cannot have at the end of any taxable year any undistributed
"earnings and profits" that are attributable to a "C corporation" taxable year.
In the Merger, the Maryland Company will succeed to various tax attributes of
the New York Company (if the Reorganization is treated as a tax-free
organization under the Code), including any undistributed C corporation earnings
and profits of such corporation. The Company must then distribute any non-REIT
earnings and profits by the end of the Company's taxable year commencing January
1, 1998. If such earnings and profits are not distributed by the end of the
Company's first taxable year as a REIT, the Company would fail to qualify as a
REIT. Currently, the Company does not have any current or accumulated earnings
and profits, but rather, has negative earnings and profits, for tax purposes.
Accordingly, since the Company did not generate any current earnings and profits
prior to the end of the taxable year beginning January 1, 1998, the Company is
not required to make any distributions for such taxable year.
Although not free from doubt, it appears pursuant to Treasury Regulations
that the Company may be able to use certain "deficiency dividend" procedures to
distribute any earnings and profits deemed to have been acquired in the Merger
and not distributed by the Company prior to the end of its first taxable year as
a REIT. In order to use this procedure, the Company would have to make an
additional dividend distribution to its shareholders (in addition to
distributions made for purposes of satisfying the normal REIT distribution
requirements) within 90 days of an IRS determination. In addition, the Company
would have to pay to the IRS an interest charge on 50% of the acquired earnings
and profits that were not distributed prior to the end of the taxable year in
which the Merger occurred. The availability of this deficiency dividend
procedure under these circumstances is not entirely clear, and there can be no
assurance that this procedure would be available (in which case the Company
would fail to qualify as a REIT for each year in which it failed to satisfy the
earnings and profits distribution requirement). In addition, even if the
procedure is available, if the Company had C corporation earnings and profits at
the end of the taxable year in which the Merger occurred, such a distribution
may only allow the Company to qualify as a REIT for subsequent years (and it may
not be permitted to qualify as a REIT in the year of the Merger).
TAX ASPECTS OF INTERESTS IN PARTNERSHIPS AND QUALIFIED REIT SUBSIDIARIES
PROPORTIONATE OWNERSHIP THROUGH PARTNERSHIP INTEREST. In the future, the
majority of the Company's investments may be held indirectly through the
Operating Partnership. If so, the Operating Partnership may hold certain of its
investments indirectly through subsidiary partnerships or limited liability
companies. In general, partnerships are "pass-through" entities which are not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. The Company
will include in its income its proportionate share of the foregoing partnership
items for purposes of the various REIT income tests and in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset tests, the
Company will include its proportionate share of assets and interests held
through the Operating Partnership.
In addition, the character of the assets and gross income of the partnership
shall retain the same character in the hands of the REIT for purposes of section
856 of the Code, including the satisfaction of
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the gross income tests and assets tests. The rules described above will also
apply to a REIT's membership interest in a limited liability company which is
taxable as a partnership for income tax purposes. Accordingly, references to
partnerships and their partners in this discussion of certain federal income tax
consequences shall include limited liability companies and their members,
respectively. Thus, the Company will be deemed to own its proportionate share of
the assets and income of any partnerships in which it directly or indirectly
holds an interest, including but not limited to the Operating Partnership and
RCA (hereafter, the "Partnerships"). Since the Company does not control RCA in
which it indirectly holds an interest, there can be no assurance that RCA will
not take actions that could jeopardize the Company's status as a REIT.
Although partnerships are generally treated as "pass-through" entities, if
any of the Partnerships are deemed to be publicly traded, such entity will be
treated under the Code as an association taxable as a corporation. Such
classification may preclude the Company from satisfying certain REIT
requirements. The Company does not intend to cause, directly or indirectly, any
of the Partnerships to be classified as a publicly traded partnership under the
Code.
ALLOCATION OF OPERATING PARTNERSHIP INCOME, GAIN, LOSS AND
DEDUCTION. Although a partnership agreement will generally determine the
allocation of income and loss among partners, such allocations will be
disregarded for tax purposes if they do not comply with the provisions of
Section 704(b) of the Code and the Treasury Regulations promulgated thereunder.
Generally, Section 704(b) and the Treasury Regulations promulgated thereunder
require that partnership allocations respect the economic arrangement of the
partners. If an allocation is not respected for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interest in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss provided for in the Partnership Agreement of the Operating Partnership are
intended to comply with the requirements of Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to Section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of such property
at such time (a "Book-Tax Difference"). Such allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership
will be formed by way of contributions of property by the Company and its
subsidiaries. Consequently, the Partnership Agreement of the Operating
Partnership requires that such allocations be made in a manner consistent with
Section 704(c) of the Code.
In general, the contributing partner will be allocated depreciation
deductions for tax purposes which are lower than such deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition of
any of the contributed assets which have such a Book-Tax Difference, all income
attributable to such Book-Tax Difference generally will be allocated to such
contributing partners. These allocations will tend to eliminate the Book-Tax
Difference over the life of the Operating Partnership. However, the special
allocation rules of Section 704(c) do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the Operating Partnership may cause the Company or other partners to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. Such an
allocation might cause the Company or other partners to recognize taxable
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income in excess of cash proceeds, which might adversely affect the Company's
ability to comply with the REIT distribution requirements.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has sufficient
adjusted tax basis in its interest in the Operating Partnership to offset the
loss. To the extent that the Operating Partnership's distributions, or any
decrease in the Company's share of the indebtedness of the Operating Partnership
(such decreases being considered a constructive cash distribution to the
partners), exceeds the Company's adjusted tax basis in the Operating
Partnership, such excess distributions (including such constructive
distributions) will constitute taxable income to the Company.
QUALIFIED REIT SUBSIDIARY. The Company owns 100% of the stock of a number
of subsidiaries, each of which is expected to qualify as a qualified REIT
subsidiary (a "QRS"), and may acquire stock of one or more new subsidiaries. A
corporation will qualify as a QRS if 100% of its stock is held by the Company. A
QRS will not be treated as a separate corporation, but rather, all assets,
liabilities, and items of income, deduction, and credit of a QRS will be treated
as assets, liabilities and such items (as the case may be) of the Company for
all purposes of the Code including the REIT qualification tests. For this
reason, references under "Federal Income Tax Consequences" to the income and
assets of the Company include the income and assets of any QRS. A QRS will not
violate the restrictions against ownership of securities of any one issuer which
constitute more than 10% of such issuer's voting securities or more than 5% of
the value of the Company's total assets, described above under "Taxation of the
Company--Requirements for Qualification."
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
Qualification as a REIT involves the application of technical and complex
provisions of the Code for which there are only limited judicial or
administrative interpretations. In addition, the determination of various
factual matters and circumstances not entirely within the Company's control may
affect its ability to qualify as a REIT. No assurance can also be given that the
legislation, regulations, administrative interpretations or court decisions will
not significantly change the rules with respect to qualification as a REIT or
the federal income tax consequences of such qualification.
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would substantially reduce the cash available for distribution to shareholders.
In addition, if the Company fails to qualify as a REIT, all distributions to
shareholders will be taxable as ordinary income to the extent of current and
accumulated earnings and profits, and, subject to certain limitations of the
Code, corporate distributions may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company would also be
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disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether in
all circumstances the Company would be entitled to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS GENERALLY
The information set forth below does not purport to deal with all aspects of
taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or to certain types of shareholders
subject to special treatment under the federal income tax laws. Shareholders
should consult with their own tax advisors to determine the impact of federal,
state, local and foreign income tax laws with regard to an investment in the New
York Common, New York Preferred, Maryland Common or Maryland Preferred.
As used herein, the term "U.S. Shareholder" means a holder of shares of
Common Stock or Preferred Stock who (for United States federal income tax
purposes) (i) is a citizen or resident of the United States, (ii) is a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or of any political subdivision thereof, (iii) is an
estate the income of which is subject to United States federal income taxation
regardless of its source or (iv) is a trust whose administration is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date that elect to continue to be
treated as United States persons, shall also be considered U.S. Shareholders.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Shareholders as ordinary income. Such distributions will not be
eligible for the dividends received deduction otherwise available with respect
to dividends received by U.S. Shareholders that are corporations. Distributions
made by the Company that are properly designated by the Company as capital gain
dividends will be taxable to taxable U.S. Shareholders as gains (to the extent
that they do not exceed the Company's actual net capital gain for the taxable
year) from the sale or disposition of a capital asset. Depending on the period
of time the Company held the assets which produced such gains, and on certain
designations, if any, which may be made by the Company, such gains may be
taxable to non-corporate U.S. Shareholders at lower capital gains rates. U.S.
Shareholders that are corporations may, however, be required to treat up to 20%
of certain capital gain dividends as ordinary income. To the extent that the
Company makes distributions (not designated as capital gain dividends) in excess
of its current and accumulated earnings and profits, such distributions will be
treated first as a tax-free return of capital to each U.S. Shareholder, reducing
the adjusted basis which such U.S. Shareholder has in his shares of Common Stock
or Preferred Stock for tax purposes by the amount of such distribution (but not
below zero), with distributions in excess of a U.S. Shareholder's adjusted basis
in his shares taxable as capital gain, provided that the shares have been held
as a capital asset (which, with respect to a non-corporate U.S. Shareholder,
will be taxable as long-term capital gain if the shares have been held for more
than twelve months, or short-term capital gain if the shares have been held for
one year or less). Dividends declared by the Company in October, November, or
December of any year and payable to a shareholder of record on a specified date
in any such month shall be treated as both paid by the Company and received by
the shareholder on December 31st of such year, provided that the dividend is
actually paid by the Company on or before January 31st of the following calendar
year. Shareholders may not include in their own income tax returns any net
operating losses or capital losses of the Company.
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Distributions made by the Company and gain arising from the sale or exchange
by a U.S. Shareholder of shares of Common Stock or Preferred Stock will not be
treated as passive activity income, and, as a result, U.S. Shareholders
generally will not be able to apply any "passive losses" against such income or
gain. Distributions made by the Company (to the extent they do not constitute a
return of capital) generally will be treated as investment income for purposes
of computing the investment interest limitation. Gain arising from the sale or
other disposition of Common Stock or Preferred Stock (or distributions treated
as such), however, will not be treated as investment income under certain
circumstances.
The Company may elect to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains. In such event, the Company would pay
tax on such retained net long-term capital gains. In addition to the extent
designated by the Company, a U.S. Shareholder generally would (i) include its
proportionate share of such undistributed long-term capital gains in computing
its long-term capital gains in its return for its taxable year in which the last
day of the Company's taxable year falls (subject to certain limitations as to
the amount so includible), (ii) be deemed to have paid the capital gains tax
imposed on the Company on the designated amounts included in such U.S.
Shareholder's long-term capital gains, (iii) receive a credit or refund for such
amount of tax deemed paid by it, (iv) increase the adjusted basis of its shares
by the difference between the amount of such includible gains and the tax deemed
to have been paid by it, and (v), in the case of a U.S. Shareholder that is a
corporation, appropriately adjust its earnings and profits for the retained
capital gains in accordance with Treasury Regulations to be prescribed by the
IRS. The Company must pay tax on its designated long-term capital gain within 30
days of the close of any taxable year in which it designates long-term capital
gain pursuant to this rule, and it must mail a written notice of its designation
to its shareholders within 60 days of the close of the taxable year.
Upon any sale or other disposition of Common Stock or Preferred Stock, a
U.S. Shareholder will recognize gain or loss for federal income tax purposes in
an amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted basis in such shares of Common Stock or Preferred Stock
for tax purposes. Such gain or loss will be capital gain or loss if the shares
have been held by the U.S. Shareholder as a capital asset and, with respect to a
non-corporate U.S. Shareholder, will be treated as long-term capital gain or
loss if held for more than one year and otherwise as short-term capital gain or
loss. In general, any loss recognized by a U.S. Shareholder upon the sale or
other disposition of shares of Common Stock or Preferred Stock that have been
held for six months or less (after applying certain holding period rules) will
be treated as a long-term capital loss, to the extent of capital gain dividends
received by such U.S. Shareholder from the Company which were required to be
treated as long-term capital gains.
BACKUP WITHHOLDING
The Company reports to its U.S. Shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(i) is a corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. Shareholder that does not provide the Company with his correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to the Company. See "--Taxation of Non-U.S.
Shareholders."
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TAXATION OF TAX-EXEMPT SHAREHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt shareholder
(except certain tax-exempt shareholders described below) has not held its shares
of Common Stock as "debt financed property" within the meaning of the Code and
such shares are not otherwise used in a trade or business, the dividend income
from the Company will not be UBTI to a tax-exempt shareholder. Similarly, income
from the sale of Common Stock will not constitute UBTI unless such tax-exempt
shareholder has held such shares as "debt financed property" within the meaning
of the Code or has used the shares in a trade or business.
For tax-exempt shareholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Code provides that stock owned by
qualified trusts shall be treated, for purposes of the "not closely held"
requirement, as owned by the beneficiaries of the trust (rather than by the
trust itself), and (ii) either (a) at least one such qualified trust holds more
than 25% (by value) of the interests in the REIT, or (b) one or more such
qualified trusts, each of which owns more than 10% (by value) of the interests
in the REIT, hold in the aggregate more than 50% (by value) of the interests in
the REIT. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (i) the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to (ii) the total gross
income of the REIT. A DE MINIMIS exception applies where the percentage is less
than 5% for any year. The provisions requiring qualified trusts to treat a
portion of REIT distributions as UBTI will not apply if the REIT is able to
satisfy the "not closely held" requirement without relying upon the "look-
through" exception with respect to qualified trusts. As a result of certain
limitations on transfer and ownership of Capital Stock contained in the Articles
of Incorporation, the Company does not expect to be classified as a "pension
held REIT."
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Shareholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Shareholder in light of its particular
circumstances, including, for example, if the investment in the Company is
connected to the conduct by a Non-U.S. Shareholder of a U.S. trade or business.
In addition, this discussion is based on current law, which is subject to
change, and assumes that the Company qualifies for taxation as a REIT. Non-U.S.
Shareholders should consult with their own tax advisors to determine the impact
of federal, state, local and foreign
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income tax laws with regard to an investment in the New York Common, New York
Preferred, Maryland Common or Maryland Preferred, including any reporting
requirements.
DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of United
States federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Shareholder of a United States trade
or business or, if an income tax treaty applies, as attributable to a United
States permanent establishment of the Non-U.S. Shareholder. Dividends that are
effectively connected with such a trade or business (or, if an income tax treaty
applies, that are attributable to a United States permanent establishment of the
Non-U.S. Shareholder) will be subject to tax on a net basis (that is, after
allowance of deductions) at graduated rates, in the same manner as domestic
shareholders are taxed with respect to such dividends and are generally not
subject to withholding. Any such dividends received by a Non-U.S. Shareholder
that is a corporation may also be subject to an additional branch profits tax at
a 30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income and permanent establishment exemptions
discussed above.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Common Stock or
Preferred Stock, but rather will reduce the adjusted basis of such stock. To the
extent that such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's Common Stock or Preferred Stock, they will give rise to gain from
the sale or exchange of his stock, the tax treatment of which is described
below. If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current or accumulated earnings and
profits, the distribution will generally be treated as a dividend for
withholding purposes. However, amounts thus withheld are generally refundable if
it is subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company. A Non-U.S.
Shareholder may obtain such a refund by filing the appropriate claim for refund
with the IRS.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the Common Stock or Preferred Stock is effectively connected with the
Non-U.S. Shareholder's United States trade or business (or, if an income tax
treaty applies, is attributable to a United States permanent establishment of
the Non-U.S. Shareholder), in which case the Non-U.S. Shareholder will be
subject to the same treatment as domestic shareholders with respect to such gain
(except that a shareholder that is a foreign corporation may also be subject to
the 30% branch profits tax, as discussed above) or (ii) the Non-U.S. Shareholder
is a nonresident alien individual who is present in the United States for 183
days or more during the taxable year and has a "tax home" in the United States,
in which case the nonresident alien individual will be subject to a 30% tax on
the individual's capital gains.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Shareholder to be treated as
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recognizing such gain as income effectively connected with a United States trade
or business. A Non-U.S. Shareholder would thus generally be entitled to offset
its gross income by allowable deductions and would pay tax on the resulting
taxable income at the same rates applicable to domestic shareholders (subject to
a special alternative minimum tax in the case of nonresident alien individuals).
Also, such gain may be subject to a 30% branch profits tax in the hands of a
Non-U.S. Shareholder that is a corporation and is not entitled to treaty relief
or exemption, as discussed above. The Company is required to withhold 35% of any
such distribution. That amount is creditable against the Non-U.S. Shareholder's
United States federal income tax liability. To the extent that such withholding
exceeds the actual tax owed by the Non-U.S. Shareholder, the Non-U.S.
Shareholder may claim a refund from the IRS.
The Company or any nominee (e.g., a broker holding shares in street name)
may rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the disposition
of United States real property interests. A domestic person who holds shares of
Common Stock or Preferred Stock on behalf of a Non-U.S. Shareholder will bear
the burden of withholding, provided that the Company has properly designated the
appropriate portion of a distribution as a capital gain dividend.
SALE OF COMMON STOCK OR PREFERRED STOCK. Gain recognized by a Non-U.S.
Shareholder upon the sale or exchange of shares of Common Stock or Preferred
Stock generally will not be subject to United States taxation unless such shares
constitute a "United States real property interest" within the meaning of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). The Common Stock
or Preferred Stock will not constitute a "United States real property interest"
so long as the Company is a "domestically controlled REIT." A "domestically
controlled REIT" is a REIT in which at all times during a specified testing
period less than 50% in value of its stock is held directly or indirectly by
Non-U.S. Shareholders. The Company believes that it will be a "domestically
controlled REIT," and therefore that the sale of shares of Common Stock or
Preferred Stock will not be subject to taxation under FIRPTA. However, because
the shares of Common Stock are publicly traded, no assurance can be given that
the Company will continue to be a "domestically-controlled REIT."
Notwithstanding the foregoing, gain from the sale or exchange of shares of
Common Stock or Preferred Stock not otherwise subject to FIRPTA will be taxable
to a Non-U.S. Shareholder if (i) its investment in the stock is effectively
connected with the Non-U.S. Shareholder's United States trade or business (or,
if an income tax treaty applies, is attributable to a United States permanent
establishment of the Non-U.S. Shareholder) , in which case the Non-U.S.
Shareholder will be subject to tax in the same manner as U.S. Shareholders with
respect to such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which case, the
nonresident alien individual will be subject to a 30% tax on the amount of such
individual's gain.
If the Company does not qualify as or ceases to be a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Shareholder of shares of Common Stock would be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest"
unless the shares are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the American Stock
Exchange) and the selling Non-U.S. Shareholder held no more than 5% (after
applying certain constructive ownership rules) of the shares of Common Stock
during the shorter of (i) the period during which the taxpayer held such shares
or (ii) the 5-year period ending on the date of the disposition of such shares.
If gain on the sale or exchange of shares of Common Stock or Preferred Stock
were subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject
to regular United States income tax with respect to such gain in the same manner
as a U.S. Shareholder (subject to any applicable alternative minimum tax, a
special alternative minimum tax in the case of nonresident alien individuals and
the possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the stock would be required to withhold and
remit to the IRS 10% of the purchase price. The 10% withholding tax will not
apply if the shares are "regularly traded" on an established securities market.
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BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock or Preferred Stock by or through a foreign
office of a foreign broker. Information reporting (but not backup withholding)
will apply, however, to a payment of the proceeds of a sale of Common Stock or
Preferred Stock by a foreign office of a broker that (a) is a United States
person, (b) derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (c) is a "controlled
foreign corporation" (generally, a foreign corporation controlled by United
States shareholders) for United States tax purposes, unless the broker has
documentary evidence in its records that the holder is a Non-U.S. Shareholder
and certain other conditions are met, or the shareholder otherwise establishes
an exemption. Payment to or through a United States office of a broker of the
proceeds of a sale of Common Stock or Preferred Stock is subject to both backup
withholding and information reporting unless the shareholder certifies under
penalty of perjury that the shareholder is a Non-U.S. Shareholder, or otherwise
establishes an exemption. Backup withholding is not an additional tax. A
Non-U.S. Shareholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
NEW WITHHOLDING REGULATIONS. Final regulations dealing with withholding tax
on income paid to foreign persons and related matters (the "New Withholding
Regulations") were recently promulgated. In general, the New Withholding
Regulations do not significantly alter the substantive withholding and
information reporting requirements, but unify current certification procedures
and forms and clarify reliance standards. For example, the New Withholding
Regulations adopt a certification rule which was in the proposed regulations
under which a foreign shareholder who wishes to claim the benefit of an
applicable treaty rate with respect to dividends received from a United States
corporation will be required to satisfy certain certification and other
requirements. In addition, the New Withholding Regulations require a corporation
that is a REIT to treat as a dividend the portion of a distribution that is not
designated as a capital gain dividend or return of basis and apply the 30%
withholding tax (subject to any applicable deduction or exemption) to such
portion, and to apply the FIRPTA withholding rules (discussed above) with
respect to the portion of the distribution designated by the REIT as capital
gain dividend. The New Withholding Regulations will generally be effective for
payments made after December 31, 1999, subject to certain transition rules. THE
DISCUSSION SET FORTH ABOVE IN "TAXATION OF NON-U.S. SHAREHOLDERS" DOES NOT TAKE
THE NEW WITHHOLDING REGULATIONS INTO ACCOUNT. NON-U.S. SHAREHOLDERS ARE STRONGLY
URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE NEW WITHHOLDING
REGULATIONS.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
RIGHTS OF DISSENTING SHAREHOLDERS
Because the Company will not be technically the "surviving corporation,"
shareholders of the Company who do not vote in favor of the Reincorporation may
have the right to seek to obtain payment in
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cash of the fair value of their shares by complying with the requirements of
Section 623 of the NYBCL. The dissenting shareholders must file with the Company
before a taking of the vote on the Reincorporation a written objection including
a statement of intention to demand payment for shares and stating such
shareholder's name and residence address, the number of shares of stock as to
which dissent is made and a demand for payment of the fair value of such shares
if the Merger is consummated. Such shareholder may not dissent as to less than
all shares owned. Within 10 days after the vote of shareholders authorizing the
Reincorporation, the Company must give written notice of such authorization to
each such dissenting shareholder. Within 20 days after the filing of such
notice, any shareholder to whom the Company failed to give notice of the Annual
Meeting who elects to dissent from the Merger must file with the Company a
written notice of such election, stating such shareholder's name and residence
address, the number of shares of stock as to which dissent is made and a demand
for payment of the fair value of the shares. Such shareholder may not dissent as
to less than all shares owned. At the time of filing the notice of election to
dissent or within one month thereafter, dissenting shareholders must submit
certain certificates representing shares to the Company or its transfer agent
for notation thereon of the election to dissent, after which such certificates
will be returned to the shareholder.
Failure to submit the certificates may result in the loss of dissenter's
rights. Within 15 days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within 15 days
after consummation of the Merger, whichever is later (but not later than 90 days
after the shareholders' vote authorizing the Merger), the Company must make a
written offer (which, if the Merger has not been consummated, may be conditioned
upon such consummation) to each shareholder who has filed such notice of
election to pay for the shares at a specified price which the Company considers
to be their fair value. If the Company and the dissenting shareholder are unable
to agree as to such value, Section 623 provides for judicial determination of
value. A negative vote on the Reincorporation does not constitute a written
objection required to be filed by an objecting shareholder. Failure by a
shareholder to vote against the Reincorporation, however, will not constitute a
waiver of rights under Section 623 provided that a written objection has a been
properly filed and such shareholder has not voted in favor of the
Reincorporation.
The foregoing does not purport to be a complete statement of the provisions
of Section 623 and is qualified in its entirety by reference to said Section,
which is attached to this proxy Statement as Exhibit E.
Management hopes that no shareholder will exercise dissenter's right.
However, under the Merger Agreement, the Board of Directors may abandon the
Merger, even after shareholder approval, if for any reason the Board of
Directors determines that it is inadvisable to proceed with the Merger,
including considering the number of shares for which appraisal rights have been
exercised and the cost to the Company thereof. THE BOARD OF DIRECTORS CURRENTLY
INTENDS TO ABANDON THE MERGER IN THE EVENT THAT ITS CONSUMMATION WOULD RESULT IN
SHAREHOLDERS REPRESENTING MORE THAN A RELATIVELY NOMINAL NUMBER OF SHARES BEING
ENTITLED TO APPRAISAL RIGHTS.
PARTIES; SURVIVING CORPORATION; ACCOUNTING TREATMENT
In the Reincorporation, the New York Company will be merged with and into
the Maryland Company, whereupon the separate existence of the New York Company
will cease. The Maryland Company will be the surviving corporation in the
Reincorporation and will continue its existence under the laws of the State of
Maryland. In accordance with generally accepted accounting principles, the
Company expects that the Merger will be accounted for as a reorganization of
entities under common control at historical cost.
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OTHER MATTERS
The Board of Directors knows of no matters which will be presented for
consideration at the Annual Meeting other than the election of directors and
approval of the Reincorporation Agreement and Merger referred to in this Proxy
Statement. Should any other matters properly come before the meeting, it is the
intention of the persons named in the accompanying proxy to vote such proxy in
accordance with their best judgment.
VOTING PROCEDURES
Under the Company's current Articles of Incorporation, directors are elected
by a plurality of the votes cast by the holders of shares of Common Stock and
Preferred Stock of the Company present in person or represented by proxy at the
meeting, at which a quorum is present. For purposes of the election of
directors, abstentions and broker non-votes (i.e., where the broker does not
receive instructions from beneficial owners and does not exercise discretionary
authority to vote) are considered present for quorum purposes, but are not
considered to be votes cast and do not affect the plurality vote required for
directors. The affirmative vote of the holders of two-thirds of each class of
Common Stock and each class of Preferred Stock present in person or represented
by proxy and entitled to vote at the meeting, with a quorum present, is required
for approval of the second proposal set forth in this Proxy Statement. For
purposes of approval of the second proposal, abstentions are treated as present
and entitled to vote on the matter and have the effect of a vote against the
proposal, and broker non-votes are not considered to be votes cast.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the company and its subsidiaries
included in the Company's 1997 Annual Report on Form 10-K have been examined by
Arthur Andersen LLP. No representatives of Arthur Andersen LLP are expected to
attend the Annual Meeting.
SHAREHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Under the rules of the Securities and Exchange Commission any proposal of a
shareholder intended to be presented at the Company's 1999 Annual Meeting of
Shareholders must be received by the Company for inclusion in the proxy
statement and form of proxy at least 75 days prior to the anniversary date of
the prior year's annual meeting.
SOLICITATION OF PROXIES
The Company will bear the cost of this solicitation of proxies. In addition
to solicitation of proxies by mail, the Company will reimburse brokers and other
nominees for the expense of forwarding proxy materials to the beneficial owners
of stock held in their names. Directors, officers and employees of the Company
may also solicit proxies on behalf of the Board of Directors but will not
receive any additional compensation therefor.
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IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, SHAREHOLDERS
ARE URGED TO FILL IN, SIGN, DATE AND RETURN THE ACCOMPANYING FORM OF PROXY IN
THE ENCLOSED ENVELOPE.
By order of the Board of Directors
Stephen J. LoPresti,
SECRETARY
San Francisco, California
September , 1998
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of , , 1998 (the
"Agreement"), between PACIFIC GATEWAY PROPERTIES, INC., a New York corporation
(the "New York Corporation"), and PACIFIC GATEWAY PROPERTIES, INC., a Maryland
corporation (the "Company").
BACKGROUND
The New York Corporation is a corporation duly organized and existing under
the laws of the State of New York.
The Company is a corporation duly organized and existing under the laws of
the State of Maryland.
The respective Boards of Directors of the New York Corporation and the
Company have determined that it is advisable and in the best interests of each
corporation that the New York Corporation merge with and into the Company upon
the terms and subject to the conditions of this Agreement to effect a
reincorporation of the New York Corporation in the State of Maryland.
The respective Boards of Directors of the New York Corporation and the
Company have, by resolutions duly adopted, approved and adopted this Agreement.
The Board of Directors of the New York Corporation will seek shareholder
approval of the Agreement at the next Annual Meeting of Shareholders, to be held
on October 26, 1998.
The parties intend by this Agreement to effect a "reorganization" under
Section 368 of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the New York Corporation and the Company hereby agree as
follows:
ARTICLE I
THE MERGER
Section 1.01 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the relevant provisions of the Maryland General
Corporation Law (the "MGCL") and the New York Business Corporation Law (the
"NYBCL"), the New York Corporation shall be merged with and into the Company as
soon as practicable following the satisfaction or waiver, if permissible, of the
conditions set forth in Article II. Following the Merger, the Company will
continue its existence under the laws of the State of Maryland, and the separate
existence of the New York Corporation will cease.
Section 1.02 EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article II, the Merger
shall be consummated by filing with the Secretary of State of the State of
Maryland a certificate of merger or other appropriate documents (in any case,
the "Certificate of Merger") in accordance with the MGCL. The Merger shall
become effective at such time as the Certificate of Merger is duly filed (the
time the Merger becomes effective being the "Effective Time").
Section 1.03 EFFECTS OF THE MERGER. The Merger will have the effects set
forth in Section 3-114 of the MGCL.
Section 1.04 CERTIFICATE OF INCORPORATION AND BY-LAWS. The Certificate of
Incorporation and the By-Laws of the Company will remain in effect until
thereafter changed or amended as provided therein or by applicable law. The name
of the surviving corporation will be Pacific Gateway Properties, Inc.
Section 1.05 DIRECTORS AND OFFICERS. The directors and officers of the
Company immediately prior to the Effective Time will remain the directors and
officers of the Company until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified.
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ARTICLE II
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 2.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger are
subject to the satisfaction or waiver, where permissible, prior to the Effective
Time, of the following conditions:
(a) no statute, rule, regulation, executive order, decree, injunction or
other order has been enacted, entered, promulgated or enforced by any court
or governmental authority that is in effect and has the effect of
prohibiting the consummation of the Merger; and
(b) all approvals and consents necessary or desirable, if any, in
connection with consummation of the Merger have been obtained.
ARTICLE III
MISCELLANEOUS
Section 3.01 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
Section 3.02 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof.
Neither this Agreement nor any right, interest or obligation under this
Agreement may be assigned, in whole or in part, by operation of law or
otherwise, without the prior written consent of the other parties.
Section 3.03 GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the substantive laws of the State of Maryland
regardless of the laws that might otherwise govern under principles of conflicts
of laws applicable thereto.
Section 3.04 PARTIES IN INTEREST. 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.
Section 3.05 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all of which
will constitute one and the same agreement, and will become effective when one
or more counterparts have been signed by each of the parties and delivered to
the other parties.
Section 3.06 DEFERRAL OR ABANDONMENT. At any time before the Effective
Time, this Agreement may be terminated and the Merger may be abandoned or the
time or consummation of the Merger may be deferred for a reasonable time by the
Board of Directors of either the New York Corporation or the Company.
Section 3.07 FURTHER ASSURANCES. From time to time, as and when required
or requested by either the New York Corporation or the Company, as applicable,
or its respective successors and assigns, such deeds, assignments and other
instruments, and there will be taken or caused to be taken by it all such
further and other action, as may be appropriate or necessary to vest, perfect or
confirm in the Company the title to and possession of all property, interests,
assets, rights, powers, franchises and authority of the New York Corporation and
otherwise to carry out the purposes of this Agreement, and the officers and
directors of each corporation are fully authorized to take any and all such
action and to execute and deliver any and all such deeds, assignments and other
instruments.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its respective officers thereunto duly authorized, all
as of the day and year first above written.
PACIFIC GATEWAY PROPERTIES, INC., a
New York Corporation
By:
--------------------------------------
Name:
Title:
PACIFIC GATEWAY PROPERTIES, INC., a
Maryland Corporation
By:
--------------------------------------
Name:
Title:
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EXHIBIT B
PACIFIC GATEWAY PROPERTIES, INC.
ARTICLES OF INCORPORATION
I.
INCORPORATOR
The undersigned, , whose address is , being at least 18
years of age, acting as incorporator, does hereby form a corporation under and
by virtue of the General Laws of the State of Maryland ("GLM").
II.
NAME
The name of the corporation (hereinafter called the "Corporation") is:
Pacific Gateway Properties, Inc.
III.
PURPOSES AND POWERS
The purposes for which the Corporation is formed and the business or objects
to be transacted, carried on and promoted by it are to engage in the business of
a real estate investment trust ("REIT") as that phrase is defined in the
Internal Revenue Code of 1986, as amended (the "Code"), and any lawful act or
activity for which corporations may be organized under the Maryland General
Corporate Law, as amended from time to time ("MGCL").
The foregoing enumerated purposes and objects shall be in no way limited or
restricted by reference to, or inference from, the terms of any other clause of
this or any other Article of the Articles of Incorporation of the Corporation,
and each shall be regarded as independent; and they are intended to be and shall
be construed as powers as well as purposes and objects of the Corporation and
shall be in addition to and not in limitation of the general powers of
corporations under the GLM.
IV.
PRINCIPAL OFFICE AND RESIDENT AGENT
The principal address of the Corporation in the State of Maryland is 300
East Lombard Street, Suite 1400, Baltimore Maryland 21202. The name and address
of the Corporation's resident agent, which is a Maryland corporation, is The
Corporation Trust Incorporated, 300 East Lombard Street, Suite 1400, Baltimore,
Maryland 21202.
V.
STOCK
(A) TOTAL AUTHORIZED SHARES. The total number of shares of stock of all
classes which the Corporation has authority to issue is Twelve Million
(12,000,000) shares, having an aggregate par value of Twelve Million Dollars
($12,000,000), of which Ten Million (10,000,000) shares of the par value of one
dollar ($1.00) per share, amounting in aggregate par value to Ten Million
Dollars ($10,000,000) shall be initially classified as Common Stock ("Common
Stock") and Two Million (2,000,000) shares of the par value of one dollar
($1.00) per share, amounting in aggregate par value to Two Million Dollars
($2,000,000) shall be initially classified as Preferred Stock ("Preferred
Stock"), of which three hundred thousand shares are classified herein below as
Series 1 Preferred Stock, par value $1.00 per share.
<PAGE>
(B) QUORUM. The presence in person or by proxy of stockholders entitled to
cast a majority of all votes entitled to be cast is considered a quorum
necessary for the transaction of all business.
(C) SPECIAL MEETINGS OF THE STOCKHOLDERS. Special meetings of stockholders
may be called upon by the request of the Chairman of the Board of Directors, the
President or a majority of the Board of Directors or by the Secretary of the
Corporation upon the written request of stockholders holding not less than a
majority of all votes entitled to be cast at the meeting.
(D) POWER OF THE BOARD OF DIRECTORS TO AUTHORIZE AND ISSUE STOCK.
(1) The Board of Directors hereby is empowered to authorize the issuance
from time to time of shares of stock of the Corporation of any class or
series, whether now or hereafter authorized, or securities or rights
convertible into shares of its stock of any class or series, whether now or
hereafter authorized, without any action by the stockholders, for such
consideration as the Board of Directors may deem advisable (or without
consideration in the case of a stock split or stock dividend).
(2) The Board of Directors is authorized to classify or to reclassify
any unissued stock by setting or changing in any one or more respects, from
time to time before issuance of such stock, the designations, preferences,
conversion or other rights, voting powers, restrictions (including
restrictions on transfers of stock), limitations as to dividends or other
distributions, qualifications, and terms or conditions of redemption of such
stock. Prior to the issuance of classified or reclassified shares of any
class or series, the Board of Directors by resolution shall insofar as
required by applicable law: (a) designate that class or series to
distinguish it from all other classes and series of stock of the
Corporation; (b) specify the number of shares to be included in the class or
series; (c) set or change the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms and conditions of redemption for
each class or series; and (d) cause the Corporation to file articles
supplementary with the State Department of Assessments and Taxation of
Maryland ("SDAT"). Any of the terms of any class or series of stock set or
changed pursuant to clause (c) of this subparagraph (2) may be made
dependent upon facts or events ascertainable outside the Charter (including
determinations by the Board of Directors or other facts or events within the
control of the Corporation) and may vary among the holders thereof, provided
that the manner in which such facts, events or variations shall operate upon
the terms of such class or series of stock is clearly and expressly set
forth in the articles supplementary filed with the SDAT in substance and
form as prescribed by the MGCL.
(3) The Board of Directors is hereby authorized to issue from time to
time the shares of Preferred Stock in one or more classes or series of any
number of shares, and with distinctive serial designations, all as shall
hereafter be stated and expressed in the resolution or resolutions providing
for the issue of such shares of Preferred Stock from time to time adopted by
the Board of Directors pursuant to authority so to do which is hereby vested
in the Board of Directors and all as shall be reflected in the articles
supplementary filed with the SDAT in substance and form as prescribed by the
MGCL. Each series of shares of Preferred Stock (a) may have such voting
powers, full or limited, or may be without voting powers; (b) may be subject
to redemption at such time or times and at such prices; (c) may be entitled
to receive dividends (which may be cumulative or non-cumulative) at such
rate or rates, on such conditions and at such times, and payable in
preference to, or in such relation to, the dividends payable on any other
class or classes or series of stock; (d) may have such rights upon the
dissolution of, or upon any distribution of the assets of, the Corporation;
(e) may be made convertible into or exchangeable for, shares of any other
class or classes or of any other series of the same or any other class or
classes of shares of the Corporation at such price or prices or at such
rates of exchange and with such adjustments; (f) may be entitled to the
benefit of a sinking fund to be applied to the purchase or redemption of
shares of such series in such amount or amounts; (g) may be entitled to the
benefit of conditions and restrictions upon the creation of indebtedness of
the Corporation or any subsidiary, upon the issue of any additional shares
(including additional shares of
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such series or of any other series) and upon the payment of dividends or the
making of other distributions on, and the purchase, redemption or other
acquisition by the Corporation or any subsidiary of, any outstanding shares
of the Corporation and (h) may have such other relative, participating,
optional or other special rights, qualifications, limitations or
restrictions thereof, all as shall be stated in said resolution or
resolutions providing for the issue of such shares of Preferred Stock and as
reflected in the articles supplementary. Shares of Preferred Stock of any
class or series that have been redeemed (whether through the operation of a
sinking fund or otherwise) or that, if convertible or exchangeable, have
been converted into or exchanged for shares of any other class or classes
shall have the status of authorized and unissued shares of Preferred Stock
of the same class or series and may be reissued as a part of the class or
series of which they were originally a part or may be reclassified and
reissued as part of a new class or series of shares of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of
any other class or series of shares of Preferred Stock, all subject to the
conditions or restrictions on issuance set forth in the resolution or
resolutions adopted by the Board of Directors providing for the issue of any
class or series of shares of Preferred Stock. Notwithstanding any provision
to the contrary contained in the Charter, each outstanding share of each
class of Preferred Stock shall be entitled to receive, and shall receive, a
dividend with respect to any dividend record date equal to the dividend paid
with respect to each other share of such class of Preferred Stock that is
outstanding on such date.
(E) NO PREEMPTIVE RIGHTS. Except as may be provided by the Board of
Directors in setting the terms of classified or reclassified shares of stock, or
as may otherwise be provided by contract, no stockholder, as such, shall have
any preemptive or similar right to have first offered to him any part of any
presently or hereafter authorized shares, or bonds, debentures or securities
convertible into shares, of the Corporation which may at any time or times be
issued, optioned or sold by the Corporation.
(F) COMMON STOCK. Each share of Common Stock shall be of equal rank and
shall entitle the holders thereof to the same rights and privileges, except as
expressly provided in or established pursuant to the provisions of this Article
V or in Article VI. The Board of Directors may reclasssify any unissued shares
of Common Stock from time to time in one or more classes or series of stock. The
designation and the relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, in addition to those set
forth above in this Article and elsewhere in the Articles of Incorporation of
the Corporation and as otherwise provided by the MGCL, are as follows:
(1) DIVIDENDS. The holders of shares of Common Stock shall be entitled
to receive dividends, out of the assets of the Corporation legally available
therefor, when and as declared by the Board of Directors.
(2) RIGHTS ON LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of
any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of Common Stock then
outstanding shall be entitled to receive their portion of the remaining
assets of the Corporation available, after payment of liabilities and
expenses and amounts payable to holders of Preferred Stock, for distribution
to its stockholders, in cash or in kind, in accordance with the terms of
these Articles of Incorporation and the GLM; provided, however, that as to
any Common Stock or Preferred Stock which is subject to subparagraph
(A)(2)(b) of Article VI hereof, holders shall only be entitled to receive a
portion as provided in Article VI hereof.
(3) VOTING. Subject to the provisions of any applicable law or of the
Bylaws of the Corporation, as from time to time amended, with respect to the
closing of the transfer books or the fixing of a record date for the
determination of stockholders entitled to vote and except as otherwise
provided by law and subject to the rights, if any, of holders of any series
of shares of Preferred Stock, the holders of outstanding shares of Common
Stock shall exclusively possess voting power for the election of directors
and for all other purposes, each holder of record of shares of Common Stock
being entitled
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to one vote for each share of Common Stock standing in his or her name on
the books of the Corporation.
(4) IDENTICAL RIGHTS. Except as provided elsewhere or established
pursuant to any term or provision of the Articles of Incorporation
(including subparagraph (A)(8) of Article VI hereof), each share of Common
Stock shall have the same relative rights and preferences as, and shall be
identical in all respects with, all other shares of Common Stock.
(5) CERTIFICATES. The Board of Directors may determine that Common
Stock shall be issued in certificated or uncertificated form, or both. So
long as any certificated shares of Common Stock are outstanding, there shall
be set forth on the face or back of each stock certificate evidencing shares
of Common Stock issued by the Corporation a statement that the Corporation
shall furnish without charge to each stockholder who so requests, the
powers, preferences and rights of such stock or series thereof and the
qualifications, limitations or restrictions on such preferences or rights.
(6) MISCELLANEOUS. The shares of Common Stock shall, upon issuance and
payment therefor, be fully paid and non-assessable, will not be subject to
redemption or repurchase at the option of the Corporation (except as
expressly provided in these Articles of Incorporation of the Corporation)
and will have no cumulative voting rights.
(G) SERIES 1 PREFERRED STOCK. Shares of the Corporation's Preferred Stock
are hereby classified as a separate class of Preferred Stock, designated Series
1 Preferred Stock, which series shall have the rights, privileges and
preferences set forth below.
(1) DESIGNATION AND AMOUNT. The shares of this class of Preferred
Stock shall be designated as "Series 1 Preferred Stock," and the number of
shares constituting this class shall be Three Hundred Thousand (300,000)
shares, with a par value of $1.00 per share. The relative rights,
preferences, restrictions and other matters relating to the Series 1
Preferred Stock are contained in this paragraph (G) of Article V.
(2) DIVIDEND PROVISIONS.
(a) Whenever the Corporation pays dividends or other distributions on
its Common Stock or any convertible securities, in cash, assets,
evidences of indebtedness or in kind, except for dividends of Common
Stock or Common Stock Equivalents (as defined below) without payment of
any consideration by such holder for the additional shares of Common
Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), the holders
of record on the record date of outstanding shares of Series 1 Preferred
Stock shall be entitled to receive dividends in such amount as they would
be entitled to receive if, as of the record date, their shares of Series
1 Preferred Stock had been converted into shares of Common Stock pursuant
to subparagraph (5) hereof. Except as otherwise provided below, no such
dividend or other distribution shall be paid or set aside with respect to
shares of Common Stock until and unless all dividends or other
distributions then payable to the holders of the Series 1 Preferred Stock
shall have been paid or declared and set aside for payment in full.
(b) Except in a Liquidation (as defined in subparagraph (3) below),
without the affirmative vote or written consent of the holders of a
majority of the outstanding shares of Series 1 Preferred Stock, the
Corporation shall not declare or pay any Dividend (as defined below)
unless the funds used to make such Dividend are from a source other than
Sale or Refinancing Proceeds (as defined below). Notwithstanding the
foregoing, the Corporation may declare or pay a Dividend without any vote
of the holders of outstanding shares of Series 1 Preferred Stock if (x)
the amount of such Dividend which is deemed to be from Sale or
Refinancing Proceeds is paid solely to the holders of outstanding shares
of Series 1 Preferred Stock on a pro rata basis (a "Partial Liquidation
Payment") or (y) the Liquidation Preference (as defined below) has been
reduced to zero in accordance with subparagraph (3) below.
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(c) After the Liquidation Preference has been reduced to zero in
accordance with subparagraph (3) below, the Corporation shall not declare
or pay further Dividend with respect to the Series 1 Preferred Stock if
the source of such Dividend is Sale or Refinancing Proceeds until holders
of shares of Common Stock have received Dividends from a source which is
Sale or Refinancing Proceeds equal in the aggregate (and not on a per
share basis) to the Equalization Amount (as defined below).
(d) After holders of shares of Common Stock have received Dividends
equal in the aggregate to the Equalization Amount, the holders of shares
of Series 1 Preferred Stock and shares of Common Stock shall be entitled
to receive dividends or other distributions ratably in proportion to the
number of shares of Common Stock held by each such Common Stock holder
and the number of shares of Common Stock into which the shares of Series
1 Preferred Stock held by each such Series 1 Preferred Stock holder are
then convertible pursuant to subparagraph (4) below, regardless of the
source of the funds for such dividends or distributions.
(e) Nothing contained in subparagraphs (b), (c) or (d) above shall be
deemed to prohibit the Corporation from declaring or paying any dividend
or other distributions in accordance with subparagraph (a) above, or from
making any Dividend which would not be subject to subparagraph (a) above,
if the funds used to make such Dividend are from a source other than Sale
or Refinancing Proceeds.
(f) The Board of Directors of the Corporation shall determine in good
faith, the amount, if any, of any Dividend which is from Sale or
Refinancing Proceeds.
(g) Certain definitions:
"Dividend" means any (i) repurchase, redemption or other acquisition
or retirement for value by the Corporation or any of its subsidiaries of
any shares of Common Stock or any convertible securities other than
pursuant to contractual rights to repurchase shares of Common Stock or
any convertible securities held solely by current or former officers,
employees, directors or consultants of the Corporation or any of its
subsidiaries pursuant to a compensatory stock grant, stock option plan or
purchase plan or other employee stock incentive plan or agreement which
is customary in nature and amount and which is approved by the Board of
Directors or (ii) declaration or payment by the Corporation of any
dividend or any other payment or distribution of cash, assets or
evidences of indebtedness with respect to shares of Common Stock or any
convertible securities.
"Equalization Amount" means the (i) Original Series 1 Issue Price
multiplied by (ii) the number of shares of Common Stock outstanding on
the date on which the Liquidation Preference becomes equal to zero
(subject to adjustment to reflect any split, subdivision or combination
in the outstanding shares of Common Stock or any dividend or other
distribution payable in additional shares of Common Stock or Common Stock
Equivalents (as defined below) with a record date or effective date after
the Issue Date (as defined below)).
"Original Series 1 Issue Price" means $10.00.
"Sale or Refinancing Proceeds" means the proceeds (whether in cash,
assets or any other form), net of repayment of debt, taxes and closing
costs after the date hereof, from (i) any sale, exchange, transfer or
other disposition of any assets of the Corporation or any of its
subsidiaries (other than in complete liquidation, dissolution or winding
up of the Corporation), (ii) any mortgage, pledge, financing or
refinancing of any assets of the Corporation or any of its subsidiaries,
(iii) any borrowings by the Corporation or any of its subsidiaries, or
(iv) any sale or issuance of any Common Stock or other equity or debt
securities of the Corporation or any of its subsidiaries other than
shares of Common Stock or other securities issued solely to current or
former officers, directors, employees, or consultants of the Corporation
or any of its subsidiaries
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pursuant to a compensatory stock grant, stock option plan or purchase
plan or other employee stock incentive program or agreement which is
customary in nature and amount and which is approved by the Board of
Directors.
(h) Notwithstanding any provision to the contrary contained in the
Charter, each outstanding share of each Series 1 Preferred Stock shall be
entitled to receive, and shall receive, a dividend with respect to any
dividend record date equal to the dividend paid with respect to each
other share of the Series 1 Preferred Stock that is outstanding on such
date.
(3) LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation (as defined below), subject to
the rights of any other class or series of Preferred Stock which may from
time to time come into existence, the holders of the Series 1 Preferred
Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of
Common Stock by reason thereof, and the Corporation's Board of Directors
shall take the necessary steps to assure that the holder of each share of
Series 1 Preferred Stock shall receive, an amount per share equal to
$10.00 minus any Partial Liquidation Payments previously made with
respect to such share (the "Liquidation Preference"); provided, however,
that in no event shall the Liquidation Preference be deemed to be less
than zero. If the assets and funds thus distributed among holders of the
Series 1 Preferred Stock shall be insufficient to permit payment to such
holders of the full Liquidation Preference, then, subject to the rights
of any other series of Preferred Stock that may from time to time come
into existence, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders
of Series 1 Preferred Stock in proportion to the amount of such stock
held by each such holder.
(b) Upon the completion of the distribution required by subparagraph
(a) of this subparagraph (3) and any other distribution which may be
required with respect to any other class or series of Preferred Stock
which may from time to time come into existence, if assets remain in the
Corporation, the holders of the Common Stock of the Corporation shall be
entitled to receive an amount per share equal to the lesser of: (i)
$10.00 for each outstanding share of Common Stock (subject to adjustment
to reflect any split, subdivision or combination in the outstanding
shares of Common Stock or any dividend or other distribution payable in
additional shares of Common Stock or Common Stock Equivalents with a
record date or effective date after the Issue Date (as defined below)),
or, if applicable, (ii) the Equalization Amount less the aggregate amount
of any Dividends theretofore paid to holders of shares of Common Stock
pursuant to subparagraph (2)(c) above, in each case, divided by the
number of shares of Common Stock outstanding on the date of such
distribution (or the record date for determination of holders entitled to
receive such distribution, if applicable). If any assets remain in the
Corporation after such distribution, subject to the rights of any other
class or series of Preferred Stock, the holders of the Common Stock and
the holders of the Series 1 Preferred Stock shall receive all of the
remaining assets of the Corporation ratably in proportion to the number
of shares of Common Stock held by each such Common Stock holder and the
number of shares of Common Stock into which the shares of Series 1
Preferred Stock held by each such Series 1 Preferred Stock holder are
then convertible pursuant to subparagraph (4) below.
(c) The term "Liquidation" shall mean (i) any complete liquidation,
dissolution or winding up of the Corporation, either voluntary or
involuntary, (ii) any consolidation or merger of the Corporation with or
into any other entity or entities that results in a change in the
beneficial ownership (within the meaning contemplated by Rule 13d-3 under
the Securities Exchange Act of 1934, as amended) of 50% or more of the
voting power of the Corporation, or (iii) any sale, conveyance or
disposition of all or substantially all of the assets of the Corporation.
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(d) The term "Partial Liquidation Payments" shall mean Dividends or
other distributions to holders of Series 1 Preferred Stock made from Sale
or Refinancing Proceeds.
(4) CONVERSION. The holders of the Series 1 Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series 1 Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after
the date of issuance of such share, at the office of the Corporation or
any transfer agent for the Series 1 Preferred Stock, into such number of
fully paid and nonassessable shares of Common Stock as is determined by
dividing $10.00 (the "Original Series 1 Issue Price") by the Conversion
Price at the time in effect for such share. The initial Conversion Price
per share for shares of Series 1 Preferred Stock shall be the Original
Series 1 Issue Price; provided, however, that the Conversion Price for
the Series 1 Preferred Stock shall be subject to adjustment as set forth
in subparagraph (4)(c).
At the date of any conversion of share of Series 1 Preferred Stock
pursuant to this subparagraph (4) (the "Conversion Date") the holder of
such share shall pay to the Corporation the Preference Repayment Amount
(as defined below).
If, on or prior to the Conversion Date, the Corporation has paid any
Sale or Refinancing Proceeds to the holders of shares of Series 1
Preferred Stock pursuant to subparagraph (2)(b) above but the Liquidation
Preference is still greater than zero, then the "Preference Repayment
Amount" with respect to each share of Series 1 Preferred Stock shall be
equal to the amount of Sale or Refinancing Proceeds previously
distributed. If, on or prior to the Conversion Date, the Liquidation
Preference has been reduced to zero and holders of shares of Common Stock
have not yet received Dividends from a source which is Sale or
Refinancing Proceeds equal in the aggregate to the Equalization Amount
then the "Preference Repayment Amount" with respect to each share of
Series 1 Preferred Stock shall be equal to (i) the Equalization Amount
minus the aggregate amount of Dividends theretofore received by holders
of shares of Common Stock from a source which is Sale or Refinancing
Proceeds divided by (ii) the number of shares of Common Stock outstanding
immediately prior to the Conversion Date. If, on or prior to the
Conversion Date, the Liquidation Preference has been reduced to zero and
the holders of shares of Common Stock have received Dividends from a
source which is Sale or Refinancing Proceeds equal in the aggregate to at
least the Equalization Amount then the "Preference Repayment Amount" with
respect to each share of Series 1 Preferred Stock shall be equal to zero.
(b) MECHANICS OF CONVERSION. Before any holder of Series 1
Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall (1) surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series 1 Preferred Stock, (2) pay any Preference
Repayment Amount to the Corporation, and (3) give written notice by mail,
postage prepaid, to the Corporation at its principal corporate office, of
the election to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock
are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series 1
Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series 1 Preferred Stock to
be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock
as of such date. Notwithstanding the foregoing, in the event of any
merger, consolidation, sale of assets or other similar transaction
involving the Corporation in connection with which the holders of the
Series 1 Preferred Stock desire to convert the Series 1 Preferred Stock
into shares of Common Stock, the
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Corporation shall negotiate in good faith with the holders of the shares
of Series 1 Preferred Stock to agree on a transaction structure which
would allow for a tax efficient conversion of shares of Series 1
Preferred Stock into shares of Common Stock provided that such structure
would not adversely affect the Corporation or the holders of shares of
Common Stock or otherwise prevent any benefit from accruing to the
Corporation or the holders of shares of Common Stock.
(c) CONVERSION PRICE ADJUSTMENTS OF PREFERRED STOCK. The Conversion
Price of the Series 1 Preferred Stock shall be subject to adjustment from
time to time as follows:
(i) In the event the Corporation should at any time or from time
to time after the date on which the first share of Series 1 Preferred
Stock is issued (the "Issue Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock (hereinafter referred
to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common
Stock or the Common Stock Equivalents (including the additional
shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the
Conversion Price of the Series 1 Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of such series shall be
increased in proportion to such increase of the aggregate of shares
of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding at any
time after the Issue Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date
of such combination, the Conversion Price for the Series 1 Preferred
Stock shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of such class or
series shall be decreased in proportion to such decrease in
outstanding shares.
(d) OTHER DISTRIBUTIONS. In the event the Corporation shall declare
a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights not referred to in
subparagraph (2) or subparagraph (4)(c)(i), then, in each such case for
the purpose of this subparagraph (4)(d), the holders of the Series 1
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Series 1
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled
to receive such distribution.
(e) RECAPITALIZATIONS; RIGHTS OFFERINGS.
(i) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision or
combination provided for elsewhere in this subparagraph (4)),
provision shall be made so that the holders of the Series 1 Preferred
Stock shall thereafter be entitled to receive upon conversion of the
Series 1 Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a
holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this
subparagraph (4) with respect to the rights of the holders of the
Series 1 Preferred Stock after the recapitalization to the end that
the provisions of this
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subparagraph (4) (including adjustment of the Conversion Price then
in effect and the number of shares purchasable upon conversion of the
Series 1 Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable.
(ii) If at any time or from time to time the Corporation shall
make any rights offering or similar arrangement generally available
to the holders of shares of Common Stock (whether through the
dividend or distribution of any rights or other securities or
otherwise) to purchase additional securities of the Corporation or
any of its subsidiaries for value, then the Corporation shall make
such rights offering or similar arrangement available to holders of
shares of Series 1 Preferred Stock on the same basis as if such
shares of the Series 1 Preferred Stock had been converted into shares
of Common Stock immediately prior to the earlier of (a) the making of
such rights offering or similar arrangement and (b) any record date
for the determination of holders entitled to participate therein.
(f) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek
to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 5
and in the taking of all such action as may be necessary or appropriate
in order to protect the Conversion Rights of the holders of the Series 1
Preferred Stock against impairment.
(g) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon conversion of the
Series 1 Preferred Stock, and the number of shares of Common Stock to
be issued shall be rounded down to the nearest whole share.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series 1 Preferred Stock pursuant to this
subparagraph (4), the Corporation, at its expense, shall promptly
compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series 1 Preferred
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series 1 Preferred Stock,
furnish or cause to be furnished to such holder a like certificate
setting forth (1) such adjustment and readjustment, (2) the
Conversion Price at the time in effect, and (3) the number of shares
of Common Stock and the amount, if any, of other property which at
the time would be received upon the conversion of a share of Series 1
Preferred Stock.
(h) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other
right, the Corporation shall mail to each holder of Series 1 Preferred
Stock, at least 20 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series 1 Preferred Stock such number of
its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series 1 Preferred
Stock; and if at any time the number of
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authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series 1
Preferred Stock, in addition to such other remedies as shall be available
to the holder of such Preferred Stock, the Corporation will take such
corporate action at its own expense as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purposes.
(j) NOTICES. Any notice required by the provisions of this Section
4 to be given to the holders of shares of Series 1 Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at his address appearing on the
books of the Corporation.
(5) VOTING RIGHTS.
(a) The Series 1 Preferred Stock shall have voting rights as
provided herein. The holder of each share of Series 1 Preferred Stock
shall have the right to one vote for each share of Common Stock into
which such Series 1 Preferred Stock could then be converted (with any
fractional share determined on an aggregate conversion basis being
rounded to the nearest whole share), and with respect to such vote,
such holder shall have full voting rights and powers equal to the
voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the Bylaws of the
Corporation, and shall be entitled to vote, together with holders of
Common Stock, with respect to any questions upon which holders of
Common Stock have the right to vote, as though part of the same class
as holders of the Common Stock.
(b) Except as expressly stated in this paragraph (G) of Article
V, the Series 1 Preferred Stock will not have any relative,
participating, optional or other special voting rights and powers,
and the consent of the holders thereof, acting as a class or
otherwise, shall not be required for the taking of any corporate
action, including but not limited to, any merger or consolidation of
the Corporation or sale of all, or substantially all, of the assets
of the Corporation, irrespective of the effect that such merger,
consolidation or sale may have upon the rights, preferences or voting
power of the holders of the Series 1 Preferred Stock.
(6) PROTECTIVE PROVISIONS. So long as any shares of the Series 1
Preferred Stock are outstanding, the Corporation shall not, without first
obtaining the approval of at least a majority of the then outstanding
shares of Series 1 Preferred Stock, as a class, together with any other
outstanding shares of Preferred Stock similarly affected:
(a) reduce the par value of such shares of Series 1 Preferred
Stock;
(b) increase or decrease (other than by conversion) the total
number of authorized shares of Series 1 Preferred Stock;
(c) change or abolish any of the rights, privileges, preferences
and limitations of the Series 1 Preferred Stock if such action would
adversely affect the holders thereof;
(d) alter the terms and conditions upon which shares of Series 1
Preferred Stock are convertible or change the shares issuable upon
conversion of the Series 1 Preferred Stock if such action would
adversely affect the holders thereof; or
(e) authorize or issue any other shares of capital stock having a
preference equal to or senior to the Series 1 Preferred Stock with
respect to voting (other than Common Stock), dividends or
liquidation.
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(7) STATUS OF CONVERTED STOCK. In the event any shares of Series 1
Preferred Stock shall be converted pursuant to Section 4, the shares so
converted shall be retired and shall resume the status of authorized and
unissued shares of Preferred Stock.
(8) RESTRICTIONS ON OWNERSHIP AND TRANSFER. The Series 1 Preferred
Stock constitutes a class of Preferred Stock of the Corporation and thus
constitutes Capital Stock of the Corporation as defined in Article VI
hereof. The Series 1 Preferred Stock therefore is subject to the
limitations, terms and conditions (including exceptions and exemptions) of
Article VI applicable to Capital Stock.
VI.
RESTRICTIONS ON OWNERSHIP AND TRANSFER TO PRESERVE TAX BENEFIT
(A) RESTRICTIONS ON OWNERSHIP AND TRANSFER.
(1) DEFINITIONS. The following terms shall have the following
meanings:
"Aggregate Ownership Limit" shall mean, subject to subparagraph (A)(9)
of Article VI hereof, 2.5% in value of the aggregate of the outstanding
shares of Capital Stock. The value of the outstanding Capital Stock shall be
determined by the Board of Directors of the Corporation in good faith, which
determination shall be conclusive for all purposes hereof.
"Beneficial Ownership" shall mean ownership of Capital Stock by a Person
who is or would be treated as an owner of such shares of Capital Stock
either directly or constructively through the application of Section 544 of
the Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial," "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have correlative meanings.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Capital Stock" shall mean shares of stock that are Common or Preferred
Stock.
"Charitable Beneficiary" shall mean one or more organizations described
in Code Sections 170(b), 170(c), or 501(c)(3) as shall be designated by
resolution of the Board of Directors pursuant to subparagraph (A)(3)(f) of
this Article VI. At any one time there shall be at least one such Charitable
Beneficiary so designated.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time. All section references to the Code shall include any successor
provisions thereof as may be adopted from time to time.
"Constructive Ownership" shall mean ownership of Capital Stock by a
Person who is or would be treated as an owner of such shares of Capital
Stock either directly or indirectly through the application of Section 318
of the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive," "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have correlative meanings.
"Formation Transaction" shall mean the reincorporation of the New York
Company in Maryland by merger of the New York Company into the Corporation.
The effective date of Formation Transaction shall be the date on which the
Articles of Merger are accepted by the Department of Assessments and
Taxation of the State of Maryland and a Certificate of Merger is accepted by
the Department of State of the State of New York.
"General Ownership Limit" shall initially mean, subject to subparagraph
(A)(9) of Article VI hereof, 2% (by value or number of shares, whichever is
more restrictive) of the outstanding shares of Common Stock of the
Corporation. The value of the outstanding Common Stock shall be determined
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by the Board of Directors of the Corporation in good faith, which
determination shall be conclusive for all purposes hereof.
"Individual" shall have the meaning set forth in Section 542(a)(2) of
the Code as used in determining whether a REIT is "closely held" under
Section 856(h) of the Code.
"Market Price" shall mean the average of the high and low reported sales
prices reported on the American Stock Exchange of the Common Stock or
Preferred Stock on the trading day immediately preceding the relevant date,
or if the shares of such class of Common Stock or Preferred Stock are not
then traded on the American Stock Exchange, the average of the high and low
reported sales prices of the Common Stock or Preferred Stock on the trading
day immediately preceding the relevant date as reported on any national
securities exchange or automated inter-dealer quotation system over which
the Common Stock or Preferred Stock may be traded, or if the Common Stock or
Preferred Stock is not then traded over any exchange or quotation system,
then the market price of the Common Stock or Preferred Stock on the relevant
date as determined in good faith by the Board of Directors of the
Corporation.
"MGCL" shall mean the Maryland General Corporation Law, as amended from
time to time, and any successor statute hereafter enacted.
"New York Company" shall mean Pacific Gateway Properties, Inc., a New
York corporation, prior to the effective date of the Formation Transaction.
"Operating Partnership" shall mean Pacific Gateway Properties Operating
Partnership, L.P., a Delaware limited partnership.
"OP Units" shall have the meaning set forth in paragraph E of Article VI
hereof.
"Ownership Limit" shall mean the General Ownership Limit or the
Aggregate Ownership Limit, whichever is more restrictive.
"Partnership Agreement" shall mean the Agreement of Limited Partnership
of Pacific Gateway Properties Operating Partnership, L.P., as such agreement
may be amended from time to time.
"Person" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described in Section
642(c) of the Code, association, private foundation within the meaning of
Section 509(a) of Code, joint stock company or other entity.
"Purported Beneficial Transferee" shall mean, with respect to any
purported Transfer or other event that results in a transfer of Capital
Stock to a Trust, as provided in subparagraph (A)(2)(b) of Article VI
hereof, the purported beneficial transferee or owner for whom the Purported
Record Transferee would have acquired shares of Capital Stock if such
Transfer or other event had been permitted under subparagraph (A)(2) of this
Article VI.
"Purported Record Transferee" shall mean, with respect to any purported
Transfer or other event that results in a transfer of Capital Stock to a
Trust, as provided in subparagraph (A)(2)(b) of Article VI hereof, the
record holder of such Capital Stock if such Transfer or other event had been
permitted under subparagraph (A)(2) of this Article VI.
"Restriction Termination Date" shall mean the first day after the date
of the completion of the Formation Transaction on which the Board of
Directors of the Corporation determines, pursuant to subparagraph (A)(2)(e)
of Article VI hereof, that it is no longer in the best interests of the
Corporation to attempt to qualify, or to continue to qualify, as a REIT or
that compliance with the restrictions and limitations on Beneficial
Ownership, Constructive Ownership and Transfers of shares
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of Capital Stock set forth herein is no longer required in order for the
Corporation to qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or
other disposition of Capital Stock (other than the Formation Transaction) or
the right to vote or receive dividends (including (i) the granting of any
option or entering into any agreement for the sale, transfer or other
disposition of Capital Stock or the right to vote or receive dividends or
(ii) the sale, transfer, assignment or other disposition of any securities
or rights convertible into or exchangeable for Capital Stock, whether
voluntary or involuntary), in each case whether of record, Constructively or
Beneficially and whether by operation of law or otherwise and whether the
result of a transaction entered into through the facilities of a stock
exchange on which any Common Stock or Preferred Stock is then listed. A
Transfer also includes any transfer of interests in other entities, or any
change in the relationship between two or more Persons, that results in a
change in Beneficial Ownership or Constructive Ownership of Capital Stock,
whether by operation of law or otherwise.
"Trust" shall mean the trust created pursuant to subparagraph (A)(3) of
this Article VI.
"Trustee" shall mean a Person unaffiliated with (i) the Corporation,
(ii) the Purported Beneficial Transferee, and (iii) the Purported Record
Transferee, acting as trustee for the Trust, or any successor trustee
appointed by the Corporation.
(2) RESTRICTION ON OWNERSHIP AND TRANSFERS.
(a) Except as provided in subparagraph (A)(9) of this Article VI,
following the completion of the Formation Transactions and prior to the
Restriction Termination Date:
(i) no Person shall Beneficially Own Capital Stock in excess of
the Ownership Limit;
(ii) no Person shall Constructively Own Capital Stock in excess
of the Ownership Limit; and
(iii) no Person shall Beneficially or Constructively Own Capital
Stock to the extent that such Beneficial or Constructive Ownership
would result in the Corporation's being "closely held" within the
meaning of Section 856(h) of the Code, or otherwise failing to
qualify as a REIT (including but not limited to ownership that would
result in the Corporation's owning (actually or Constructively) an
interest in a tenant that is described in Section 856(d)(2)(B) of the
Code if the income derived by the Corporation (either directly or
indirectly) from such tenant would cause the Corporation to fail to
satisfy any of the gross income requirements of Section 856(c) of the
Code).
(b) If, at any time after the Formation Transaction and prior to the
Restriction Termination Date, any Transfer or other event (whether or not
such Transfer or other event is the result of a transaction entered into
through the facilities of national securities exchange or automated
inter-dealer quotation system) that, if effective, would result in any
Person's Beneficially or Constructively Owning Capital Stock in violation
of subparagraph (A)(2)(a) of Article VI hereof, (1) then the Common Stock
or Preferred Stock purportedly being Transferred (or in the case of an
event other than a Transfer, the Common Stock or Preferred Stock that
would be Beneficially Owned or Constructively Owned) and that otherwise
would cause such Person to violate subparagraph (A)(2)(a) of Article VI
hereof (rounded up to the nearest whole share) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary, as
described in subparagraph (A)(3) of Article VI hereof, effective as of
the close of business on the business day prior to the date of such
Transfer or other event, and such Purported Beneficial Transferee shall
thereafter have no rights in such shares or (2) if, for any reason, the
transfer to the Trust described in clause (1) of this sentence is not
automatically effective as provided therein to prevent any Person from
Beneficially or Constructively Owning Capital Stock in violation of
subparagraph (A)(2)(a) of
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Article VI hereof, then the Transfer of that number of shares of Capital
Stock that otherwise would cause any Person to violate subparagraph
(A)(2)(a) of Article VI hereof shall be void AB INITIO, and the Purported
Beneficial Transferee shall have no rights in such shares.
(c) Subject to subparagraph (K) of this Article VI and
notwithstanding any other provisions contained herein, any Transfer, or
other event (whether or not as a result of a transaction entered into
through the facilities of a national securities exchange or automated
inter-dealer quotation system) that, if effective, would result in
Beneficial Ownership of Capital Stock by fewer than 100 Persons
(determined without reference to any rules of attribution) shall be void
AB INITIO as to the Transfer of that number of shares which would result
in Beneficial Ownership of Capital Stock by fewer than 100 Persons, and
the intended transferee or acquiror shall acquire no rights in such
shares of Capital Stock.
(d) It is expressly intended that the restrictions on ownership and
transfer described in this subparagraph (A)(2) of Article VI hereof shall
apply to the redemption/exchange rights provided in Section 8.05 of the
Partnership Agreement. Notwithstanding any of the provisions of the
Partnership Agreement to the contrary, a partner of the Operating
Partnership shall not be entitled to effect an exchange of an interest in
the Operating Partnership for Capital Stock if the actual or beneficial
or Beneficial or Constructive ownership of Capital Stock would be
prohibited under the provisions of this Article VI.
(e) The Ownership Limit will not apply if the Board of Directors
determine that it is no longer in the best interests of the Corporation
to attempt to qualify, or to continue to qualify, as a REIT or that
compliance with the restrictions and limitations on Beneficial Ownership,
Constructive Ownership and Transfers of shares of Capital Stock set forth
herein is no longer required in order for the Corporation to qualify as a
REIT.
(3) TRANSFERS OF CAPITAL STOCK IN TRUST.
(a) If, notwithstanding the other provisions contained in this
Article VI, upon any purported Transfer or other event described in
subparagraph (A)(2)(b) of Article IV hereof, such Capital Stock shall be
deemed to have been transferred to the Trustee in his capacity as trustee
of a Trust for the exclusive benefit of one or more Charitable
Beneficiaries. Such transfer to the Trustee shall be deemed to be
effective as of the close of business on the business day prior to the
purported Transfer or other event that results in a transfer to the Trust
pursuant to subparagraph (A)(9) of Article IV hereof. The Trustee shall
be appointed by the Corporation and shall be a Person unaffiliated with
the Corporation, any Purported Beneficial Transferee, or any Purported
Record Transferee. Each Charitable Beneficiary shall be designated by the
Corporation as provided in subparagraph (A)(3)(f) of Article IV hereof.
(b) Capital Stock held by the Trustee shall be issued and outstanding
Capital Stock of the Corporation. The Purported Beneficial Transferee or
Purported Record Transferee shall have no rights in the shares of Capital
Stock held by the Trustee. The Purported Beneficial Transferee or
Purported Record Transferee shall not benefit economically from ownership
of any shares held in trust by the Trustee, shall have no rights to
dividends and shall not possess any rights to vote or other rights
attributable to the shares of Capital Stock held in the Trust.
(c) The Trustee shall have all voting rights and rights to dividends
with respect to Capital Stock held in the Trust, which rights shall be
exercised for the exclusive benefit of the Charitable Beneficiary. Any
dividend or distribution paid prior to the discovery by the Corporation
that shares of Capital Stock have been transferred to the Trustee shall
be paid to the Trustee upon demand, and any dividend or distribution
declared but unpaid shall be paid when due to the Trustee with respect to
such Capital Stock. Any dividends or distributions so paid over to the
Trustee shall be held in trust for the Charitable Beneficiary.
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The Purported Record Transferee and Purported Beneficial Transferee
shall have no voting rights with respect to the Capital Stock held in the
Trust and, subject to Maryland law, effective as of the date the Capital
Stock has been transferred to the Trustee, the Trustee shall have the
authority (at the Trustee's sole discretion) (i) to rescind as void any
vote cast by a Purported Record Transferee with respect to such Capital
Stock prior to the discovery by the Corporation that the Capital Stock
has been transferred to the Trustee and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Corporation has
already taken irreversible corporate action, then the Trustee shall not
have the authority to rescind and recast such vote. Notwithstanding any
other provision of these Articles of Incorporation to the contrary, until
the Corporation has received notification that the Capital Stock has been
transferred into a Trust, the Corporation shall be entitled to rely on
its share transfer and other stockholder records for purposes of
preparing lists of stockholders entitled to vote at meetings, determining
the validity and authority of proxies and otherwise conducting votes of
stockholders.
(d) Within 20 days of receiving notice from the Corporation that
shares of Capital Stock have been transferred to the Trust, the Trustee
of the Trust shall sell the shares of Capital Stock held in the Trust to
a Person, designated by the Trustee, whose ownership of the shares of
Capital Stock will not violate the ownership limitations set forth in
subparagraph (A)(2)(b) of Article IV hereof. Upon such sale, the interest
of the Charitable Beneficiary in the shares of Capital Stock sold shall
terminate and the Trustee shall distribute the net proceeds of the sale
to the Purported Record Transferee and to the Charitable Beneficiary as
provided in this subparagraph (A)(3)(d) of Article IV hereof. The
Purported Record Transferee shall receive the lesser of (1) the price
paid by the Purported Record Transferee for the shares of Capital Stock
in the transaction that resulted in such transfer to the Trust (or, if
the event which resulted in the transfer to the Trust did not involve a
purchase of such shares of Capital Stock at Market Price, the Market
Price of such shares of Capital Stock on the day of the event which
resulted in the transfer of such shares of Capital Stock to the Trust) or
(2) the price per share received by the Trustee (net of any commissions
and other expenses of sale) from the sale or other disposition of the
shares of Capital Stock held in the Trust, except that if a Purported
Record Transferee is a Purported Record Transferee solely as a result of
the Formation Transaction, then such Purported Record Transferee shall
receive the Market Price of such shares of Capital Stock on the effective
date of the Formation Transaction. Any net sales proceeds in excess of
the amount payable to the Purported Record Transferee shall be
immediately paid to the Charitable Beneficiary together with any
dividends or other distributions thereon. If, prior to the discovery by
the Corporation that shares of such Capital Stock have been transferred
to the Trustee, such shares of Capital Stock are sold by a Purported
Record Transferee then (i) such shares of Capital Stock shall be deemed
to have been sold on behalf of the Trust and (ii) to the extent that the
Purported Record Transferee received an amount for such shares of Capital
Stock that exceeds the amount that such Purported Record Transferee was
entitled to receive pursuant to this in this subparagraph (A)(3)(d) of
Article IV hereof), such excess shall be paid to the Trustee upon demand.
(e) Capital Stock transferred to the Trustee shall be deemed to have
been offered for sale to the Corporation, or its designee, at a price per
share equal to the lesser of (i) the price paid by the Purported Record
Transferee for the shares of Capital Stock in the transaction that
resulted in such transfer to the Trust (or, if the event which resulted
in the transfer to the Trust did not involve a purchase of such shares of
Capital Stock at Market Price, the Market Price of such shares of Capital
Stock on the day of the event which resulted in the transfer of such
shares of Capital Stock to the Trust) or (ii) the Market Price on the
date the Corporation, or its designee, accepts such offer, except in the
case of Capital Stock of a Purported Record Transferee who is a Purported
Record Transferee solely as a result of the Formation Transaction, at a
price per share
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equal to the Market Price of such shares of Capital Stock on the
effective date of the Formation Transaction. The Corporation shall have
the right to accept such offer until the Trustee has sold the shares of
Capital Stock held in the Trust pursuant to subparagraph (A)(3)(d) of
Article VI hereof. Upon such a sale to the Corporation, the interest of
the Charitable Beneficiary in the shares of Capital Stock or Preferred
Stock sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Purported Record Transferee and any dividends
or other distributions held by the Trustee with respect to such Capital
Stock shall thereupon be paid to the Charitable Beneficiary.
(f) By written notice to the Trustee, the Corporation shall designate
one or more nonprofit organizations to be the Charitable Beneficiary of
the interest in the Trust such that the Capital Stock held in the Trust
would not violate the restrictions set forth in subparagraph (A)(2)(a) of
Article VI hereof in the hands of such Charitable Beneficiary. At all
times at least one such Charitable Beneficiary shall be designated by the
Board of Directors.
(4) REMEDIES FOR BREACH. If the Board of Directors, a committee
thereof, or the designees of the Board of Directors, if permitted by the
MGCL, shall at any time determine in good faith that a Transfer or other
event has taken place in violation of subparagraph (A)(2) of this Article VI
or that a Person intends to acquire or has attempted to acquire beneficial
ownership (determined without reference to any rules of attribution),
Beneficial Ownership or Constructive Ownership of any shares of Capital
Stock in violation of subparagraph (A)(2) of this Article VI, the Board of
Directors, a committee thereof, or the designees of the Board of Directors
shall take such action as it or they deem advisable to refuse to give effect
to or to prevent such Transfer or other event including, but not limited to,
causing the Corporation to redeem shares of Capital Stock, refusing to give
effect to such Transfer, or other event on the books of the Corporation or
instituting proceedings to enjoin or rescind such Transfer or other event;
provided, however, any Transfers (or, in the case of events other than a
Transfer, ownership or Constructive Ownership or Beneficial Ownership) in
violation of subparagraph (A)(2)(a) of Article VI hereof, shall
automatically result in the transfer to a Trust as described in subparagraph
(A)(2)(b) of Article VI hereof, and any Transfer in violation of
subparagraph (A)(2)(c) of Article VI hereof shall automatically be void AB
INITIO irrespective of any action (or non-action) by the Board of Directors.
(5) NOTICE OF RESTRICTED TRANSFER. Any Person who acquires or attempts
to acquire shares of Capital Stock in violation of subparagraph (A)(2) of
this Article VI, or any Person who is a Purported Beneficial Transferee such
that an automatic transfer to a Trust results under subparagraph (A)(2)(b)
of Article VI hereof, shall immediately give written notice to the
Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect,
if any, of such Transfer or other event or attempted Transfer or other event
on the Corporation's status as a REIT.
(6) OWNERS REQUIRED TO PROVIDE INFORMATION. From the effective date of
the Formation Transaction and prior to the Restriction Termination Date,
each Person who is a beneficial owner or Beneficial Owner or Constructive
Owner of shares of Capital Stock and each Person (including the stockholder
of record) who is holding shares of Capital Stock for a beneficial owner or
Beneficial Owner or Constructive Owner shall, on demand, provide to the
Corporation a completed questionnaire containing the information regarding
their ownership of such shares, as set forth in the regulations (as in
effect from time to time) of the U.S. Department of Treasury under the Code.
In addition, each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of shares of Capital Stock and each Person (including the
stockholder of record) who is holding shares of Capital Stock for a
beneficial owner or Beneficial Owner or Constructive Owner shall, on demand,
be required to disclose to the Corporation in writing such information as
the Corporation may request in order to determine the effect, if any, of
such stockholder's actual and constructive ownership of shares of Capital
Stock on the Corporation's status as a REIT and to ensure compliance with
the Ownership
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Limit, or such other limit as provided from time to time in these Articles
of Incorporation or as otherwise permitted by the Board of Directors.
(7) REMEDIES NOT LIMITED. Subject to the provisions of subparagraph
(C) of Article VI hereof, nothing contained in this Article VI shall limit
the authority of the Board of Directors to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of
its stockholders by preservation of the Corporation's status as a REIT.
(8) AMBIGUITY. In the case of an ambiguity in the application of any
of the provisions of subparagraph (A) of this Article VI, including any
definition contained in subparagraph (A)(1), the Board of Directors shall
have the power to determine the application of the provisions of this
subparagraph (A) with respect to any situation based on the facts known to
it (subject to the provisions of Article VI (C) hereof) and any such
determination by the Board of Directors shall be final and conclusive for
all purposes. In the event that Article VI hereof requires an action by the
Board of Directors and the Charter fails to provide specific guidance with
respect to such action, the Board of Directors shall have the power to
determine the action to be taken so long as such action is not contrary to
the provisions of Article VI hereof. Absent a decision to the contrary by
the Board of Directors (which the Board may make in its sole and absolute
discretion), if a Person would have (but for the remedies set forth in
subparagraph (A)(2) of Article VI)) acquired Beneficial or Constructive
Ownership of Capital Stock in violation of subparagraph (A)(2)(a) of Article
VI hereof, such remedies (as applicable) shall apply first to the shares of
Capital Stock which, but for such remedies, would have been actually owned
by the Purported Beneficial Owner, and second to shares of Capital Stock
which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by the Purported Beneficial
Owner, pro rata among the Persons who actually attempted to acquire (through
a Transfer or other event) such shares of Capital Stock based upon the
relative value of what would have been the Purported Beneficial Owner's
Beneficial Ownership or Constructive Ownership interest in the shares such
Person attempted to acquire (through a Transfer or other event), third to
other shares that are actually owned by the Purported Beneficial Owner, and
fourth to shares that are actually owned by such other Persons whose
ownership of shares is attributed to the Purported Beneficial Owner, pro
rata among such Persons based upon the relative value of the Purported
Beneficial Owner's Beneficial Ownership or Constructive Ownership interest
in the shares so owned. Without limiting the generality of the foregoing,
the Board of Directors is expressly authorized to enter into one or more
agreements with one or more shareholders of the Company that the provisions
of subparagraph (A) of this Article VI shall apply to such shareholder or
shareholders only if the application of such provisions to one or more other
shareholders would not eliminate the violation of the provisions of
subparagraph (A)(2)(a) of Article VI hereof.
(9) MODIFICATIONS OF OWNERSHIP LIMIT.
(a) The Board of Directors may from time to time increase or decrease
the Ownership Limit as applied to a particular Person, provided, however,
that:
(i) Except as otherwise provided in subparagraph (A)(8) of
Article VI hereof, any decrease may be made only prospectively as to
subsequent holders or, with respect to existing holders, subsequent
Transfers (other than a decrease in such limits as a result of a
retroactive change in existing law, in which case such decrease shall
be effective immediately);
(ii) The Ownership Limit may not be increased if, after giving
effect to such increase, five Persons could Beneficially Own or
Constructively Own, in the aggregate, more than 50.0% in value of the
shares of Capital Stock then outstanding.
(b) Subject to subparagraph (A)(2)(a)(iii) of Article VI hereof, the
Board of Directors, in its sole and absolute discretion, may exempt a
Person from the limitation on a Person's
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Beneficially Owning shares of Capital Stock in violation of subparagraph
(A)(2)(a)(i) of Article VI hereof if the Board of Directors obtains any
representations and undertakings from such Person as are reasonably
necessary in the opinion of the Board of Directors to ascertain that no
individual's Beneficial Ownership of such shares of Capital Stock will
violate subparagraph (A)(2)(a)(i) of Article VI hereof, or that any such
violation will not cause the Corporation to fail to qualify as a REIT
under the Code, and that any violation of such representations or
undertakings (or other action which is contrary to the restrictions
contained in subparagraph (A)(2) of Article VI hereof) or attempted
violation will result in such shares of Capital Stock's being subject to
subparagraph (A)(2)(b) of Article VI hereof, in which case an "other
event" shall be deemed to have occurred within the meaning of
subparagraph (A)(2)(b) of Article VI hereof that causes such Person to
Beneficially or Constructively Own Capital Stock in violation of
subparagraph (A)(2)(a) of Article VI hereof.
(c) Subject to subparagraph (A)(2)(a)(iii) of Article VI hereof, the
Board of Directors, in its sole and absolute discretion, may exempt a
Person from the limitation on a Person's Constructively Owning Capital
Stock in violation of subparagraph (A)(2)(a)(ii) of Article VI hereof, if
the Corporation obtains any representations and undertakings from such
Person as are reasonably necessary in the opinion of the Board of
Directors to ascertain that such Person does not and will not own,
actually or Constructively, an interest in a tenant of the Corporation
(or a tenant of any entity owned in whole or in part by the Corporation)
that would cause the Corporation to own, actually or Constructively, more
than a 9.8% interest (as determined under Section 856(d)(2)(B) of the
Code) in such tenant and that any violation or attempted violation will
result in such shares of Capital Stock's being transferred to a Trust in
accordance with subparagraph (A)(2)(b) of Article VI hereof.
Notwithstanding the foregoing, the inability of a Person to make the
certification described in this subparagraph (A)(9) of Article VI hereof
shall not prevent the Board of Directors, in its sole discretion, from
exempting such Person from the limitation on a Person's Constructively
Owning Capital Stock in violation of subparagraph (A)(2)(a)(ii) of
Article VI hereof if the Board of Directors determines that the resulting
application of Section 856(d)(2)(B) of the Code would affect the
characterization of less than 0.5% of the gross income (as such term is
used in Section 856(c)(2) of the Code) of the Corporation in any taxable
year, after taking into account the effect of this sentence with respect
to all other Capital Stock to which this sentence applies.
(d) Prior to any modification of the Ownership Limit, the Board of
Directors may require a ruling from the Internal Revenue Service, or such
opinions of counsel, affidavits, undertakings or agreements, in any case
in form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to determine
or ensure the Corporation's status as a REIT. Notwithstanding the receipt
or contents of any ruling or opinion, the Board of Directors may impose
such conditions or restrictions as it may deem appropriate in connection
with granting such exception.
(e) An underwriter that participates in a public offering or a
private placement of Capital Stock (or securities convertible into or
exchangeable for Capital Stock) may Beneficially Own or Constructively
Own shares of Capital Stock (or securities convertible into or
exchangeable for Capital Stock) in excess of the Ownership Limit, but
only to the extent necessary to facilitate such public offering or
private placement and provided that the ownership of such shares of
Capital Stock by such underwriter would not result in the Corporation's
being "closely held" within the meaning of Section 856(h) of the Code, or
otherwise result in the Corporation failing to qualify as a REIT.
(B) LEGEND. Each certificate, if any, for Capital Stock or securities
convertible into Capital Stock shall bear substantially the following legend:
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"THE SHARES OF CAPITAL STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER
FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL
ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT
AS EXPRESSLY PROVIDED IN THE ARTICLES OF INCORPORATION FOR THE CAPITAL
STOCK, (i) NO PERSON MAY BENEFICIALLY OWN SHARES OF THE CORPORATION'S
CAPITAL STOCK IN EXCESS OF THE THEN APPLICABLE OWNERSHIP LIMIT WITH
RESPECT TO THE CAPITAL STOCK, WHICH MAY BE INCREASED OR DECREASED FROM
TIME TO TIME BY THE BOARD OF DIRECTORS OF THE CORPORATION AS TO A
PARTICULAR PERSON; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE
CORPORATION'S CAPITAL STOCK IN EXCESS OF THEN APPLICABLE OWNERSHIP LIMIT
WITH RESPECT TO THE CAPITAL STOCK, WHICH MAY BE INCREASED OR DECREASED
FROM TIME TO TIME BY THE BOARD OF DIRECTORS OF THE CORPORATION AS TO A
PARTICULAR PERSON; (iii) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY
OWN SHARES OF THE CORPORATION'S CAPITAL STOCK THAT, TAKING INTO ACCOUNT
ANY OTHER CAPITAL STOCK OF THE CORPORATION BENEFICIALLY OR
CONSTRUCTIVELY OWNED BY SUCH PERSON, WOULD RESULT IN THE CORPORATION'S
BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE
THE CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (iv) NO PERSON MAY
TRANSFER SHARES OF CAPITAL STOCK IF SUCH TRANSFER WOULD RESULT IN THE
CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS.
ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO
BENEFICIALLY OR CONSTRUCTIVELY OWN CAPITAL STOCK WHICH CAUSES OR WILL
CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN CAPITAL STOCK IN
EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION,
OR IN THE EVENT OF A PROPOSED OR ATTEMPTED TRANSFER OR ACQUISITION OR
PURPORTED CHANGE IN THE BENEFICIAL OWNERSHIP OR CONSTRUCTIVE OWNERSHIP,
MUST GIVE WRITTEN NOTICE TO THE CORPORATION OF AT LEAST FIFTEEN (15)
DAYS PRIOR TO THE PROPOSED OR ATTEMPTED TRANSFER, TRANSACTION OR OTHER
EVENT. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED,
THE CAPITAL STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY TRANSFERRED
TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE
BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE
TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE
DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A
TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE.
FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS
IN VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO.
ALL TERMS IN THIS LEGEND WHICH ARE DEFINED IN THE ARTICLES OF
INCORPORATION FOR THE CAPITAL STOCK SHALL HAVE THE MEANINGS ASCRIBED TO
THEM IN SUCH ARTICLES OF INCORPORATION, AS THE SAME MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER
AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF CAPITAL STOCK ON
REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO
THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE."
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(C) AMERICAN STOCK EXCHANGE; OTHER TRADING FACILITIES. Nothing in this
Article VI precludes the settlement of transactions entered into through the
facilities of the American Stock Exchange, or any other national securities
exchange or automated inter-dealer quotation system. The shares of Capital Stock
that are the subject of such transaction shall continue to be subject to the
provisions of this Article VI after such settlement.
(D) SEVERABILITY. If any provision of this Article VI or any application
of any such provision is determined in a final and unappealable judgment to be
void, invalid or unenforceable by any Federal or state court having jurisdiction
over the issue, the validity and enforceability of the remaining provisions
shall not be affected and other applications of such provisions shall be
affected only to the extent necessary to comply with the determination of such
court.
(E) EXCHANGE OF OP UNITS. So long as the Corporation remains the General
Partner of the Operating Partnership, the Board of Directors of the Corporation
is hereby expressly vested with authority (subject to the restrictions on
ownership, transfer and redemption of Capital Stock set forth in this Article
VI) to issue, and shall issue to the extent provided in the Partnership
Agreement, Common Stock in exchange for the units into which partnership
interests of the Operating Partnership are divided (the "OP Units"), and as the
same may be adjusted, as provided in the Partnership Agreement.
VII.
DIRECTORS
(A) POWER; NUMBER. The business and affairs of the Corporation shall be
managed by, or under the direction of, the Directors. The number of Directors of
the Corporation shall be no fewer than three and no greater than thirteen, and
initially shall be eight, which number may be increased or decreased from time
to time by the Bylaws of the Corporation, but shall never be less than the
minimum number required by the MGCL.
(B) The names of the initial Directors are set forth below:
Steven A. Calabrese
Mark D. Grossi
Lawrence B. Helzel
Christopher L. Jarratt
Raymond V. Marino
Richard M. Osborne
Martin S. Roher
Norman S. Geller
(C) TERM. In the event of any decrease in the authorized number of
Directors, each Director then serving as such shall nevertheless continue as a
Director until the expiration of his or her current term, or his or her prior
death, retirement, resignation or removal.
(D) REMOVAL. Any or all of the directors may be removed only for cause and
only if such removal is authorized by the affirmative vote of the holders of
two-thirds of the outstanding shares of stock of the Corporation entitled to
vote thereon, except that when, by the provisions of the Articles of
Incorporation, the holders of shares of Preferred Stock or any series thereof
voting as a class are entitled to elect any one or more directors, the directors
so elected may be removed only by the applicable vote of the holders of the
Preferred Stock or such series voting as a class.
(E) VACANCY. A vacancy which results from the death, resignation or
removal of a Director or as a result of an increase by the Board of Directors in
the number of Directors, may be filled by a vote of a majority of the entire
Board of Directors, and a Director so elected to fill a vacancy shall serve
until the next annual meeting of stockholders and until his successor shall be
duly elected and qualified. At the next annual meeting of stockholders, the
vacancy created by the death, resignation or removal of a Director,
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and the vacancy or vacancies created by an increase in the number of Directors
shall be filled for a term extending until the next annual meeting and until the
Director's successor shall be duly elected and qualified.
(F) WRITTEN BALLOT. The vote required to elect Directors shall be as
provided in the MGCL. Elections of Directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide.
(G) INDEPENDENT DIRECTORS. At least two of the members of the Board of
Directors shall, except during the period of a vacancy or vacancies therein, be
Independent Directors. An "Independent Director" shall mean a person who is not
an officer of the Corporation or any subsidiary of the Corporation, who is not
related to an officer nor represents concentrated or family holdings of the
Corporation's capital stock, and, in the opinion of the Company's Board of
Directors, is free of any relationship that would interfere with the exercise of
independent judgment.
VIII.
PROVISIONS FOR DEFINING, LIMITING AND REGULATING
CERTAIN POWERS OF THE CORPORATION AND
OF THE DIRECTORS AND STOCKHOLDERS
The following provisions are hereby adopted for the purpose of defining,
limiting and regulating the powers of the Corporation and of the Directors and
stockholders:
(A) AUTHORITY OF THE BOARD.
(1) The determination as to any of the following matters, made in good
faith by or pursuant to the direction of the Board of Directors consistent
with these Articles of Incorporation and in absence of actual receipt of an
improper benefit in money, property or services or active and deliberate
dishonesty established by a court, shall be final and conclusive and shall
be binding upon the Corporation and every holder of shares of its stock: the
amount of net income of the Corporation for any period and the amount of
assets at any time legally available for the payment of dividends,
redemption of its stock or the payment of other distributions on its stock;
the amount of annual or other net profits, earnings, paid-in or other
surplus, net assets, net assets in excess of capital, undivided profits or
excess of profits over losses on sales of assets; the amount purpose, time
of creation, increase or decrease, alteration or cancellation of any
reserves or charges and the propriety thereof (whether or not any obligation
or liability for which such reserves or charges shall have been created
shall have been paid or discharged); the fair value, or any sale, bid or
asked price to be applied in determining the fair value, of any asset owned
or held by the Corporation; any matter relating to the acquisition, holding
and disposition of any assets by the Corporation; or any matter relating to
the business and affairs of the Corporation.
(2) The Board of Directors of the Corporation may establish in its
absolute discretion the basis or method for determining the value of the
assets belonging to any class or series, and the net asset value of each
share of stock of each series and class for purposes of sales, redemptions,
repurchases of shares or otherwise and any such determination shall be final
and conclusive and shall be binding upon the Corporation and every holder of
shares of its stock.
(B) REMOVAL OF AN OFFICER OR EMPLOYEE. Unless the Bylaws otherwise
provide, any officer or employee of the Corporation (other than a director) may
be removed at any time with or without cause by the Board of Directors or by any
committee or superior officer upon whom such power of removal may be conferred
by the Bylaws or by authority of the Board of Directors.
(C) STOCKHOLDERS RATIFICATION OF ACTIONS. Any contract, transaction or act
of the Corporation or of the Board of Directors which shall be ratified by a
majority of the aggregate voting power of the shares held by stockholders
representing a quorum at any annual meeting, or at any special meeting called
for
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such purpose, shall so far as permitted by law be as valid and as binding as
though ratified by every stockholder of the Corporation.
(D) ACTIONS BY STOCKHOLDER VOTE. Notwithstanding any provision of law
requiring the affirmative vote of a greater percentage of votes entitled to be
cast on the matter, the affirmative vote of a majority of votes entitled to be
cast on the matter shall be sufficient to approve any of the following actions,
after due authorization, approval or advice of the Board of Directors: (i)
amendment to the Corporation's Articles of Incorporation; (ii) adoption of
articles of merger, consolidation, transfer or share exchange; and (iii)
dissolution of the Corporation; and provided further, that the amendment of
Articles V.C., VII.A, VII.D, VIII.I and VIII.D of these Articles of
Incorporation shall require the affirmative vote of at least seventy percent
(70%) of the outstanding shares of stock of the Corporation entitled to vote
thereon after due authorization, approval or advice of the Board of Directors of
the Corporation.
(E) REIT QUALIFICATION. The Board of Directors shall use its best efforts
to cause the Corporation and its stockholders to maintain qualification for U.S.
federal income tax treatment in accordance with the provisions of the Code
applicable to a REIT. In furtherance of the foregoing, the Board of Directors
shall use its best efforts to take such actions as are necessary, and may take
such actions as it deems desirable (in its sole discretion) to preserve the
status of the Corporation as a REIT; provided, however, that in the event that
the Board of Directors determines, in its sole discretion, that it is no longer
in the best interests of the Corporation to qualify as a REIT, the Board of
Directors may revoke or otherwise terminate the Corporation's REIT election
pursuant to Section 856(g) of the Code.
(F) DIRECTOR AND OFFICER LIABILITY; INDEMNIFICATION OF DIRECTORS AND
OFFICERS.
(1) The Corporation shall indemnify (1) its Directors to the full extent
provided by Maryland law now or hereafter in effect, including the advance
of legal expenses and other reasonable costs under the procedures provided
by such laws; (2) its officers to the same extent it shall indemnify its
Directors; and (3) its officers who are not Directors to such further extent
as shall be authorized by the Board of Directors and be consistent with law.
The Corporation also shall have the power, to full extent provided by
Maryland law now or hereafter in effect, to obligate itself to indemnify,
and to advance legal expenses and reasonable costs to (a) any individual who
is a former Director or officer of the Corporation, and (b) any individual
who, while a Director of the Corporation and at the request of the
Corporation, serves or has served as a Director, officer, partner or trustee
of another corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise from and
against any claim or liability to which such person may become subject or
which such person may incur by reason of his status with the Corporation.
The foregoing shall not limit the authority of the Corporation to indemnify
other employees and agents consistent with law. Any indemnification by the
Corporation shall be consistent with the requirements of law. The foregoing
shall not be exclusive of any other rights to which a person seeking
indemnification may be entitled under any insurance policy, agreement or
otherwise and shall inure to the benefit of the heirs, executors and
personal representatives of such person.
(2) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no Director or officer of this Corporation
shall be personally liable to the Corporation or its stockholders for money
damages. Neither the amendment or repeal of this subparagraph, nor the
adoption or amendment of any other provision of the Articles of
Incorporation or Bylaws inconsistent with this subparagraph, shall apply to
or affect in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such amendment,
repeal or adoption.
(3) The Directors may take such action as is necessary to carry out the
preceding indemnification and limitation of liability provisions and are
expressly empowered to adopt, approve and amend from time to time the
Bylaws, resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law. No
amendment of the Articles of
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Incorporation of the Corporation or repeal of any of its provisions shall
limit or eliminate the benefits provided to Directors and officers under
this and the two preceding paragraphs with respect to any act or omission
which occurred prior to such amendment or repeal, or shall limit or
eliminate the rights granted under indemnification agreements entered into
by the Corporation and its directors, officers, agents and employees.
(G) INTERESTED DIRECTOR TRANSACTIONS. Without limiting any other
procedures available by law or otherwise to the Corporation, the Board of
Directors may authorize any agreement or other transaction with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization, although one or more of the directors or officers of the
Corporation may be a party to any such agreement or an officer, director,
stockholder or member of such other party, and no such agreement or transaction
shall be invalidated or rendered void or voidable solely by reason of the
existence of any such relationship if: (1) the existence is disclosed or known
to (a) the Board of Directors, and the contract or transaction is approved by
the affirmative vote of a majority of the disinterested directors, even if they
constitute less than a quorum of the Board; or (b) the stockholders entitled to
vote, and the contract or transaction is authorized, approved or ratified by a
majority of the votes cast by the stockholders entitled to vote other than the
votes of shares owned of record or beneficially by the interested director or
corporation, firm or other entity, or (2) the contract or transaction is fair
and reasonable to the Corporation. Any interested directors or the stock owned
by them or by an interested corporation, firm, or other entity may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
at a meeting of the stockholders at which the contract or transaction is
authorized, approved or ratified.
(H) AMENDMENTS TO THE ARTICLES OF INCORPORATION. The Corporation reserves
the right from time to time to make any amendments of its Articles of
Incorporation which may now or hereafter be authorized by law and subject to any
requirements of these Articles of Incorporation, including any amendment
changing the terms or contract rights, as expressly set forth in its Articles of
Incorporation, of any of its outstanding stock by classification,
reclassification or otherwise; provided, however, that neither repeal nor
amendment of, nor adoption of any provision inconsistent with, Article VIII.F
shall adversely affect the rights of any person entitled to indemnification or
advancement of expenses under Article VIII.F or the Bylaws of the Corporation
with respect to any act or omission to act which occurred prior to such repeal,
amendment or adoption.
(I) AMENDMENT TO THE BYLAWS. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
(J) MISCELLANEOUS.
(1) The Board of Directors may authorize, subject to such approval of
stockholders and other conditions, if any, as may be required by applicable
statute, bylaw, rule or regulation, the execution and performance by the
Corporation of one or more agreements with any person, corporation,
association, company, trust, partnership (limited or general) or other
organization whereby, subject to the supervision and control of the Board of
Directors, any such other person, corporation, association, company, trust,
partnership (limited or general) or other organization (including, without
limitation, any affiliate of the Corporation and/or its directors) shall
render or make available to the Corporation managerial, investment, advisory
and/or related services, office space and other services and facilities
(including the management or supervision of the investments of the
Corporation) under such terms and conditions as may be provided in such
agreement or agreements (including the compensation payable thereunder by
the Corporation).
(2) In addition to the powers and authority hereinbefore, hereinafter or
by statute expressly conferred upon them, the Board of Directors may
exercise all such powers and do all such acts and
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things as may be exercised or done by the Corporation, subject,
nevertheless, to the express provisions of the MGCL, and the Articles of
Incorporation and Bylaws of the Corporation.
(3) The enumeration and definition of particular powers of the Board of
Directors included in the foregoing shall in no way be limited or restricted
by reference to or inference from the terms of any other clause of this or
any other Article of the Corporation's Articles of Incorporation or
construed as or deemed by inference or otherwise in any manner to exclude or
limit any powers conferred upon the Board of Directors under the MGCL.
IX.
DURATION OF THE CORPORATION
The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of Incorporation,
acknowledging the same to be my act, on .
- --------------------------------------------
[Incorporator]
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EXHIBIT C
BYLAWS
OF
PACIFIC GATEWAY PROPERTIES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I OFFICES.......................................................................................... 1
Section 1 Registered Office............................................................................. 1
Section 2 Other Offices................................................................................. 1
ARTICLE II STOCKHOLDERS.................................................................................... 1
Section 1 Place of Meetings............................................................................. 1
Section 2 Annual Meetings............................................................................... 1
Section 3 Special Meetings.............................................................................. 1
Section 4 Notice of Meetings; Waiver of Notice.......................................................... 1
Section 5 Conduct of Meetings; Quorum; Adjournment...................................................... 2
Section 6 Voting Rights; Proxies........................................................................ 2
Section 7 List of Stockholders.......................................................................... 3
Section 8 Action Without Meeting........................................................................ 3
Section 9 Stockholder Proposals......................................................................... 3
Section 10 Inspector of Election........................................................................ 4
ARTICLE III DIRECTORS...................................................................................... 4
Section 1 Number and Term of Office..................................................................... 4
Section 2 Powers........................................................................................ 4
Section 3 Vacancies..................................................................................... 4
Section 4 Resignations and Removals..................................................................... 4
Section 5 Meetings...................................................................................... 4
Section 2 Quorum and Voting............................................................................. 5
Section 7 Action Without Meeting........................................................................ 5
Section 8 Fees and Compensation......................................................................... 5
ARTICLE IV COMMITTEES...................................................................................... 6
Section 1 General....................................................................................... 6
Section 2 Term.......................................................................................... 6
Section 3 Meetings...................................................................................... 6
ARTICLE V OFFICERS......................................................................................... 6
Section 1 Officers Designated........................................................................... 6
Section 2 Tenure and Duties of Officers................................................................. 7
(a) General............................................................................................ 7
(b) Duties of the Chairman of the Board of Directors................................................... 7
(c) Duties of the President............................................................................ 7
(d) Duties of the Vice-Presidents...................................................................... 7
(e) Duties of the Treasurer............................................................................ 7
(f) Duties of the Secretary............................................................................ 7
(g) Duties of other officers........................................................................... 8
Section 3 Bonds......................................................................................... 8
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION........... 8
Section 1 Execution of Corporate Instruments............................................................ 8
Section 2 Transfer of Securities Owned by the Corporation............................................... 8
Section 3 Voting of Securities Owned by the Corporation................................................. 8
ARTICLE VII SHARES OF STOCK................................................................................ 8
Section 1 Form and Execution of Certificates............................................................ 8
Section 2 Lost, Stolen or Destroyed Certificates........................................................ 9
Section 3 Transfers..................................................................................... 9
Section 4 Transfer Agents, Registrars and Dividend Disbursing Agents.................................... 9
Section 5 Fixing Record Dates........................................................................... 10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Section 6 Registered Stockholders....................................................................... 10
Section 7 Stock Ledger.................................................................................. 10
Section 8 Fractional Stock.............................................................................. 10
Section 9 Protection of the Corporation................................................................. 10
ARTICLE VIII INDEMNIFICATION............................................................................... 10
Section 1 Indemnification of Authorized Representatives in Third Party Proceedings...................... 10
Section 2 Indemnification of Authorized Representatives in Corporate Proceedings........................ 11
Section 3 Mandatory Indemnification of Authorized Representatives....................................... 11
Section 4 Determination of Entitlement to Indemnification............................................... 11
Section 5 Advancing Expenses............................................................................ 11
Section 6 Employee Benefit Plans........................................................................ 11
Section 7 Scope of Article.............................................................................. 11
Section 8 Reliance on Provisions........................................................................ 12
Section 9 Insurance..................................................................................... 12
Section 10 Survival of Rights........................................................................... 12
Section 11 Effect of Amendment.......................................................................... 12
Section 12 Notice to Stockholders....................................................................... 12
ARTICLE IX MISCELLANEOUS................................................................................... 12
Section 1 Notices....................................................................................... 12
Section 2 Amendments.................................................................................... 13
Section 3 Execution of Papers........................................................................... 13
Section 4 Fiscal Year................................................................................... 13
Section 5 Corporate Records............................................................................. 13
Section 6 Corporate Seal................................................................................ 13
Section 7 Consistency with Articles of Incorporation.................................................... 13
</TABLE>
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ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of the Corporation in
the State of Maryland shall be 300 East Lombard Street, Suite 1400, Baltimore,
Maryland 21202.
Section 2. OTHER OFFICES. The Corporation shall also have and maintain an
executive office or principal place of business at such place, within or without
the State of Maryland, and such other offices, as the Board of Directors may
from time to time determine or the business of the Corporation may from time to
time require.
ARTICLE II
STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of the stockholders of the
Corporation shall be held at such place, either within or without the State of
Maryland, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the principal office of the Corporation.
Section 2. ANNUAL MEETINGS. The annual meetings of the stockholders of the
Corporation for the purpose of election of directors and for the transaction of
such other business as may lawfully come before it. The annual meetings shall be
held at ten o'clock in the forenoon on the first Tuesday in May of each year, or
on such other date within thirty (30) days thereafter as designated by the Board
of Directors. If that day be a Saturday, Sunday or legal holiday at the place
where the meeting is to be held, the meeting shall be held on the next
succeeding day not a Saturday, Sunday or legal holiday at such place and hour.
Except as the Charter of the Corporation, as the same may be amended or restated
from time to time (the "Charter"), or statute provides otherwise, any business
may be considered at an annual meeting without the purpose of the meeting having
been specified in the notice. Failure to hold an annual meeting does not
invalidate the Corporation's existence or affect any otherwise valid corporate
acts.
Section 3. SPECIAL MEETINGS. At any time in the interval between annual
meetings, a special meeting of the stockholders may be called by the Chairman of
the Board or the President or by a majority of the Board of Directors by vote at
a meeting or in writing (addressed to the Secretary of the Corporation) with or
without a meeting. Special meetings of the stockholders shall be called by the
Secretary on the written request of stockholders entitled to cast not less than
a majority of all the votes entitled to be cast at such meeting. A request for a
special meeting shall state the purpose of the meeting and the matters proposed
to be acted on at such meeting. The Secretary shall inform the stockholders who
make the request of the reasonable estimated costs of preparing and mailing a
notice of the meeting and, on payment of these costs to the Corporation, notify
each stockholder entitled to notice of the meeting. Unless requested by
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting, a special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special meeting of
stockholders held in the preceding 12 months. Notwithstanding the foregoing,
whenever holders of one or more classes or series of Preferred Stock shall have
the right, voting separately as a class or series, to elect directors, such
holders may call special meetings of such holders pursuant to the terms of such
classes or series.
Section 4. NOTICE OF MEETINGS; WAIVER OF NOTICE. Written notice, stating
the place, day and hour of the meeting and, in the case of a special meeting or
if notice of the purpose is required by statute, the purpose or purposes for
which the meeting is called, shall be prepared and delivered by the Secretary of
the Corporation, not less than ten (10) days nor more than ninety (90) days
before the date of the meeting, personally, by mail, or by leaving it at his
residence or usual place of business, to each stockholder of record entitled to
vote at such meeting and to each other stockholder or other person, if any,
entitled to notice of the meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid,
addressed to the stockholder at his or her address as it appears
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on the records of the Corporation. Notwithstanding the foregoing provisions,
each person who is entitled to notice waives notice if he or she before or after
the meeting signs a waiver of the notice which is filed with the records of
stockholders' meetings, or is present at the meeting in person or by proxy,
except that where a person attends a meeting for the express purpose of
objecting to the transaction or any business because the meeting was not
lawfully called to convene.
Section 5. CONDUCT OF MEETINGS; QUORUM; ADJOURNMENT. (a) The Chairman or,
in his absence, the President, shall preside at any stockholders' meeting. The
Secretary of the Corporation, or, in his absence or by his designation, an
Assistant Secretary, or, in the absence of both, a person appointed by the
chairman of the meeting, which person need not be an officer of the Corporation,
shall act as secretary of the meeting and shall make and keep a record of the
proceedings thereat. Meetings of stockholders shall generally follow reasonable
and fair procedure. Subject to any specific provisions of law, the Charter or
these Bylaws, and unless otherwise determined by the Board of Directors prior to
the meeting, the chairman of the meeting shall determine the order of business
and shall have the authority in his discretion to regulate the conduct of the
meeting and determine the procedure and rules for the meeting, including: (i)
asking or requiring that anyone not a bona fide stockholder or proxy leave the
meeting; (ii) proposing any motion for vote; and (iii) imposing any reasonable
limits with respect to participation in the meeting by stockholders, including,
but not limited to, determining when the polls for the taking of any stockholder
vote at the meeting shall be closed, limiting the amount of time at the meeting
taken up by the remarks or questions of any stockholder, limiting the number of
questions per stockholder, and limiting the subject matter and timing of
questions and remarks by stockholders.
(b) At all meetings of stockholders the presence, in person or by proxy, of
the holders of a majority of the voting power of the outstanding shares of stock
entitled to vote shall constitute a quorum for the transaction of business,
except as otherwise provided by statute, the Charter or these Bylaws.
(c) Whether or not a quorum is present, any meeting of stockholders convened
on the date for which it was called may be adjourned, from time to time, by (a)
the Chairman of the meeting, (b) the Board of Directors (c) a vote of the
holders of a majority of the voting power of the shares represented thereat, in
each case to a date not more than 120 days after the original record date. At
such adjourned meeting at which a quorum is present or represented any business
may be transacted which might have been transacted at the original meeting. The
stockholders present at a duly called or convened meeting, at which a quorum is
present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
Section 6. VOTING RIGHTS; PROXIES. (a) Except as otherwise provided by
law, only the stockholder of record on the stock records of the Corporation on
the record date for determining the stockholders entitled to vote at a meeting
shall be entitled to vote in person or by proxy at such meeting. Shares standing
in the names of two or more persons shall be voted or represented in accordance
with the determination of the majority of such persons, or, if only one of such
persons is present in person or represented by proxy, such person shall have the
right to vote such shares and such shares shall be deemed to be represented for
the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents or dissents shall have
the right to do so either in person or by an agent or agents authorized by a
written proxy executed by such person or his duly authorized agent, which proxy
shall be filed with the Secretary of the Corporation at or before the meeting at
which it is to be used. Any proxy so appointed need not be a stockholder. No
proxy shall be voted after eleven months from its date unless the proxy
expressly provides for a longer period. Every proxy is revocable at the pleasure
of the stockholder executing it, except as otherwise provided by law.
(c) Each stockholder of record shall be entitled to the number of votes for
each share of stock held by him or her as is specified in the Charter.
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(d) Except as otherwise provided by law, the Charter or these Bylaws, all
action taken by the holders of a majority of the votes cast at any meeting at
which a quorum is present shall be valid and binding upon the Corporation.
(e) A plurality of all the votes cast at a meeting of the stockholders duly
called and at which a quorum is present shall be sufficient to elect a director.
Each share may be voted for as many individuals as there are directors to be
elected and for whose election the share is entitled to be voted.
Section 7. LIST OF STOCKHOLDERS. At each meeting of stockholders, a full,
true and complete list of all stockholders entitled to vote at such meeting,
showing the number and class of shares held by each and certified by the
transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
Section 8. ACTION WITHOUT MEETING. Unless otherwise provided in the
Charter, any action required by statute to be taken at any annual or special
meeting of stockholders of the Corporation, or any action which may be taken at
any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, are signed by the holders of all the
outstanding stock entitled to vote on the matter and a written waiver of the
right to dissent is signed by each stockholder entitled to notice of the meeting
but not entitled to vote at the meeting. To be effective, a written consent must
be delivered to the Corporation by delivery to its registered office in
Maryland, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder who
signs the consent.
Section 9. STOCKHOLDER PROPOSALS. For any stockholder proposal to be
presented in connection with an annual meeting of stockholders of the
Corporation, including any proposal relating to the nomination of a director to
be elected to the Board of Directors of the Corporation, the stockholders must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation at least seventy-five (75) days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in order to be timely, a stockholder's notice of business to be
brought before any annual meeting or special meeting of stockholders must in any
event be received not later than the close of business on the 15th day following
the day on which notice of the date of the annual meeting or any special meeting
is mailed or public disclosure of such date is made, whichever first occurs.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of stock of the Corporation which
are owned beneficially and of record by such stockholders and such beneficial
owner.
Notwithstanding anything in these Bylaws to the contrary, nothing in this
Article II.9 shall be deemed to preclude discussion by any stockholder as to any
business properly brought before any meeting. The Chairman of the Board of the
Corporation shall, if the facts warrant, determine and declare at any meeting of
the stockholders that business was not properly brought before the meeting, and
if he should so
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determine, he shall so declare to the meeting, and any such business not
properly brought before the meeting shall not be transacted or considered.
Section 10. INSPECTOR OF ELECTION. The Board of Directors in advance of
any meeting of stockholders may appoint one or more inspectors to act at the
meeting or any adjournment thereof. If inspectors are not so appointed, the
person presiding at a meeting of stockholders may, and on the request of any
stockholder entitled to vote thereat shall appoint one or more inspectors. In
case any person appointed as inspector fails to appear or act, the vacancy may
be filled by the Board of Directors in advance of the meeting or at the meeting
by the person presiding thereat. Each inspector, before entering upon the
discharge of his duties shall take and sign an oath to faithfully execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability.
ARTICLE III
DIRECTORS
Section 1. NUMBER AND TERM OF OFFICE. The number of directors which shall
constitute the whole of the Board of Directors shall be established by
resolution adopted by an affirmative vote of a majority of the entire Board of
Directors from time to time but shall not be less than three (3), nor more than
eleven (11) and shall initially be eight. With the exception of the first Board
of Directors, which shall be set forth in the Charter, and except as provided in
the Charter and in Section 3 of this Article III, each director shall be elected
by the vote of a plurality of the voting power of the shares represented in
person or by proxy, at the stockholders' annual meeting in each year and
entitled to vote on the election of directors. Duly elected directors will hold
office until the next annual meeting of stockholders and until their successors
are elected and qualify. Directors need not be stockholders of the Corporation
nor residents of the State of Maryland. No reduction in the number of directors
shall of itself have the effect of shortening the term of any incumbent
director. The Board of Directors shall include at least two Independent
Directors, as defined in the Charter.
Section 2. POWERS. The business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors,
except as conferred on or reserved to the stockholders by statute or by the
Charter or Bylaws.
Section 3. VACANCIES. Any vacancy on the Board of Directors, however
occurring, may be filled by (1) a majority vote of the stockholders entitled to
vote or (2) a majority vote of the entire Board of Directors.
Section 4. RESIGNATIONS AND REMOVALS. (a) Any director may resign at any
time by delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time or upon receipt by the
Secretary. If no such specification is made it shall be deemed effective upon
receipt.
(b) At any meeting of stockholders, the Board of Directors or any individual
director may be removed from office only with cause and only by the affirmative
vote of two-thirds of the aggregate voting power of the outstanding shares of
stock of the Corporation, except that when the holders of shares of Preferred
Stock or any series thereof voting as a class are entitled to elect any one or
more directors, the directors so elected may be removed only by the applicable
vote of the holders of the Preferred Stock or such series voting as a class.
Section 5. MEETINGS. (a) The annual meeting of the Board of Directors
shall be held as soon as is practicable after the stockholders' annual meeting
and no notice to the newly elected directors of such meeting shall be necessary
for such meeting to be lawful, provided a quorum is present.
(b) Regular meetings of the Board of Directors may also be held at any place
within or without the State of Maryland which has been designated in advance by
resolutions of the Board of Directors or the
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written consent of all directors. After the place and time of regular meetings
of the Board of Directors shall have been determined and notice thereof shall
have been once given to each member of the Board of Directors, regular meetings
at such place and time may be held without further notice being given.
(c) Special meetings of the Board of Directors may be held at any time and
place within or without the State of Maryland whenever called by the Chairman of
the Board or a majority of the directors upon proper notice as provided for in
paragraph (d) of this section. Unless otherwise indicated in the notice thereof,
any and all business may be transacted at the special meeting.
(d) Written notice of the time and place of all special meetings of the
Board of Directors shall be delivered personally to each director or sent by
telegram or facsimile, telephonically confirmed, at least 48 hours before the
start of the meeting, or sent by first class mail at least 120 hours before the
start of the meeting. Notice of any meeting may be waived in writing at any time
before or after the meeting and will be waived by any director by attendance
thereat, unless such director provides the Chairman with a written protest prior
to the taking of any action at the meeting.
(e) The Chairman of the Board, or any director designated by the Chairman of
the Board, shall preside at any meeting thereof. In the event that the Chairman
of the Board or his or her designee shall not be present at any such meeting,
then the directors present, by majority vote, may choose from among themselves a
director to preside at such meeting.
Section 6. QUORUM AND VOTING. (a) A quorum of the Board of Directors shall
consist of a majority of the number of directors comprising the entire Board,
but not less than one; provided, however, at any meeting whether a quorum be
present or otherwise, a majority of the directors present may adjourn from time
to time until the time fixed for the next regular meeting of the Board of
Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all questions
and business shall be determined by a vote of a majority of the number of
directors present, unless a different vote be required by law, the Charter or
these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof may
participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
(d) The transaction of any business at a meeting of the Board of Directors,
or any committee thereof however called or noticed, or wherever held, shall be
as valid as though conducted at a meeting duly held after regular call and
notice, if a quorum be present and if either before or after the meeting, each
of the directors not present shall sign a written waiver of notice, or a consent
to holding such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of the meeting.
Section 7. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Charter or these Bylaws, any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the Board or of such committee, as the case
may be, consent thereto in writing, and such writing or writings are filed with
the minutes of proceedings of the Board or committee.
Section 8. FEES AND COMPENSATION. Directors may receive reasonable
compensation, as set from time to time by the Board of Directors, for their
services as directors and may be allowed a fee for attendance at each meeting
and at each meeting of any committee of the Board of Directors. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity as an officer, agent, employee or otherwise,
and receiving compensation therefor. Directors shall be reimbursed for all
reasonable out-of- pocket expenses incurred in attending meetings of the Board
of Directors or any committee thereof.
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ARTICLE IV
COMMITTEES
Section 1. GENERAL. The Board of Directors may, by resolution passed by a
majority of the whole Board, from time to time appoint such standing or ad hoc
committees of the Board of Directors or other committees, which may or may not
be comprised exclusively of directors, as may be permitted by law. The Board of
Directors may abolish any committee at any time. The Board of Directors shall
have an Audit Committee, and at least a majority of the members of the Audit
Committee shall be "Independent Directors," as defined in the Charter. Such
committees appointed by the Board of Directors shall have such powers and
perform such duties as may be prescribed by the resolution or resolutions
creating such committee, but in no event shall any such committee have the power
or authority to amend these Bylaws or otherwise take action not delegable to a
committee under applicable law.
Section 2. TERM. The members of all committees of the Board of Directors
shall continue as such for as long as they remain directors of the Corporation
unless removed or unless they resign from such committee. The members of all
other committees shall remain as such for so long as they remain directors or
officers of the Corporation unless removed or unless they resign from such
committee. The Board of Directors may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee;
provided, that no committee shall consist of less than one member. The
membership of a committee member shall terminate on the date of his or her death
or voluntary resignation, but the Board may at any time, with or without cause,
remove any individual committee member and the Board may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee.
Section 3. MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of any committee of the Board of Directors or any
other committee appointed pursuant to this Article IV shall be held at such
times and places as are determined by the Board of Directors, or by any such
committee, and when notice thereof has been given to each member of such
committee, no further notice of such regular meetings need be given thereafter.
Special meetings of any such committee may be held at the principal office of
the Corporation, or at any place which has been designated from time to time by
resolution of such committee or by written consent of all members thereof and
may be called by any member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given in
the manner provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors.
Notice of any special meeting of any committee may be waived in writing at any
time after the meeting and will be waived by any member by attendance thereat,
unless such member provides the chairman of the committee with a written protest
prior to the taking of any action at the meeting. A majority of the authorized
number of members of any such committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee. Such
committee shall maintain minutes of all meetings and report to the Board of
Directors.
ARTICLE V
OFFICERS
Section 1. OFFICERS DESIGNATED. The officers of the corporation shall be a
Chairman of the Board of Directors, a President, one or more Vice Presidents, a
Secretary, a Treasurer and such other officers as the directors from time to
time may in their discretion elect or appoint. The Board of Directors may assign
such additional titles to one or more of the officers as they shall deem
appropriate. Any one person may hold any number of offices of the Corporation at
any one time unless specifically prohibited therefrom by law. The salaries and
other compensation of the officers of the Corporation shall be fixed by or in
the manner designated by the Board of Directors.
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Section 2. TENURE AND DUTIES OF OFFICERS. (a) GENERAL: All officers shall
hold office at the pleasure of the Board of Directors and until their successors
shall have been duly elected and qualified or until earlier removal or
resignation. Subject to the specific provisions of these Bylaws, all officers,
as between themselves and the Corporation, shall respectively have such
authority and perform such duties as are customarily incident to their
respective offices, and as may be specified from time to time by the Board of
Directors, regardless of whether such authority and duties are customarily
incident to such office. In the absence of any officer of the Corporation, or
for any other reason the Board of Directors may deem sufficient, the Board of
Directors may delegate from time to time the powers or duties of such officer,
or any of them, to any other officer or to any Director. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors with or without cause. If the office of any officer becomes vacant for
any reason, the vacancy may be filled by the Board of Directors. Nothing in
these Bylaws shall be construed as creating any kind of contractual right to
employment with the Corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of the
Board of Directors shall be authorized to preside at all meetings of the
Corporation's stockholders and the Board of Directors. The Chairman of the Board
of Directors shall perform such other duties and have such other powers as the
Board of Directors shall designate from time to time.
(c) DUTIES OF THE PRESIDENT: The President shall be the chief executive
officer of the Corporation. The President shall preside at meetings of
stockholders in the event the Chairman of the Board is absent or chooses not to
preside at such meetings. Subject to the direction of the directors, the
President shall have general charge of the property and business of the
Corporation and of all its operations and shall direct and supervise the
administration of the business and affairs of the Corporation, shall employ and
remove at pleasure and fix the duties and compensation of managers, agents,
salesmen, clerks, workmen and other subordinate employees of the Corporation,
and shall have such other duties and powers as shall be prescribed from time to
time by the directors.
(d) DUTIES OF THE VICE-PRESIDENTS. The Vice-Presidents shall have such
duties and powers as shall be prescribed for them respectively from time to time
by the directors or by the President. The directors or the President may from
time to time designate one or more Vice-Presidents as Executive Vice-President,
Financial Vice-President, Administrative Vice-President, Senior Vice-President,
or otherwise, or may otherwise fix or indicate the order of their rank, and, in
their or his discretion, may from time to time change or revoke any such
designation. One or more Vice-Presidents may be designated by the Board of
Directors to perform all or part of the duties of the President or Chairman of
the Board in the event of the death or disability of the President or Chairman
of the Board.
(e) DUTIES OF THE TREASURER. The Treasurer shall, subject to the direction
and under the supervision of the Board of Directors, have general charge of the
financial concerns of the Corporation and of its funds and valuable papers, and
shall have such other duties and powers as may be prescribed from time to time
by the Board of Directors or the President. The Treasurer shall report to the
Board of Directors but in the ordinary conduct of the Corporation's business
shall be under the supervision of the President or such other officer as the
Board of Directors from time to time may determine.
(f) DUTIES OF THE SECRETARY. The Secretary shall keep the minutes of all
meetings of the stockholders and of the Board of Directors and committees
thereof, in books provided for that purpose. He shall give, or cause to be
given, all notices required by law or by these Bylaws. He shall be custodian of
the records and of the seal or seals of the Corporation. He shall, when
authorized by the Board of Directors or the President, affix the seal of the
Corporation to all documents requiring it, and he may attest the same. In
general, he shall perform all duties incident to the office of a secretary of a
corporation, and such other duties as from time to time may be assigned to him
by the Board of Directors.
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(g) DUTIES OF OTHER OFFICERS: The Assistant Vice Presidents, Assistant
Secretaries, Assistant Treasurers, if any, and any other subordinate officers
shall be appointed and removed by the President or the Board of Directors at
whose pleasure each shall serve and shall have such powers and duties as they
may prescribe.
Section 3. BONDS. If required by the Board of Directors, any and every
officer or agent shall give the Corporation a bond in a sum and with one or more
sureties satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 1. EXECUTION OF CORPORATE INSTRUMENTS. (a) The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute any corporate instrument or
document, or to sign the corporate name without limitation, except where
otherwise provided by law, and such execution or signature shall be binding upon
the Corporation.
(b) Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, formal contracts of the Corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
Corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the Corporation,
shall be executed, signed or endorsed by the Chairman of the Board or by the
President. Such documents may also be executed by the Secretary or Treasurer or
any assistant secretary or assistant treasurer. All other instruments and
documents requiring the corporate signature, but not requiring the corporate
seal, may be executed as aforesaid or in such other manner as may be directed by
the Board of Directors.
(c) All checks and drafts drawn on banks or other depositories on funds to
the credit of the Corporation, or in special accounts of the Corporation, shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
Section 2. TRANSFER OF SECURITIES OWNED BY THE CORPORATION. All
endorsements, assignments, transfers, share powers or other instruments of
transfer of securities standing in the name of the Corporation shall be executed
for and in the name of the Corporation by the President or by any Vice
President, or by the Secretary or Treasurer or by any additional person or
Persons as may be thereunto authorized by the Board of Directors.
Section 3. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the Corporation for
itself or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors or, in the absence of such authorization,
by the Chairman of the Board or by the President.
ARTICLE VII
SHARES OF STOCK
Section 1. FORM AND EXECUTION OF CERTIFICATES. (a) The Board of Directors,
as provided in the Charter, may determine to issue certificated or
uncertificated shares of stock and other securities issued by the Corporation.
(b) Each stockholder who has fully paid for any certificated shares of the
Corporation shall be entitled to a certificate or certificates which shall
represent and certify the number of shares of each class
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of stock held by him or her in the Corporation. It shall be in such form, not
inconsistent with law or with the Charter, as shall be approved by the Board of
Directors or any officer or officers designated for such purpose by resolution
of the Board of Directors. Each stock certificate shall include on its face the
name of the Corporation, the name of the stockholder or other person to whom it
is issued, the number and class (and series, if any) of the shares it
represents, a full statement or summary of the designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the stock
of each class which the Corporation is authorized to issue, the differences in
the relative rights and preferences between the shares of each series to the
extent they have been set, and the authority of the Board to set relative rights
and preferences of subsequent series. In lieu of such statement or summary, the
Corporation may set forth upon the face or back of the certificate a statement
that the Corporation will furnish to any stockholder, upon request and without
charge, a full statement of such information. Each certificate shall be signed
by the Chairman of the Board, the President or a Vice President and
countersigned by the Secretary or an assistant secretary or the Treasurer or an
assistant treasurer and may be sealed with the actual corporate seal or a
facsimile of it or in any other form. The signatures may be either manual or
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, the certificate shall be deemed to have been issued with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Each certificate representing shares which are subject to restrictions on
transfer or other restrictions shall have a full statement of such restriction
plainly stated on the certificate. In lieu of such statement, the Corporation
may set forth upon the face or back of the certificate a statement that the
Corporation will furnish to any stockholder, upon request and without charge, a
full statement of such information.
(c) If the Corporation issues uncertificated shares, the Corporation shall,
at the time of issue of transfer of such shares without certificates, send the
stockholder a written statement of the information required on the certificates
by law as described in paragraph (b) of this section.
Section 2. LOST, STOLEN OR DESTROYED CERTIFICATES. In the case of the
alleged loss or destruction or the mutilation of a certificate of stock, a
duplicate certificate may be issued in place thereof, upon such terms as the
Board of Directors may prescribe, including requiring the owner of such lost,
stolen or destroyed certificate or certificates, or his legal representatives,
to attest the same in such manner as it shall require and to indemnify the
Corporation, its directors, officers, employees, agents and representatives, and
in connection therewith to give the Corporation a bond in such sum and
containing such terms as the Board of Directors or such executive officer may
direct, against any claim that may be made against the Corporation with respect
to the certificate or certificates alleged to have been lost, stolen or
destroyed or the issuance of the new certificate.
Section 3. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. The Corporation
shall be entitled to treat the holder of record of any share of stock as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Maryland. Notwithstanding the
foregoing, transfers of shares of any class of stock will be subject in all
respects to the Charter of the Corporation and all of the terms and conditions
contained therein.
Section 4. TRANSFER AGENTS, REGISTRARS AND DIVIDEND DISBURSING AGENTS. The
Board of Directors may from time to time by resolution appoint one or more
incorporated transfer agents and registrars (which may or may not be the same
corporation) for the shares of the Corporation, and the Board of Directors from
time to time by resolutions may appoint a dividend disbursing agent to disburse
any and all dividends authorized by the Board of Directors payable upon the
shares of the Corporation.
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Section 5. FIXING RECORD DATES. In order that the Corporation may
determine the stockholders entitled (i) to notice of or to vote at any meeting
of stockholders or any adjournment thereof, (ii) to receive payment of any
dividend or other distribution or allotment of any rights or (iii) to exercise
any rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors, in advance, may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than ninety (90) nor less than ten (10) days
before the date of such meeting nor more than ninety (90) days prior to the date
of any other action. If no record date is fixed by the Board of Directors, the
record date for determining stockholders will be determined in accordance with
applicable law.
Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof except as otherwise provided by
law.
Section 7. STOCK LEDGER. The Corporation shall maintain at its principal
office or at the office of its counsel, accountants or transfer agent, an
original or duplicate stock ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder. The
stock ledger may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection.
Section 8. FRACTIONAL STOCK. The Corporation shall not issue fractional
shares of stock, but may issue in registered or bearer form which entitle the
holder to receive a certificate for a full share upon surrender of such scrip
aggregating a full share, the terms and conditions and manner of issue of such
scrip to be fixed by the Board of Directors.
Section 9. PROTECTION OF THE CORPORATION. The Corporation may treat a
fiduciary as having capacity and authority to exercise all rights of ownership
in respect of shares of record in the name of the decedent holder, person, firm
or corporation in conservation, receivership or bankruptcy, minor, incompetent
person, or person under disability, as the case may be, for whom he is acting,
or a fiduciary acting as such, and the Corporation, its transfer agent and
registrar, upon presentation of evidence of appointment of such fiduciary shall
be under no duty to inquire as to the powers of such fiduciary and shall not be
liable to any firm, person or corporation for loss caused by any act done or
omitted to be done by the Corporation or its transfer agent or registrar in
reliance thereon.
ARTICLE VIII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN THIRD-PARTY
PROCEEDINGS. The Corporation shall indemnify any person who was or is an
"authorized representative" of the Corporation (which shall mean for purposes of
this Article a director or officer of the Corporation, or a person serving at
the request of the Corporation as a director, officer, employee, agent or
trustee, of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans) and who was or is a "party" (which
shall include, for purposes of this Article, the giving of testimony or similar
involvement) or is threatened to be made a party to any "third-party proceeding"
(which shall mean for purposes of this Article any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative, other than an action by or in the right of the Corporation) by
reason of the fact that such person was or is an authorized representative of
the Corporation, from and against expenses (which shall include, for purposes of
this Article, attorneys' fees), judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such third-party
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proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal third-party proceedings (which
could or does lead to a criminal third-party proceeding) had no reasonable cause
to believe such conduct was unlawful. The termination of any third-party
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the authorized representative did not act in good faith and in a manner which
such person reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal third-party proceeding,
had reasonable cause to believe that such conduct was unlawful.
Section 2. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN CORPORATE
PROCEEDINGS. The Corporation shall indemnify any person who was or is an
authorized representative of the Corporation and who was or is a party or is
threatened to be made a party to any "corporate proceeding" (which shall mean,
for purposes of this Article, any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor or
investigative proceeding by the Corporation) by reason of the fact that such
person was or is an authorized representative of the Corporation, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the court in which such corporate proceeding was pending shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such authorized representative is fairly and
reasonably entitled to indemnity for such expenses that such court shall deem
proper.
Section 3. MANDATORY INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES. To the
extent that an authorized representative of the Corporation has been successful
on the merits or otherwise in defense of any third-party or corporate
proceedings or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses actually and reasonably incurred by such
person in connection therewith.
Section 4. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. Any
indemnification under Section 1, 2 or 3 of this Article VIII (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 1 or 2 or has been successful on the
merits or otherwise as set forth in Section 3 and that the amount requested has
been actually and reasonably incurred. Such determination shall be made: (i) by
the Board of Directors by a majority of a quorum consisting of directors who
were not parties to such third-party or corporate proceedings; or (ii) if such a
quorum is not obtainable, or, even if obtainable, a majority vote of such a
quorum so directs, by independent legal counsel in a written opinion; or (iii)
by the stockholders.
Section 5. ADVANCING EXPENSES. Expenses actually and reasonably incurred
in defending a third-party or corporate proceeding shall be paid on behalf of an
authorized representative by the Corporation in advance of the final disposition
of such third-party or corporate proceeding upon receipt of an undertaking by or
on behalf of the authorized representative to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this Article VIII.
Section 6. EMPLOYEE BENEFIT PLANS. For purposes of this Article, the
Corporation shall be deemed to have requested an authorized representative to
serve an employee benefit plan where the performance by such person of duties to
the Corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on an authorized representative with respect to an employee benefit
plan pursuant to applicable law shall be deemed
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"fines"; and action taken or omitted by such person with respect to an employee
benefit plan in the performance of duties for a purpose reasonably believed to
be in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose that is not opposed to the best interests of the
Corporation.
Section 7. SCOPE OF ARTICLE. The indemnification of and the advancement of
expenses to authorized representatives, provided by, or granted pursuant to,
this Article, shall (i) not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in other
capacities, (ii) continue as to a person who has ceased to be an authorized
representative, and (iii) inure to the benefit of the heirs, personal
representatives, executors, and administrators of such person.
Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an
authorized representative of the Corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article VIII.
Section 9. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, trustee or agent of or for the Corporation, or is or was serving at
the request or with the prior approval of the Corporation as a director,
officer, employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including employee benefit plans), against
any liability asserted against him and incurred by him in any capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of these
Bylaws.
Section 10. SURVIVAL OF RIGHTS. The rights provided by this Article shall
continue as to a person who has ceased to be an Agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 11. EFFECT OF AMENDMENT. Any amendment, repeal or modification of
this Article shall not adversely affect any right or protection of any Agent
existing at the time of such amendment, repeal or modification.
Section 12. NOTICE TO STOCKHOLDERS. If, under this Article, any expenses
or other amounts are paid or advanced to a director by way of indemnification
arising out of a proceeding by or in the right of the Corporation, the
Corporation shall, report such indemnification or advance to the stockholders in
writing with the notice of the next stockholders' meeting or prior to the
meeting.
ARTICLE IX
MISCELLANEOUS
Section 1. NOTICES. Whenever, under any provisions of these Bylaws, notice
is required to be given to any stockholder, the same shall be given in writing,
timely and duly deposited in the United States Mail, postage prepaid, and
addressed to his last known post office address as shown by the stock record of
the Corporation or the Transfer Agent. Any notice required to be given to any
director may be given by the method hereinabove stated, or by telegram or
confirmed telefacsimile, except that such notice other than one which is
delivered personally, shall be sent to such address as such director shall have
filed in writing with the Secretary of the Corporation, or, in the absence of
such filing, to the last known post office address of such director. If no
address of a stockholder or director be known, such notice may be sent to the
office of the Corporation required to be maintained pursuant to Section 2 of
Article I hereof. An affidavit of mailing, executed by a duly authorized and
competent employee of the Corporation or the Transfer Agent appointed with
respect to the class of stock affected, specifying the name and address or the
names and addresses of the stockholder or stockholders, director or directors,
to whom any such notice or notices was or were given, and the time and method of
giving the same, shall be conclusive evidence of
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the statements therein contained. All notices given by mail, as above provided,
shall be deemed to have been given at the time of mailing and all notices given
by telegram or confirmed facsimile shall be deemed to have been given at the
sending time recorded by the telegraph company transmitting the same or the time
confirmed. It shall not be necessary that the same method of giving notice be
employed in respect of all directors. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him in the
manner above provided, shall not be affected or extended in any manner by the
failure of such a stockholder or such director to receive such notice. Whenever
any notice is required to be given under the provisions of the statutes or of
the Charter, or of these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
Section 2. AMENDMENTS. These Bylaws may be repealed, altered or amended or
new Bylaws may be adopted by written consent of stockholders in the manner
authorized by Article II or at any meeting of the stockholders, either annual or
special, by the affirmative vote of a majority of the voting power of the stock
entitled to vote at such meeting; provided, however, that such stockholder
action may not decrease the number of votes required for stockholder action
pursuant to these Bylaws. The Board of Directors shall also have the authority
to repeal, alter or amend these Bylaws (including, without limitation, the
amendment of any Bylaws setting forth the number of directors who shall
constitute the entire Board of Directors) or adopt new Bylaws by unanimous
written consent or by the affirmative vote of a majority of the directors
comprising the entire Board of Directors at any annual, regular or special
meeting, subject to the power of the stockholders to change or repeal such
Bylaws.
Section 3. EXECUTION OF PAPERS. Except as the directors may generally or
in particular cases authorize the execution thereof in some other manner, all
deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other
obligations made, accepted or endorsed by the Corporation shall be signed by the
President.
Section 4. FISCAL YEAR. Except as from time to time provided by the Board
of Directors, the fiscal year of the Corporation shall end on the 31st day of
December.
Section 5. CORPORATE RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any committee when
exercising the powers of the Board of Directors. The books and records of the
Corporation may be in written form or in any other form which can be converted
within a reasonable time into written form for visual inspection. Minutes shall
be recorded in written form but may be maintained in the form of a reproduction.
Section 6. CORPORATE SEAL. The Corporation may, but shall not be required
to, have a corporate seal, which shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Incorporated Maryland."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise. The Secretary shall have custody of the
corporate seal of the Corporation and shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by the
Secretary's signature. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his signature. Whenever the Corporation is permitted or required to affix its
seal to a document, it shall be sufficient to meet the requirements of any law,
rule or regulation relating to a seal to place the word "(SEAL)" adjacent to the
signature of the person authorized to execute the document on behalf of the
Corporation.
Section 7. CONSISTENCY WITH ARTICLES OF INCORPORATION. If any provision of
these Bylaws shall be inconsistent with the Corporation's Charter (and as it may
be amended from time to time), the Charter (as so amended at the time) shall
govern.
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of PACIFIC GATEWAY PROPERTIES, INC., a Maryland
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of the corporation with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned this day of .
--------------------------------------
, SECRETARY
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EXHIBIT D
AGREEMENT
OF LIMITED PARTNERSHIP
OF
PACIFIC GATEWAY PROPERTIES OPERATING PARTNERSHIP, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C> <C> <C>
ARTICLE I DEFINED TERMS...................................................................... 1
ARTICLE II PARTNERSHIP CONTINUATION AND IDENTIFICATION........................................ 6
2.01 ORGANIZATION....................................................................... 6
2.02 NAME, OFFICE AND REGISTERED AGENT.................................................. 6
2.03 PARTNERS........................................................................... 7
2.04 TERM AND DISSOLUTION............................................................... 7
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP........................
7
2.06 CERTIFICATES DESCRIBING PARTNERSHIP UNITS.......................................... 7
ARTICLE III BUSINESS OF THE PARTNERSHIP........................................................ 8
ARTICLE IV CAPITAL CONTRIBUTIONS AND ACCOUNTS................................................. 8
4.01 CAPITAL CONTRIBUTIONS.............................................................. 8
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCE OF ADDITIONAL PARTNERSHIP
INTERESTS.......................................................................... 8
(a) ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS........................... 8
(i) GENERAL...................................................... 8
(ii) UPON ISSUANCE OF ADDITIONAL SECURITIES....................... 9
(b) CERTAIN DEEMED CONTRIBUTIONS OF PROCEEDS OF ISSUANCE OF REIT SHARES.....
10
4.03 ADDITIONAL FUNDING................................................................. 10
4.04 CAPITAL ACCOUNTS................................................................... 10
4.05 PERCENTAGE INTERESTS............................................................... 10
4.06 NO INTEREST ON CONTRIBUTIONS....................................................... 11
4.07 RETURN OF CAPITAL CONTRIBUTIONS.................................................... 11
4.08 NO THIRD PARTY BENEFICIARY......................................................... 11
ARTICLE V PROFITS AND LOSSES; DISTRIBUTIONS.................................................. 11
5.01 ALLOCATION OF PROFIT AND LOSS...................................................... 11
(a) GENERAL................................................................. 11
(b) MINIMUM GAIN CHARGEBACK................................................. 11
(c) QUALIFIED INCOME OFFSET................................................. 12
(d) CAPITAL ACCOUNT DEFICITS................................................ 12
(e) ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE........................... 12
(f) DEFINITION OF PROFIT AND LOSS........................................... 12
5.02 DISTRIBUTION OF CASH............................................................... 13
5.03 REIT DISTRIBUTION REQUIREMENTS..................................................... 14
5.04 DISTRIBUTIONS IN KIND.............................................................. 14
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS..................................... 14
</TABLE>
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<TABLE>
<C> <S> <C> <C> <C>
5.06 DISTRIBUTIONS UPON LIQUIDATION..................................................... 14
5.07 SUBSTANTIAL ECONOMIC EFFECT........................................................ 14
ARTICLE VI RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER.............................. 15
6.01 MANAGEMENT OF THE PARTNERSHIP...................................................... 15
6.02 DELEGATION OF AUTHORITY............................................................ 17
6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES..................................... 17
6.04 LIABILITY OF THE GENERAL PARTNER................................................... 18
6.05 REIMBURSEMENT OF GENERAL PARTNER................................................... 19
6.06 OUTSIDE ACTIVITIES................................................................. 19
6.07 EMPLOYMENT OR RETENTION OF AFFILIATES.............................................. 19
6.08 GENERAL PARTNER PARTICIPATION...................................................... 20
6.09 TITLE TO PARTNERSHIP ASSETS........................................................ 20
6.10 MISCELLANEOUS...................................................................... 20
ARTICLE VII CHANGES IN GENERAL PARTNER......................................................... 20
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST............................. 20
7.02 ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER............................ 22
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL PARTNER........
22
7.04 REMOVAL OF A GENERAL PARTNER....................................................... 23
ARTICLE VIII RIGHTS AND OBLIGATIONS............................................................. 24
8.01 MANAGEMENT OF THE PARTNERSHIP...................................................... 24
8.02 POWER OF ATTORNEY.................................................................. 24
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS........................................ 24
8.04 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR AFFILIATE.............
24
8.05 REDEMPTION RIGHT................................................................... 24
ARTICLE IX TRANSFER OF LIMITED PARTNERSHIP INTERESTS.......................................... 26
9.01 PURCHASE FOR INVESTMENT............................................................ 26
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS..........................
26
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER............................................ 27
9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS....................................... 28
9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED PARTNER......
28
9.06 JOINT OWNERSHIP OF INTERESTS....................................................... 28
ARTICLE X DISSOLUTION, LIQUIDATION AND TERMINATION........................................... 29
10.01 DISSOLUTION........................................................................ 29
10.02 WINDING UP......................................................................... 29
10.03 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS................................. 31
</TABLE>
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<TABLE>
<C> <S> <C> <C> <C>
10.04 DEEMED DISTRIBUTION AND RECONTRIBUTION............................................. 31
10.05 RIGHTS OF LIMITED PARTNERS......................................................... 31
10.06 NOTICE OF DISSOLUTION.............................................................. 31
10.07 TERMINATION OF PARTNERSHIP AND CANCELLATION OF CERTIFICATE OF LIMITED
PARTNERSHIP........................................................................ 31
10.08 REASONABLE TIME FOR WINDING-UP..................................................... 31
10.09 WAIVER OF PARTITION................................................................ 31
ARTICLE XI BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS......................................... 31
11.01 BOOKS AND RECORDS.................................................................. 31
11.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS........................................ 31
11.03 FISCAL AND TAXABLE YEAR............................................................ 32
11.04 ANNUAL TAX INFORMATION AND REPORT.................................................. 32
11.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS......................
32
11.06 REPORTS TO LIMITED PARTNERS........................................................ 33
11.07 MEETINGS OF THE PARTNERS........................................................... 33
ARTICLE XII AMENDMENT OF AGREEMENT; MERGER..................................................... 34
12.01 AMENDMENT OF AGREEMENT............................................................. 34
ARTICLE XIII GENERAL PROVISIONS................................................................. 34
13.01 NOTICES............................................................................ 34
13.02 SURVIVAL OF RIGHTS................................................................. 34
13.03 ADDITIONAL DOCUMENTS............................................................... 34
13.04 SEVERABILITY....................................................................... 34
13.05 ENTIRE AGREEMENT................................................................... 35
13.06 PRONOUNS AND PLURALS............................................................... 35
13.07 HEADINGS........................................................................... 35
13.08 COUNTERPARTS....................................................................... 35
13.09 GOVERNING LAW...................................................................... 35
</TABLE>
EXHIBITS:
EXHIBIT A--Partners, Capital Contributions and Percentage Interests
EXHIBIT B--Notice of Exercise of Redemption Right
EXHIBIT C--List of Initial Limited Partners
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AGREEMENT OF LIMITED PARTNERSHIP
OF
PACIFIC GATEWAY PROPERTIES OPERATING PARTNERSHIP, L.P.
RECITALS
Pacific Gateway Properties Operating Partnership, L.P. (the "Partnership")
is being formed as a limited partnership under the laws of the State of Delaware
pursuant to a Certificate of Limited Partnership filed with the Office of the
Secretary of State of the State of Delaware effective as of , 1998.
This Agreement of Limited Partnership (the "Agreement") is entered into this
day of 1998 among Pacific Gateway Properties, Inc., a Maryland
corporation (the "General Partner") and THE INITIAL LIMITED PARTNERS LISTED ON
EXHIBIT A ATTACHED HERETO AND INCORPORATED HEREIN BY THIS REFERENCE, (the
"Initial Limited Partners").
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, of mutual covenants
between the parties hereto, and of other good and valuable consideration, the
receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
The following defined terms used in this Agreement shall have the meanings
specified below:
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
be amended from time to time.
"Additional Funds" has the meaning set forth in Section 4.03 hereof.
"Additional Limited Partner" means any Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.02 hereof.
"Additional Securities" means any additional REIT Shares (other than REIT
Shares issued in connection with a redemption pursuant to Section 8.05 hereof)
or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares, as set forth in
Section 4.02(a)(ii).
"Administrative Expenses" means (i) all administrative and operating costs
and expenses incurred by the Partnership, (ii) those administrative costs and
expenses of the General Partner, including any salaries or other payments to
directors, trustees, officers or employees of the General Partner, and any
accounting and legal expenses of the General Partner, which expenses, the
Partners agree, are expenses of the Partnership and not the General Partner, and
(iii) to the extent not included in clause (ii) above, REIT Expenses; PROVIDED,
HOWEVER, that Administrative Expenses shall not include any administrative costs
and expenses incurred by the General Partner that are attributable to Properties
or partnership interests in a Subsidiary Partnership that are owned by the
General Partner directly.
"Affiliate" means, (i) any Person that, directly or indirectly, controls or
is controlled by or is under common control with such Person, (ii) any other
Person that owns, beneficially, directly or indirectly, 10% or more of the
outstanding capital stock, shares or equity interests of such Person, or (iii)
any officer, director, trustee, employee, partner or trustee of such Person or
any Person controlling, controlled by or under common control with such Person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction
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of the management and policies of such Person, through the ownership of voting
securities or partnership interests or otherwise.
"Agreed Value" means the fair market value of a Partner's non-cash Capital
Contribution as of the date of contribution as agreed to by such Partner and the
General Partner. The names and addresses of the Partners, number of Partnership
Units issued to each Partner, and the Agreed Value of non-cash Capital
Contributions as of the date of contribution is set forth on EXHIBIT A.
"Agreement" means this Agreement of Limited Partnership.
"AMEX" means the American Stock Exchange.
"Capital Account" has the meaning provided in Section 4.04 hereof.
"Capital Contribution" means the total amount of cash, cash equivalents, and
the Agreed Value of any Property or other asset contributed or agreed to be
contributed, as the context requires, to the Partnership by each Partner
pursuant to the terms of the Agreement. Any reference to the Capital
Contribution of a Partner shall include the Capital Contribution made by a
predecessor holder of the Partnership Interest of such Partner.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
Value of the REIT Shares Amount on the date of receipt by the General Partner of
a Notice of Redemption.
"Certificate" means any instrument or document that is required under the
laws of the State of Delaware, or any other jurisdiction in which the
Partnership conducts business, to be signed or sworn to by the Partners of the
Partnership (either by themselves or pursuant to the power-of-attorney granted
to the General Partner in Section 8.02 hereof) and filed for recording in the
appropriate public offices in the State of Delaware or such other jurisdiction
to perfect or maintain the Partnership as a limited partnership, to effect the
admission, withdrawal, or substitution of any Partner of the Partnership, or to
protect the limited liability of the Limited Partners as limited partners under
the laws of the State of Delaware or such other jurisdiction.
"Charter" means the Amended and Restated Articles of Incorporation of the
General Partner filed with the Maryland State Department of Assessments and
Taxation, as amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended, and as hereafter
amended from time to time. Reference to any particular provision of the Code
shall mean that provision in the Code at the date hereof and any successor
provision of the Code.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the common stock of the General Partner, $1.00 par
value per share.
"Conversion Factor" means 1.0, PROVIDED THAT, (a) in the event that the
General Partner (i) declares or
pays a dividend on its outstanding REIT Shares in REIT Shares or makes a
distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii)
subdivides its outstanding REIT Shares, or (iii) combines its outstanding REIT
Shares into a smaller number of REIT Shares, the Conversion Factor shall be
adjusted by multiplying the Conversion Factor by a fraction, the numerator of
which shall be the number of REIT Shares issued and outstanding on the record
date for such dividend, distribution, subdivision or combination (assuming for
such purposes that such dividend, distribution, subdivision or combination has
occurred as of such time), and the denominator of which shall be the actual
number of REIT Shares (determined without the above assumption) issued and
outstanding on such date; and (b) in the event that the General Partner declares
or pays a dividend or other distribution on its outstanding REIT Shares (other
than (A) cash dividends payable in the ordinary course of the General Partner's
business or (B) dividends payable in REIT Shares that give rise to an adjustment
in the Conversion Factor under subsection (a) hereof) and the Value of the REIT
Shares on the 20th trading day following the record date ("Record
2
<PAGE>
Date") for such dividend or distribution (the "Post-Distribution Value") is less
than the Value of the REIT Shares on the business day immediately preceding such
Record Date (the "Pre-Distribution Value"), then the Conversion Factor in effect
after the Record Date shall be adjusted by multiplying the Conversion Factor in
effect prior to the Record Date by a fraction, the numerator of which is the
Pre-Distribution Value and the denominator of which is the Post-Distribution
Value, PROVIDED, HOWEVER, that no adjustment shall be made if (x) with respect
to any cash dividend or distribution with respect to REIT Shares, the
Partnership distributes with respect to each Partnership Unit an amount equal to
the amount of such dividend or distribution multiplied by the Conversion Factor
or (y) with respect to any dividend or distribution of securities or property
other than cash, the Partnership distributes with respect to each Partnership
Unit an amount of securities or other property equal to the amount distributed
with respect to each REIT Share multiplied by the Conversion Ratio or a
partnership interest or other security readily convertible into such securities
or other property. Any adjustment to the Conversion Factor shall become
effective immediately after the effective date of such event retroactive to the
record date, if any, for such event; PROVIDED, HOWEVER, that if the General
Partner receives a Notice of Redemption after the record date, but prior to the
effective date of such dividend, distribution, subdivision or combination, the
Conversion Factor shall be determined as if the General Partner had received the
Notice of Redemption immediately prior to the record date for such dividend,
distribution, subdivision or combination.
"Event of Bankruptcy" as to any Person means the filing of a petition for
relief as to such Person as debtor or bankrupt under the Bankruptcy Code of
1978, as amended, or similar provision of law of any jurisdiction (except if
such petition is contested by such Person and has been dismissed within 90
days); insolvency or bankruptcy of such Person as finally determined by a court
proceeding; filing by such Person of a petition or application to accomplish the
same or for the appointment of a receiver or a trustee for such Person or a
substantial part of his assets; commencement of any proceedings relating to such
Person as a debtor under any other reorganization, arrangement, insolvency,
adjustment of debt or liquidation law of any jurisdiction, whether now in
existence or hereinafter in effect, either by such Person or by another,
PROVIDED, HOWEVER, that if such proceeding is commenced by another, such Person
indicates his approval of such proceeding, consents thereto or acquiesces
therein, or such proceeding is contested by such Person and has not been finally
dismissed within 90 days.
"Exchange" means the exchange of shares of Pacific Gateway Properties, Inc.,
a New York corporation for shares of Pacific Gateway Properties, Inc., a
Maryland corporation.
"General Partner" means Pacific Gateway Properties, Inc., a Maryland
corporation, and any Person who becomes a substitute or additional General
Partner as provided herein, and any of their successors as General Partner.
"General Partnership Interest" means a Partnership Interest held by the
General Partner that is a general partnership interest.
"Indemnitee" means (i) any Person made a party to a proceeding by reason of
its status as the General Partner or a director, trustee, officer or employee of
the Partnership or the General Partner, and (ii) such other Persons (including
the Manager and Affiliates of the General Partner or the Partnership) as the
General Partner may designate from time to time, in its sole and absolute
discretion.
"Independent Director" means a person who is (i) independent of management
of the General Partner and the Manager, (ii) not employed by or an officer of
the Company or the Manager, (iii) not an "affiliate" (as defined in Rule 405
under the Securities Act of 1933, as amended) of the Company, the Manager, or of
any subsidiary of the Company or the Manager, and (iv) not a person who acts on
a regular basis as an individual or representative of an organization serving as
a professional advisor, legal counsel or consultant to the management of the
Company or the Manager.
"Initial Limited Partners" means Pacific Gateway Properties Management
Corporation, a California corporation, Maritime Plaza Associates, a California
corporation, Pacific Gateway Properties Hotels, Inc., a California corporation,
and PGP Weston, Inc., a California corporation.
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"Limited Partner" means any Person named as a Limited Partner on EXHIBIT A
attached hereto, and any Person who becomes a Substitute or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means the ownership interest of a Limited
Partner in the Partnership at any particular time, including the right of such
Limited Partner to any and all benefits to which such Limited Partner may be
entitled as provided in this Agreement and in the Act, together with the
obligations of such Limited Partner to comply with all the provisions of this
Agreement and of such Act.
"Loss" has the meaning provided in Section 5.01(f) hereof.
"Manager" means PGP Management Company, a California corporation.
"Notice of Redemption" means the Notice of Exercise of Redemption Right
substantially in the form attached as EXHIBIT B hereto.
"Offer" has the meaning set forth in Section 7.01(c) hereof.
"Partner" means any General Partner or Limited Partner.
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(i). A Partner's share of Partner Nonrecourse Debt
Minimum Gain shall be determined in accordance with Regulations Section
1.704-2(i)(5).
"Partnership Interest" means an ownership interest in the Partnership held
by either a Limited Partner or the General Partner and includes any and all
benefits to which the holder of such a Partnership Interest may be entitled as
provided in this Agreement, together with all obligations of such Person to
comply with the terms and provisions of this Agreement.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
1.704-2(d). In accordance with Regulations Section 1.704-2(d), the amount of
Partnership Minimum Gain is determined by first computing, for each Partnership
nonrecourse liability, any gain the Partnership would realize if it disposed of
the property subject to that liability for no consideration other than full
satisfaction of the liability, and then aggregating the separately computed
gains. A Partner's share of Partnership Minimum Gain shall be determined in
accordance with Regulations Section 1.704-2(g)(l).
"Partnership Record Date" means the record date established by the General
Partner for the distribution of cash pursuant to Section 5.02 hereof, which
record date shall be the same as the record date established by the General
Partner for a distribution to its shareholders of some or all of its portion of
such distribution.
"Partnership Unit" means a fractional, undivided share of the Partnership
Interests of all Partners issued hereunder. The allocation of Partnership Units
among the Partners shall be as set forth on EXHIBIT A, as may be amended from
time to time.
"Percentage Interest" means the percentage ownership interest in the
Partnership of each Partner, as determined by dividing the Partnership Units
owned by a Partner by the total number of Partnership Units then outstanding.
The Percentage Interest of each Partner shall be as set forth on EXHIBIT A, as
may be amended from time to time.
"Person" means any individual, partnership, corporation, joint venture,
trust or other entity.
"Profit" has the meaning provided in Section 5.01(f) hereof.
"Property" means any loan, real property or other investment in which the
Partnership holds an ownership interest.
"Prospectus" means the final prospectus delivered to purchasers of REIT
Shares in the Exchange.
"Redeeming Partner" has the meaning provided in Section 8.05(a) hereof.
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<PAGE>
"Redemption Amount" means either the Cash Amount or the REIT Shares Amount,
as selected by the General Partner in its sole and absolute discretion pursuant
to Section 8.05(b) hereof.
"Redemption Right" has the meaning provided in Section 8.05(a) hereof.
"Regulations" means the Federal Income Tax Regulations issued under the
Code, as amended and as hereafter amended from time to time. Reference to any
particular provision of the Regulations shall mean that provision of the
Regulations on the date hereof and any successor provision of the Regulations.
"REIT" means a real estate investment trust under Sections 856 through 860
of the Code.
"REIT Expenses" means (i) costs and expenses relating to the formation and
continuity of existence and operation of the General Partner and any
Subsidiaries thereof (which Subsidiaries shall, for purposes hereof, be included
within the definition of General Partner), including taxes, fees and assessments
associated therewith, any and all costs, expenses or fees payable to any
trustee, officer, or employee of the General Partner, (ii) costs and expenses
relating to any public offering and registration of securities by the General
Partner and all statements, reports, fees and expenses incidental thereto,
including, without limitation, underwriting discounts and selling commissions
applicable to any such offering of securities, and any costs and expenses
associated with any claims made by any holders of such securities or any
underwriters or placement agents thereof, (iii) costs and expenses associated
with any repurchase of any securities by the General Partner, (iv) costs and
expenses associated with the preparation and filing of any periodic or other
reports and communications by the General Partner under federal, state or local
laws or regulations, including filings with the Commission, (v) costs and
expenses associated with compliance by the General Partner with laws, rules and
regulations promulgated by any regulatory body, including the Commission and any
securities exchange, (vi) costs and expenses associated with any 401(k) plan,
incentive plan, share incentive plan, bonus plan or other plan providing for
compensation for the employees of the General Partner, (vii) costs and expenses
incurred by the General Partner relating to any issuing or redemption of
Partnership Interests, (viii) costs and expenses associated with the management
of the General Partner by the Manager, and (ix) all other operating or
administrative costs of the General Partner incurred in the ordinary course of
its business on behalf of or in connection with the Partnership.
"REIT Share" means a share of Common Stock of the General Partner (or
successor Entity, as the case may be).
"REIT Shares Amount" means a number of REIT Shares equal to the product of
the number of Partnership Units offered for redemption by a Redeeming Partner,
multiplied by the Conversion Factor as adjusted to and including the Specified
Redemption Date; PROVIDED THAT in the event the General Partner issues to all
holders of REIT Shares rights, options, warrants or convertible or exchangeable
securities entitling the shareholders to subscribe for or purchase REIT Shares,
or any other securities or property (collectively, the "rights"), and the rights
have not expired at the Specified Redemption Date, then the REIT Shares Amount
shall also include the rights issuable to a holder of the REIT Shares Amount of
REIT Shares on the record date fixed for purposes of determining the holders of
REIT Shares entitled to rights.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the Internal Revenue Service.
"Share Incentive Plans" means the 1985 Incentive Stock Option Plan and the
1996 Stock Option Plan, or any stock incentive plan adopted in the future by the
General Partner.
"Specified Redemption Date" means (i) with respect to any Notice of
Redemption received by the General Partner after one year following the closing
of the Exchange and before one year and one month following the closing of
Exchange, the first business day that is at least 30 calendar days after the
receipt by the General Partner of the Notice of Redemption and (ii) with respect
to any Notice of Redemption received by the General Partner after one year and
one month following the closing of Exchange, the first
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business day that is at least 15 calendar days after the receipt by the General
Partner of the Notice of Redemption.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests is owned, directly or
indirectly, by such Person.
"Subsidiary Partnership" means any partnership of which the partnership
interests therein are owned by the General Partner or a wholly-owned subsidiary
of the General Partner.
"Substitute Limited Partner" means any Person admitted to the Partnership as
a Limited Partner pursuant to Section 9.03 hereof.
"Surviving General Partner" has the meaning set forth in Section 7.01(d)
hereof.
"Transaction" has the meaning set forth in Section 7.01(c) hereof.
"Transfer" has the meaning set forth in Section 9.02(a) hereof.
"Value" means, with respect to any security, the average of the daily market
price of such security for the ten consecutive trading days immediately
preceding the date of such valuation. The market price for each such trading day
shall be: (i) if security is listed or admitted to trading on any securities
exchange or the AMEX, the last reported sale price, regular way, on such day, or
if no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, on such day, (ii) if security is not listed or
admitted to trading on any securities exchange or the AMEX takes place on such
day, the average of the closing bid and asked prices on such day, as reported by
a reliable quotation source designated by the General Partner, or (iii) if
security is not listed or admitted to trading on any securities exchange or the
AMEX and no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on such
day, as reported by a reliable quotation source designated by the General
Partner, or if there shall be no bid and asked prices on such day, the average
of the high bid and low asked prices, as so reported, on the most recent day
(not more than ten days prior to the date in question) for which prices have
been so reported; PROVIDED THAT if there are no bid and asked prices reported
during the ten days prior to the date in question, the value of the security
shall be determined by the General Partner acting in good faith on the basis of
such quotations and other information as it considers, in its reasonable
judgment, appropriate. In the event the security includes any additional rights,
then the value of such rights shall be determined by the General Partner acting
in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate.
ARTICLE II
PARTNERSHIP CONTINUATION AND IDENTIFICATION
2.01 ORGANIZATION. The Partners hereby agree to organize the Partnership
pursuant to the Act and upon the terms and conditions set forth in this
Agreement.
2.02 NAME, OFFICE AND REGISTERED AGENT. The name of the Partnership is
Pacific Gateway Properties Operating Partnership, L.P. The specified office and
place of business of the Partnership shall be 930 Montgomery Street, Suite 400,
San Francisco, California 94133. The General Partner may at any time change the
location of such office, PROVIDED the General Partner gives notice to the
Partners of any such change. The initial registered agent is The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801. The sole duty of the registered agent as such is
to forward to the Partnership any notice that is served on him as registered
agent.
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2.03 PARTNERS.
(a) The General Partner of the Partnership is Pacific Gateway
Properties, Inc., a Maryland corporation. Its principal place of business is
the same as that of the Partnership.
(b) The Initial Limited Partners are Pacific Gateway Properties
Management Corporation, a California corporation, Maritime Plaza Associates,
a California corporation, Pacific Gateway Properties Hotels, Inc., a
California corporation, and PGP Weston, Inc., a California corporation and
the Limited Partners are those Persons identified as Limited Partners on
EXHIBIT A hereto, as amended from time to time.
2.04 TERM AND DISSOLUTION.
(a) The term of the Partnership shall continue in full force and effect
until January 1, 2054, except that the Partnership shall be dissolved upon
the first to occur of any of the following events:
(i) The occurrence of an Event of Bankruptcy as to a General Partner
or the dissolution, death, removal or withdrawal of a General Partner
unless the business of the Partnership is continued pursuant to Section
7.03(b) hereof; PROVIDED THAT if a General Partner is on the date of such
occurrence a partnership, the dissolution of such General Partner as a
result of the dissolution, death, withdrawal, removal or Event of
Bankruptcy of a partner in such partnership shall not be an event of
dissolution of the Partnership if the business of such General Partner is
continued by the remaining partner or partners, either alone or with
additional partners, and such General Partner and such partners comply
with any other applicable requirements of this Agreement;
(ii) The passage of 90 days after the sale or other disposition of
all or substantially all of the assets of the Partnership (PROVIDED THAT
if the Partnership receives an installment obligation as consideration
for such sale or other disposition, the Partnership shall continue,
unless sooner dissolved under the provisions of this Agreement, until
such time as such note or notes are paid in full); or
(iii) At any time after thirteen months following the closing of the
Exchange, the election by the General Partner that the Partnership should
be dissolved.
(b) Upon dissolution of the Partnership (unless the business of the
Partnership is continued pursuant to Section 7.03(b) hereof), the General
Partner (or its trustee, receiver, successor or legal representative) shall
amend or cancel the Certificate and liquidate the Partnership's assets and
apply and distribute the proceeds thereof in accordance with Section 5.06
hereof. Notwithstanding the foregoing, the liquidating General Partner may
either (i) defer liquidation of; or withhold from distribution for a
reasonable time, any assets of the Partnership (including those necessary to
satisfy the Partnership's debts and obligations), or (ii) distribute the
assets to the Partners in kind.
2.05 FILING OF CERTIFICATE AND PERFECTION OF LIMITED PARTNERSHIP. The
General Partner shall execute, acknowledge, record and file at the expense of
the Partnership, the Certificate and any and all amendments thereto and all
requisite fictitious name statements and notices in such places and
jurisdictions as may be necessary to cause the Partnership to be treated as a
limited partnership under, and otherwise to comply with, the laws of each state
or other jurisdiction in which the Partnership conducts business.
2.06 CERTIFICATES DESCRIBING PARTNERSHIP UNITS. At the request of a
Limited Partner, the General Partner, at its option, may issue a certificate
summarizing the terms of such Limited Partner's interest in the Partnership,
including the number of Partnership Units owned and the Percentage Interest
represented by such Partnership Units as of the date of such certificate. Any
such certificate (i) shall be in
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form and substance as approved by the General Partner, (ii) shall not be
negotiable and (iii) shall bear a legend to the following effect:
THIS CERTIFICATE IS NOT NEGOTIABLE. THE PARTNERSHIP UNITS REPRESENTED BY
THIS CERTIFICATE ARE GOVERNED BY AND TRANSFERABLE ONLY IN ACCORDANCE WITH
THE PROVISIONS OF THE AGREEMENT OF LIMITED PARTNERSHIP OF PACIFIC GATEWAY
PROPERTIES OPERATING PARTNERSHIP, L.P., AS AMENDED FROM TIME TO TIME.
ARTICLE III
BUSINESS OF THE PARTNERSHIP
The purpose and nature of the business to be conducted by the Partnership is
(i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, PROVIDED, HOWEVER, that such business
shall be limited to and conducted in such a manner as to permit the General
Partner at all times to qualify as a REIT, unless the General Partner otherwise
ceases to qualify as a REIT, (ii) to enter into any partnership, joint venture
or other similar arrangement to engage in any of the foregoing or the ownership
of interests in any entity engaged in any of the foregoing and (iii) to do
anything necessary or incidental to the foregoing. In connection with the
foregoing, and without limiting the General Partner's right in its sole and
absolute discretion to cease qualifying as a REIT, the Partners acknowledge that
the General Partner's current status as a REIT and the avoidance of income and
excise taxes on the General Partner inures to the benefit of all the Partners
and not solely to the General Partner. Notwithstanding the foregoing, the
Limited Partners agree that the General Partner may terminate its status as a
REIT under the Code at any time to the full extent permitted under its Charter.
The General Partner shall also be empowered to do any and all acts and things
necessary or prudent to ensure that the Partnership will not be classified as a
"publicly traded partnership" for purposes of Section 7704 of the Code.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ACCOUNTS
4.01 CAPITAL CONTRIBUTIONS. The General Partner and the Limited Partners
have made capital contributions to the Partnership in exchange for the
Partnership Interests set forth opposite their names on EXHIBIT A, as amended
from time to time.
4.02 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL
PARTNERSHIP INTERESTS. Except as provided in this Section 4.02 or in Section
4.03, the Partners shall have no right or obligation to make any additional
Capital Contributions or loans to the Partnership. The General Partner may
contribute additional capital to the Partnership, from time to time, and receive
additional Partnership Interests in respect thereof, in the manner contemplated
in this Section 4.02.
(a) ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS.
(i) GENERAL. The General Partner is hereby authorized to cause the
Partnership to issue such additional Partnership Interests in the form of
Partnership Units for any Partnership purpose at any time or from time to
time, to the Partners (including the General Partner) or to other Persons
for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole and absolute discretion,
all without the approval of any Limited Partners. Any additional
Partnership Interests issued thereby may be issued in one or more
classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including rights, powers and duties
senior to Limited Partnership Interests, all as shall be determined by
the General Partner in its sole and absolute discretion and without the
approval of any Limited Partner, subject to Delaware law, including,
without limitation: (i) the allocations of items of Partnership income,
gain, loss, deduction and credit to each such class or series of
Partnership Interests; (ii)
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the right of each such class or series of Partnership Interests to share
in Partnership distributions; and (iii) the rights of each such class or
series of Partnership Interests upon dissolution and liquidation of the
Partnership; PROVIDED, HOWEVER, that no additional Partnership Interests
shall be issued to the General Partner unless:
(A) (1) the additional Partnership Interests are issued in connection with
an issuance of REIT Shares of or other interests in the General Partner, which
shares or interests have designations, preferences and other rights, all such
that the economic interests are substantially similar to the designations,
preferences and other rights of the additional Partnership Interests issued to
the General Partner by the Partnership in accordance with this Section 4.02 and
(2) the General Partner shall make a Capital Contribution to the Partnership in
an amount equal to the proceeds raised in connection with the issuance of such
shares of stock of or other interests in the General Partner;
(B) the additional Partnership Interests are issued in exchange for property
(including cash) owned by the General Partner with a fair market value, as
determined by the General Partner, in good faith, equal to the value of the
Partnership Interests; or
(C) the additional Partnership Interests are issued to all Partners in
proportion to their respective Percentage Interests.
Without limiting the foregoing, the General Partner is expressly authorized to
cause the Partnership to issue Partnership Units for less than fair market
value, so long as the General Partner concludes in good faith that such issuance
is in the best interests of the General Partner and the Partnership.
(ii) UPON ISSUANCE OF ADDITIONAL SECURITIES. The General Partner
shall not issue any additional REIT Shares (other than REIT Shares issued
in connection with a redemption pursuant to Section 8.06 hereof) or
rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase REIT Shares
(collectively, "Additional Securities") other than to all holders of REIT
Shares, unless (A) the General Partner shall cause the Partnership to
issue to the General Partner Partnership Interests or rights, options,
warrants or convertible or exchangeable securities of the Partnership
having designations, preferences and other rights, all such that the
economic interests are substantially similar to those of the Additional
Securities, and (B) the General Partner contributes the proceeds from the
issuance of such Additional Securities and from any exercise of rights
contained in such Additional Securities to the Partnership; PROVIDED,
HOWEVER, that the General Partner is allowed to issue Additional
Securities in connection with an acquisition of a property to be held
directly by the General Partner, but if and only if, such direct
acquisition and issuance of Additional Securities have been approved and
determined to be in the best interests of the General Partner and the
Partnership by a majority of the Independent Directors. Without limiting
the foregoing, the General Partner is expressly authorized to issue
Additional Securities for less than fair market value, and to cause the
Partnership to issue to the General Partner corresponding Partnership
Interests, so long as (x) the General Partner concludes in good faith
that such issuance is in the best interests of the General Partner and
the Partnership, including without limitation, the issuance of REIT
Shares and corresponding Partnership Units pursuant to an employee share
purchase plan providing for employee purchases of REIT Shares at a
discount from fair market value or employee stock options that have an
exercise price that is less than the fair market value of the REIT
Shares, either at the time of issuance or at the time of exercise, and
(y) the General Partner contributes all proceeds from such issuance to
the Partnership. For example, in the event the General Partner issues
REIT Shares for a cash purchase price and contributes all of the proceeds
of such issuance to the Partnership as required hereunder, the General
Partner shall be issued a number of additional Partnership Units equal to
the product of (A) the number of such REIT Shares issued by the General
Partner, the proceeds of which were so contributed,
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multiplied by (B) a fraction, the numerator of which is 100%, and the
denominator of which is the Conversion Factor in effect on the date of
such contribution.
(b) CERTAIN DEEMED CONTRIBUTIONS OF PROCEEDS OF ISSUANCE OF REIT
SHARES. In connection with any and all issuances of REIT Shares, the
General Partner shall make Capital Contributions to the Partnership of the
proceeds therefrom, PROVIDED THAT if the proceeds actually received and
contributed by the General Partner, are less than the gross proceeds of such
issuance as a result of any underwriter's discount or other expenses paid or
incurred in connection with such issuance, then the General Partner shall be
deemed to have made Capital Contributions to the Partnership in the
aggregate amount of the gross proceeds of such issuance and the Partnership
shall be deemed simultaneously to have paid such offering expenses in
accordance with Section 6.05 hereof and in connection with the required
issuance of additional Partnership Units to the General Partner for such
Capital Contributions pursuant to Section 4.02(a) hereof.
(c) If the General Partner shall repurchase shares of any class of the
General Partner's capital stock, the purchase price thereof and all costs
incurred in connection with such repurchase shall be reimbursed to the
General Partner by the Partnership pursuant to Section 6.05 hereof and the
General Partner shall cause the Partnership to cancel a number of
Partnership Interests of the appropriate class held by the General Partner
equal to the quotient of the number of such shares of the General Partner's
capital stock divided by the Conversion Factor.
4.03 ADDITIONAL FUNDING. If the General Partner determines that it is in
the best interests of the Partnership to provide for additional Partnership
funds ("Additional Funds") for any Partnership purpose, the General Partner may
(i) cause the Partnership to obtain such funds from outside borrowings, or (ii)
elect to have the General Partner provide such Additional Funds to the
Partnership through loans or otherwise.
4.04 CAPITAL ACCOUNTS. A separate capital account (a "Capital Account")
shall be established and maintained for each Partner in accordance with
Regulations Section 1.704-1(b)(2)(iv). If (i) a new or existing Partner acquires
an additional Partnership Interest in exchange for more than a de minimis
Capital Contribution, (ii) the Partnership distributes to a Partner more than a
de minimis amount of Partnership property as consideration for a Partnership
Interest, or (iii) the Partnership is liquidated within the meaning of
Regulation Section 1.704-1(b)(2)(ii)(g), the General Partner shall revalue the
property of the Partnership to its fair market value (as determined by the
General Partner, in its sole and absolute discretion, and taking into account
Section 7701(g) of the Code) in accordance with Regulations Section
1.704-l(b)(2)(iv)(f). When the Partnership's property is revalued by the General
Partner, the Capital Accounts of the Partners shall be adjusted in accordance
with Regulations Sections l.704-l(b)(2)(iv)(f) and (g), which generally require
such Capital Accounts to be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the Capital Accounts previously) would be allocated among the Partners
pursuant to Section 5.01 if there were a taxable disposition of such property
for its fair market value (as determined by the General Partner, in its sole and
absolute discretion, and taking into account Section 7701(g) of the Code) on the
date of the revaluation.
4.05 PERCENTAGE INTERESTS. If the number of outstanding Partnership Units
increases or decreases during a taxable year, each Partner's Percentage Interest
shall be adjusted by the General Partner effective as of the effective date of
each such increase or decrease to a percentage equal to the number of
Partnership Units held by such Partner divided by the aggregate number of
Partnership Units outstanding after giving effect to such increase or decrease.
If the Partners' Percentage Interests are adjusted pursuant to this Section
4.05, the Profits and Losses for the taxable year in which the adjustment occurs
shall be allocated between the part of the year ending on the day when the
Partnership's property is revalued by the General Partner and the part of the
year beginning on the following day either (i) as if the taxable year had ended
on the date of the adjustment or (ii) based on the number of days in each part.
The General Partner, in its sole and absolute discretion, shall determine which
method shall be used to allocate
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Profits and Losses for the taxable year in which the adjustment occurs. The
allocation of Profits and Losses for the earlier part of the year shall be based
on the Percentage Interests before adjustment, and the allocation of Profits and
Losses for the later part shall be based on the adjusted Percentage Interests.
4.06 NO INTEREST ON CONTRIBUTIONS. No Partner shall be entitled to
interest on its Capital Contribution.
4.07 RETURN OF CAPITAL CONTRIBUTIONS. Except pursuant to the right of
redemption set forth in Section 8.05, no Partner shall be entitled to withdraw
any part of its Capital Contribution or its Capital Account or to receive any
distribution from the Partnership, except as specifically provided in this
Agreement. Except as otherwise provided herein, there shall be no obligation to
return to any Partner or withdrawn Partner any part of such Partner's Capital
Contribution for so long as the Partnership continues in existence.
4.08 NO THIRD PARTY BENEFICIARY. No creditor or other third party having
dealings with the Partnership shall have the right to enforce the right or
obligation of any Partner to make Capital Contributions or loans or to pursue
any other right or remedy hereunder or at law or in equity, it being understood
and agreed that the provisions of this Agreement shall be solely for the benefit
of; and may be enforced solely by, the parties hereto and their respective
successors and assigns. None of the rights or obligations of the Partners herein
set forth to make Capital Contributions or loans to the Partnership shall be
deemed an asset of the Partnership for any purpose by any creditor or other
third party, nor may such rights or obligations be sold, transferred or assigned
by the Partnership or pledged or encumbered by the Partnership to secure any
debt or other obligation of the Partnership or of any of the Partners. In
addition, it is the intent of the parties hereto that no distribution to any
Limited Partner shall be deemed a return of money or other property in violation
of the Act. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Limited Partner is
obligated to return such money or property, such obligation shall be the
obligation of such Limited Partner and not of the General Partner. Without
limiting the generality of the foregoing, a deficit Capital Account of a Partner
shall not be deemed to be a liability of such Partner nor an asset or property
of the Partnership.
ARTICLE V
PROFITS AND LOSSES; DISTRIBUTIONS
5.01 ALLOCATION OF PROFIT AND LOSS.
(a) GENERAL. Profit and Loss of the Partnership for each fiscal year
of the Partnership shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(b) MINIMUM GAIN CHARGEBACK. Notwithstanding any provision to the
contrary, (i) any expense of the Partnership that is a "nonrecourse
deduction" within the meaning of Regulations Section 1.704-2(b)(1) shall be
allocated in accordance with the Partners' respective Percentage Interests,
(ii) any expense of the Partnership that is a "partner nonrecourse
deduction" within the meaning of Regulations Section 1.704-2(i)(2) shall be
allocated to the Partner that bears the "economic risk of loss" of such
deduction in accordance with Regulations Section 1.704-2(i)(1), (iii) if
there is a net decrease in Partnership Minimum Gain within the meaning of
Regulations Section 1.704-2(f)(1) for any Partnership taxable year, then,
subject to the exceptions set forth in Regulations Section
1.704-2(f)(2),(3), (4) and (5), items of gain and income shall be allocated
among the Partners in accordance with Regulations Section 1.704-2(f) and the
ordering rules contained in Regulations Section 1.704-2(j), and (iv) if
there is a net decrease in Partner Nonrecourse Debt Minimum Gain within the
meaning of Regulations Section 1.704-2(i)(4) for any Partnership taxable
year, then, subject to the exceptions set forth in Regulations Section
1.704(2)(g), items of gain and income shall be allocated among the Partners
in accordance with Regulations Section 1.704-2(i)(4) and the ordering rules
contained in Regulations Section 1.704-2(j). A Partner's "interest in
partnership profits" for
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purposes of determining its share of the nonrecourse liabilities of the
Partnership within the meaning of Regulations Section 1.752-3(a)(3) shall be
such Partner's Percentage Interest.
(c) QUALIFIED INCOME OFFSET. If a Partner receives in any taxable year
an adjustment, allocation, or distribution described in subparagraphs (4),
(5), or (6) of Regulations Section 1.704-1(b)(2)(ii)(d) that causes or
increases a deficit balance in such Partner's Capital Account that exceeds
the sum of such Partner's shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with Regulations
Sections 1.704-2(g) and 1.704-2(i), such Partner shall be allocated
specially for such taxable year (and, if necessary, later taxable years)
items of income and gain in an amount and manner sufficient to eliminate
such deficit Capital Account balance as quickly as possible as provided in
Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of an
allocation of income or gain to a Partner in accordance with this Section
5.01(c), to the extent permitted by Regulations Section 1.704-1(b), items of
expense or loss shall be allocated to such Partner in an amount necessary to
offset the income or gain previously allocated to such Partner under this
Section 5.01(c).
(d) CAPITAL ACCOUNT DEFICITS. Loss shall not be allocated to a Limited
Partner to the extent that such allocation would cause a deficit in such
Partner's Capital Account (after reduction to reflect the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum
of such Partner's shares of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain. Any Loss in excess of that limitation shall be allocated
to the General Partner. After the occurrence of an allocation of Loss to the
General Partner in accordance with this Section 5.01(d), to the extent
permitted by Regulations Section 1.704-1(b), Profit shall be allocated to
such Partner in an amount necessary to offset the Loss previously allocated
to each Partner under this Section 5.01(d).
(e) ALLOCATIONS BETWEEN TRANSFEROR AND TRANSFEREE. If a Partner
transfers any part or all of its Partnership Interest, the distributive
shares of the various items of Profit and Loss allocable among the Partners
during such fiscal year of the Partnership shall be allocated between the
transferor and the transferee Partner either (i) as if the Partnership's
fiscal year had ended on the date of the transfer, or (ii) based on the
number of days of such fiscal year that each was a Partner without regard to
the results of Partnership activities in the respective portions of such
fiscal year in which the transferor and the transferee were Partners. The
General Partner, in its sole and absolute discretion, shall determine which
method shall be used to allocate the distributive shares of the various
items of Profit and Loss between the transferor and the transferee Partner.
(f) DEFINITION OF PROFIT AND LOSS. "Profit" and "Loss" and any items
of income, gain, expense, or loss referred to in this Agreement shall be
determined in accordance with federal income tax accounting principles, as
modified by Regulations Section 1.704-1(b)(2)(iv), except that Profit and
Loss shall not include items of income, gain and expense that are specially
allocated pursuant to Sections 5.01(b), 5.01(c), or 5.01(d). All allocations
of income, Profit, gain, Loss, and expense (and all items contained therein)
for federal income tax purposes shall be identical to all allocations of
such items set forth in this Section 5.01, except as otherwise required by
Section 704(c) of the Code and Regulations Section 1.704-1(b)(4). The
General Partner shall have the authority to elect the method to be used by
the Partnership for allocating items of income, gain, and expense as
required by Section 704(c) of the Code including a method that may result in
a Partner receiving a disproportionately larger share of the Partnership tax
depreciation deductions, and such election shall be binding on all Partners.
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5.02 DISTRIBUTION OF CASH.
(a) The Partnership shall distribute cash on an annual (or, at the
election of the General Partner, more frequent) basis, in an amount
determined by the General Partner in its sole and absolute discretion, to
the Partners who are Partners on the Partnership Record Date with respect to
such quarter (or other distribution period) in accordance with their
respective Percentage Interests on the Partnership Record Date; PROVIDED,
HOWEVER, that if a new or existing Partner acquires an additional
Partnership Interest in exchange for a Capital Contribution on any date
other than a Partnership Record Date, the cash distribution attributable to
such additional Partnership Interest relating to the Partnership Record Date
next following the issuance of such additional Partnership Interest shall be
reduced in the proportion to (i) the number of days that such additional
Partnership Interest is held by such Partner bears to (ii) the number of
days between such Partnership Record Date and the immediately preceding
Partnership Record Date. The General Partner shall use its reasonable
discretion to distribute an amount of cash on a quarterly (or, at the
election of the General Partner, more frequent) basis so that each Limited
Partner receives under this Section 5.02, with respect to each quarter or
more frequent period, a cash amount equal in value to the aggregate cash
dividends that would have been payable to such Limited Partner in the event
that such Limited Partner owned REIT Shares equal in number to the REIT
Shares Amount during such period of the Partnership (which REIT Shares
Amount shall be determined as if the Specified Redemption Date had occurred
prior to the dividends paid on any REIT Shares during such period) reduced,
as provided in the first sentence of this Section 5.02(a), to take into
account cash distributions attributable to any Partnership Interests
acquired in exchange for a Capital Contribution on any date other than a
Partnership Record Date; PROVIDED, HOWEVER, that in the event that the
number of Partnership Units held by the General Partner and any Limited
Partner that is a Subsidiary of the General Partner is less than the number
of outstanding REIT Shares of the General Partner, then all distributions of
cash shall be paid first to those Limited Partners pro rata based upon such
Limited Partner's Partnership Units) that are not Subsidiaries of the
General Partner until the amount distributed to such Limited Partners equals
the aggregate cash dividends that would have been payable to such Limited
Partners in the event that such Limited Partners owned REIT Shares equal in
number to the REIT Shares Amount during such period of the Partnership.
(b) Notwithstanding any other provision of this Agreement, the General
Partner is authorized to take any action that it determines to be necessary
or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local
law including, without limitation, pursuant to Sections 1441, 1442, 1445 and
1446 of the Code. To the extent that the Partnership is required to withhold
and pay over to any taxing authority any amount resulting from the
allocation or distribution of income to the Partner or assignee (including
by reason of Section 1446 of the Code), either (i) if the actual amount to
be distributed to the Partner (the "Distributable Amount") equals or exceeds
the amount required to be withheld by the Partnership (the "Withheld
Amount"), the Withheld Amount withheld shall be treated as a distribution of
cash in the amount of such withholding to such Partner, or (ii) if the
Distributable Amount is less than the Withheld Amount no amount shall be
distributed to the Partner, the Distributable Amount shall be treated as a
distribution of cash to such Partner, and the excess of the Withheld Amount
over the Distributable Amount shall be treated as a loan (a "Partnership
Loan") from the Partnership to the Partner on the day the Partnership pays
over such excess to a taxing authority. A Partnership Loan may be repaid, at
the election of the General Partner in its sole discretion, either (i)
through withholding by the Partnership with respect to subsequent
distributions to the applicable Partner or assignee, or (ii) at any time
more than 12 months after a Partnership Loan arises, by cancellation of
Partnership Units with a value equal to the unpaid balance of the
Partnership Loan (including accrued interest). Any amounts treated as a
Partnership Loan pursuant to this Section 5.02(b) shall bear interest at the
lesser of (i) the base rate on corporate loans at large United States money
center commercial banks, as published from time to time in The Wall Street
Journal (or an equivalent
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successor publication), or (ii) the maximum lawful rate of interest on such
obligation, such interest to accrue from the date the Partnership is deemed
to extend the loan until such loan is repaid in full.
(c) In no event may a Partner receive a distribution of cash with
respect to a Partnership Unit if such Partner is entitled to receive a cash
dividend as the holder of record of a REIT Share for which all or part of
such Partnership Unit has been or will be redeemed.
5.03 REIT DISTRIBUTION REQUIREMENTS. The General Partner shall use its
reasonable efforts to cause the Partnership to distribute amounts sufficient to
enable the General Partner to pay shareholder dividends that will allow the
General Partner to (i) meet its distribution requirement for qualification as a
REIT as set forth in Section 857 of the Code and (ii) avoid any federal income
or excise tax liability imposed by the Code.
5.04 DISTRIBUTIONS IN KIND.
(a) Subject to Subsection (b) hereof, no Partner shall be entitled to
demand property other than cash in connection with any distributions by the
Partnership.
(b) If the General Partner decides to securitize mortgage loans through
the issuance of collateralized mortgage obligations, the General Partner has
the right to redeem a portion of its Partnership Interest in exchange for
the mortgage loans to be securitized. The portion of a Partnership Interest
redeemed pursuant to this Section will be determined based on the fair
market value of the mortgage loans and/or leases distributed to the General
Partner. Such fair market value will be determined by the General Partner,
but will be subject to the review of the Independent Directors.
5.05 LIMITATIONS ON RETURN OF CAPITAL CONTRIBUTIONS. Notwithstanding any
of the provisions of this Article V, no Partner shall have the right to receive
and the General Partner shall not have the right to make, a distribution that
includes a return of all or part of a Partner's Capital Contributions, unless
after giving effect to the return of a Capital Contribution, the sum of all
Partnership liabilities, other than the liabilities to a Partner for the return
of his Capital Contribution, does not exceed the fair market value of the
Partnership's assets.
5.06 DISTRIBUTIONS UPON LIQUIDATION. Upon liquidation of the Partnership,
after payment of, or adequate provision for, debts and obligations of the
Partnership, including any Partner loans, any remaining assets of the
Partnership shall be distributed to all Partners with positive Capital Accounts
in accordance with their respective positive Capital Account balances. For
purposes of the preceding sentence, the Capital Account of each Partner shall be
determined after all adjustments made in accordance with Sections 5.01 and 5.02
resulting from Partnership operations and from all sales and dispositions of all
or any part of the Partnership's assets. Any distributions pursuant to this
Section 5.06 shall be made by the end of the Partnership's taxable year in which
the liquidation occurs (or, if later, within 90 days after the date of the
liquidation). To the extent deemed advisable by the General Partner, appropriate
arrangements (including the use of a liquidating trust) may be made to assure
that adequate funds are available to pay any contingent debts or obligations.
5.07 SUBSTANTIAL ECONOMIC EFFECT. It is the intent of the Partners that
the allocations of Profit and Loss under the Agreement have substantial economic
effect (or be consistent with the Partners' interests in the Partnership in the
case of the allocation of losses attributable to nonrecourse debt) within the
meaning of Section 704(b) of the Code as interpreted by the Regulations
promulgated pursuant thereto. Article V and other relevant provisions of this
Agreement shall be interpreted in a manner consistent with such intent.
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ARTICLE VI
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
6.01 MANAGEMENT OF THE PARTNERSHIP.
(a) Except as otherwise expressly provided in this Agreement, the
General Partner shall have full, complete and exclusive discretion to manage
and control the business of the Partnership for the purposes herein stated,
and shall make all decisions affecting the business and assets of the
Partnership. The General Partner may not be removed by the Limited Partners
with or without cause. In addition to the powers now or hereafter granted a
general partner of a limited partnership under applicable law, or which are
granted to the General Partner under any other provision of this Agreement,
the General Partner, subject to the restrictions specifically contained in
this Agreement, shall have the full power and authority to do all things
necessary and desirable by it to conduct the business of the Partnership
including, without limitation, the authority to take the following actions
on behalf of the Partnership:
(i) to acquire, purchase, own, develop, operate, lease and dispose
of any real property and any other property or assets including, but not
limited to notes and mortgages, that the General Partner determines are
necessary or appropriate or in the best interests of the business of the
Partnership
(ii) to construct buildings and make other improvements on the
properties owned or leased by the Partnership;
(iii) to authorize, issue, sell, redeem or otherwise purchase any
Partnership Interests or any securities (including secured and unsecured
debt obligations of the Partnership, debt obligations of the Partnership
convertible into any class or series of Partnership Interests, or
options, rights, warrants or appreciation rights relating to any
Partnership Interests) of the Partnership;
(iv) to borrow or lend money for the Partnership, issue or receive
evidences of indebtedness in connection therewith, refinance, increase
the amount of, modify, amend or change the terms of, or extend the time
for the payment of, any such indebtedness, and secure such indebtedness
by mortgage, deed of trust, pledge or other lien on the Partnership's
assets;
(v) to pay, either directly or by reimbursement, for all operating
costs and general administrative expenses of the Partnership to third
parties or to the General Partner or its Affiliates as set forth in this
Agreement,
(vi) to guarantee or become a comaker of indebtedness of the General
Partner or any Subsidiary thereof, refinance, increase the amount of,
modify, amend or change the terms of, or extend the time for the payment
of, any such guarantee or indebtedness, and secure such guarantee or
indebtedness by mortgage, deed of trust, pledge or other lien on the
Partnership's assets;
(vii) to use assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with this Agreement,
including, without limitation, payment, either directly or by
reimbursement, of all operating costs and general administrative expenses
of the General Partner, the Partnership or any Subsidiary of either, to
third parties or to the General Partner as set forth in this Agreement;
(viii) to lease all or any portion of any of the Partnership's assets,
whether or not the terms of such leases extend beyond the termination
date of the Partnership and whether or not any portion of the
Partnership's assets so leased are to be occupied by the lessee, or, in
turn, subleased in whole or in part to others, for such consideration and
on such terms as the General Partner may determine;
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(ix) to prosecute, defend, arbitrate, or compromise any and all
claims or liabilities in favor of or against the Partnership, on such
terms and in such manner as the General Partner may reasonably determine,
and similarly to prosecute, settle or defend litigation with respect to
the Partners, the Partnership, or the Partnership's assets; PROVIDED,
HOWEVER, that the General Partner may not, without the consent of all of
the Partners, confess a judgment against the Partnership that is in
excess of $100,000 or is not covered by insurance;
(x) to file applications, communicate, and otherwise deal with any
and all governmental agencies having jurisdiction over, or in any way
affecting, the Partnership's assets or any other aspect of the
Partnership business;
(xi) to make or revoke any election permitted or required of the
Partnership by any taxing authority;
(xii) to maintain such insurance coverage for public liability, fire
and casualty, and any and all other insurance for the protection of the
Partnership, for the conservation of Partnership assets, or for any other
purpose convenient or beneficial to the Partnership, in such amounts and
such types, as it shall determine from time to time;
(xiii) to determine whether or not to apply any insurance proceeds for
any property to the restoration of such property or to distribute the
same;
(xiv) to establish one or more divisions of the Partnership, to hire
and dismiss employees of the Partnership or any division of the
Partnership, and to retain legal counsel, accountants, consultants, real
estate brokers, and such other persons, as the General Partner may deem
necessary or appropriate in connection with the Partnership business and
to pay therefor such reasonable remuneration as the General Partner may
deem reasonable and proper;
(xv) to retain other services of any kind or nature in connection
with the Partnership business, and to pay therefor such remuneration as
the General Partner may deem reasonable and proper;
(xvi) to negotiate and conclude agreements on behalf of the
Partnership with respect to any of the rights, powers and authority
conferred upon the General Partner;
(xvii) to maintain accurate accounting records and to file promptly
all federal, state and local income tax returns on behalf of the
Partnership;
(xviii) to distribute Partnership cash or other Partnership assets in
accordance with this Agreement;
(xix) to form or acquire an interest in, and contribute property to,
any further limited or general partnerships, joint ventures or other
relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity interest from
time to time);
(xx) to establish Partnership reserves for working capital, capital
expenditures, contingent liabilities, or any other valid Partnership
purpose; and
(xxi) to merge, consolidate or combine the Partnership with or into
another Person (to the extent permitted by applicable law);
(xxii) to do any and all acts and things necessary or prudent to
ensure that the Partnership will not be classified as a "publicly traded
partnership" for purposes of Section 7704 of the Code; and
(xxiii) to take such other action, execute, acknowledge, swear to or
deliver such other documents and instruments, and perform any and all
other acts that the General Partner deems necessary or appropriate for
the formation, continuation and conduct of the business and affairs
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of the Partnership (including, without limitation, all actions consistent
with allowing the General Partner at all times to qualify as a REIT
unless the General Partner voluntarily terminates its REIT status) and to
possess and enjoy all of the rights and powers of a general partner as
provided by the Act.
(b) Except as otherwise provided herein, to the extent the duties of the
General Partner require expenditures of funds to be paid to third parties,
the General Partner shall not have any obligations hereunder except to the
extent that partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend
its individual funds for payment to third parties or to undertake any
individual liability or obligation on behalf of the Partnership.
(c) In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it. The General Partner
and the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such
Limited Partner as a result of an action (or inaction) by the General
Partner taken pursuant to its authority under this Agreement.
6.02 DELEGATION OF AUTHORITY. The General Partner may delegate any or all
of its powers, rights and obligations hereunder, and may appoint, employ,
contract or otherwise deal with any Person for the transaction of the business
of the Partnership, which Person may, under supervision of the General Partner,
perform any acts or services for the Partnership as the General Partner may
approve.
6.03 INDEMNIFICATION AND EXCULPATION OF INDEMNITEES.
(a) The Partnership shall indemnify, to the fullest extent permitted by
Delaware law, an Indemnitee from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including reasonable legal
fees and expenses), judgments, fines, settlements, and other amounts arising
from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of
the Partnership as set forth in this Agreement in which any Indemnitee may
be involved, or is threatened to be involved, as a party or otherwise,
unless it is established that: (i) the act or omission of the Indemnitee was
material to the matter giving rise to the proceeding and either was
committed in bad faith or was the result of active and deliberate
dishonesty; (ii) the Indemnitee actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the Indemnitee had reasonable cause to believe that the act or
omission was unlawful. The termination of any proceeding by judgment, order
or settlement does not create a presumption that the Indemnitee did not meet
the requisite standard of conduct set forth in this Section 6.03(a). The
termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee acted in a
manner contrary to that specified in this Section 6.03(a). Any
indemnification pursuant to this Section 6.03 shall be made only out of the
assets of the Partnership and neither the General Partner nor any Limited
Partner shall have any obligation to contribute to the captial of the
Partnership, or otherwise provide funds, to enable the Partnership to fund
its obligations under this Section 6.03.
(b) The Partnership shall reimburse an Indemnitee for reasonable
expenses incurred by an Indemnitee who is a party to a proceeding in advance
of the final disposition of the proceeding upon receipt by the Partnership
of (i) a written affirmation by the Indemnitee of the Indemnitee's good
faith belief that the standard of conduct necessary for indemnification by
the Partnership as authorized in this Section 6.03 has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount if
it shall ultimately be determined that the standard of conduct has not been
met.
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(c) The indemnification provided by this Section 6.03 shall be in
addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity.
(d) The Partnership may purchase and maintain insurance, on behalf of
the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses
that may be incurred by such Person in connection with the Partnership's
activities, regardless of whether the Partnership would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.
(e) For purposes of this Section 6.03, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable
law shall constitute fines within the meaning of this Section 6.03, and
actions taken or omitted by the Indemnitee with respect to an employee
benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participants and beneficiaries
of the plan shall be deemed to be for a purpose which is not opposed to the
best interests of the Partnership.
(f) In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in
this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.03 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.03 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
6.04 LIABILITY OF THE GENERAL PARTNER.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to
the Partnership or any Partners for losses sustained or liabilities incurred
as a result of errors in judgment or of any act or omission if the General
Partner acted in good faith. The General Partner shall not be in breach of
any duty that the General Partner may owe to the Limited Partners or the
Partnership or any other Persons under this Agreement or of any duty stated
or implied by law or equity provided the General Partner, acting in good
faith, abides by the terms of this Agreement.
(b) The Limited Partners expressly acknowledge that the General Partner
is acting on behalf of the Partnership, the General Partner and the General
Partner's shareholders collectively, that the General Partner is under no
obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or
the tax consequences of same, but not all, of the Limited Partners) in
deciding whether to cause the Partnership to take (or decline to take) any
actions. In the event of a conflict between the interests of the
shareholders of the General Partner on one hand and the Limited Partners on
the other, the General Partner shall endeavor in good faith to resolve the
conflict in a manner not adverse to either the shareholders of the General
Partner or the Limited Partners; PROVIDED, HOWEVER, that for so long as the
General Partner owns a controlling interest in the Partnership, any such
conflict that the General Partner, in its sole and absolute discretion,
determines cannot be resolved in a manner not adverse to either the
shareholders of the General Partner or the Limited Partners shall be
resolved in favor of the shareholders of the General Partner. The General
Partner shall not be liable for monetary damages
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for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, PROVIDED that the
General Partner has acted in good faith.
(c) Subject to its obligations and duties as General Partner set forth
in Section 6.01 hereof, the General Partner may exercise any of the powers
granted to it under this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the
part of any such agent appointed by it in good faith.
(d) Notwithstanding any other provisions of this Agreement or the Act,
any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership, undertaken in the good faith belief that such action or
omission is necessary or advisable in order (i) to protect the ability of
the General Partner to continue to qualify as a REIT or (ii) to prevent the
General Partner from incurring any taxes under Section 857, Section 4981, or
any other provision of the Code, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
(e) Any amendment, modification or repeal of this Section 6.04 or any
provision hereof shall be prospective only and shall not in any way affect
the limitations on the General Partner's liability to the Partnership and
the Limited Partners under this Section 6.04 as in effect immediately prior
to such amendment, modification or repeal with respect to matters occurring,
in whole or in part, prior to such amendment, modification or repeal,
regardless of when claims relating to such matters may arise or be asserted.
6.05 REIMBURSEMENT OF GENERAL PARTNER.
(a) Except as provided in this Section 6.05 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding
distributions, payments, and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner
of the Partnership.
(b) In addition to the expenses that are directly attributable to the
Partnership, the REIT Expenses and Administrative Expenses shall be
obligations of the Partnership, and the Partnership shall pay the REIT
Expenses and Administrative Expenses. If any REIT Expenses or Administrative
Expenses are paid by the General Partner, the General Partner shall be
reimbursed by the Partnership therefor.
6.06 OUTSIDE ACTIVITIES. The Partners and any officer, director, employee,
agent, trustee, Affiliate, Subsidiary, or shareholder of any Partner shall be
entitled to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests and
activities substantially similar or identical to those of the Partnership.
Neither the Partnership nor any of the Limited Partners shall have any rights by
virtue of this Agreement in any such business ventures, interest or activities.
None of the Limited Partners nor any other Person shall have any rights by
virtue of this Agreement or the partnership relationship established hereby in
any such business ventures, interests or activities, and the General Partner
shall have no obligation pursuant to this Agreement to offer any interest in any
such business ventures, interests and activities to the Partnership or any
Limited Partner, even if such opportunity is of a character which, if presented
to the Partnership or any Limited Partner, could be taken by such Person.
6.07 EMPLOYMENT OR RETENTION OF AFFILIATES.
(a) Any Affiliate of the General Partner may be employed or retained by
the Partnership and may otherwise deal with the Partnership (whether as a
buyer, lessor, lessee, manager, furnisher of goods or services, broker,
agent, lender or otherwise) and may receive from the Partnership any
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compensation, price, or other payment therefor which the General Partner
determines to be fair and reasonable.
(b) The Partnership may lend or contribute to its Subsidiaries or other
Persons in which it has an equity investment, and such Persons may borrow
funds from the Partnership, on terms and conditions established in the sole
and absolute discretion of the General Partner. The foregoing authority
shall not create any right or benefit in favor of any Subsidiary or any
other Person.
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or
thereby becomes a participant upon such terms and subject to such conditions
as the General Partner deems are consistent with this Agreement and
applicable law.
(d) Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any
property to, or purchase any property from, the Partnership, directly or
indirectly, except pursuant to transactions that are on terms that the
General Partner deems are fair and reasonable to the Partnership.
6.08 GENERAL PARTNER PARTICIPATION. The General Partner agrees that all
business activities of the General Partner shall generally be conducted through
the Partnership or one or more Subsidiary Partnerships, unless otherwise
determined by the Independent Directors.
6.09 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General Partner.
The General Partner hereby declares and warrants that any Partnership assets for
which legal title is held in the name of the General Partner or any nominee or
Affiliate of the General Partner shall be held by the General Partner for the
use and benefit of the Partnership in accordance with the provisions of this
Agreement; PROVIDED, HOWEVER, that the General Partner shall use its best
efforts to cause beneficial and record title to such assets to be vested in the
Partnership as soon as reasonably practicable. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which legal title to such Partnership assets is
held.
6.10 MISCELLANEOUS. In the event the General Partner redeems any REIT
Shares, then the General Partner shall cause the Partnership to purchase from
the General Partner a number of Partnership Units as determined based on the
application of the Conversion Factor on the same terms that the General Partner
exchanged such REIT Shares. Moreover, if the General Partner makes a cash tender
offer or other offer to acquire REIT Shares, then the General Partner shall
cause the Partnership to make a corresponding offer to the General Partner to
acquire an equal number of Partnership Units held by the General Partner. In the
event any REIT Shares are exchanged by the General Partner pursuant to such
offer, the Partnership shall redeem an equivalent number of the General
Partner's Partnership Units for an equivalent purchase price based on the
application of the Conversion Factor.
ARTICLE VII
CHANGES IN GENERAL PARTNER
7.01 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST.
(a) The General Partner shall not transfer all or any portion of its
General Partnership Interest or withdraw as General Partner except as
provided in or in connection with a transaction contemplated by Section
7.01(c), (d) or (e).
(b) The General Partner agrees that its Percentage Interest will at all
times be at least 1%.
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(c) Except as otherwise provided in Section 6.04(b) or Section 7.01(d)
or (e) hereof, the General Partner shall not engage in any merger,
consolidation or other combination with or into another Person or sale of
all or substantially all of its assets, (other than in connection with a
change in the General Partner's state of incorporation or organizational
form) in each case which results in a change of control of the General
Partner (a "Transaction"), unless:
(i) the consent of Limited Partners (other than the General Partner
or any Subsidiary) holding more than 50% of the Percentage Interests of
the Limited Partners (other than those held by the General Partner or any
Subsidiary) is obtained;
(ii) as a result of such Transaction all Limited Partners will
receive for each Partnership Unit an amount of cash, securities, or other
property equal to the product of the Conversion Factor and the greatest
amount of cash, securities or other property paid in the Transaction to a
holder of one REIT Share in consideration of one REIT Share, PROVIDED
THAT if, in connection with the Transaction, a purchase, tender or
exchange offer ("Offer") shall have been made to and accepted by the
holders of more than 50% of the outstanding REIT Shares, each holder of
Partnership Units shall be given the option to exchange its Partnership
Units for the greatest amount of cash, securities, or other property
which a Limited Partner would have received had it (A) exercised its
Redemption Right and (B) sold, tendered or exchanged pursuant to the
Offer the REIT Shares received upon exercise of the Redemption Right
immediately prior to the expiration of the Offer; or
(iii) the General Partner is the surviving entity in the Transaction
and either (A) the holders of REIT Shares do not receive cash,
securities, or other property in the Transaction or (B) all Limited
Partners (other than the General Partner or any Subsidiary) receive an
amount of cash, securities, or other property (expressed as an amount per
REIT Share) that is no less than the product of the Conversion Factor and
the greatest amount of cash, securities, or other property (expressed as
an amount per REIT Share) received in the Transaction by any holder of
REIT Shares.
(d) Notwithstanding Section 7.01(c), the General Partner may merge with
or into or consolidate with another entity if immediately after such merger
or consolidation (i) substantially all of the assets of the successor or
surviving entity (the "Surviving General Partner"), other than Partnership
Units held by the General Partner, are contributed, directly or indirectly,
to the Partnership as a Capital Contribution in exchange for Partnership
Units with a fair market value equal to the value of the assets so
contributed as determined by the Surviving General Partner in good faith and
(ii) the Surviving General Partner expressly agrees to assume all
obligations of the General Partner hereunder. Upon such contribution and
assumption, the Surviving General Partner shall have the right and duty to
amend this Agreement as set forth in this Section 7.01(d). The Surviving
General Partner shall in good faith arrive at a new method for the
calculation of the Cash Amount, the REIT Shares Amount and Conversion Factor
for a Partnership Unit after any such merger or consolidation so as to
approximate the existing method for such calculation as closely as
reasonably possible. Such calculation shall take into account, among other
things, the kind and amount of securities, cash and other property that was
receivable upon such merger or consolidation by a holder of REIT Shares or
options, warrants or other rights relating thereto, and to which a holder of
Partnership Units could have acquired had such Partnership Units been
exchanged immediately prior to such merger or consolidation. Such amendment
to this Agreement shall provide for adjustment to such method of
calculation, which shall be as nearly equivalent as may be practicable to
the adjustments provided for with respect to the Conversion Factor. The
Surviving General Partner also shall in good faith modify the definition of
REIT Shares and make such amendments to Section 8.05 hereof so as to
approximate the existing rights and obligations set forth in Section 8.05 as
closely as reasonably possible. The above provisions of this Section 7.01(d)
shall similarly apply to successive mergers or consolidations permitted
hereunder.
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In respect of any transaction described in the preceding paragraph, the
General Partner is required to use its commercially reasonable efforts to
structure such transaction to avoid causing the Limited Partners to recognize a
gain for federal income tax purposes by virtue of the occurrence of or their
participation in such transaction, PROVIDED such efforts are consistent with the
exercise of the Board of Directors' fiduciary duties to the shareholders of the
General Partner under applicable law.
(e) Notwithstanding Section 7.01(c),
(i) a General Partner may transfer all or any portion of its General
Partnership Interest to (A) a wholly-owned Subsidiary of such General
Partner or (B) the owner of all of the ownership interests of such
General Partner, and following a transfer of all of its General
Partnership Interest, may withdraw as General Partner; and the General
Partner may engage in a transaction not required by law or by the rules
of any national securities exchange on which the REIT Shares are listed
to be submitted to the vote of the holders of the REIT Shares.
7.02 ADMISSION OF A SUBSTITUTE OR ADDITIONAL GENERAL PARTNER. A Person
shall be admitted as a substitute or additional General Partner of the
Partnership only if the following terms and conditions are satisfied:
(a) the Person to be admitted as a substitute or additional General
Partner shall have accepted and agreed to be bound by all the terms and
provisions of this Agreement by executing a counterpart thereof and such
other documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner, and a certificate
evidencing the admission of such Person as a General Partner shall have been
filed for recordation and all other actions required by Section 2.05 hereof
in connection with such admission shall have been performed;
(b) if the Person to be admitted as a substitute or additional General
Partner is a corporation or a partnership it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of
such Person's authority to become a General Partner and to be bound by the
terms and provisions of this Agreement; and
(c) counsel for the Partnership shall have rendered an opinion (relying
on such opinions from other counsel and the state or any other jurisdiction
as may be necessary) that the admission of the person to be admitted as a
substitute or additional General Partner is in conformity with the Act, that
none of the actions taken in connection with the admission of such Person as
a substitute or additional General Partner will cause (i) the Partnership to
be classified other than as a partnership for federal income tax purposes,
or (ii) the loss of any Limited Partner's limited liability.
7.03 EFFECT OF BANKRUPTCY, WITHDRAWAL, DEATH OR DISSOLUTION OF A GENERAL
PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the
withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Partnership shall be dissolved and
terminated unless the Partnership is continued pursuant to Section 7.03(b)
hereof. The merger of the General Partner with or into any entity that is
admitted as a substitute or successor General Partner pursuant to Section
7.02 hereof shall not be deemed to be the withdrawal, dissolution or removal
of the General Partner.
(b) Following the occurrence of an Event of Bankruptcy as to a General
Partner (and its removal pursuant to Section 7.04(a) hereof) or the death,
withdrawal, removal or dissolution of a General Partner (except that, if a
General Partner is on the date of such occurrence a partnership, the
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withdrawal, death, dissolution, Event of Bankruptcy as to, or removal of a
partner in, such partnership shall be deemed not to be a dissolution of such
General Partner if the business of such General Partner is continued by the
remaining partner or partners), the Limited Partners, within 90 days after
such occurrence, may elect to continue the business of the Partnership for
the balance of the term specified in Section 2.04 hereof by selecting,
subject to Section 7.02 hereof and any other provisions of this Agreement, a
substitute General Partner by consent of a majority in interest of the
Limited Partners. If the Limited Partners elect to continue the business of
the Partnership and admit a substitute General Partner, the relationship
with the Partners and of any Person who has acquired an interest of a
Partner in the Partnership shall be governed by this Agreement.
7.04 REMOVAL OF A GENERAL PARTNER.
(a) Upon the occurrence of an Event of Bankruptcy as to, or the
dissolution of, a General Partner, such General Partner shall be deemed to
be removed automatically; PROVIDED, HOWEVER, that if a General Partner is on
the date of such occurrence a partnership, the withdrawal, death,
dissolution, Event of Bankruptcy as to or removal of a partner in such
partnership shall be deemed not to be a dissolution of the General Partner
if the business of such General Partner is continued by the remaining
partner or partners. The Limited Partners may not remove the General
Partner, with or without cause.
(b) If a General Partner has been removed pursuant to this Section 7.04
and the Partnership is continued pursuant to Section 7.03 hereof, such
General Partner shall promptly transfer and assign its General Partnership
Interest in the Partnership to the substitute General Partner approved by a
majority in interest of the Limited Partners in accordance with Section
7.03(b) hereof and otherwise admitted to the Partnership in accordance with
Section 7.02 hereof. At the time of assignment, the removed General Partner
shall be entitled to receive from the substitute General Partner the fair
market value of the General Partnership Interest of such removed General
Partner as reduced by any damages caused to the Partnership by such General
Partner. Such fair market value shall be determined by an appraiser mutually
agreed upon by the General Partner and a majority in interest of the Limited
Partners within 10 days following the removal of the General Partner. In the
event that the parties are unable to agree upon an appraiser, the removed
General Partner and a majority in interest of the Limited Partners each
shall select an appraiser. Each such appraiser shall complete an appraisal
of the fair market value of the removed General Partner's General
Partnership Interest within 30 days of the General Partner's removal, and
the fair market value of the removed General Partner's General Partnership
Interest shall be the average of the two appraisals; PROVIDED, HOWEVER, that
if the higher appraisal exceeds the lower appraisal by more than 20% of the
amount of the lower appraisal, the two appraisers, no later than 40 days
after the removal of the General Partner, shall select a third appraiser who
shall complete an appraisal of the fair market value of the removed General
Partner's General Partnership Interest no later than 60 days after the
removal of the General Partner. In such case, the fair market value of the
removed General Partner's General Partnership Interest shall be the average
of the two appraisals highest in value.
(c) The General Partnership Interest of a removed General Partner,
during the time after default until transfer under Section 7.04(b), shall be
converted to that of a special Limited Partner; PROVIDED, HOWEVER, such
removed General Partner shall not have any rights to participate in the
management and affairs of the Partnership, and shall not be entitled to any
portion of the income, expense, profit, gain or loss allocations or cash
distributions allocable or payable, as the case may be, to the Limited
Partners. Instead, such removed General Partner shall receive and be
entitled only to retain distributions or allocations of such items that it
would have been entitled to receive in its capacity as General Partner,
until the transfer is effective pursuant to Section 7.04(b).
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(d) All Partners shall have given and hereby do give such consents,
shall take such actions and shall execute such documents as shall be legally
necessary and sufficient to effect all the foregoing provisions of this
Section.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
8.01 MANAGEMENT OF THE PARTNERSHIP. The Limited Partners shall not
participate in the management or control of Partnership business nor shall they
transact any business for the Partnership, nor shall they have the power to sign
for or bind the Partnership, such powers being vested solely and exclusively in
the General Partner.
8.02 POWER OF ATTORNEY. Each Limited Partner hereby irrevocably appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each as its true and lawful attorney-in-fact, who may act
for each Limited Partner and in its name, place and stead, and for its use and
benefit, to sign, acknowledge, swear to, deliver, file or record, at the
appropriate public offices, any and all documents, certificates, and instruments
as may be deemed necessary or desirable by the General Partner to carry out
fully the provisions of this Agreement and the Act in accordance with their
terms, which power of attorney is coupled with an interest and shall survive the
death, dissolution or legal incapacity of the Limited Partner, or the transfer
by the Limited Partner of any part or all of its Partnership Interest.
8.03 LIMITATION ON LIABILITY OF LIMITED PARTNERS. No Limited Partner shall
be liable for any debts, liabilities, contracts or obligations of the
Partnership. A Limited Partner shall be liable to the Partnership only to make
payments of its Capital Contribution, if any, as and when due hereunder. After
its Capital Contribution is fully paid, no Limited Partner shall, except as
otherwise required by the Act, be required to make any further Capital
Contributions or other payments or lend any funds to the Partnership.
8.04 OWNERSHIP BY LIMITED PARTNER OF CORPORATE GENERAL PARTNER OR
AFFILIATE. No Limited Partner shall at any time, either directly or indirectly,
own any stock or other interest in the General Partner or in any Affiliate
thereof; if such ownership by itself or in conjunction with other stock or other
interests owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partner shall be
entitled to make such reasonable inquiry of the Limited Partners as is required
to establish compliance by the Limited Partners with the provisions of this
Section.
8.05 REDEMPTION RIGHT.
(a) Subject to Sections 8.05(b), 8.05(c), 8.05(d) and 8.05(e) and the
provisions of any agreements between the Partnership and one or more Limited
Partners with respect to Partnership Units held by them, on or after the
date which is one year after the closing of the Exchange, each Limited
Partner, other than the General Partner, shall have the right (the
"Redemption Right") to require the Partnership to redeem on a Specified
Redemption Date all or a portion of the Partnership Units held by such
Limited Partner at a redemption price equal to and in the form of the Cash
Amount to be paid by the Partnership. The Redemption Right shall be
exercised pursuant to a Notice of Redemption delivered to the Partnership
(with a copy to the General Partner) by the Limited Partner who is
exercising the Redemption Right (the "Redeeming Partner"); PROVIDED,
HOWEVER, that the Partnership shall not be obligated to satisfy such
Redemption Right if the Company and/or the General Partner elects to
purchase, and does purchase, the Partnership Units subject to the Notice of
Redemption pursuant to Section 8.05(b); and PROVIDED, FURTHER, that no
Limited Partner may deliver more than two Notices of Redemption during each
calendar year. A Limited Partner may not exercise the Redemption Right for
less than 1,000 Partnership Units or, if such Limited Partner holds less
than 1,000 Partnership Units, all of the Partnership Units held by such
Partner. The Redeeming Partner shall
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have no right, with respect to any Partnership Units so redeemed, to receive
any distribution paid with respect to Partnership Units if the record date
for such distribution is on or after the Specified Redemption Date.
(b) Notwithstanding the provisions of Section 8.05(a), a Limited Partner
that exercises the Redemption Right shall be deemed to have offered to sell
the Partnership Units described in the Notice of Redemption to the General
Partner, and the General Partner may, in its sole and absolute discretion,
elect to purchase directly and acquire such Partnership Units by paying to
the Redeeming Partner either the Cash Amount or the REIT Shares Amount, as
elected by the General Partner (in its sole and absolute discretion), on the
Specified Redemption Date, whereupon the General Partner shall acquire for
the Cash Amount or the REIT Shares Amount, as determined by the General
Partner (as set forth above), the Partnership Units offered for redemption
by the Redeeming Partner and shall be treated for all purposes of this
Agreement as the owner of such Partnership Units. If the General Partner
shall elect to exercise its right to purchase Partnership Units under this
Section 8.05(b) with respect to a Notice of Redemption, it shall so notify
the Redeeming Partner within five business days after the receipt by the
General Partner of such Notice of Redemption. Unless the General Partner (in
its sole and absolute discretion) shall exercise its right to purchase
Partnership Units from the Redeeming Partner pursuant to this Section
8.05(b), the General Partner shall have no obligation to the Redeeming
Partner or the Partnership with respect to the Redeeming Partner's exercise
of the Redemption Right. In the event the General Partner shall exercise its
right to purchase, and does purchase, Partnership Units with respect to the
exercise of a Redemption Right in the manner described in the first sentence
of this Section 8.05(b), the Partnership shall have no obligation to pay any
amount to the Redeeming Partner with respect to such Redeeming Partner's
exercise of such Redemption Right, and each of the Redeeming Partner, the
Partnership, and the General Partner shall treat the transaction between the
General Partner and the Redeeming Partner for federal income tax purposes as
a sale of the Redeeming Partner's Partnership Units to the General Partner.
Each Redeeming Partner agrees to execute such documents as the General
Partner may reasonably require in connection with the issuance of REIT
Shares upon exercise of the Redemption Right.
(c) Notwithstanding the provisions of Section 8.05(a) and 8.05(b), a
Redeeming Partner shall be paid the Cash Amount if the delivery of REIT
Shares to such Partner on the Specified Redemption Date by the General
Partner pursuant to Section 8.06(b) (regardless of whether or not the
General Partner would in fact exercise its rights under Section 8.06(b))
would: (i) result in such Partner or any other person owning, directly or
indirectly, REIT Shares in excess of the Ownership Limit (as defined in the
Charter) and calculated in accordance therewith, except as provided in the
Charter, (ii) result in REIT Shares being owned by fewer than 100 persons
(determined without reference to any rules of attribution), (iii) result in
the General Partner being "closely held" within the meaning of Section
856(h) of the Code, (iv) cause the General Partner to own, directly or
constructively, 10% or more of the ownership interests in a tenant of the
General Partner's, the Partnership's, or a Subsidiary Partnership's, real
property, within the meaning of Section 856(d)(2)(B) of the Code, or (v)
cause the acquisition of REIT Shares by such Partner to be "integrated" with
any other distribution of REIT Shares for purposes of complying with the
registration provisions of the Securities Act.
(d) Any REIT Shares Amounts to be paid to a Redeeming Partner pursuant
to this Section 8.05 shall be paid on the Specified Redemption Date. Any
Cash Amount to be paid to a Redeeming Partner pursuant to this Section 8.06
shall be paid on the Specified Redemption Date; PROVIDED, HOWEVER, that, if
the Notice of Redemption is received by the General Partner after 13 months
following the closing of the Exchange and if the Cash Amount is to be paid,
the General Partner may elect to cause the Specified Redemption Date to be
delayed for up to an additional 30 calendar days by providing notice to the
Redeeming Partner. If the General Partner elects to cause the Specified
Redemption Date to be delayed, the General Partner shall pay the Redeeming
Partner interest for the
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period of the delay at a rate equal to (i) 3-month LIBOR plus (ii) 250 basis
points. For this purpose, LIBOR shall mean "ISD-LIBOR-ISDA" as that term is
defined in the 1991 ISDA Definitions published by the International Swap
Dealers Association, Inc. Notwithstanding the foregoing, the General Partner
agrees to use its best efforts to cause the closing of the acquisition of
redeemed Partnership Units hereunder to occur as quickly as reasonably
possible.
(e) Notwithstanding any other provision of this Agreement, after
thirteen months following the closing of the Exchange, the General Partner
shall place appropriate restrictions on the ability of the Limited Partners
to exercise their Redemption Rights as and if deemed necessary to ensure
that the Partnership does not constitute a "publicly traded partnership"
under section 7704 of the Code. If and when the General Partner determines
that imposing such restrictions is necessary, the General Partner shall give
prompt written notice thereof (a "Restriction Notice") to each of the
Limited Partners, which notice shall be accompanied by a copy of an opinion
of counsel to the Partnership which states that, in the opinion of such
counsel, restrictions are necessary in order to avoid the Partnership being
treated as a "publicly traded partnership" under section 7704 of the Code.
ARTICLE IX
TRANSFERS OF LIMITED PARTNERSHIP INTERESTS
9.01 PURCHASE FOR INVESTMENT.
(a) Each Limited Partner hereby represents and warrants to the General
Partner and to the Partnership that the acquisition of his Partnership
Interests is made as a principal for his account for investment purposes
only and not with a view to the resale or distribution of such Partnership
Interest.
(b) Each Limited Partner agrees that he will not sell, assign or
otherwise transfer his Partnership Interest or any fraction thereof; whether
voluntarily or by operation of law or at judicial sale or otherwise, to any
Person who does not make the representations and warranties to the General
Partner set forth in Section 9.01(a) above and similarly agree not to sell,
assign or transfer such Partnership Interest or fraction thereof to any
Person who does not similarly represent, warrant and agree.
9.02 RESTRICTIONS ON TRANSFER OF LIMITED PARTNERSHIP INTERESTS.
(a) Subject to the provisions of 9.02(b), (c) and (d), no Limited
Partner may offer, sell, assign, or otherwise transfer all or any portion of
his Limited Partnership Interest, or any of such Limited Partner's economic
rights as a Limited Partner, whether voluntarily or by operation of law or
at judicial sale or otherwise (collectively, a "Transfer") without the
consent of the General Partner, which consent may be granted or withheld in
its sole and absolute discretion. Any such purported transfer undertaken
without such consent shall be considered to be null and void AB INITIO and
shall not be given effect. The General Partner may require, as a condition
of any Transfer to which it consents, that the transferor assume all costs
incurred by the Partnership in connection therewith. A Transfer shall not
include any pledge, grant of a security interest in, or other hypothecation
of all or any portion of a Limited Partnership Interest.
(b) No Limited Partner may withdraw from the Partnership other than as a
result of a permitted Transfer (i.e., a Transfer consented to as
contemplated by clause (a) above or clause (c) below or a Transfer pursuant
to 9.05 below) of all of his Partnership Units pursuant to this Article IX
or pursuant to a redemption of all of his Partnership Units pursuant to
8.06. Upon the permitted Transfer or redemption of all of a Limited
Partner's Partnership Units, such Limited Partner shall cease to be a
Limited Partner.
(c) Subject to 9.02(d), (e) and (f) below, a Limited Partner may
Transfer, with the consent of the General Partner, all or a portion of his
Partnership Units to (i) a spouse, a parent or parent's spouse,
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natural or adopted descendant or descendants, spouse of such descendant, or
brother or sister, or a trust created by such Limited Partner for the
benefit of such Limited Partner and/or any such person(s), of which trust
such Limited Partner or any such person(s) is a trustee, (ii) a corporation,
a general partnership, a limited partnership, or a limited liability company
controlled by a Person or Persons named in (i) above, or (iii) if the
Limited Partner is an entity, its beneficial owners.
(d) No Limited Partner may effect a Transfer of its Limited Partnership
Interest, in whole or in part, if, in the opinion of legal counsel for the
Partnership, such proposed Transfer would require the registration of the
Limited Partnership Interest under the Securities Act, or would otherwise
violate any applicable federal or state securities or blue sky law
(including investment suitability standards).
(e) No Transfer by a Limited Partner of its Partnership Units, in whole
or in part, may be made to any Person if (i) in the opinion of legal counsel
for the Partnership, the transfer would result in the Partnership's being
treated as an association taxable as a corporation (other than a qualified
REIT subsidiary within the meaning of Section 856(i) of the Code), (ii) in
the opinion of legal counsel for the Partnership, it would adversely affect
the ability of the General Partner to continue to qualify as a REIT or
subject the General Partner to any additional taxes under Section 857 or
Section 4981 of the Code, or (iii) such transfer is effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.
(f) No transfer of any Partnership Units may be made to a lender to the
Partnership or any Person who is related (within the meaning of Regulations
Section 1.752-4(b)) to any lender to the Partnership whose loan constitutes
a nonrecourse liability (within the meaning of Regulations Section
1.752-1(a)(2)), without the consent of the General Partner, which may be
withheld in its sole and absolute discretion, PROVIDED THAT as a condition
to such consent the lender will be required to enter into an arrangement
with the Partnership and the General Partner to exchange or redeem for the
Cash Amount any Partnership Units in which a security interest is held
simultaneously with the time at which such lender would be deemed to be a
partner in the Partnership for purposes of allocating liabilities to such
lender under Section 752 of the Code.
(g) Any Transfer in contravention of any of the provisions of this
Article IX shall be void and ineffectual and shall not be binding upon, or
recognized by, the Partnership.
(h) Prior to the consummation of any Transfer under this Article IX, the
transferor and/or the transferee shall deliver to the General Partner such
opinions, certificates and other documents as the General Partner shall
request in connection with such Transfer.
9.03 ADMISSION OF SUBSTITUTE LIMITED PARTNER.
(a) Subject to the other provisions of this Article IX, an assignee of
the Limited Partnership Interest of a Limited Partner (which shall be
understood to include any purchaser, transferee, donee, or other recipient
of any disposition of such Limited Partnership Interest) shall be deemed
admitted as a Limited Partner of the Partnership only with the consent of
the General Partner and upon the satisfactory completion of the following:
(i) The assignee shall have accepted and agreed to be bound by the
terms and provisions of this Agreement by executing a counterpart or an
amendment thereof, including a revised EXHIBIT A, and such other
documents or instruments as the General Partner may require in order to
effect the admission of such Person as a Limited Partner.
(ii) To the extent required, an amended Certificate evidencing the
admission of such Person as a Limited Partner shall have been signed,
acknowledged and filed for record in accordance with the Act.
(iii) The assignee shall have delivered a letter containing the
representation set forth in Section 9.01(a) hereof and the agreement set
forth in Section 9.01(b) hereof.
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(iv) If the assignee is a corporation, partnership or trust, the
assignee shall have provided the General Partner with evidence
satisfactory to counsel for the Partnership of the assignee's authority
to become a Limited Partner under the terms and provisions of this
Agreement.
(v) The assignee shall have executed a power of attorney containing
the terms and provisions set forth in Section 8.02 hereof.
(vi) The assignee shall have paid all legal fees and other expenses
of the Partnership and the General Partner and filing and publication
costs in connection with its substitution as a Limited Partner.
(vii) The assignee has obtained the prior written consent of the
General Partner to its admission as a Substitute Limited Partner, which
consent may be given or denied in the exercise of the General Partner's
sole and absolute discretion.
(b) For the purpose of allocating Profits and Losses and distributing
cash received by the Partnership, a Substitute Limited Partner shall be
treated as having become, and appearing in the records of the Partnership
as, a Partner upon the filing of the Certificate described in Section
9.03(a)(ii) hereof or, if no such filing is required, the later of the date
specified in the transfer documents or the date on which the General Partner
has received all necessary instruments of transfer and substitution.
(c) The General Partner shall cooperate with the Person seeking to
become a Substitute Limited Partner by preparing the documentation required
by this Section and making all official filings and publications. The
Partnership shall take all such action as promptly as practicable after the
satisfaction of the conditions in this Article IX to the admission of such
Person as a Limited Partner of the Partnership.
9.04 RIGHTS OF ASSIGNEES OF PARTNERSHIP INTERESTS.
(a) Subject to the provisions of Sections 9.01 and 9.02 hereof, except
as required by operation of law, the Partnership shall not be obligated for
any purposes whatsoever to recognize the assignment by any Limited Partner
of its Partnership Interest until the Partnership has received notice
thereof.
(b) Any Person who is the assignee of all or any portion of a Limited
Partner's Limited Partnership Interest, but does not become a Substitute
Limited Partner and desires to make a further assignment of such Limited
Partnership Interest, shall be subject to all the provisions of this Article
IX to the same extent and in the same manner as any Limited Partner desiring
to make an assignment of its Limited Partnership Interest.
9.05 EFFECT OF BANKRUPTCY, DEATH, INCOMPETENCE OR TERMINATION OF A LIMITED
PARTNER. The occurrence of an Event of Bankruptcy as to a Limited Partner, the
death of a Limited Partner or a final adjudication that a Limited Partner is
incompetent (which term shall include, but not be limited to, insanity) shall
not cause the termination or dissolution of the Partnership, and the business of
the Partnership shall continue if an order for relief in a bankruptcy proceeding
is entered against a Limited Partner, the trustee or receiver of his estate or,
if he dies, his executor, administrator or trustee, or, if he is finally
adjudicated incompetent, his committee, guardian or conservator, shall have the
rights of such Limited Partner for the purpose of settling or managing his
estate property and such power as the bankrupt, deceased or incompetent Limited
Partner possessed to assign all or any part of his Partnership Interest and to
join with the assignee in satisfying conditions precedent to the admission of
the assignee as a Substitute Limited Partner.
9.06 JOINT OWNERSHIP OF INTERESTS. A Partnership Interest may be acquired
by two individuals as joint tenants with right of survivorship, PROVIDED that
such individuals either are married or are related and share the same home as
tenants in common. The written consent or vote of both owners of any such
jointly held Partnership Interest shall be required to constitute the action of
the owners of such
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Partnership Interest; PROVIDED, HOWEVER, that the written consent of only one
joint owner will be required if the Partnership has been provided with evidence
satisfactory to the counsel for the Partnership that the actions of a single
joint owner can bind both owners under the applicable laws of the state of
residence of such joint owners.
Upon the death of one owner of a Partnership Interest held in a joint
tenancy with a right of survivorship, the Partnership Interest shall become
owned solely by the survivor as a Limited Partner and not as an assignee. The
Partnership need not recognize the death of one of the owners of a jointly-held
Partnership Interest until it shall have received notice of such death. Upon
notice to the General Partner from either owner, the General Partner shall cause
the Partnership Interest to be divided into two equal Partnership Interests,
which shall thereafter be owned separately by each of the former owners.
ARTICLE X
DISSOLUTION, LIQUIDATION AND TERMINATION
10.01 DISSOLUTION. The Partnership shall not be dissolved by the admission
of Substituted Limited Partners or Additional Limited Partners or by the
admission of a successor General Partner in accordance with the terms of this
Agreement. Upon the withdrawal of the General Partner, any successor General
Partner shall continue the business of the Partnership. The Partnership shall
dissolve, and its affairs shall be wound up, only upon the first to occur of any
of the following ("Liquidating Events"):
(a) the expiration of its term as provided in Section 2.04 hereof;
(b) an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless, within ninety (90) days after
such event of withdrawal a majority in interest of the remaining Partners
agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a successor General
Partner
(c) from and after the date of this Agreement through December 31, 2010,
an election to dissolve the Partnership made by the General Partner with the
Consent of Partners holding 85% of the Percentage Interests of the Limited
Partners (including Limited Partner Interests held by the Company);
(d) on or after January 1, 2011, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;
(e) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
(f) the sale of all or substantially all of the assets and properties of
the Partnership; or
(g) a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a
court with appropriate jurisdiction against the General Partner, in each
case under any federal or state bankruptcy or insolvency laws as now or
hereafter in effect, unless prior to the entry of such order or judgment all
of the remaining Partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of a date prior to the date
of such order or judgment, of a substitute General Partner.
10.02 WINDING UP
(a) Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors
and Partners. No Partner shall take any action that is inconsistent with, or
not necessary to or appropriate for, the winding up of the Partnership's
business and affairs. The General Partner, or, in the event there is no
remaining General Partner, any Person elected by a majority in
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interest of the Limited Partners (the General Partner or such other Person
being referred to herein as the "Liquidator"), shall be responsible for
overseeing the winding up and dissolution of the Partnership and shall take
full account of the Partnership's liabilities and property and the
Partnership property shall be liquidated as promptly as is consistent with
obtaining the fair value thereof, and the proceeds therefrom (which may, to
the extent determined by the General Partner, include shares of common stock
in the Company) shall be applied and distributed in the following order:
(i) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than the Partners;
(ii) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General Partner;
(iii) Third, to the payment and discharge of all of the Partnership's
debts and liabilities to the other Partners; and
(iv) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after giving effect
to all contributions, distributions, and allocations for all periods. The
General Partner shall not receive any additional compensation for any
services performed pursuant to this Article X.
(b) Notwithstanding the provisions of Section 10.02(a) hereof which
require liquidation of the assets of the Partnership, but subject to the
order of priorities set forth therein, if prior to or upon dissolution of
the Partnership the Liquidator determines that an immediate sale of part or
all of the Partnership's assets would be impractical or would cause undue
loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to
those Partners as creditors) and/or distribute to the Partners, in lieu of
cash, as tenants in common and in accordance with the provisions of Section
10.02(a) hereof, undivided interests in such Partnership assets as the
Liquidator deems not suitable for liquidation. Any such distributions in
kind shall be made only if, in the good faith judgment of the Liquidator,
such distributions in kind are in the best interest of the Partners, and
shall be subject to such conditions relating to the disposition and
management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties
at such time. The Liquidator shall determine the fair market value of any
property distributed in kind using such reasonable method of valuation as it
may adopt.
(c) In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and
Limited Partners pursuant to this Article X may be:
(i) distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and
paying any contingent or unforeseen liabilities or obligations of the
Partnership or the General Partner arising out of or in connection with
the Partnership. The assets of any such trust shall be distributed to the
General Partner and Limited Partners from time to time, in the reasonable
discretion of the Liquidator, in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant to this
Agreement; or
(ii) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the
Partnership, provided that such withheld or escrowed amounts shall be
distributed to the General Partner and Limited Partners in the manner and
order of priority set forth in Section 10.02(a) as soon as practicable.
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10.03 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS. In the event the
Partnership is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article X to
the General Partner and Limited Partners who have positive Capital Accounts in
compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Partner has
a deficit balance in his Capital Account (after giving effect to all
contributions, distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall have no
obligation to make any contribution to the capital of the Partnership with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Partnership or to any other Person for any purpose whatsoever.
10.04 DEEMED DISTRIBUTION AND RECONTRIBUTION. Notwithstanding any other
provision of this Article X, in the event the Partnership is considered
"liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but
no Liquidating Event has occurred, the Partnership's property shall not be
liquidated, the Partnership's liabilities shall not be paid or discharged, and
the Partnership's affairs shall not be wound up. Instead, for federal income tax
purposes and for purposes of maintaining Capital Accounts, the Partnership shall
be deemed to have distributed the property in kind to the General Partner and
Limited Partners, who shall be deemed to have assumed and taken such property
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken such
property subject to all such liabilities.
10.05 RIGHTS OF LIMITED PARTNERS. Except as otherwise provided in this
Agreement, each Limited Partner shall look solely to the assets of the
Partnership for the return of its Capital Contributions and shall have no right
or power to demand or receive property other than cash from the Partnership.
Except as otherwise provided in this Agreement, no Limited Partner shall have
priority over any other Partner as to the return of its Capital Contributions,
distributions, or allocations.
10.06 NOTICE OF DISSOLUTION. In the event a Liquidating Event occurs or an
event occurs that would, but for the provisions of an election or objection by
one or more Partners pursuant to Section 10.01, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners.
10.07 TERMINATION OF PARTNERSHIP AND CANCELLATION OF CERTIFICATE OF LIMITED
PARTNERSHIP. Upon the completion of the liquidation of the Partnership's
assets, as provided in Section 10.02 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all qualifications
of the Partnership as a foreign limited partnership in jurisdictions other than
the State of Delaware shall be cancelled and such other actions as may be
necessary to terminate the Partnership shall be taken.
10.08 REASONABLE TIME FOR WINDING-UP. A reasonable time shall be allowed
for the orderly winding-up of the business and affairs of the Partnership and
the liquidation of its assets pursuant to Section 10.02 hereof, in order to
minimize any losses otherwise attendant upon such winding-up, and the provisions
of this Agreement shall remain in effect between the Partners during the period
of liquidation.
10.09 WAIVER OF PARTITION. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE XI
BOOKS AND RECORDS; ACCOUNTING; TAX MATTERS; MEETINGS
11.01 BOOKS AND RECORDS. At all times during the continuance of the
Partnership, the Partners shall keep or cause to be kept at the Partnership's
specified office true and complete books of account in accordance with generally
accepted accounting principles, including: (a) a current list of the full
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name and last known business address of each Partner, (b) a copy of the
Certificate of Limited Partnership and all certificates of amendment thereto,
(c) copies of the Partnership's federal, state and local income tax returns and
reports, (d) copies of the Agreement and any financial statements of the
Partnership for the three most recent years and (e) all documents and
information required under the Act. Any Partner or its duly authorized
representative, upon paying the costs of collection, duplication and mailing,
shall be entitled to inspect or copy such records during ordinary business
hours.
11.02 CUSTODY OF PARTNERSHIP FUNDS; BANK ACCOUNTS.
(a) All funds of the Partnership not otherwise invested shall be
deposited in one or more accounts maintained in such banking or brokerage
institutions as the General Partner shall determine, and withdrawals shall
be made only on such signature or signatures as the General Partner may,
from time to time, determine.
(b) All deposits and other funds not needed in the operation of the
business of the Partnership may be invested by the General Partner in
investment grade instruments (or investment companies whose portfolio
consists primarily thereof), government obligations, certificates of
deposit, bankers' acceptances and municipal notes and bonds or such other
investments as shall be permitted by applicable law. The funds of the
Partnership shall not be commingled with the funds of any other Person
except for such commingling as may necessarily result from an investment in
those investment companies permitted by this Section 11.02(b).
11.03 FISCAL AND TAXABLE YEAR. The fiscal and taxable year of the
Partnership shall be the calendar year.
11.04 ANNUAL TAX INFORMATION AND REPORT. Within 75 days after the end of
each fiscal year of the Partnership, the General Partner endeavor to furnish to
each person who was a Limited Partner at any time during such year the tax
information necessary to file such Limited Partner's individual tax returns as
shall be reasonably required by law.
11.05 TAX MATTERS PARTNER; TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS.
(a) The General Partner shall be the Tax Matters Partner of the
Partnership within the meaning of Section 623(a)(7) of the Code. As Tax
Matters Partner, the General Partner shall have the right and obligation to
take all actions authorized and required, respectively, by the Code for the
Tax Matters Partner. The General Partner shall have the right to retain
professional assistance in respect of any audit of the Partnership by the
Service and all out-of-pocket expenses and fees incurred by the General
Partner on behalf of the Partnership as Tax Matters Partner shall constitute
Partnership expenses. In the event the General Partner receives notice of a
final Partnership adjustment under Section 6223(a)(2) of the Code, the
General Partner shall either (i) file a court petition for judicial review
of such final adjustment within the period provided under Section 6226(a) of
the Code, a copy of which petition shall be mailed to all Limited Partners
on the date such petition is filed, or (ii) mail a written notice to all
Limited Partners, within such period, that describes the General Partner's
reasons for determining not to file such a petition.
(b) All elections required or permitted to be made by the Partnership
under the Code or any applicable state or local tax law shall be made by the
General Partner in its sole and absolute discretion.
(c) In the event of a transfer of all or any part of the Partnership
Interest of any Partner, the Partnership, at the option of the General
Partner, may elect pursuant to Section 754 of the Code to adjust the basis
of the Properties. Notwithstanding anything contained in Article V of this
Agreement, any adjustments made pursuant to Section 754 shall affect only
the successor in interest to the transferring Partner and in no event shall
be taken into account in establishing, maintaining or
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<PAGE>
computing Capital Accounts for the other Partners for any purpose under this
Agreement. Each Partner will furnish the Partnership with all information
necessary to give effect to such election.
11.06 REPORTS TO LIMITED PARTNERS.
(a) As soon as practicable after the close of each fiscal quarter (other
than the last quarter of the fiscal year), the General Partner shall cause
to be mailed to each Limited Partner a quarterly report containing financial
statements of the Partnership, or of the General Partner if such statements
are prepared solely on a consolidated basis with the General Partner, for
such fiscal quarter, presented in accordance with generally accepted
accounting principles. As soon as practicable after the close of each fiscal
year, the General Partner shall cause to be mailed to each Limited Partner
an annual report containing financial statements of the Partnership, or of
the General Partner if such statements are prepared solely on a consolidated
basis with the General Partner, for such fiscal year, presented in
accordance with generally accepted accounting principles. The annual
financial statements shall be audited by accountants selected by the General
Partner.
(b) Any Partner shall further have the right to a private audit of the
books and records of the Partnership, provided such audit is made for
Partnership purposes, at the expense of the Partner desiring it and is made
during normal business hours.
11.07 MEETINGS OF THE PARTNERS.
(a) Meetings of the Partners may be called by the General Partner and
shall be called upon the receipt by the General Partner of a written request
by Limited Partners (other than the Company) holding twenty percent (20%) or
more of the Partnership Interests. The request shall state the nature of the
business to be transacted. Notice of any such meeting shall be given to all
Partners not less than seven (7) days nor more than thirty (30) days prior
to the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or Consent of the Partners is permitted or
required under this Agreement, such vote or Consent may be given at a
meeting of the Partners or may be given in accordance with the procedure
prescribed in Section 13.01(a) hereof. Except as otherwise expressly
provided in this Agreement, the Consent of holders of a majority of the
Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the Company) shall control.
(b) Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth
the action so taken is signed by a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent may be in one instrument or in several instruments,
and shall have the same force and effect as a vote of a majority of the
Percentage Interests of the Partners (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
(c) Each Limited Partner may authorize any Person or Persons to act for
him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited
Partner or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of the
Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Limited
Partner executing such proxy.
(d) Each meeting of the Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to
such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate. Without limitation, meetings of Partners
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<PAGE>
may be conducted in the same manner as meetings of the shareholders of the
Company and may be held at the same time, and as part of, meetings of the
shareholders of the Company.
ARTICLE XII
AMENDMENT OF AGREEMENT; MERGER
12.01. AMENDMENT OF AGREEMENT. The General Partner's consent shall be
required for any amendment to this Agreement. The General Partner, without the
consent of the Limited Partners, may amend this Agreement in any respect or
merge or consolidate the Partnership with or into any other partnership or
business entity (as defined in Section 17-211 of the Act) in a transaction
pursuant to Section 7.01(c), (d) or (e) hereof; PROVIDED, HOWEVER, that the
following amendments shall require the consent of Limited Partners (other than
the General Partner and any Limited Partner that is a Subsidiary of the General
Partner) holding more that two-thirds of the Partnership Units held by such
Limited Partners:
(a) any amendment affecting the operation of the Conversion Factor or
the Redemption Right (except as provided in Section 8.06(e) or 7.01(d), as
in effect on the date hereof) in a manner adverse to the Limited Partners;
(b) any amendment that would adversely affect the rights of the Limited
Partners to receive the distributions payable to them hereunder, except that
the Partnership may issue additional Partnership Units in accordance with
Section 4.02 hereof;
(c) any amendment that would alter the Partnership's allocations of
Profit and Loss to the Limited Partners (except that the Partnership may
issue additional Partnership Units in accordance with Section 4.02 hereof;
(d) any amendment that would impose on the Limited Partners any
obligation to make additional Capital Contributions to the Partnership; or
(e) any amendment to Section 2.03(a)(iii), 8.07, 9.02, or Article XII
hereof.
ARTICLE XIII
GENERAL PROVISIONS
13.01 NOTICES. All communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or upon deposit in the United States mail, registered,
postage prepaid return receipt requested, to the Partners at the addresses set
forth in EXHIBIT A attached hereto; PROVIDED, HOWEVER, that any Partner may
specify a different address by notifying the General Partner in writing of such
different address. Notices to the Partnership shall be delivered at or mailed to
its specified office.
13.02 SURVIVAL OF RIGHTS. Subject to the provisions hereof limiting
transfers, this Agreement shall be binding upon and inure to the benefit of the
Partners and the Partnership and their respective legal representatives,
successors, transferees and assigns.
13.03 ADDITIONAL DOCUMENTS. Each Partner agrees to perform all further
acts and execute, swear to, acknowledge and deliver all further documents which
may be reasonable, necessary, appropriate or desirable to carry out the
provisions of this Agreement or the Act.
13.04 SEVERABILITY. If any provision of this Agreement shall be declared
illegal, invalid, or unenforceable in any jurisdiction, then such provision
shall be deemed to be severable from this Agreement (to the extent permitted by
law) and in any event such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
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13.05 ENTIRE AGREEMENT. This Agreement and exhibits attached hereto
constitute the entire Agreement of the Partners and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
13.06 PRONOUNS AND PLURALS. When the context in which words are used in
the Agreement indicates that such is the intent, words in the singular number
shall include the plural and the masculine gender shall include the neuter or
female gender as the context may require.
13.07 HEADINGS. The Article headings or sections in this Agreement are for
convenience only and shall not be used in construing the scope of this Agreement
or any particular Article.
13.08 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
13.09 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have hereunder affixed their
signatures to this Agreement of Limited Partnership, all as of the day of
1998.
GENERAL PARTNER
PACIFIC GATEWAY PROPERTIES
By: __________________________________
Name: ________________________________
Title: _______________________________
INITIAL LIMITED PARTNER:
By: __________________________________
Name: ________________________________
Title: _______________________________
35
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
AGREED
VALUE OF
CASH CAPITAL PARTNERSHIP PERCENTAGE
PARTNER CONTRIBUTION CONTRIBUTION UNITS INTEREST
- ------------------------------------------------------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
INITIAL LIMITED PARTNER:
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
LIMITED PARTNERS:
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
</TABLE>
36
<PAGE>
EXHIBIT E
NEW YORK BUSINESS CORPORATION LAW SECTION 623
PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as the consummation of the corporate action, including
any intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu thereof,
at the election of the corporation, the fair value thereof in cash as determined
by the board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been taken in the
interim.
<PAGE>
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
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(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign corporation without an office in this state, such proceeding shall
be brought in the county where the office of the domestic corporation, whose
shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall have
the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law
for the service of a summons, and upon each nonresident dissenting
shareholder either by registered mail and publication, or in such other
manner as is permitted by law. The jurisdiction of the court shall be
plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as to
whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature
of the transaction giving rise to the shareholder's right to receive payment
for shares and its effects on the corporation and its shareholders, the
concepts and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging in a
similar transaction under comparable circumstances and all other relevant
factors. The court shall determine the fair value of the shares without a
jury and without referral to an appraiser or referee. Upon application by
the corporation or by any shareholder who is a party to the proceeding, the
court may, in its discretion, permit pretrial disclosure, including, but not
limited to, disclosure of any expert's reports relating to the fair value of
the shares whether or not intended for use at the trial in the proceeding
and notwithstanding subdivision (d) of section 3101 of the civil practice
law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such rate
as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money during the
pendency of the proceeding. If the court finds that the refusal of any
shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts employed
by it. Notwithstanding the foregoing, the court
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may, in its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by the corporation against any or all of the
dissenting shareholders who are parties to the proceeding, including any who
have withdrawn their notices of election as provided in paragraph (e), if
the court finds that their refusal to accept the corporate offer was
arbitrary, vexatious or otherwise not in good faith. The Court may, in its
discretion, apportion and assess all or any part of the costs, expenses and
fees incurred by any or all of the dissenting shareholders who are parties
to the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer
or required advance payment was made by the corporation; (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying
with its obligations as provided in this section was arbitrary, vexatious or
otherwise not in good faith. In making any determination as provided in
clause (A), the court may consider the dollar amount or the percentage, or
both, by which the fair value of the shares as determined exceeds the
corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may he held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be deemed
withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares,
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this paragraph.
If the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for his
shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to be
given by a corporation to a shareholder under this section shall be given in the
manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations). (Last amended by Ch. 117, L. '86, eff. 9-1-86.)
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DETACH HERE
PACIFIC GATEWAY PROPERTIES, INC.
PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS
900 NORTH MICHIGAN AVENUE
SUITE 1900, CHICAGO, ILLINOIS
OCTOBER 26, 1998, 9 A.M. CHICAGO TIME
The undersigned hereby appoints Raymond V. Marino and Stephen J. LoPresti
and each of them acting alone, with full power of substitution, as attorneys and
proxies to vote all of the shares of Common Stock of Pacific Gateway Properties,
Inc. (the "Company") which the undersigned is entitled to vote at the Annual
Meeting of Shareholders of the Company to be held October 26, 1998 and any
adjournment or adjournments thereof, upon the proposals set forth on the reverse
hereof and upon all other matters which come before said meeting or any
adjournment or adjournments thereof. The Board of Directors recommends a vote
FOR proposal 1 and FOR proposal 2.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND
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FOR PROPOSAL 2. -------------
- --- SEE REVERSE
SIDE
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE.
<PAGE>
DETACH HERE
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
PLEASE MARK, SIGN, DATE AND MAIL YOUR
PROXY PROMPTLY IN THE ENVELOPE PROVIDED.
1. FOR election of eight (8) Directors as described
in the Proxy Statement of the Board of Directors.
NOMINEES: S.A. Calabrese, M.D. Grossi, N.S. Geller, L.B. Helzel,
C.L. Jarratt, R.V. Marino, R.M. Osborne, M.S. Roher
/ / FOR ALL / / WITHHOLD
NOMINEES FROM ALL
NOMINEES
/ / __________________________________________________
For all nominees except as noted above
2. Approval of the reincorporation of the Company in Maryland and conversion
to a real estate investment trust (REIT).
/ / FOR / / AGAINST / / ABSTAIN
MARK HERE MARK HERE
FOR ADDRESS IF YOU PLAN
CHANGE AND / / TO ATTEND / /
NOTE AT LEFT THE MEETING
If stock is held in the name of more than one person, all
holders should sign. Sign exactly as name or names appear
hereon. Persons signing in a fiduciary capacity should
include their title as such.
Signature:______________ Date:________ Signature: _________________ Date:______
