<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998 Commission file number 0-14510
CEDAR INCOME FUND, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Maryland 42-1241468
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
</TABLE>
44 South Bayles Avenue, #304, Port Washington, NY 11050
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 767-6492
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
- - ------------------- ------------------------
Common Stock, $0.01 par value The NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based on the closing sales price on March 11, 1999 of $5.125 per share, the
aggregate market value of the voting stock held by non-affiliates of the
registrant was $1,804,891.
The number of shares outstanding of the registrant's common stock $.01 par value
was 542,111 on March 11, 1999.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
<PAGE>
TABLE OF CONTENTS
Form 10-K
Item No. Report Page
- - -------- -----------
PART I
1. Business.................................................... I-1
2. Properties.................................................. I-3
3. Legal Proceedings........................................... I-7
4. Submission of Matters to a Vote of Security-Holders......... I-7
PART II
5. Market for Registrant's Common Equity and Related
Matters............................................. II-1
6. Selected Financial Data..................................... II-3
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. II-4
7(a). Quantitative and Qualitative Disclosures about Market Risk.. II-8
8. Financial Statements and Supplemental Data.................. II-9
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. II-26
PART III
10. Directors and Executive Officers of the Registrant.......... III-1
11. Executive Compensation...................................... III-2
12. Security Ownership of Certain Beneficial Owners and
Management.......................................... III-3
13. Certain Relationships and Related Transactions.............. III-4
PART IV
14. Financial Statements and Schedules, Exhibits and
Reports on Form 8-K................................. IV-1
15. Signatures.................................................. IV-3
<PAGE>
Part I.
Item 1. Business
Cedar Income Fund, Ltd. ("Old Cedar") was incorporated in Iowa on December 10,
1984. Old Cedar's public offerings of common stock completed in 1986 and 1988
raised nearly $19 million. Old Cedar invested the proceeds from these offerings
in four real estate properties and a mortgage loan participation, utilizing only
a minimum amount of indebtedness against the properties. The mortgage loan
participation has since been liquidated.
On April 2, 1998, Cedar Bay Company, a New York general partnership ("CBC"),
pursuant to a tender offer to purchase all of the outstanding shares of common
stock of Old Cedar for $7.00 per share in cash (the "Offer"), acquired
1,893,038.335 shares of Old Cedar's outstanding Common Stock, $1.00 par value
per share ("Old Common Stock"), representing approximately 85% of the
outstanding shares.
On June 26, 1998, Old Cedar merged with and into Cedar Income Fund, Ltd., a
Maryland corporation (the "Company) newly formed as a wholly-owned subsidiary of
Old Cedar. Immediately thereafter, the Company assigned substantially all of its
assets and liabilities to a newly-formed Delaware limited partnership, Cedar
Income Fund Partnership, L.P. (the "Operating Partnership"), in exchange for an
aggregate of 2,245,411 units of the Operating Partnership ("Units"), which
constituted the sole general partnership interest and all of the limited
partnership interests in the Operating Partnership. After such assignment, CBC
exchanged 1,703,300 shares of the Company's Common Stock, $.01 par value per
share ("New Common Stock"), for 1,703,300 limited partnership Units in the
Operating Partnership owned by the Company. The shares of New Common Stock were
cancelled by the Company upon their exchange by CBC. Following these
transactions, CBC owned 189,737 shares of New Common Stock, aggregating
approximately 35% of the issued and outstanding shares of New Common Stock.
There were 542,111 shares of New Common Stock outstanding as of December 31,
1998. The Company's shares are traded on the NASDAQ Small Cap Market under the
symbol "CEDR".
Currently, a Unit in the Operating Partnership and a share of Common Stock of
the Company have essentially the same economic characteristics, as they
effectively share equally in net income or loss and distributions of the
Operating Partnership.
The Company operates as a real estate investment trust ("REIT"). To qualify as a
REIT under applicable provisions of the Internal Revenue Code of 1986, as
amended, and Regulations thereto, the Company must have a significant percentage
of its assets invested in, and income derived from, real estate and related
sources. The Company's objectives are to provide its shareholders with a
professionally managed, diversified portfolio of commercial real estate
investments which will provide the best available cash flow and present an
opportunity for capital appreciation.
I-1
<PAGE>
Item 1. Business (continued)
The Company, through its Operating Partnership, owns and operates three office
properties aggregating approximately 224,000 square feet, located in
Jacksonville, Florida, Salt Lake City, Utah and Bloomington, Illinois and a 50%
undivided interest in a 74,000 square foot retail property located in
Louisville, Kentucky.
Cedar Bay Realty Advisors, Inc. serves as investment advisor to the Company
pursuant to an Administrative and Advisory Agreement with the Company
substantially similar to the terms of that agreement previously in effect
between Old Cedar and AEGON USA Realty Advisors, Inc. of Cedar Rapids, Iowa
("AEGON"), which served as investment advisor to the Company from formation
until April 3, 1998. Brentway Management LLC, a New York limited liability
company provides property management services for the Company's properties
pursuant to a management agreement with the Company on substantially the same
terms as the agreement previously in effect with AEGON. Brentway Management LLC
and Cedar Bay Realty Advisors, Inc. are both affiliates of Cedar Bay Company,
SKR Management Corp. and Leo S. Ullman. Leo S. Ullman is Chairman of the Board
of Directors and President of the Company.
On June 1, 1998, the Company entered into a Financial Advisory Agreement (the
"HVB Agreement") with BV Capital Markets, Inc., since renamed HVB Capital
Markets, Inc. ("HVB"), a wholly-owned subsidiary of the Hypo Vereinsbank of
Germany, of which Jean-Bernard Wurm, a director of the Company, serves as
director. Pursuant to the HVB Agreement, HVB has agreed to perform the following
services as financial advisor to the Company: (a) advise on acquisition
financing and/or lines of credit for future acquisitions; (b) advise on
acquisitions of United States real property interests and the consideration to
be paid therefor; (c) advise on private placements of the shares of the Company;
(d) assist the Board of Directors in developing suitable investment parameters
for the Company; (e) develop and maintain contacts on behalf of the Company with
institutions with substantial interests in real estate and capital markets; (f)
advise the Board with respect to additional private or public offerings of
equity securities of the Company; (g) review certain financial policy matters
with consultants, accountants, lenders, attorneys and other agents of the
Company; and (h) prepare periodic reports of its performance of the foregoing
services. As compensation for the foregoing services, the Company is required to
pay to HVB (i) .25% of the Company's net asset value, less any indebtedness
affecting such net value, but in any event, not less than $100,000 per year;
(ii) a one-time payment of 1.5% of 90% of the agreed value of properties
contributed to the Company or its affiliates by persons introduced to the
Company by HVB; and (iii) upon the Company becoming self-administered, a
one-time payment equal to five times the annual fee income attributable to fee
receipts from clients or contacts of HVB that have contributed property to the
Company. The term of the HVB Agreement is for a period of one (1) year and is
automatically renewed annually for an additional year subject to the right of
either party to cancel at the end of any year upon 60 days' written notice.
The Company's real estate investments are not expected to be substantially
affected by current federal, state or local laws and regulations establishing
ecological or environmental restrictions on the development and operations of
such property. However, the enactment of new provisions or laws may reduce the
Company's ability to fulfill its investment objectives.
I-2
<PAGE>
Item 2. Properties
Retail Property
Germantown Square Shopping Center
Louisville, Kentucky
On September 28, 1988, the Company purchased a 50% undivided interest in a
neighborhood shopping center known as Germantown Square Shopping Center in
Louisville, Kentucky ("Germantown"). The remaining 50% undivided interest was
purchased by Life Investors Insurance Company of America ("Life Investors") an
affiliate of the Company's former management company and advisor. Germantown
consists of two single-story buildings totaling 74,267 square feet on a 9.0 acre
site which includes parking for 428 vehicles. The total acquisition cost of the
Company's 50% interest in Germantown was $2,963,674. Subsequent improvements
have increased the Company's recorded cost to $3,740,376.
Germantown represented 20% of the Company's total assets as of December 31,
1998, and provided 16% of total revenue. At December 31, 1998, Germantown was
98% leased to ten tenants under leases having a minimum term of five years (not
including renewal options). Annual base rents range from $7.94 to $16.94 per
square foot. The anchor tenant, Winn Dixie (a grocery store), pays a fixed base
rent plus 1% of gross sales in excess of a specified base. Winn Dixie occupies
59% of Germantown under a lease term expiring in September 2008, with five
five-year options to renew at the same rent. Winn Dixie provided 14% of the
Company's 1998 revenue.
Rental income is expected to decline by approximately 4% in 1999 due to the
lease renewal and downsizing of one tenant. Approximately $13,000 in tenant
improvement costs are expected as a result of the aforementioned downsizing and
lease renewal.
Germantown experiences competition in attracting tenants in its primary trade
area from a number of shopping centers ranging in size from 35,000 square feet
to 600,000 square feet. The effect of this competition is mitigated by high
occupancy rates experienced in the area, as well as the location attributes of
the Germantown site. Germantown's primary market area is mostly developed,
thereby limiting the possibility of additional retail development.
Office Properties
Corporate Center East
Bloomington, Illinois
On March 24, 1988, the Company acquired Corporate Center East, a 25,200 square
foot office building in Bloomington, Illinois for $2,221,783 in cash. Capital
improvements have increased the property's recorded cost to $2,559,393.
I-3
<PAGE>
Item 2. Properties (continued)
In 1997, the Company incurred tenant improvement, lease commission and other
costs of approximately $194,000 in securing one of the tenants, Goshen Fidelity,
Inc., for 12,666 square feet. Included in this cost is the development of
additional parking as required by Goshen Fidelity, Inc., Goshen Fidelity also
had an option to purchase Corporate Center East during the first year of its
lease term at an agreed upon value. This option expired unexercised in February
1998.
Corporate Center East represented 14% of the Company's total assets at December
31, 1998, and provided 13% of 1998 revenue. At December 31, 1998, Corporate
Center East was 100% leased to four tenants under leases having a minimum
remaining term of four months (not including renewal options). Annual base rents
range from $11.00 to $13.15 per square foot. One lease, representing 10% of the
square footage at Corporate Center East, expires in April 1999. The Company is
negotiating a five year lease renewal at market rent. Tenant improvement costs
are estimated to be $15,000. The corresponding leasing commission expense is
estimated to be $3,300. Goshen Fidelity, Corporate Center East's largest tenant,
occupies 12,666 square feet under a lease which expires in February 2000. Rental
receipts from Goshen Fidelity's lease provided 6% of the Company's 1998 revenue.
The property is subject to competition from several office properties in the
same geographic area.
Broadbent Business Center
Salt Lake City, Utah
Broadbent Business Center in Salt Lake City, Utah ("Broadbent") was acquired on
March 31, 1987, for $4,057,950, subject to mortgage loan indebtedness of
$1,966,110. Approximately $300,000 was expended to upgrade the property
immediately after acquisition and subsequent improvements have increased the
property's recorded cost to $4,584,927. The original mortgage indebtedness was
scheduled to mature in September 2008. However, this loan was called by the
lender pursuant to the terms of the note. New financing was obtained in October
1992 in the amount of $1,500,000 to retire the original mortgage which had a
balance of $1,300,472 at the date of retirement.
Broadbent consists of eight single-story buildings totaling 119,500 square feet,
approximately half of which is office use and the other half of which is
service/warehouse, on a 12.5 acre site which includes parking for approximately
320 vehicles. Broadbent represented 22% of the Company's total assets at
December 31, 1998, and provided 31% of 1998 revenue. At December 31, 1998,
Broadbent was 90% occupied by 51 tenants under leases having a minimum term of
one month (not including renewal options) with annual base rents ranging from
$3.50 to $9.00 per square foot. Leases representing 31% of the square footage of
Broadbent expire during 1999.
I-4
<PAGE>
Item 2. Properties (continued)
Cyclopss Corporation ("Cyclopss"), Broadbent's largest tenant representing 3% of
the Company's 1998 revenue, occupied 13,250 square feet under a lease which
expired in December 1998. Due to financial constraints, Cyclopss has reduced its
leased space to 9,150 square feet effective January 1, 1999. A three-year
extension has been signed by the tenant, the terms of which are $5.50 per square
foot for two years with a 5% increase in year three. In the event the tenant's
financial uncertainties are not satisfactorily resolved, the revenues at this
property will in all likelihood be adversely affected, as Cyclopss represents 6%
of projected 1999 revenue for Broadbent. Further, the Company would have to
incur tenant improvement and leasing commission costs in order to secure a
replacement tenant. Broadbent's second largest tenant, Purser Associates' lease,
was renegotiated to include a three year term and an expansion of 4,886 square
feet to 7,500 square feet.
Other national tenants in Broadbent include: IBM, Pitney Bowes, USA Today
(Gannet), Nalley's Fine Foods, Mosler Alarm Systems, DFC Transportation and
Midwest Industrial Tools.
Throughout 1998 new leases and lease renewals have taken longer to conclude than
expected. The market in Broadbent's category has softened; general market
stability during the last half of 1998 and going into 1999 was not as strong as
the previous two years. This was evidenced by the increase in existing tenants
unwilling to commit to long-term leases or opting to vacate, and new tenants
looking for short-term leases ranging from one to two years rather than more
standard three to five year terms.
There is some increased direct competition in Broadbent's immediate geographic
area and there is significant competition from newer projects within its market,
most notably the Salt Lake International Center, a 900 acre business park
adjoining the Salt Lake City International Airport.
Tenants with leases representing approximately 13% of the square footage of
Broadbent will vacate at the expiration of their respective lease terms in 1999
or pursuant to the 30 day notice provisions of the month-to-month tenancies. The
Company is actively pursuing leasing of such potentially vacant spaces. However,
if no additional leases are concluded in 1999, Broadbent could have a vacancy of
as much as 25% by the second quarter 1999.
Southpoint Parkway Center
Jacksonville, Florida
Southpoint Parkway Center in Jacksonville, Florida ("Southpoint") was acquired
on May 6, 1986 for $6,505,495 in cash. Capital expenditures made since the
purchase date have increased the property's recorded cost to $8,019,071.
Southpoint is a single-story office service center consisting of 79,010 square
feet of net leaseable area on approximately 10.8 acres which includes 467
parking spaces. Southpoint represented 40% of the Company's total assets at
December 31, 1998, and provided 38% of its revenue.
I-5
<PAGE>
Item 2. Properties (continued)
At December 31, 1998, the property was 100% leased to eight tenants with
remaining terms ranging from one to seven years (not including renewal options)
and annual base rents ranging from $9.50 to $13.37 per square foot.
The General Services Administration ("GSA"), a United States government agency,
occupies 40,447 square feet in Southpoint under a ten-year lease which expires
in December 2001, with an option to terminate at any time after 90 days' prior
written notice. The Company is aware that the same government agency that
occupies Southpoint has solicited requests for proposals for 100,000 square feet
of space in the downtown market area. After due inquiry, the Company has been
advised that the Southpoint location will not be affected. However, there can be
no assurances with respect thereto. The GSA lease was negotiated in 1991 and, in
connection therewith, the Company purchased 2.9 acres of adjacent land,
constructed a parking lot and made interior building improvements at a total
cost of $988,832 (included in the above $8,019,071). Rental receipts from the
GSA provided 21% of the Company's 1998 revenue.
In 1997, the Company leased an additional 17,116 square feet to an existing
tenant, Intuition, Inc., expanding its total leased premises to 20,827 square
feet at Southpoint. The Company incurred leasing commission and tenant
improvement costs of approximately $179,500 for the Intuition, Inc. expansion.
Intuition, Inc.'s lease term on 20,072 square feet of its 20,827 premises is
through January 31, 2002. The remaining 755 square feet of their space expires
as of October 31, 1999. The Company has been advised that the lease on this
space will not be renewed.
Southpoint competes with other office buildings in the suburban Jacksonville
office market. During the early 1990's, Jacksonville experienced an oversupply
of office space due to new office construction and consolidations by two major
financial services firms, both of which occurred in the late 1980's. Net new
absorption of office space in recent years had resulted in improved office
occupancies and stabilized rents in the Southpoint market area during 1997 and
the first two quarters of 1998. However, during the latter part of 1998,
Southpoint had experienced a further softening of the rental market. Late in the
third quarter of 1998, a major healthcare firm relocated from the Southpoint
market area to the downtown area, resulting in approximately 200,000 vacant
square feet. In addition, new construction, resulting in approximately 500,000
square feet of new office space, will be available late in the third quarter of
1999.
I-6
<PAGE>
Item 2. Properties (continued)
The Company's properties are summarized in the table below.
<TABLE>
<CAPTION>
Occupancy 1998 Revenue
Size at Lease -------------------
Name and Location (Sq. Ft.) December 31, 1998 Expiration Amount Percent
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Germantown Square 74,267 98% 1999-2008 $416,837 16%
Louisville, Kentucky
Corporate Center East 25,200 100 1999-2002 323,427 13
Bloomington, Illinois
Broadbent Business Center 119,500 90 1999-2003 785,693 31
Salt Lake City, Utah
Southpoint Parkway Center 79,010 100 1999-2006 979,415 38
Jacksonville, Florida ------- ---------- ---
297,977 2,505,372 98
=======
Financial and other 59,653 2
---------- ---
$2,565,025 100%
========== ===
</TABLE>
Item 3. Legal Proceedings
Legal Proceedings
The Company is not a party to any pending legal proceedings which, in the
opinion of management, are material to the Company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
I-7
<PAGE>
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Dividend Information
The Company is required to distribute at least 95% of its taxable income to
continue qualification as a real estate investment trust. In 1998, the Company
paid dividends of $0.10 per share in February, May, August and November,
totaling $0.40 per share. While the Company expects to continue to pay dividends
to shareholders, there can be no assurance of future dividends, as they are
dependent upon earnings, cash flow, the financial condition of the Company and
other factors. It should be noted that 1998 dividend payments were substantially
greater than both the Company's net income and the amounts required to be
distributed to continue qualification as a real estate investment trust.
A Form 1099 is mailed to shareholders at the end of each year reflecting the
dividends paid by the Company in that year. The percentages indicated below,
multiplied by the amount of dividends paid for that year, result in the amount
to be reported for income tax purposes.
Dividend Character
1998 1997 1996
-------------------------------------------------------------------
Ordinary
income 57.34% 66.23% 71.24%
Nontaxable
return of
capital 42.66% 33.77% 28.76%
Total 100.00% 100.00% 100.00%
Dividends
paid, per share $.40 $.40 $.40
Market Information
As of June 26, 1998, CBC, which had owned from April 2, 1998, 1,893,038 of the
2,245,411 shares of common stock, exchanged 1,703,300 of such shares for
Operating Partnership units of equal number. The shares were cancelled, and,
accordingly, there are 542,111 shares outstanding to 522 shareholders of record
at December 31, 1998. The Company's shares began trading on the NASDAQ Stock
Market under the symbol CEDR on December 17, 1986. At March 11, 1999, the
Company's per share high and low sales were 5-1/8 high and 5-1/8 low, as
obtained by Wedbush/Morgan Securities, Inc., Newport Beach, California and
Herzog, Heine, Geduld, Inc., New York, New York, the principal market makers for
shares of the Company. These prices reflect quotations between dealers without
adjustment for retail mark-up, mark-down or commission and do not necessarily
represent actual transactions.
II-1
<PAGE>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(continued)
Market Price Range
Quarter Over-the-Counter Sales Prices
Ended High Low Close
--------------------------------------------------------------
1998
March 31 $7 $6-9/16 $6-13/16
June 30 7-3/8 2-1/2 5-1/8
September 30 5-3/4 4-3/4 4-3/4
December 31 7-1/16 4-3/4 6
1997
March 31 4-3/4 3-7/8 4-5/8
June 30 6 4-1/8 5-5/8
September 30 6-3/8 5-3/8 5-7/8
December 31 7-1/4 5-7/8 6-1/2
II-2
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Operating Data
REVENUE
Rents $2,505,372 $ 2,386,549 $2,121,866 $ 2,400,273 $ 2,316,229
Interest 59,653 81,309 95,160 86,884 67,660
---------- ----------- ---------- ----------- -----------
Total revenue 2,565,025 2,467,858 2,217,026 2,487,157 2,383,889
---------- ----------- ---------- ----------- -----------
EXPENSES
Property expenses:
Real estate taxes 262,761 233,160 239,324 228,006 226,426
Repairs and maintenance 252,320 385,806 255,621 318,633 315,393
Utilities 163,279 159,762 146,772 134,362 130,667
Management fee 126,520 130,084 128,053 139,924 159,040
Insurance 18,336 19,270 18,817 16,521 15,699
Other 73,737 92,396 95,517 94,985 92,898
---------- ----------- ---------- ----------- -----------
Property expenses, excluding depreciation 896,953 1,020,388 884,104 932,431 940,123
Depreciation 480,410 462,687 436,739 436,276 436,562
---------- ----------- ---------- ----------- -----------
Total property expenses 1,377,363 1,483,075 1,320,843 1,368,707 1,376,685
Interest 130,197 136,137 138,209 140,096 141,814
Administrative fees 99,180 101,192 100,363 99,359 98,797
Directors' fees and expenses 56,188 49,417 42,382 44,228 49,994
Other administrative 632,199 197,851 53,613 65,146 57,046
---------- ----------- ---------- ----------- -----------
Total expenses 2,295,127 1,967,672 1,655,410 1,717,536 1,724,336
---------- ----------- ---------- ----------- -----------
Net income before limited partner's
interest in Operating Partnership 269,898 500,186 561,616 769,621 659,553
Limited partner's share of income
in Operating Partnership (89,950) - - - -
---------- ----------- ---------- ----------- -----------
Net income $ 179,948 $ 500,186 $ 561,616 $ 769,621 $ 659,553
========== =========== ========== =========== ===========
Net income per share $ 0.13 $ 0.22 $ 0.25 $ 0.34 $ 0.29
========== =========== ========== =========== ===========
Dividends to shareholders $ 557,504 $ 898,164 $ 898,164 $ 898,164 $ 898,164
========== =========== ========== =========== ===========
Dividends to shareholders per share $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.40
========== =========== ========== =========== ===========
Average number of shares outstanding 1,393,761 2,245,411 2,245,411 2,245,411 2,245,411
========== =========== ========== =========== ===========
Balance Sheet Data
Real estate before accumulated
depreciation $18,903,767 $18,762,887 $18,462,902 $18,326,583 $18,326,583
Real estate after accumulated
depreciation $14,205,658 $14,545,188 $14,707,890 $15,008,310 $15,444,586
Total assets $15,323,315 $15,941,683 $16,270,149 $16,610,105 $16,786,232
Mortgage loan payable $ 1,374,751 $ 1,400,259 $ 1,423,492 $ 1,444,654 $ 1,463,929
Limited partner's interest in
Operating Partnership $10,309,316 $ - $ - $ - $ -
Shareholders' equity $ 3,289,520 $14,227,102 $14,625,080 $14,961,628 $15,090,171
Other Data
Funds from operations (1) $ 750,308 $ 962,873 $ 998,355 $ 1,205,897 $ 1,096,115
Total properties square feet 297,977 297,977 297,977 297,977 297,977
Total properties percent leased 95% 98% 89% 91% 98%
</TABLE>
(1) See "Management Discussion and Analysis" for discussion of funds from
operations.
II-3
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the historical
financial statements of Cedar Income Fund, Ltd. (the "Company") and related
notes.
Results of Operations
The Company owns office, office/warehouse, and retail properties in four U.S.
cities. The Company's properties continue to compete with centers and office
buildings of similar size, tenant mix and location. As of December 31, 1998, the
combined lease occupancy of the Company's four properties was 95%. Operating
results in the forthcoming year will be influenced by the ability of current
tenants to continue paying rent, and the Company's ability to renew expiring
tenant leases and obtain new leases at competitive rental rates.
1998 Compared to 1997
The Company's net income for the year ended December 31, 1998 was $179,948 ($.13
per share) compared to $500,186 ($.22 per share) for the year ended December 31,
1997. (All per share amounts are on a basic and diluted basis). The decrease in
net income from 1997 to 1998 was primarily due to legal and consulting expenses
incurred in connection with the tender offer which was completed in March 1998,
the Company's reorganization in June 1998, the payment of financial advisory
fees and other professional expenses, including those incurred in connection
with due diligence reviews for the proposed purchase of additional properties,
none of which have been concluded to date. In addition, the decline in net
income also reflects the accounting treatment of the limited partner's interest
not applicable in prior years.
Rental income was $2,505,372 in 1998 compared to $2,386,549 in 1997, an increase
of $118,833 or 5%. Rental income at Corporate Center East in Bloomington,
Illinois increased by approximately $75,000 due to the full year impact of
revenue (i.e. no vacancy and no rent concessions) from certain space vacant
since 1995. Corporate Center East is currently 100% occupied. Rental income
increased at Southpoint Parkway Center in Jacksonville, Florida by $44,000 (8%)
due to an increase in tenant expense recoveries and increased base rent from a
large tenant. Rental income at Broadbent Business Center in Salt Lake City, Utah
was relatively unchanged from the prior year. Germantown Square in Louisville,
Kentucky experienced a decrease in rental income due to decreased expense
recoveries.
Interest income decreased by approximately $22,000 due to the liquidation in
March 1998 of the mortgage receivable formerly with Life Investors. Interest was
earned for one quarter in 1998 as compared to the full year in 1997.
Property expenses, excluding depreciation, decreased from $1,020,388 in 1997 to
$896,953 in 1998, a decrease of 12%. The decrease in property expenses is
primarily due to substantial repair and maintenance costs resulting from tenant
remodeling and parking lot repair incurred in 1997, but were not required in
1998.
II-4
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Directors' fees and expenses increased by approximately $7,000 primarily due to
directors' liability runoff coverage, travel and meetings associated with the
change of directors and the Company reorganization. Other administrative
expenses increased by approximately $434,000 due to legal and consulting
expenses incurred in connection with the tender offer, the Company's
reorganization to the "umbrella partnership REIT", and the proposed purchase of
new properties. Total administrative costs of $632,199 consisted of
approximately $300,000 in legal, $130,000 in accounting, $60,000 in financial
advisory fees, $45,000 in director's insurance, $40,000 in printing and mailing
of shareholder related materials, and other administrative items such as office
expenses, state taxes and other corporate expenses.
1997 Compared to 1996
The Company's net income for the year ended December 31, 1997 was $500,186 ($.22
per share) compared to $561,616 ($.25 per share) for the year ended December 31,
1996. (All per share amounts are on a basic and diluted basis.) The decrease in
net income from 1996 to 1997 was primarily due to legal and consulting expenses
incurred in connection with the tender offer for all shares of the Company which
was completed in March 1998.
Rental income was $2,386,549 in 1997 compared to $2,121,866 in 1996, an increase
of $264,683 or 12%. Rental income at Corporate Center East in Bloomington,
Illinois increased by $175,000 due to the Company's success in locating
replacement tenants for the 20,000 square feet of space that had been vacant
since the end of 1995. Rental income increased by $51,000 at Broadbent Business
Center in Salt Lake City, Utah due to higher base rents. Rents also increased at
Germantown Square in Louisville, Kentucky and at Southpoint Parkway Center in
Jacksonville, Florida due to an increase in tenant expense recoveries.
Interest income decreased by $14,000 due to a lower balance of funds available
for investment throughout 1997.
Property expenses, excluding depreciation, increased from $884,104 in 1996 to
$1,020,388 in 1997. The increase in property expenses is attributed to the
following items. Wages and salaries decreased by 51% due to the reduction of
property management personnel at Broadbent. Repairs and maintenance increased by
$130,000 primarily due to tenant remodeling, parking lot improvements and other
expenses incurred in 1997 that were not required in 1996. Management fees
increased by $13,000 in 1997, an increase of 12%, corresponding to the 12%
increase in rental income.
Directors' fees and expenses increased by $7,000 primarily due to an increase in
directors and officers' insurance coverage and an increase in the annual
insurance premium. Other administrative expenses increased by $144,000 primarily
due to legal and consulting expenses incurred in connection with the tender
offer.
II-5
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Funds from Operations
Management believes that funds from operations ("FFO") is an appropriate measure
of performance of an equity REIT. FFO is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") as net income or loss, excluding gains
or losses from debt restructurings and sales of properties, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships and
joint ventures. FFO does not represent cash generated from operating activities
in accordance with generally accepted accounting principles and is not
indicative of cash available to fund cash needs. FFO should not be considered as
an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flow as a measure of liquidity. (See
Selected Financial Data). In March 1995, NAREIT issued a "White Paper" analysis
to address certain interpretive issues under its definition of FFO. The White
Paper provides that amortization of deferred financing costs and depreciation of
non-rental real estate assets are no longer to be added back to net income to
arrive at FFO.
Since all companies and analysis do not calculate FFO in a similar fashion, the
Company's calculation of FFO presented herein may not be comparable to similarly
titled measures as reported by other companies.
The following table presents the Company's FFO calculation for the years ended
December 31,
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings before limited partner's
interest in Operating Partnership $269,898 $500,186 $561,616
Less:
Limited partner's interest in the
Operating Partnership 89,950 - -
--------- --------- ---------
Net income available to common shareholders 179,948 500,186 561,616
Adjustment for funds from operations
Add:
Limited partner's interest in the
Operating Partnership 89,950 - -
Depreciation 480,410 462,687 436,739
--------- -------- ---------
Basic and diluted funds from operations $750,308 $962,873 $998,355
========= ========= =========
Weighted average shares/units outstanding (1) 2,245,411 2,245,411 2,245,411
========= ========= =========
</TABLE>
(1) Assumes conversion of limited partnership units of the Operating
Partnership.
II-6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources
The Company's capital resources consist of its current equity in real estate
investments (carrying value less mortgage indebtedness). The Company maintains
the real estate in good condition and provides adequate insurance coverage. The
Company's rental revenues for 1998 were $2,505,372. The rental revenues for 1999
are expected to decrease by approximately $120,000 to $2,385,272 due mainly to
expected vacancies absent any reletting in 1999. As a result, the vacant square
footage is expected to increase from approximately 13,500 to 31,500. The leasing
time-table between getting a lease signed, building-out the space and the tenant
taking possession varies from 6 months to 18 months depending on the market in
the geographical location of the property. Management estimates they will incur
approximately $175,000 in tenant improvement costs to lease-up these vacancies
during 1999. Despite the expected decrease in rental revenues and increase in
tenant improvement costs, liquidity is considered sufficient to meet current
obligations, which include capital expenditures, and is represented by cash and
cash equivalents of $678,196 as of December 31, 1998.
Net cash provided by operating activities, as shown in the Statements of Cash
Flows, was $771,095 for the year ended December 31, 1998. The major uses of cash
in 1998 were dividends to shareholders and distributions to the limited partner
of the Operating Partnership totaling $898,164, and capital expenditures of
$140,880 ($ 28,550 at Broadbent, $18,981 at Southpoint and $93,349 in
capitalized transfer tax for the transfer of Company assets to the Operating
Partnership in June 1998). A fourth quarter dividend was declared on January 19,
1999 to shareholders of record on March 1, 1999, payable March 15, 1999. The
Board of Directors continues to closely monitor occupancies, leasing activity,
overall Company operations, and liquidity in determining quarterly dividends.
The Company's debt service commitments for the mortgage loan payable are
described in Note 6 to the Financial Statements. There are no other material
commitments at December 31, 1998.
Inflation
Low to moderate levels of inflation during the past few years have favorably
impacted the Company's operations by stabilizing operating expenses. At the same
time, low inflation has the indirect effect of reducing the Company's ability to
increase tenant rents. The Company's properties have tenants whose leases
include expense reimbursements and other provisions to minimize the effect of
inflation. These factors, in the long run, are expected to result in more
attractive returns from the Company's real estate portfolio as compared to
short-term investment vehicles.
II-7
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 Issue
Although the Company does not employ any computer systems in its business, the
Company could be adversely affected if the computer systems used by the Advisor
(Cedar Bay Realty Advisors, Inc.), Property Manager (Brentway Management LLC),
and other service providers do not properly process and calculate the
date-related information from and after January 1, 2000. The Advisor and
Property Manager have taken steps that they believe are reasonably designed to
address this issue. These steps include an upgrade of their computer software to
a version that will properly process and calculate the date related information
from and after January 1, 2000. The upgrade was completed on January 15, 1999.
The Advisor and Property Manager are satisfied that the properties have no year
2000 issues since there are no elevators or other date sensitive equipment that
would have an adverse effect on the operation of the buildings. In addition, the
Advisor and Property Manager will endeavor to obtain reasonable assurances that
comparable steps are being taken by the Company's other major service providers.
While the Advisor and Property Manager believe their efforts are adequate to
address the Company's year 2000 concerns, there can be no assurances that the
systems of the other companies on which the Company's operations rely will be
converted on a timely basis and will not have a material effect on the Company.
Item 7(a). Quantitative and Qualitative Disclosures about Market Risk
The primary market risk facing the Company is interest rate risk on its mortgage
loan payable. The Company does not hedge interest rate risk using financial
instrument nor is the Company subject to foreign currency risk.
The following table sets for the Company's long term debt obligations, principal
cash flows by scheduled maturity, weighted average interest rates and estimated
fair market value ("FMV") at December 31, 1998:
<TABLE>
<CAPTION>
For the Year ended December 31,
-------------------------------
1999 2000 2001 2002 Total FMV
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long term debt:
Fixed rate $28,004 $30,742 $33,755 $1,282,250 $1,374,751 $1,466,113
Average interest rate 9.38% 9.38% 9.38% 9.38% 9.38%
</TABLE>
The fair value of the Company's mortgage loan payable is estimated based on the
discounting of future cash flows at interest rates that management believes
reflects the risks associated with mortgage loan payable at similar risk and
duration.
II-8
<PAGE>
Item 8. Financial Statements and Schedules
Page
----
Report of Independent Auditors........................................ II-10
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997................................................... II-11
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.................................... II-12
Consolidated Statements of Stockholder's Equity for the years
ended December 31, 1998, 1997 and 1996.............................. II-13
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.................................... II-14
Notes to Financial Statements......................................... II-15
II-9
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Cedar Income Fund, Ltd.
We have audited the accompanying consolidated balance sheets of Cedar Income
Fund, Ltd. as of December 31, 1998 and 1997, and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cedar Income Fund,
Ltd. at December 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young
New York, NY
February 24, 1999
II-10
<PAGE>
Item 8. Financial Statements and Supplementary Data
Cedar Income Fund, Ltd.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1998 1997
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate (Note 3)
Land $ 4,144,705 $ 4,126,044
Buildings and improvements 14,759,062 14,636,843
----------- -----------
18,903,767 18,762,887
Less accumulated depreciation (4,698,109) (4,217,699)
----------- -----------
14,205,658 14,545,188
Mortgage loan receivable (Note 4) - 564,437
----------- -----------
14,205,658 15,109,625
Cash and cash equivalents (Note 2) 678,196 407,216
Rent and other receivables 108,196 130,615
Interest receivable - 3,881
Prepaid expenses 107,283 109,624
Deferred leasing commissions (Note 1) 131,350 164,826
Due from co-tenancy partner (Note 8) 61,323 -
Deferred rental receivables (Note 1) 21,500 -
Taxes held in escrow 9,809 15,896
----------- -----------
Total assets $15,323,315 $15,941,683
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Mortgage loan payable (Notes 2 and 6) $ 1,374,751 $ 1,400,259
Accounts payable and accrued expenses 172,358 162,320
Due to co-tenancy partner (Note 8) 46,570 62,570
Security deposits 84,466 80,085
Advance rents 46,334 9,347
----------- -----------
Total liabilities 1,724,479 1,714,581
Limited partner's interest in consolidated
Operating Partnership (Note 1) 10,309,316 -
Shareholders' equity
Common stock ($.01 and $1.00 par value,
50,000,000 and 5,020,000 shares
authorized, 542,111 and 2,245,411 shares
issued and outstanding, respectively) 5,421 2,245,411
Additional paid-in capital 3,284,099 11,981,691
----------- -----------
Total shareholders' equity 3,289,520 14,227,102
----------- -----------
Total liabilities and shareholders' equity $15,323,315 $15,941,683
=========== ===========
</TABLE>
See the accompanying notes to financial statements.
II-11
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Rents $2,505,372 $2,386,549 $2,121,866
Interest 59,653 81,309 95,160
---------- ---------- ----------
2,565,025 2,467,858 2,217,026
Expenses
Property expenses
Real estate taxes 262,761 233,160 239,324
Repairs and maintenance 252,320 385,806 255,621
Utilities 163,279 159,672 146,772
Management fees (Note 7) 126,520 130,084 128,053
Insurance 18,336 19,270 18,817
Other 73,737 92,396 95,517
---------- ---------- ----------
Property expenses, excluding depreciation 896,953 1,020,388 884,104
Depreciation 480,410 462,687 436,739
---------- ---------- ----------
Total property expenses 1,377,363 1,483,075 1,320,843
Interest 130,197 136,137 138,209
Administrative fees (Note 7) 99,180 101,192 100,363
Directors' fees and expenses 56,188 49,417 42,382
Other administrative 632,199 197,851 53,613
---------- ---------- ----------
2,295,127 1,967,672 1,655,410
---------- ---------- ----------
Net income before limited partner's
interest in Operating Partnership 269,898 500,186 561,616
Limited partner's interest (89,950) - -
---------- ---------- ----------
Net income $ 179,948 $ 500,186 $ 561,616
========== ========== ==========
Basic and diluted net income per share $ .13 $ .22 $ .25
========== ========== ==========
Dividends to shareholders $ 557,504 $ 898,164 $ 898,164
========== ========== ==========
Dividends to shareholders per share $ .40 $ .40 $ .40
========== ========== ==========
Average number of shares outstanding 1,393,761 2,245,411 2,245,411
========== ========== ==========
</TABLE>
See the accompanying notes to financial statements.
II-12
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Additional Undistributed Total
Common Paid-In Net Shareholders'
Stock Capital Earnings Equity
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 $ 2,245,411 $ 12,716,217 $ - $ 14,961,628
Net earnings - - 561,616 561,616
Dividends to shareholders - (336,548) (561,616) (898,164)
----------- ------------ --------- -----------
Balance at December 31, 1996 2,245,411 12,379,669 - 14,625,080
Net earnings - - 500,186 500,186
Dividends to shareholders - (397,978) (500,186) (898,164)
----------- ------------ --------- -----------
Balance at December 31, 1997 2,245,411 11,981,691 - 14,227,102
Net earnings - - 179,948 179,948
Dividends to shareholders - (377,556) (179,948) (557,504)
Change in par value (Note 1) (536,690) 536,690 - -
Canceled shares (Note 1) (1,703,300) 1,703,300 - -
Limited partner's interest in
Operating Partnership (Note 1) - (10,560,026) - (10,560,026)
----------- ------------ --------- -----------
Balance at December 31, 1998 $ 5,421 $ 3,284,099 $ - $ 3,289,520
=========== ============ ========= ===========
</TABLE>
See the accompanying notes to financial statements.
II-13
<PAGE>
Cedar Income Fund, Ltd.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net Income $ 179,948 $ 500,186 $ 561,616
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Limited partner's interest in Operating Partnership 89,950 - -
Depreciation and amortization 483,161 466,353 436,739
Increase in deferred rental receivable (21,500) - -
Changes in operating assets and liabilities:
(Decrease) increase in rent and other receivable 22,419 (35,202) (15,200)
Decrease in interest receivable 3,881 65 61
Increase in prepaid expenses (410) (28,532) (40,483)
Increase (decrease) in deferred lease commissions 33,477 (48,678) (1,341)
Increase (decrease) in tax held in escrow 6,087 1,801 (14,117)
Increase in accounts payable 10,038 58,983 3,664
Decrease in amounts due from co-tenancy partner (61,323) - -
(Increase) decrease in due to co-tenancy partner (16,000) 26,032 7,776
Security deposits collected, net 4,381 13,430 (214)
Increase (decrease) in advance rents 36,986 (5,700) 6,528
------------- --------- ---------
Net cash provided by operating activities 771,095 948,738 945,029
Cash Flows from Investing Activities
Capital expenditures (140,880) (299,985) (136,319)
Sale and collection of mortgage loan receivable 564,437 9,554 8,778
------------- --------- ---------
Net cash provided by (used) in investing activities 423,557 (290,431) (127,541)
Cash Flow from Financing Activities
Principal portion of scheduled mortgage payments (25,508) (23,233) (21,162)
Dividends paid (557,504) (898,164) 898,164
Distributions to limited partner (340,660) - -
------------- --------- ---------
Net cash used in financing activities (923,672) (921,397) (919,326)
------------- --------- ---------
Net increase (decrease) in cash and cash equivalents 270,980 (263,090) (101,838)
Cash and cash equivalents at beginning of the period 407,216 670,306 772,144
------------- --------- ---------
Cash and cash equivalents at end of the period $ 678,196 $ 407,216 $670,306
============= ========= =========
Supplemental Disclosure of Cash Activities
Interest paid $ 130,197 $ 136,137 $ 138,209
============= ========= =========
Supplemental Disclosure of Non-Cash Financing
Activities
Canceled shares $ (1,703,300) $ - $ -
============= ========= =========
Decrease in par value from $1 to $.01 $ (506,690) $ - $ -
============= ========= =========
Recordation of initial limited
partner's interest $(10,560,026) $ - $ -
============= ========= =========
</TABLE>
See the accompanying notes to financial statements.
II-14
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements
December 31, 1998
1. Description of Business and Significant Accounting Policies
Background, Organization and Reorganization of the Company
Cedar Income Fund, Ltd. ("Old Cedar") was incorporated in Iowa on December 10,
1984. Old Cedar's public offerings of common stock completed in 1986 and 1988
raised nearly $19 million. Old Cedar invested the proceeds from these offerings
in four real estate properties and a mortgage loan participation, utilizing only
a minimum amount of indebtedness against the properties. The mortgage loan
participation has since been liquidated (see Note 4).
On April 2, 1998, Cedar Bay Company, a New York general partnership ("CBC"),
pursuant to a tender offer to purchase all of the outstanding shares of common
stock of Old Cedar for $7.00 per share in cash (the "Offer"), acquired
1,893,038,335 shares of Old Cedar's outstanding Common Stock, $1.00 par value
per share ("Old Common Stock") representing approximately 85% of the outstanding
shares.
On June 26, 1998, Old Cedar merged with and into Cedar Income Fund, Ltd., a
Maryland corporation (the "Company") newly formed as a wholly-owned subsidiary
of Old Cedar. Immediately thereafter, the Company assigned substantially all of
its assets and liabilities to a newly-formed Delaware limited partnership, Cedar
Income Fund Partnership, L.P. (the "Operating Partnership"), in exchange for an
aggregate of 2,245,411 units of the Operating Partnership ("Units"), which
constituted the sole general partnership interest and all of the limited
partnership interests in the Operating Partnership. After such assignment, CBC
exchanged 1,703,300 shares of the Company's Common Stock, $.01 par value per
share ("New Common Stock"), for 1,703,300 limited partnership Units in the
Operating Partnership owned by the Company. The shares of New Common Stock were
cancelled by the Company upon their exchange by CBC. Following these
transactions, CBC owned 189,737 shares of New Common Stock, aggregating
approximately 35% of the issued and outstanding shares of New Common Stock.
There were 542,111 shares of New Common Stock outstanding as of December 31,
1998. The Company's shares are traded on the NASDAQ Small Cap Market under the
symbol "CEDR".
Description of Business
The Company is engaged in ownership, management, operation and leasing of real
estate properties, principally office and retail located in four U.S. states:
Utah, Illinois, Florida and Kentucky.
The Company, through its Operating Partnership, owns and operates three office
properties aggregating approximately 224,000 square feet located in
Jacksonville, Florida, Salt Lake City, Utah and Bloomington, Illinois and a 50%
co-tenancy interest in a 74,000 square foot retail property located in
Louisville, Kentucky.
II-15
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Basis of Presentation and Summary of Significant Accounting Policies
Consolidation Policy and Related Matters
The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership as of December
31, 1998. All significant intercompany balances and transactions have been
eliminated in consolidation.
Since the Company owns the sole general partnership interest in the Operating
Partnership, which provides the Company with effective control over all
significant activities of the Operating Partnership, the Operating Partnership
is consolidated with the Company in the accompanying financial statements as of
December 31, 1998.
The limited partner's interest as of December 31, 1998 (currently owned entirely
by CBC) represents approximately a 76% limited partnership interest in the
equity of the Operating Partnership.
Currently, a Unit in the Operating Partnership and a share of Common Stock of
the Company have essentially the same economic characteristics, as they
effectively share equally in net income or loss and distributions of the
Operating Partnership.
The accompanying financial statements include its 50% co-tenancy interest in the
assets, liabilities and operations of the retail property.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Minimum rental income is recognized on a straight-line basis over the term of
the lease. The excess of rents recognized over amounts contractually due are
included in deferred rents receivable on the accompanying balance sheets.
Contractually due but unpaid rents are included in tenant receivables on the
accompanying balance sheets. Certain lease agreements provide for reimbursement
on real estate taxes, insurance, common area maintenance costs and indexed
rental increases, which are recorded on an accrual basis.
II-16
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Real Estate
Depreciation is computed utilizing the straight-line method over the estimated
useful lives of ten to forty years for buildings and improvements. Tenant
improvements, which are included in buildings and improvements, are amortized on
a straight-line basis over the term of the related leases.
Cash Equivalents
The Company considers highly liquid investments with a maturity of three months
or less when purchased, to be cash equivalents.
Deferred Costs
Leasing fees and loan costs are capitalized and amortized over the life of the
related lease or loan.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation," (FAS No. 123) requires use of option valuation models
that were not developed for use in valuing employee stock options. No stock
options have been granted to date.
The Company established a stock option plan (the "Plan") for the purpose of
attracting and retaining executive officers, directors and other key employees,
500,000 of the Company's authorized shares of Common Stock have been reserved
for the issuance under the Plan. The Plan is administered by a committee of the
Board of Directors, which committee will, among other things, select the number
of shares subject to each grant, the vesting period for each grant and the
exercise price (subject to applicable regulations with respect to incentive
stock options) for the options. As of December 31, 1998, no options have been
granted under the Plan.
Earnings Per Share
Statement of Financial Accounting Standard Board ("FASB") No. 128, Earnings per
Share, was issued and adopted by the Company during 1997. Statement No. 128
replaced the calculation of primary and fully diluted earnings per share with
II-17
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
basic and diluted earnings per share. Since the Company has no potentially
dilutive securities outstanding, basic and diluted net income per share in
accordance with Statement No. 128 are the same and do not differ from amounts
previously reported as net income per share (primary earnings per share).
Accordingly, basic and diluted net income per share are computed using the
weighed average number of shares outstanding during the year.
Basic and diluted net income per share are based on the weighted average number
of shares outstanding (1,393,761 in 1998 and 2,245,411 for the years 1997 and
1996). Dividends to shareholders per share are based on the actual number of
shares outstanding on the respective dates.
Recent Pronouncements
In 1997, the FASB issued the following statements (i) Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130") which is effective for fiscal
years beginning after December 17, 1997. SFAS 130 established standards for
reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 130 requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of this standard
had no impact on the Company's financial position or results of operations (ii)
Statement No. 131 "Disclosures about segments of an Enterprise and Related
Information" ("SFAS 131") which is effective for fiscal years beginning after
December 15, 1997. SFAS 131 establishes standards for reporting information
about operating segments in annual financial statements and in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The adoption of this
standard had no impact on the Company's financial position or results of
operations, but did affect the disclosure of segment information.
Income Taxes
The Company generally will not be subject to federal income taxes as long as it
qualifies as a real estate investment trust "REIT" under Section 856-869 of the
Internal Revenue Code of 1986, as amended (the "Code"). A REIT will generally
not be subject to federal income taxation on that portion of income that
qualifies as REIT taxable income and to the extent that it distributes such
taxable income to its stockholders and complies with certain requirements of the
code relating to income and assets. As a REIT, the Company is allowed to reduce
taxable income by all or a portion of distributions to stockholders and must
distribute at least 95% of its taxable income to qualify as a REIT. As
distributions, for federal income tax purposes, have exceeded taxable income, no
federal income tax provision has been reflected in the accompanying consolidated
financial statements. State income taxes are not significant.
II-18
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Impairment of Long-Lived Assets
The Company reviews its real estate assets if indicators of impairment are
present to determine whether the carrying amount of the asset will be recovered.
Recognition of impairment is required if the undiscounted cash flows estimated
to be generated by the asset are less than the asset's carrying amount.
Measurement is based upon the fair value of the asset. As of December 31, 1998,
management determined that no impairment indicators exist.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
Cash and cash equivalents: The carrying amounts of cash and cash equivalents
approximate their fair values.
Mortgage loan payable: The fair value of the mortgage loan payable is estimated
utilizing discounted cash flow analysis, using interest rates reflective of
current market conditions and the risk characteristics of the loans.
II-19
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
2. Fair Value of Financial Instruments (continued)
The following sets forth a comparison of the fair values and carrying values of
the Company's financial instruments subject to the provisions of Statement of
Financial Accounting Standard No. 107:
<TABLE>
<CAPTION>
1998 1997
--------------------------- --------------------------
Carrying Fair Carrying Fair
Value Value Value Value
--------------------------- --------------------------
<S> <C> <C> <C> <C>
Assets
Mortgage loan receivable $ - $ - $ 564,437 $ 581,013
========== ========== ========== ==========
Cash and cash equivalents $ 678,196 $ 678,196 $ 407,216 $ 407,216
========== ========== ========== ==========
Liabilities
Mortgage loan payable $1,374,751 $1,466,113 $1,400,259 $1,526,689
========== ========== ========== ==========
</TABLE>
3. Real Estate and Accumulated Depreciation
The Company's properties are leased to various tenants, whereby the Company
incurs normal real estate operating expenses associated with ownership. In 1998,
the Company incurred capital expenditures of $140,880. Improvements for new and
existing tenants totaled $47,531. Transfer taxes of $93,349 were paid in
connection with the transfer of the Company's assets to the Operating
Partnership. Such taxes have been capitalized and allocated 20/80 between land
and building and the building portion is being amortized over forty years. In
1997 the Company incurred capital expenditures of $299,985. The improvements
consisted of tenant build-outs and the development of additional parking.
Information regarding the Company's investment in each property is presented in
the Schedule of Real Estate and Accumulated Depreciation that follows.
II-20
<PAGE>
3. Real Estate and Accumulated Depreciation (continued)
Information on Real Estate and Accumulated Depreciation
<TABLE>
<CAPTION>
Gross Amount at Which Carried
Initial Cost to Company December 31, 1998
----------------------- ---------------------------
Property Description Subsequent
Name and Location Amount of Buildings & Cost Buildings &
of Property Encumbrance Land Improvements Capitalized Land Improvements
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Germantown Square $ -- $ 678,675 $ 2,284,999 $ 776,702 $ 683,365 $ 3,057,011
Louisville, Kentucky
(Shopping Center)
Corporate Center East -- 475,000 1,746,783 337,610 479,600 2,079,793
Bloomington, Illinois
(Office Building)
Broadbent Business Center 1,374,751 595,000 3,462,950 526,977 599,681 3,985,246
Salt Lake City, Utah
(Office/Service Facility)
Southpoint Parkway Center -- 2,005,495 4,500,000 1,513,576 2,382,059 5,637,012
Jacksonville, Florida
(Office/Service Facility)
- - --------------------------------------------------------------------------------------------------------------------------------
$1,374,571 $3,754,170 $11,994,732 $3,154,865 $4,144,705 $14,759,062
========== ========== =========== ========== ========== ===========
Gross Amount at Which Carried
December 31, 1998
------------------------------
Life on Which
Property Description Depreciation
Name and Location Accumulated Date Date is Computed
of Property Total Depreciation Built Acquired (in years)
- - ----------------------------------------------------------------------------------------------------------
Germantown Square $ 3,740,376 $ 766,575 1988 9/88 10-40
Louisville, Kentucky
(Shopping Center)
Corporate Center East 2,559,393 524,453 1987 3/88 10-40
Bloomington, Illinois
(Office Building)
Broadbent Business Center 4,584,927 1,266,451 1978 3/87 10-40
Salt Lake City, Utah
(Office/Service Facility)
Southpoint Parkway Center 8,019,071 2,140,630 1984 5/86 10-40
Jacksonville, Florida
(Office/Service Facility)
- - ----------------------------------------------------------------------------------------------------------
$18,903,767 $4,698,109
=========== ==========
</TABLE>
II-21
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
3. Real Estate and Accumulated Depreciation (continued)
The activity in real estate and related accumulated depreciation for the
three-year period ended December 31, 1998 is summarized in the table below.
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost
Beginning of year $18,762,887 $18,462,902 $18,326,583
Additions during year improvements 140,880 299,985 136,319
----------- ----------- -----------
End of year $18,903,767 $18,762,887 $18,462,902
=========== =========== ===========
Accumulated Depreciation
Beginning of year $ 4,217,699 $ 3,755,012 $ 3,318,273
Additions during year depreciation expense 480,410 462,687 436,739
----------- ----------- -----------
End of year $ 4,698,109 $ 4,217,699 $ 3,755,012
=========== =========== ===========
</TABLE>
4. Mortgage Loan Receivable
On September 20, 1993, Old Cedar purchased a 30% participation in a promissory
note from Life Investors, an affiliate of AEGON, the Company's former advisor.
The participation was acquired for an investment of $600,000 with a yield of
8.25% to Old Cedar. The promissory note which was to mature in August 2000, and
was secured by a deed of trust on the Woodbury Office Plaza in Woodbury,
Minnesota, was repurchased by Life Investors, as permitted under the note, for
cash in the amount of $561,920 on March 30, 1998.
Information on Mortgage Loan Receivable
<TABLE>
<CAPTION>
Periodic Payment
Terms
----------------
Carrying
Face Amount of Amount of
Stated Final Annual Balloon Mortgage Mortgage
Property Description Date of Interest Maturity Principal Payment at Receivable at December 31,
Name and Property Location Mortgage Rate Date and Interest March 1998 Acquisition 1998
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Woodbury Plaza
Woodbury, Minnesota 8-1-93 8.25% 8-1-00 $56,577 $561,920 $600,000 --
</TABLE>
II-22
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
4. Mortgage Loan Receivable (continued)
The activity for the mortgage loan receivable for the three-year period ended
December 31, 1998, is summarized as follows:
Years ended December 31,
Mortgage Loan Receivable 1998 1997 1996
- - ----------------------------------------------------------------------
Principal
Beginning of year $ 564,437 $573,991 $582,769
Deductions during year
scheduled payments (2,517) (9,554) (8,778)
Purchase (561,920) - -
--------- -------- --------
End of year $ - $564,437 $573,991
========= ======== ========
5. Leased Assets
The Company's properties are leased to tenants under short-term, non-cancelable
operating lease agreements. Future minimum lease rentals to be received under
the terms of these lease agreements are approximately as follows:
Year Amount
---------------------------------------------
1999 $1,878,600
2000 1,264,300
2001 1,014,300
2002 678,700
2003 429,300
Thereafter 1,696,200
----------
$6,961,400
==========
Contingent rentals (expense recoveries) provided by various leases were included
in rental income for 1998, 1997 and 1996 of $281,874, $284,219 and $238,461
respectively.
The Company derived 10% or more of its revenue from two major tenants in 1998.
Revenues from GSA, a tenant at Southpoint, was $534,648 in 1998. Revenues from
Winn Dixie, a tenant at Germantown, was $349,466 in 1998.
II-23
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
6. Mortgage Loan Payable
On October 30, 1992 the Company borrowed $1,500,000 to finance an existing
property. As of December 31, 1998, the mortgage outstanding principal balance is
$1,374,751. This loan is collateralized by Broadbent Business Center, with a
carrying amount of $3,318,485. The mortgage requires the repayment of principal
based on a 30 year amortization schedule at an interest rate of 9.375% and
matures November 1, 2002. At maturity there will be a balloon payment of
$1,254,779. There is a prepayment provision which states from 10/97 to 10/98
5% will be charged which declines by 1% per year thereafter.
Principal payments on the outstanding balance due in the next four years are
summarized as follows:
Principal
Year Payments
---------------------------
1999 $ 28,004
2000 30,742
2001 33,755
2002 1,282,250
----------
$1,374,751
==========
7. Related Party Transactions
The Company has entered into an agreement with Cedar Bay Realty Advisors, Inc.
("Cedar Bay") to provide administrative and advisory services for a monthly base
fee of 1/12 of 3/4 of 1% of the estimated current value of real estate plus 1/12
of 1/4 of 1% of the estimated current value of all assets of the Company other
than real estate, and an annual subordinated incentive fee equal to 15% of the
gain on property sold subject to certain limitation. This agreement is
substantially the same as the previous agreement entered into with AEGON, which
expired on April 3, 1998. Cedar Bay also provides real estate acquisition
services for a fee equal to 5% of the gross purchase price of property acquired
and disposition services for a fee equal to 3% of the gross sales price of
property sold, subject to certain limitations. The administrative and advisory
agreement is for a period of one year, automatically renewed annually and
cancelable on 60 days' written notice by either party.
With the exception of Germantown Square Shopping Center in Louisville, Kentucky
("Germantown Square"), Brentway Management LLC (the "Property Manager") provides
property management services to the Company's real property for a monthly fee
equal to 5% of the gross income from properties managed. The Property Manager
also provides leasing services to the Company for a fee of up to 6% of the rent
to be paid during the term of the lease procured. The management agreement is
for a period of one year, automatically renewed annually and cancelable on 60
days' written notice by either party. This agreement is essentially the same as
II-24
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
7. Related Party Transactions (continued)
the previous agreement with AEGON. Due to Life Investors' continuing ownership
of the other 50% co-tenancy therein, AEGON continues to manage
Germantown Square upon similar terms as described above.
The Company, has entered into a Financial Advisory Agreement with HVB Capital
Markets Inc., as successor to B.V. Capital Markets, Inc. pursuant to which HVB
has agreed to perform the following services as financial advisor to the
Company: (a) advise on acquisition financing and/or lines of credit for future
acquisitions; (b) advise on acquisitions of United States real property
interests and the consideration to be paid therefor; (c) advise on private
placements of the shares of the Company; (d) assist the Board of Directors in
developing suitable investment parameters for the Company; (e) develop and
maintain contacts on behalf of the Company with institutions with substantial
interests in real estate and capital markets; (f) advise the Board with respect
to additional private or public offerings of equity securities of the Company;
(g) review certain financial policy matters with consultants, accountants,
lenders, attorneys and other agents of the Company; and (h) prepare periodic
reports of its performance of the foregoing services. As compensation for the
foregoing services, the Company is required to pay HVB, (i) .25% of the
Company's net asset value, less any indebtedness affecting such net value, but
in any event, not less than $100,000 per year; (ii) a one-time payment of 1.5%
of 90% of the agreed value of properties contributed to the Company or its
affiliates by persons introduced to the Company by HVB; and (iii) upon the
Company becoming self-administered, a one-time payment equal to five times the
annual fee income attributable to fee receipts from clients or contacts of HVB
that have contributed property to the Company. The term of the HVB Agreement is
for a period of one (1) year and is automatically renewed for an additional year
subject to the right of either party to cancel at the end of any year upon 60
days' written notice. One of the directors of the Company is an officer of HVB.
In September 1993, the Company purchased participations in promissory notes
owned by various affiliates of AEGON. In March 1998, the affiliates of AEGON
exercised their right to repurchase the entire mortgage receivable from the
Company. The Company invested the proceeds in the Company's money market fund.
The Company received interest income from the participations of $2,517, $46,933
and $47,691 for the first quarter of 1998, and the full years 1997 and 1996
respectively.
II-25
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
7. Related Party Transactions (continued)
The following schedule represents amounts paid to related parties:
Cedar Income Fund, Ltd.
Schedule of Management, Administrative and Advisory and Leasing Fees
<TABLE>
<CAPTION>
Years ended December 31,
Jan 1 - Apr 1 -
Mar 31, 1998 Dec 31, 1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees
AEGON $31,952 $16,440 $119,328 $106,093
Brentway - 44,587 - -
Leasing Fees
AEGON 23,561 - 44,906 36,901
Administrative and Advisory
Cedar Bay - 73,404 - -
AEGON 25,770 - 101,192 100,363
HVB - 58,808 - -
</TABLE>
8. Co-tenancy Interest
On September 28, 1988, the Company purchased a 50% co-tenancy interest in
Germantown Square Shopping Center in Louisville, Kentucky. The remaining 50%
co-tenancy interest is owned by Life Investors an affiliate of AEGON. Germantown
is managed solely by AEGON. The Company paid management fees of $16,440 for the
period April 1, 1998 to December 31, 1998. As of December 31, 1998, due to
co-tenancy partner, and due from co-tenancy partner was $46,570 and 61,323,
respectively.
9. Segment Disclosures
The Company owns all of the interests in real estate properties through the
Operating Partnership. The Company's portfolio consists of three commercial
properties and one retail property, located respectively in Illinois, Utah,
Florida and Kentucky. Each of the properties are evaluated on an individual
basis by the President and Treasurer, who have been identified as the Chief
Operating Decision Makers because of their final authority over resource
allocation.
The following table sets forth the components of the Company's revenue and
expenses and other related disclosures as required by FAS Statement No.131 for
the year ended December 31, 1998:
II-26
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
9. Segment Disclosures (continued)
Cedar Income Fund, Ltd.
Combined Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
Southpoint Corporate Broadbent Germantown Financial Consolidated
Parkway Center East Business Center Square and Other Totals
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rents $ 967,978 $ 298,586 $ 619,127 $ 337,807 $ - $ 2,223,498
Expense recoveries 11,437 24,841 166,566 79,030 - 281,874
Interest - - - - 59,653 59,653
---------- ---------- ---------- ---------- --------- -----------
Total revenues 979,415 323,427 785,693 416,837 59,653 2,565,025
---------- ---------- ---------- ---------- --------- -----------
EXPENSES
Real estate tax 113,633 50,710 60,669 37,749 262,761
Repairs and maintenance 122,763 22,388 83,384 23,785 252,320
Utilities 92,043 35,696 27,404 8,136 163,279
Management fee 48,981 16,303 39,249 21,987 126,520
Insurance 7,271 1,385 6,787 2,893 18,336
Other 30,016 13,840 23,658 6,223 73,737
Depreciation 216,171 73,556 112,326 78,357 480,410
Interest - - 130,197 - 130,197
Directors' fees and expenses - - - - 56,188 56,188
Administrative fee - - - - 99,180 99,180
Other administrative expenses - 632,199 632,199
---------- ---------- ---------- ---------- --------- -----------
Total expenses 630,878 213,878 483,674 179,130 787,567 2,295,127
---------- ---------- ---------- ---------- --------- -----------
Net income (loss)
from operations before
limited partner's interest $ 348,537 $ 109,549 $ 302,019 $ 237,707 $(727,914) $ 269,898
========== ========== ========== ========== ========= ===========
Total assets $6,061,972 $2,119,423 $3,393,240 $3,102,363 $ 646,317 $15,323,315
========== ========== ========== ========== ========= ===========
</TABLE>
II-27
<PAGE>
CEDAR INCOME FUND, LTD.
Notes to Consolidated Financial Statements (continued)
10. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------ Year Ended
Year 3/31 6/30 9/30 12/31 12/31
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Revenue $670,324 $644,278 $635,612 $614,811 $2,565,025
Net income (loss) 175,726 20,686 (8,581) (7,883) 179,948
Basic and diluted net income per share .08 .01 .00 .00 .10
- - ------------------------------------------------------------------------------------------------------------------------------------
1997
Revenue $560,915 $623,622 $626,237 $657,084 $2,467,858
Net income 124,207 182,421 181,052 12,506 500,186
Basic and diluted net income per share .06 .08 .08 .00 .22
- - ------------------------------------------------------------------------------------------------------------------------------------
1996
Revenue $582,292 $544,903 $557,005 $532,826 $2,217,026
Net income 166,021 128,924 132,676 133,995 561,616
Basic and diluted net income per share .07 .06 .06 .06 .25
</TABLE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
II-28
<PAGE>
Part III.
Item 10. Directors and Executive Officers of the Registrant
LEO S. ULLMAN, age 59, is Chairman of the Board and President of the Company and
has been President of SKR Management Corp. from 1994 through the current date;
Chairman of Brentway Management LLC from 1994 through the current date;
President of Cedar Bay Realty Advisors, Inc. since its formation in January
1998. Mr. Ullman has also been the President and sole director of Selbridge
Corp. and Buttzville Corp. (the two partners of CBC) from 1994 through the
current date. From 1992 through 1995, Mr. Ullman was President of API Management
Services Corp. and API Asset Management, Inc. Mr. Ullman has been involved in
real estate property and asset management for approximately twenty years. Mr.
Ullman has been a member of the New York Bar since 1966. From 1993 until the end
of 1998, Mr. Ullman served as "of counsel" to the New York office of the law
firm Schnader Harrison Segal & Lewis, LLP. Mr. Ullman became Chairman of the
Board of Directors of the Company in 1998.
J.A.M.H. DER KINDEREN, age 58, was the Director of Investments from 1984 through
1994 for Rabobank Pension Fund, and has been or is Chairman of the Board of the
following entities: Noro America Real Estate B.V. (1995-present); Noro Amerika
Vast Goed B.V. (1985-present); Mass Mutual Pierson (M.M.P.) (1988-present); and,
from 1996 to the present, a director of Warner Building Corporation. Mr. der
Kinderen became a Director of the Company in 1998.
EVERETT B. MILLER, III, age 51, is currently the Senior Vice President and Chief
Executive Officer of Commonfund Realty, Inc. a regulated investment advisor.
Prior to that, starting in March 1997, Mr. Miller was the Senior Vice President
and Chief Executive Officer of two finite REITs, Endowment Realty Investors and
Endowment Realty Investors II. From January 1995 through March 1997, Mr. Miller
was the Principal Investment Officer for Real Estate and Alternative Investment
at the Office of the Treasurer of the State of Connecticut. Prior to that, Mr.
Miller was employed for twenty years at Travelers Realty Investment Co., at
which his last position was Senior Vice President. Mr. Miller became a Director
of the Company in 1998.
BRENDA J. WALKER, age 46, is Vice President and Treasurer of the Company and has
been Vice President of SKR Management Corp. from 1994 through the current date;
President of Brentway Management LLC from 1994 through the current date; Vice
President of API Management Services Corp. and API Asset Management, Inc. from
1992 through 1995. Ms. Walker has been involved in real estate property and
asset management for approximately twenty years. Ms. Walker became Vice
President, Treasurer and Director of the Company in 1998.
III-1
<PAGE>
Item 10. Directors and Executive Officers of the Registrant (continued)
JEAN-BERNARD WURM, age 49, has been a Director of HVB Capital Markets, Inc. and
its predecessor, B.V. Capital Markets, Inc. since January 1, 1993. Mr. Wurm
began his career with J.P. Morgan in Paris in the International Money Management
Group in Frankfurt as a corporate lending officer before moving to the U.S. in
1979. In 1986, Mr. Wurm started advising European investors in the U.S. real
estate market. From 1989 to 1992, Mr. Wurm was the President of U.S. Land which
provided European lenders with expertise and support in the workout or
disposition of their U.S. real estate assets. Mr. Wurm has been a member of the
finance committee of the GMHC since 1986 and has also been Treasurer of the
Sciences-Po Alumni Association for the last two years and a member of the Board
since 1988. Mr. Wurm became a Director of the Company in 1998.
THEODORE FICHTENHOLZ, age 52, has been a private practicing attorney since 1993.
His offices are located in central Connecticut. He was first admitted to the Bar
in 1974 in New York. Mr. Fichtenholz's practice specializes in real estate and
financing matters. From 1985 until 1993, Mr. Fichtenholz was Managing Attorney
for Chase Enterprises, a privately held real estate company. From 1977 until
1985, Mr. Fichtenholz was a partner in a New York City law firm. Prior to 1977,
Mr. Fichtenholz held various positions with the City of New York. Mr.
Fichtenholz became a Director of the Company in 1998.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The Company believes that during 1998 all of its officers, directors and holders
of more than 10% of its Common Stock complied with all filing requirements under
Section 16(a) of the Securities Exchange Act of 1934, except as follows: Messrs.
der Kinderen, Miller and Wurm have not yet filed their Forms 3 reporting on
their election as directors of the Company.
Item 11. Executive Compensation
The officers and directors of the Company who are also affiliated with CBC do
not receive any remuneration for their services to the Company other than
reimbursement of travel and other expenses incurred in connection with their
duties. During 1998, directors not affiliated with CBC, Mr. Miller, Mr. Wurm and
Mr. der Kinderen received a prorated annual fee of $3,750 plus $750 for each
board meeting attended. Mr. Fichtenholz received a prorated annual fee of $1,250
plus $750 for each board meeting attended.
The Company established a stock option plan (the "Plan") for the purpose of
attracting and retaining executive officers, directors and other key employees.
As of December 31, 1998, 500,000 of the Company's authorized shares of Common
Stock have been reserved for issuance under the Plan. The Plan is administered
by a committee of the Board of Directors, which committee will, among other
things, select the number of shares subject to each grant, the vesting period
for each grant and the exercise price (subject to applicable regulations with
respect to incentive stock options) for the options. As of December 31, 1998, no
options have been granted under the Plan.
III-2
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth information with respect to each person and group
(as that term is used in Section 13(d)(3) of the Securities Exchange Act of
1934) known by the Company to be the beneficial owner of more than five percent
(5%) of the outstanding Shares of the Company as of March 1, 1999. Each such
owner has sole voting and investment powers with respect to the Shares owned by
it.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
Cedar Bay Company (1) 1,893,037 84%
c/o Brentway Management LLC
44 South Bayles Avenue, #304
Port Washington, New York 11050
Security Ownership of Management
The following table sets forth the number of shares of the Company beneficially
owned as of March 1, 1999 by each director, nominee, and officer and by all
Directors, nominees and officers as a group (6 persons).
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
Leo S. Ullman (2) 1,893,037 84%
Brenda J. Walker 100 *
J.A.M. H. der Kinderen 100 *
Everett B. Miller, III 100 *
Jean-Bernard Wurm 0
Theodore Fichtenholz 0
*Such holdings represent less than one percent of the outstanding shares.
(1) Represent 189,737 shares of New Common Stock and 1,703,300 limited
partnership units in the Operating Partnership.
(2) Mr. Ullman may be deemed to be the beneficial owner of 1,893,037 shares
owned by CBC. Mr. Ullman disclaims beneficial ownership of such shares.
III-3
<PAGE>
Item 13. Certain Relationships and Related Transactions
The Company has no employees and has contracted with Cedar Bay Realty Advisors,
Inc., a New York corporation, ("Cedar Bay") to provide the Company with
administrative, advisory, acquisition, divestiture, property management, leasing
and stockholder services. A description of the agreements between Cedar Bay and
certain of its affiliates and the Company follows. The description of the
agreements is qualified in its entirety by reference to the terms and provisions
of such agreements. CBC is a New York general partnership. The Point Associates,
L.P. a Pennsylvania limited partnership, and Triangle Center Associates, L.P. a
Pennsylvania limited partnership, are the sole partners of CBC. The general
partner of The Point Associates, L.P. is Selbridge Corp., a Delaware
corporation. The general partner of Triangle Center Associates is Buttzville
Corp., a Delaware corporation. Leo S. Ullman is the sole limited partner in each
of The Point Associates, L.P. and Triangle Center Associates, L.P. and is an
executive officer and a Director of each of Selbridge Corp. and Buttzville Corp.
Cedar Bay is wholly-owned by Mr. Ullman. Mr. Ullman is President and a Director
of, and Brenda J. Walker is Vice President of, Cedar Bay.
Brentway Management LLC, a New York limited liability company ("Brentway"), is
owned by Mr. Ullman and Ms. Walker. Mr. Ullman is Chairman and Ms. Walker is
President of Brentway.
Administrative and Advisory Services
Cedar Bay provides administrative, advisory, acquisition and divestiture
services to the Company pursuant to an Administrative and Advisory Agreement
(the "Advisory Agreement"). The term of the Advisory Agreement is for one (1)
year and is automatically renewed annually for an additional year subject to the
right of either party to cancel the Advisory Agreement upon 60 days' written
notice.
Under the Advisory Agreement, Cedar Bay is obligated to: (a) provide office
space and equipment, personnel and general office services necessary to conduct
the day-to-day operations of the Company; (b) select and conduct relations with
accountants, attorneys, brokers, banks and other lenders, and such other parties
as may be considered necessary in connection with the Company's business and
investment activities, including, but not limited to, obtaining services
required in the acquisition, management and disposition of investments,
collection and disbursement of funds, payment of debts and fulfillment of
obligations of the Company, and prosecuting, handling and settling any claims of
the Company; (c) provide property acquisition and disposition services,
research, economic and statistical data, and investment and financial advice to
the Company; and (d) maintain appropriate legal, financial, tax, accounting and
general business records of activities of the Company and render appropriate
periodic reports to the directors and stockholders of the Company and to
regulatory agencies, including the Internal Revenue Service, the Securities and
Exchange Commission, and similar state agencies.
III-4
<PAGE>
Item 13. Certain Relationships and Related Transactions (continued)
Cedar Bay receives fees for its administrative and advisory services as follows:
(a) a monthly administrative and advisory fee equal to 1/12 of 3/4 of 1% of the
estimated current value of real estate assets of the Company, plus 1/12 of 1/4
of 1% of the estimated current value of all other assets of the Company; (b) an
acquisition fee equal to 5% of the gross purchase price (before expenses and
without deducting indebtedness assumed) of any real property acquired during the
term of the Advisory Agreement; provided that the total of all such acquisition
fees plus acquisition expenses in connection with the purchase of any real
property shall be reasonable and shall not exceed 6% of the amount paid or
allocated to the purchase, development, construction or improvement of a
property, exclusive of acquisition fees and acquisition expenses; and (c) a
disposition fee equal to 3% of the gross sales price (before expenses but
without deducting any indebtedness against the property) of any real property
disposed of during the term of the Advisory Agreement; provided that no
disposition fee shall be paid unless and until the stockholders have received
certain distributions from the Company. In addition, Cedar Bay may receive
one-half of the brokerage commission on such a disposition but only up to 3% of
the price actually paid for the property, subject to certain limitations.
Furthermore, if the Advisory Agreement is terminated prior to the liquidation of
the Company, Cedar Bay will be entitled to payment of disposition fees based on
the ratio of the number of years the Advisory Agreement was operative to the
number of years from the date the Advisory Agreement was entered into that such
fee became payable. The Company paid its former advisor approximately $101,000
in administrative fees for 1997. The Company paid $99,180 to Cedar Bay in 1998.
No incentive, acquisition or disposition fees were paid in 1997 or 1998.
Management Services
With the exception of Germantown Square, Brentway provides property management
and leasing services to the Company's real property pursuant to the management
agreement. The term of the agreement is for one (1) year and is automatically
renewed annually for an additional year subject to the right of either party to
cancel upon 60 days' written notice. Under the agreement, Brentway is obligated
to provide property management services, which include leasing and collection of
rent, maintenance of books and records, establishment of bank accounts and
payment of expenses, maintenance and operation of property, reporting and
accounting to the Company regarding property operations, and maintenance of
insurance. All of the duties of Brentway are to be fulfilled at the Company's
expense; provided, however, that the Company is not required to reimburse
Brentway for personnel expenses other than for on-site personnel at the
properties managed. Brentway receives fees for its property management services
as follows: a monthly management fee equal to 5% of the gross income from
properties managed and leasing fees up to 6% of the aggregate rent to be paid
during the term of the lease procured. Due to Life Investors' ownership of the
other 50% undivided interest therein, AEGON continues to manage the retail
property, Germantown Square on terms similar to the above. As did the former
manager in 1997, Brentway has subcontracted with various local management
companies for site management and leasing services. Brentway was paid $44,587 in
property management fees in 1998. (See Note 7).
III-5
<PAGE>
Item 13. Certain Relationships and Related Transactions (continued)
Financial Advisory Agreement
The Company has entered into a Financial Advisory Agreement (the "HVB
Agreement") with HVB Capital Markets Inc., as successor to B.V. Capital Markets,
Inc. ("HVB") pursuant to which HVB has agreed to perform the following services
as financial advisor to the Company: (a) advise on acquisition financing and/or
lines of credit for future acquisitions; (b) advise on acquisitions of United
States real property interests and the consideration to be paid therefor; (c)
advise on private placements of the shares of the Company; (d) assist the Board
of Directors in developing suitable investment parameters for the Company; (e)
develop and maintain contacts on behalf of the Company with institutions with
substantial interests in real estate and capital markets; (f) advise the Board
with respect to additional private or public offerings of equity securities of
the Company; (g) review certain financial policy matters with consultants,
accountants, lenders, attorneys and other agents of the Company; and (h) prepare
periodic reports of its performance of the foregoing services. As compensation
for the foregoing services, the Company is required to pay HVB, (i) .25% of the
Company's net asset value, less any indebtedness affecting such net value, but
in any event, not less than $100,000 per year; (ii) a one-time payment of 1.5%
of 90% of the agreed value of properties contributed to the Company or its
affiliates by persons introduced to the Company by HVB; and (iii) upon the
Company becoming self-administered, a one-time payment equal to five times the
annual fee income attributable to fee receipts from clients or contacts of HVB
that have contributed property to the Company. The term of the HVB Agreement is
for a period of one (1) year and is automatically renewed for an additional year
subject to the right of either party to cancel at the end of any year upon 60
days' written notice. HVB was paid $58,808 for financial advisory services in
1998.
III-6
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) List of Documents
1. Financial Statements.
The following financial statements are included in Item 8:
Consolidated Balance Sheets, December 31, 1998 and 1997.
Consolidated Statements of Operations, Years ended December 31, 1998, 1997 and
1996.
Consolidated Statements of Shareholders' Equity, Years ended December 31, 1998,
1997 and 1996.
Consolidated Statements of Cash Flows, Years ended December 31, 1998, 1997 and
1996.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
All other schedules have been omitted because they are not required, or because
the required information, where material, is included in the financial
statements or accompanying notes.
IV-1
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)
3. Exhibits
(3.1) Articles of Incorporation.
(3.2) By-laws.
(3.3) Agreement of Limited Partnership for the Operating Partnership.
(10.1) Administrative and Advisory Agreement dated April 2, 1998 between
Cedar Bay Realty Advisors, Inc. and the Company.
(10.2) Management Agreement dated April 2, 1998 between Brentway Management
LLC and the Company.
(10.3) Financial Advisory Agreement dated June 1, 1998 between BV Capital
Markets, Inc. and the Company.
(b) Reports on Form 8-K.
None
(c) The required exhibits applicable to this section are listed in Item 14(a)3.
(d) There are no financial statement schedules applicable to this section.
IV-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CEDAR INCOME FUND, LTD.
/s/ Leo S. Ullman /s/ Brenda J. Walker
- - ------------------------------ --------------------------------------
Leo S. Ullman Brenda J. Walker
Chairman of the Board Vice President, Treasurer and Director
(principal executive officer) (principal financial officer)
/s/ Ann Maneri
--------------------------------------
Ann Maneri
Controller
(principal accounting officer)
March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and as of the date indicated.
/s/ Jean-Bernard Wurm /s/ Everett B. Miller, III
- - ------------------------------ --------------------------------------
Jean-Bernard Wurm Everett B. Miller, III
Director Director
/s/ J.A.M.H. der Kinderen /s/ Theodore Fichtenholz
- - ------------------------------ --------------------------------------
J.A.M.H. der Kinderen Theodore Fichtenholz
Director Director
March 30, 1999
IV-3
<PAGE>
EXHIBIT INDEX
Exhibit
Item Title or Description
- - ------- --------------------
(3.1) Articles of Incorporation.
(3.2) By-laws.
(3.3) Agreement of Limited Partnership for the Operating Partnership.
(10.1) Administrative and Advisory Agreement dated April 2, 1998 between
Cedar Bay Realty Advisors, Inc. and the Company.
(10.2) Management Agreement dated April 2, 1998 between Brentway Management
LLC and the Company.
(10.3) Financial Advisory Agreement dated June 1, 1998 between BV Capital
Markets, Inc. and the Company.
(b) Reports on Form 8-K.
None
(c) The required exhibits applicable to this section are listed in Item 14(a)3.
(d) There are no financial statement schedules applicable to this section.
IV-4
<PAGE>
ARTICLES OF INCORPORATION
OF
CEDAR INCOME FUND, LTD.
----------------------
I, THE UNDERSIGNED, JAMES T. CUNNINGHAM, whose post-office
address is c/o Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New
York 10038, being at least eighteen years of age, do hereby form a corporation,
under and by virtue of the General Laws of the State of Maryland authorizing the
formation of corporations.
ARTICLE I
Name
The name of the Corporation shall be Cedar Income Fund, Ltd.
(the "Corporation").
ARTICLE II
Principal Office, Registered Office and Agent
The address of the Corporation's principal office in Maryland
is c/o The Corporation Trust, Incorporated, 300 East Lombard Street, Baltimore,
Maryland 21202. The address of the Corporation's principal office and registered
office in the State of Maryland is 300 East Lombard Street, Baltimore, Maryland
21202. The name of its registered agent at that office is The Corporation Trust,
Incorporated, a Maryland corporation.
ARTICLE III
Purposes
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Maryland as now or hereafter in force.
ARTICLE IV
Capital Stock
A. Authorized Shares. The total number of shares of all classes of
capital stock that the Corporation shall have authority to issue is 55 million
shares, consisting of 50 million shares of Common Stock with a par value of $.01
per share (the "Common Stock"), amounting in the aggregate to par value of
$500,000, and 5 million shares of Preferred Stock with a par value of $.01 per
share (the "Preferred Stock"), amounting in the aggregate to par value of
$50,000.
<PAGE>
B. Common Stock
1. Dividend Rights. Subject to the preferential dividend
rights of the Preferred Stock, if any, as may be determined by the Board of
Directors of the Corporation pursuant to paragraph C of this Article IV, Holders
(as defined below) shall be entitled to receive such dividends as may be
declared by the Board of Directors of the Corporation. Upon the declaration of
dividends hereunder, Holders shall be entitled to share in all such dividends,
pro rata, in accordance with the relative number of shares of Common Stock held
by each such Holder.
2. Rights Upon Liquidation. Subject to the preferential rights
of the Preferred Stock, if any, as may be determined by the Board of Directors
of the Corporation pursuant to paragraph C of this Article IV, in the event of
any voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each Holder shall be entitled to
receive, ratably with each other Holder, that portion of the assets of the
Corporation available for distribution to its stockholders as the number of
shares of the Common Stock held by such Holder bears to the total number of
shares of Common Stock then outstanding.
3. Voting Rights. Each Holder shall be entitled to vote on all
matters (on which a holder of Common Stock shall be entitled to vote), and shall
be entitled to one vote for each share of the Common Stock held by such Holder.
4. Restrictions on Ownership and Transfer to Preserve Tax
Benefit.
(a) Definitions
For the purposes of this Article IV, the following terms shall have the
following meanings:
"Act" shall mean the General Corporation Law of Maryland.
"Beneficial Ownership" shall mean ownership of Common Stock by
a Person who would be treated as an owner of such shares of Common
Stock either directly or constructively through the application of
Section 544 of the Code, as modified by Section 856(h) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and "Beneficially Owned"
shall have the correlative meanings.
"Charitable Trust" shall mean the trust created pursuant to
subparagraph B(4)(c)(i) of this Article IV.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
2
<PAGE>
"Constructive Ownership" shall mean ownership of Common Stock
by a Person who would be treated as an owner of such shares of Common
Stock either directly or constructively through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code.
The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
"Date of the Merger" shall mean the latter of the Merger and
the redemption of shares of Common Stock held by Cedar Bay Company in
exchange for Units.
"Existing Holder" shall mean (i) Cedar Bay Company and (ii)
any Person (other than another Existing Holder) to whom an Existing
Holder transfers Beneficial Ownership of Common Stock causing such
transferee to Beneficially Own Common Stock in excess of the Ownership
Limit.
"Existing Holder Limit" (i) for any Existing Holder who is an
Existing Holder by virtue of clause (i) of the definition thereof,
shall mean, initially, the percentage of Common Stock Beneficially
Owned by such Person immediately after the Merger, and after any
adjustment pursuant to subparagraph B(4)(i) of this Article IV, shall
mean such percentage of the outstanding Common Stock as so adjusted;
and (ii) for any Existing Holder who becomes an Existing Holder by
virtue of clause (ii) of the definition thereof, shall mean, initially,
the percentage of the outstanding Common Stock Beneficially Owned by
such Existing Holder at the time that such Existing Holder becomes an
Existing Holder, and after any adjustment pursuant to subparagraph
B(4)(i) of this Article IV, shall mean such percentage of the
outstanding Common Stock as so adjusted; provided, however, that the
Existing Holding Limits for all Existing Holders when combined shall
not exceed 85% of the Corporation's Common Stock. For purposes of
determining the Existing Holder Limit, the amount of Common Stock
outstanding at the time of the determination shall be deemed to include
the maximum number of shares that Existing Holders may beneficially own
with respect to options and rights to convert Units into Common Stock
pursuant to Section 8.6 of the Partnership Agreement and shall not
include shares that may be Beneficially Owned solely by other persons
upon exercise of options or rights to convert into Common Stock. From
the Date of the Merger and prior to the Restriction Termination Date,
the Secretary of the Corporation shall maintain and, upon request, make
available to each Existing Holder, a schedule which sets forth the then
current Existing Holder Limits for each Existing Holder.
"Holder" shall mean the record holder of shares of Common
Stock, or in the case of shares held by a Purported Record Transferee,
the Charitable Trust.
"IRS" shall mean the United States Internal Revenue Service.
3
<PAGE>
"Market Price" shall mean the last reported sales price
reported on the New York Stock Exchange of Common Stock on the trading
day immediately preceding the relevant date, or if the Common Stock is
not then traded on the New York Stock Exchange, the last reported sales
price of the Common Stock on the trading day immediately preceding the
relevant date as reported on any exchange or quotation system over
which the Common Stock may be traded, or if the Common Stock is not
then traded over any exchange or quotation system, then the market
price of the Common Stock on the relevant date as determined in good
faith by the Board of Directors of the Corporation.
"Merger" shall mean the merger of Cedar Income Fund, Ltd., an
Iowa corporation, with and into the Corporation, its wholly-owned
subsidiary.
"Ownership Limit" shall initially mean 3.5% of the outstanding
Common Stock of the Corporation, and after any adjustment as set forth
in subparagraph B(4)(i) of this Article IV, shall mean such greater
percentage.
"Partner" shall mean any Person owning Units.
"Partnership" shall mean Cedar Income Fund Partnership, L.P.,
a Delaware limited partnership.
"Partnership Agreement" shall mean the Agreement of Limited
Partnership of the Partnership, of which the Corporation is the sole
general partner, as such agreement may be amended from time to time.
"Person" shall mean an individual, corporation, partnership,
estate, trust, 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 the Code, joint stock company or other entity and also
includes a group as that term is used for purposes of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended; but does not
include (i) Cedar Bay Company, and (ii) an underwriter which
participates in a public offering of the Common Stock provided that the
ownership of Common Stock by such underwriter would not result in the
Corporation failing to qualify as a REIT.
"Purported Transferee" shall mean, with respect to any
purported Transfer which results in a violation of subparagraph B(4)(b)
of this Article IV, the purported beneficial transferee or owner for
whom the Purported Record Transferee would have acquired or owned
shares of Common Stock, if such Transfer had been valid under such
subparagraph.
"Purported Record Transferee" shall mean, with respect to any
purported Transfer which results in a violation of subparagraph B(4)(b)
of this Article IV, the record holder of the Common Stock if such
Transfer had been valid under such subparagraph.
"REIT" shall mean a Real Estate Investment Trust under Section
856 of the Code.
4
<PAGE>
"Restriction Termination Date" shall mean the first day after
the Date of the Merger on which the Board of Directors of the
Corporation determines that it is no longer in the best interests of
the Corporation to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, assignment,
devise or other disposition of Common Stock (including (i) the granting
of any option or entering into any agreement for the sale, transfer or
other disposition of Common Stock or (ii) the sale, transfer,
assignment or other disposition of any securities or rights convertible
into or exchangeable for Common Stock), whether voluntary or
involuntary, whether of record or beneficially or Beneficially or
Constructively (including but not limited to transfers of interests in
other entities which result in changes in Beneficial or Constructive
Ownership of Common Stock), and whether by operation of law or
otherwise.
"Trustee" shall mean the Corporation as trustee for the
Charitable Trust, and any successor trustee appointed by the
Corporation.
"Units" shall mean the units into which partnership interests
of the Partnership are divided, and as the same may be adjusted, as
provided in the Partnership Agreement.
(b) Restriction on Ownership and Transfers.
(i) Except as provided in subparagraph B(4)(k) of
this Article IV, from the Date of the Merger and prior to the
Restriction Termination Date, no Person (other than an Existing Holder)
shall Beneficially Own shares of Common Stock in excess of the
Ownership Limit, and no Existing Holder shall Beneficially Own shares
of Common Stock in excess of the Existing Holder Limit for such
Existing Holder.
(ii) Except as provided in subparagraph B(4)(k) of
this Article IV, from the Date of the Merger and prior to the
Restriction Termination Date, any Transfer that, if effective, would
result in any Person (other than an Existing Holder) Beneficially
Owning Common Stock in excess of the Ownership Limit shall be void ab
initio as to the Transfer of such shares of Common Stock which would be
otherwise Beneficially Owned by such Person in excess of the Ownership
Limit; and the Purported Transferee shall acquire no rights in such
shares of Common Stock.
(iii) Except as provided in subparagraph B(4)(k) of
this Article IV, from the Date of the Merger and prior to the
Restriction Termination Date, any Transfer that, if effective, would
result in any Existing Holder Beneficially Owning Common Stock in
excess of the applicable Existing Holder Limit shall be void ab initio
as to the Transfer of such shares of Common Stock which would be
otherwise Beneficially Owned by such Existing Holder in excess of the
applicable Existing Holder Limit; and such Existing Holder shall
acquire no rights in such shares of Common Stock.
5
<PAGE>
(iv) Except as provided in subparagraph B(4)(k) of
this Article IV, from the Date of the Merger and prior to the
Restriction Termination Date, any Transfer that, if effective, would
result in the Common Stock being beneficially owned by less than 100
Persons (determined without reference to any rules of attribution)
shall be void ab initio as to the Transfer of such shares of Common
Stock which would be otherwise beneficially owned by the transferee;
and the intended transferee shall acquire no rights in such shares of
Common Stock.
(v) Notwithstanding any other provisions contained in
this Article IV, from the Date of the Merger and prior to the
Restriction Termination Date, any Transfer or other event that, if
effective, would result in the Corporation being "closely held" within
the meaning of Section 856(h) of the Code, or would otherwise result in
the Corporation failing to qualify as a REIT (including, but not
limited to, a Transfer or other event that would result in the
Corporation owning (directly 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 from such tenant would cause the Corporation
to fail to satisfy any of the gross income requirements of Section
856(c) of the Code), shall be void ab initio as to the Transfer of the
shares of Common Stock which would cause the Corporation to be "closely
held" within the meaning of Section 856(h) of the Code or would
otherwise result in the Corporation failing to qualify as a REIT; and
the intended transferee or owner or Constructive or Beneficial Owner
shall acquire or retain no rights in such shares of Common Stock.
(c) Effect of Transfer in Violation of Subparagraph (B)(4)(b).
(i) If, notwithstanding the other provisions
contained in this Article IV, at any time after the Date of the Merger
and prior to the Restriction Termination Date, there is a purported
Transfer, change in the capital structure of the Corporation, or other
event such that one or more of the restrictions on ownership and
transfers described in subparagraph B(4)(b) above has been violated,
then the shares of Common Stock being Transferred (or in the case of an
event other than a Transfer, the shares owned or Constructively Owned
or Beneficially Owned) which would cause one or more of the
restrictions on ownership or transfer to be violated (rounded up to the
nearest whole share) (the "Trust Shares"), shall automatically be
transferred to the Corporation, as Trustee of a trust (the "Charitable
Trust") for the exclusive benefit of The American Cancer Society (the
"Designated Charity"), an organization described in Section
170(b)(1)(A) and 170(c) of the Code. The Purported Transferee shall
have no rights in such Trust Shares.
(ii) The Corporation, as Trustee of the Charitable
Trust, may transfer the shares held in such trust to a Person whose
ownership of the shares will not result in a violation of the ownership
restrictions (a "Permitted Transferee"). If such a transfer is made,
the interest of the Designated Charity will terminate and proceeds of
the sale will be payable to the Purported Transferee and to the
Designated Charity. The Purported Transferee will receive the lesser of
(1) the price paid by the Purported Transferee for the shares or, if
the Purported Transferee did not give value for the shares, the Market
Price of the shares on the day of the event causing the shares to be
held in trust, and (2) the price per share received by the Corporation,
as Trustee, from the sale or other disposition of the shares held in
trust. The Designated Charity will receive any proceeds in excess of
the amount payable to the Purported Transferee. The Purported
Transferee will not be entitled to designate a Permitted Transferee.
6
<PAGE>
(iii) All stock held in the Charitable Trust will be
deemed to have been offered for sale to the Corporation or its designee
for a 90-day period, at the lesser of the price paid for that stock by
the Purported Transferee and the Market Price on the date that the
Corporation accepts the offer. This period will commence on the date of
the violative transfer, if the Purported Transferee gives notice to the
Corporation of the transfer, or the date that the Board of Directors of
the Corporation determines that a violative transfer occurred, if no
such notice is provided.
(iv) Any dividend or distribution paid prior to the
discovery by the Corporation that shares of Common Stock have been
transferred in violation of subparagraph B(4)(b) of this Article IV,
shall be repaid to the Corporation upon demand and shall be held in
trust for the Designated Charity. Any dividend or distribution declared
but unpaid shall be rescinded as void ab initio with respect to such
shares of stock.
(v) Subject to the preferential rights of the
Preferred Stock, if any, as may be determined by the Board of Directors
of the Corporation pursuant to paragraph C of this Article IV, in the
event of any voluntary or involuntary liquidation, dissolution or
winding up of, or any distribution of the assets of, the Corporation,
the Designated Charity shall be entitled to receive, ratably with each
other holder of Common Stock, that portion of the assets of the
Corporation available for distribution to its stockholders as the
number of Trust Shares bears to the total number of shares of Common
Stock then outstanding (including the Trust Shares). The Corporation,
as Trustee, or if the Corporation shall have been dissolved, any
trustee appointed by the Corporation prior to its dissolution, shall
distribute to the Designated Charity, when determined (or if not
determined, or only partially determined, ratably to the other holders
of Common Stock who have been determined and the Designated Charity),
any such assets received in respect of the Trust Shares in any
liquidation, dissolution or winding up of, or any distribution of the
assets of, the Corporation.
(vi) The Purported Transferee will not be entitled to
vote any Common Stock it attempts to acquire, and any stockholder vote
will be rescinded if a Purported Transferee votes and the stockholder
vote would have been decided differently if such Purported Transferee's
vote was not counted.
(d) Remedies for Breach. If the Board of Directors or its
designees shall at any time determine in good faith that a Transfer or other
event has taken place in violation of subparagraph B(4)(b) of this Article IV 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 the Corporation in
violation of subparagraph B(4)(b) of this Article IV, the Corporation shall
inform the Purported Transferee of its obligations pursuant to this Article IV,
including such Purported Transferee's obligations to pay over to the Charitable
Trust any and all dividends received with respect to the Trust Shares. In
addition, the Board of Directors or its designees shall take such action as it
deems advisable to refuse to give effect or to prevent such Transfer, including,
but not limited to, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer and to recover
any dividend erroneously paid and declaring any votes erroneously cast to be
retroactively invalid; provided, however, that any Transfers (or, in the case of
events other than a Transfer, ownership or Constructive Ownership or Beneficial
Ownership) in violation of subparagraph B(4)(b) of this Article IV shall
automatically result in a transfer to the Charitable Trust as described in
subparagraph B(4)(c), irrespective of any action (or non-action) by the Board of
Directors.
7
<PAGE>
(e) Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire shares in violation of subparagraph B(4)(b) of this Article
IV, or any Person who is a Purported Transferee, 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 attempted Transfer on the Corporation's
status as a REIT.
(f) Owners Required To Provide Information. From the Date of
the Merger and prior to the Restriction Termination Date each Person who is a
beneficial owner or Beneficial Owner or Constructive Owner of Common Stock and
each Person (including the stockholder of record) who is holding Common Stock
for a Beneficial Owner or Constructive Owner shall provide to the Corporation
such information that the Corporation may request, in good faith, in order to
determine the Corporation's status as a REIT.
(g) Remedies Not Limited. Nothing contained in this Article IV
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.
(h) Ambiguity. In the case of an ambiguity in the application
of any of the provisions of subparagraph B(4) of this Article IV, including any
definition contained in subparagraph B(4)(a), the Board of Directors shall have
the power to determine the application of the provisions of this subparagraph
B(4) with respect to any situation based on the facts known to it.
(i) Modification of Ownership Limit or Existing Holder Limit.
Subject to the limitations provided in subparagraph B(4)(j), the Board of
Directors may from time to time increase the Ownership Limit or the Existing
Holder Limit and shall file Articles Supplementary with the State Department of
Assessment and Taxation of Maryland to evidence such increase.
8
<PAGE>
(j) Limitations on Modifications.
(i) From the Date of the Merger and prior to the
Restriction Termination Date, neither the Ownership Limit nor any
Existing Holder Limit may be increased (nor may any additional Existing
Holder Limit be created) if, after giving effect to such increase (or
creation), five Persons who are Beneficial Owners of Common Stock
(including all of the then Existing Holders) could (taking into account
the Ownership Limit and the Existing Holder Limit) Beneficially Own, in
the aggregate, more than 49% of the outstanding Common Stock.
(ii) Prior to the modification of any Existing Holder
Limit or Ownership Limit pursuant to subparagraph B(4)(i) of this
Article IV, the Board of Directors of the Corporation may require such
opinions of counsel, affidavits, undertakings or agreements as it may
deem necessary or advisable in order to determine or ensure the
Corporation's status as a REIT.
(iii) No Existing Holder Limit shall be reduced to a
percentage which is less than the Ownership Limit.
(iv) The Ownership Limit may not be increased to a
percentage which is greater than 9.9%.
(k) Exceptions.
(i) The Board of Directors, in its sole discretion,
may exempt a Person from the Ownership Limit or the Existing Holder
Limit, as the case may be, if such Person is not an individual for
purposes of Section 542(a)(2) of the Code and the Board of Directors
obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain that no individual's Beneficial
Ownership of such shares of Common Stock will violate the Ownership
Limit or the applicable Existing Holder Limit, as the case may be, and
agrees that any violation of such representations or undertaking (or
other action which is contrary to the restrictions contained in this
subparagraph B(4) of this Article IV) or attempted violation will
result in such shares of Common Stock automatically being transferred
to the Charitable Trust.
(ii) Prior to granting any exception pursuant to
subparagraph B(4)(k)(i) of this Article IV, the Board of Directors may
require a ruling from the IRS, or an opinion of counsel, in either 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.
9
<PAGE>
5. Legend. Each certificate for shares of Common Stock shall
bear legends substantially to the effect of the following:
"The Corporation is authorized to issue two classes of capital
stock which are designated as Common Stock and Preferred Stock. The Board of
Directors is authorized to determine the preferences, limitations and relative
rights of the Preferred Stock before the issuance of any Preferred Stock. The
Corporation will furnish, without charge, to any stockholder making a written
request therefor, a copy of the Corporation's charter and a written statement of
the designations, relative rights, preferences and limitations applicable to
each such class of stock. Requests for the Corporation's charter and such
written statement may be directed to Cedar Income Fund, Ltd., 44 South Bayles
Avenue, Port Washington, New York 11050, Attention: Secretary.
The shares of Common Stock represented by this certificate are
subject to restrictions on ownership and Transfer for the purpose of the
Corporation's maintenance of its status as a Real Estate Investment Trust under
the Code. No Person may Beneficially Own shares of Common Stock in excess of
3.5% (or such greater percentage as may be determined by the Board of Directors
of the Corporation) of the outstanding Common Stock of the Corporation (unless
such Person is an Existing Holder) with certain exceptions set forth in the
Corporation's charter. Any Person who attempts to Beneficially Own shares of
Common Stock in excess of the above limitations must immediately notify the
Corporation. All capitalized terms in this legend have the meanings defined in
the Corporation's charter. Transfers in violation of the restrictions described
above may be void ab initio.
In addition, upon the occurrence of certain events, if the
restrictions on ownership are violated, the shares of Common Stock represented
hereby may be automatically exchanged for Trust Shares which will be held in
trust by the Corporation. The Corporation has an option to acquire Trust Shares
under certain circumstances. The Corporation will furnish to the holder hereof
upon request and without charge a complete written statement of the terms and
conditions of the Trust Shares. Requests for such statement may be directed to
Cedar Income Fund, Ltd., 44 South Bayles Avenue, Port Washington, New York
11050, Attention: Secretary."
6. Severability. If any provision of this Article IV or any
application of any such provision is determined to be invalid by any Federal or
state court having jurisdiction over the issues, the validity 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.
C. Preferred Stock. The Board of Directors of the Corporation, by
resolution, is hereby expressly vested with authority to provide for the
issuance of the shares of Preferred Stock in one or more classes or one or more
series, with such voting powers, full or limited, or no voting powers, and with
such designations, preferences and relative, participating, optional and other
special rights, and qualifications, limitations or restrictions thereof, if any,
as shall be stated and expressed in the resolution or resolutions providing for
such issue adopted by the Board of Directors. Except as otherwise provided by
law, the holders of the Preferred Stock of the Corporation shall only have such
voting rights as are provided for or expressed in the resolutions of the Board
of Directors relating to such Preferred Stock adopted pursuant to the authority
contained in the Articles of Incorporation. Before issuance of any such shares
of Preferred Stock, the Corporation shall file Articles Supplementary with the
State Department of Assessment and Taxation of Maryland in accordance with the
provision of Section 2-208 of the Act.
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D. Reservation of Shares. Pursuant to the obligations of the
Corporation under the Partnership Agreement to issue shares of Common Stock in
exchange for Units, the Board of Directors is hereby required to reserve a
sufficient number of authorized but unissued shares of Common Stock to permit
the Corporation to issue shares of Common Stock in exchange for Units that may
be exchanged for shares of Common Stock pursuant to the Partnership Agreement.
E. Preemptive Rights. No holder of shares of capital stock of the
Corporation shall, as such holder, have any preemptive or other right to
purchase or subscribe for any shares of Common Stock or any class of capital
stock of the Corporation which the Corporation may issue or sell.
F. Control Shares. Pursuant to Section 3-702(b) of the Act, the terms
of Subtitle 7 of Title 3 of the Act shall be inapplicable to any acquisition of
a Control Share (as defined in the Act) that is not prohibited by the terms of
Article IV.
G. Business Combinations. Pursuant to Section 3-603(e)(1)(iii) of the
Act, the terms of Section 3-602 of such law shall be inapplicable to the
Corporation.
ARTICLE V
Board of Directors
A. Management. The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors.
B. Number. The number of directors which will constitute the entire
Board of Directors shall be fixed by, or in the manner provided in, the By-Laws
but shall in no event be less than three. The names of the directors who shall
act until the first annual meeting or until their successors are duly chosen and
qualified are Leo S. Ullman, J.A.M.H. der Kinderen and Everett B. Miller III.
C. Classification. The directors shall be classified, with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as possible, as shall be provided in the By-Laws of the
Corporation, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1999, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 2000, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 2001, with each class to
hold office until its successors are elected and qualified. At each annual
meeting of the stockholders of the Corporation, the date of which shall be fixed
by or pursuant to the By-Laws of the Corporation, the successors of the class of
directors whose terms expire at that meeting shall be elected to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election. No election of directors need be by
written ballot. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
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D. Vacancies. Newly created directorships resulting from any increase
in the number of directors may be filled by the Board of Directors, or as
otherwise provided in the By-Laws, and any vacancies on the Board of Directors
resulting from death, resignation, removal or other cause shall only be filled
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director, or as otherwise provided in the By-Laws. Any director elected in
accordance with the preceding sentence shall hold office until the next annual
meeting of the Corporation, at which time a successor shall be elected to fill
the remaining term of the position filled by such director.
E. Removal. Any director may be removed from office only for cause and
only by the affirmative vote of the holders of a majority of the combined voting
power of the then outstanding shares entitled to vote in the election of
directors. For purposes of this subparagraph E of Article V "cause" shall mean
the willful and continuous failure of a director to substantially perform such
director's duties to the Corporation (other than any such failure resulting from
temporary incapacity due to physical or mental illness) or the willful engaging
by a director in gross misconduct materially and demonstrably injurious to the
Corporation.
F. By-Laws. The power to adopt, alter and/or repeal the By-Laws of the
Corporation is vested exclusively in the Board of Directors.
G. Powers. 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 charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit the powers
conferred upon the Board of Directors under the General Corporation Law of
Maryland as now or hereafter in force.
ARTICLE VI
Liability
The liability of the directors and officers of the Corporation
to the Corporation and its stockholders for money damages is hereby limited to
the fullest extent permitted by Section 5-349 of the Courts and Judicial
Proceedings Code of Maryland (or its successor) as such provisions may be
amended from time to time.
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ARTICLE VII
Indemnification
The Corporation shall indemnify (A) its directors and
officers, whether serving the Corporation or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law and (B) other employees and
agents to such extent as shall be authorized by the Board of Directors or the
Corporation's By-Laws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such By-Laws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
charter of the Corporation shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
ARTICLE VIII
Existence
The Corporation is to have perpetual existence.
IN WITNESS WHEREOF, the undersigned incorporator of Cedar
Income Fund, Ltd. who executed the foregoing Articles of Incorporation hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge the matters and facts set forth therein are true in all
material respects under the penalties of perjury.
Dated the 11th day of June, 1998.
/s/ James T. Cunningham
--------------------------
JAMES T. CUNNINGHAM
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CERTIFICATE OF CORRECTION
TO
THE ARTICLES OF INCORPORATION
OF
CEDAR INCOME FUND, LTD.,
a Maryland Corporation
Pursuant to the provisions of Section 1-207 of the Maryland General
Corporation Law, the undersigned executes the following Certificate of
Correction:
1. The title of the document being corrected is the "Articles of Incorporation
of Cedar Income Fund, Ltd." (the "Articles").
2. The name of the sole party to the Articles is James T. Cunningham, as sole
incorporator of Cedar Income Fund, Ltd., a Maryland corporation.
3. The date that the Articles were filed with the State of Maryland Department
of Assessments and Taxation is June 12, 1998.
4. The erroneous provision of the Articles to be corrected is the proviso
beginning on the 11th line of the definition of the term "Existing Holder
Limit" contained in Article IV paragraph B.4.(a) of the Articles (the
"Proviso") which currently reads as follows:
"provided, however, that the Existing Holding Limits for all
Existing Holders when combined shall not exceed 85% of the
Corporation's Common Stock."
5. The foregoing erroneous Proviso is hereby corrected to read as follows:
"provided, however, that the Existing Holder Limits for all
Existing Holders when combined shall not exceed 35% of the
Corporation's Common Stock."
IN WITNESS WHEREOF, the undersigned sole incorporator of Cedar Income
Fund, Ltd., who executes the foregoing Certificate of Correction, hereby
acknowledges the same to be his act and further acknowledges that, to the best
of his knowledge, the matters and facts set forth herein are true in all
material respects under the penalties of perjury.
Dated the 24th day of July, 1998.
/s/ James T. Cunningham
-------------------------
JAMES T. CUNNINGHAM
<PAGE>
CEDAR INCOME FUND, LTD.
BY-LAWS
adopted as of June 25, 1998
ARTICLE 1
OFFICES
Cedar Income Fund, Ltd. (the "Corporation") shall maintain a registered
office in the State of Maryland as required by law. The Corporation may also
have offices at other places, within or without the State of Maryland as the
business of the Corporation may require.
ARTICLE 2
STOCKHOLDERS
Section 2.01. Place of Meetings. Meetings of stockholders possessing
voting shares shall be held at such place in the United States, within or
without the State of Maryland, as the Board of Directors designates.
Section 2.02. Annual Meeting. The annual meeting of the stockholders
possessing voting shares shall be held on such date and at such time as the
Board of Directors designates. At each annual meeting, such stockholders shall
elect the members of the Board of Directors whose terms have expired and
transact such other business as may be properly brought before the meeting.
Section 2.03. Special Meetings. Special meetings of stockholders may be
called by the Chairman of the Board and shall be called by the Chairman of the
Board or the Secretary at the request in writing of (x) a majority of the
Directors or (y) the holders of 25 percent or more of the issued and outstanding
shares of capital stock of the Corporation entitled to be voted at the meeting.
Such a request shall state the purpose or purposes of the proposed meeting.
Section 2.04. Notice of Stockholder Meetings.
(a) Required Notice. Written notice stating the place, day and hour of
any annual or special stockholder meeting shall be delivered not less than 10 or
more than 60 days before the date of the meeting, either personally or by mail,
by or at the direction of the Chairman of the Board, the Board of Directors, or
other persons calling the meeting, to each stockholder of record entitled to
vote at such meeting and to any other stockholder entitled by the Maryland
General Corporation Law (the "Act") or the charter to receive notice of the
meeting. Notice shall be deemed to be effective at the earliest of: (1) when
deposited in the United States mail, addressed to the stockholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid; (2) on the date shown on the return receipt if sent by
registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee; or (3) when received.
<PAGE>
(b) Adjourned Meeting. If any stockholder meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
and place, if the new date, time, and place is announced at the meeting before
adjournment. But if a new record date for the adjourned meeting is or must be
fixed then notice must be given pursuant to the requirements of paragraph (a) of
this Section 2.04, to those persons who are stockholders as of the new record
date.
(c) Waiver of Notice. A stockholder may waive notice of the meeting (or
any notice required by the Act, charter, or By-Laws), by a writing signed by the
stockholder entitled to the notice, which is delivered to the Corporation
(either before or after the date and time stated in the notice) for inclusion in
the minutes or filing with the corporate records.
A stockholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the
meeting unless the stockholder at the beginning of the meeting
objects to holding the meeting or transacting business at the
meeting; or
(2) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes
described in the meeting notice, unless the stockholder
objects to considering the matter when it is presented.
(d) Contents of Notice. The notice of each special stockholder meeting
shall include a description of the purpose or purposes for which the meeting is
called. Except as provided in this Section 2.04(d), or as provided in the
Corporation's charter, or otherwise in the Act, the notice of an annual
stockholder meeting need not include a description of the purpose or purposes
for which the meeting is called.
Section 2.05. Quorum. The holders, present in person or represented by
proxy, of shares of capital stock entitled to cast a majority of all votes
entitled to be cast at the meeting shall constitute a quorum for the transaction
of business at the meeting. If less than a quorum is present, the holders of a
majority of such shares whose holders are so present or represented may from
time to time adjourn the meeting to another place, date, or hour until a quorum
is present, whereupon the meeting may be held, as adjourned, without further
notice except as required by law or by Section 2.04.
Section 2.06. Voting. When a quorum is present at a meeting of the
stockholders, the vote of the holders of a majority of the shares of capital
stock entitled to be voted whose holders are present in person or represented by
proxy shall decide any question brought before the meeting, unless the question
is one upon which, by express provision of law or of the Articles of
Incorporation or of these By-Laws, a different vote is required. Unless
otherwise provided in the charter, each holder of shares of Common Stock shall
at a meeting of the stockholders be entitled to one (1) vote in person or by
proxy for each share of Common Stock held by such stockholder. At a meeting of
the stockholders, all questions relating to the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes shall be decided
by the presiding officer of the meeting.
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Section 2.07. Presiding Officer of Meetings. The Chairman of the Board,
or in his absence, the President, or in his absence a Vice President, or in his
absence a chairman for the meeting chosen by the Board of Directors, shall
preside at all meetings of the stockholders. In the absence of all of the
foregoing, the presiding officer shall be elected by vote of the holders of a
majority of the shares of capital stock entitled to be voted whose holders are
present in person or represented by proxy at the meeting.
Section 2.08. Secretary of Meetings. The Secretary of the Corporation
shall act as secretary of all meetings of the stockholders. In the absence of
the Secretary, the presiding officer of the meeting shall appoint any other
person to act as secretary of the meeting.
Section 2.09. Action in Lieu of Meeting. Any action required or
permitted to be taken at any annual or special meeting of the stockholders may
be taken without a meeting, without prior notice and without a vote, if consents
in writing, setting forth the action so taken, are signed by all of the holders
of shares of capital stock entitled to vote thereon.
Section 2.10. Proxies. At all meetings of stockholders, a stockholder
may vote in person, or vote by proxy which is executed in writing by the
stockholder or which is executed by his duly authorized attorney-in-fact. Such
proxy shall be filed with the Secretary of the Corporation or other persons
authorized to tabulate votes before or at the time of the meeting. No proxy
shall be valid after 11 months from the date of its execution unless otherwise
provided in the proxy.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.01. Powers. The business of the Corporation shall be managed
under the direction of the Board of Directors, which shall exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
law or by the Articles of Incorporation or by these By-Laws directed or required
to be exercised or done by the stockholders.
Section 3.02. Number; Election; Qualification; Term.
(a) The Board of Directors shall initially consist of at least three
members or as determined from time to time by amendment of this subsection. The
term of office of a Director shall not be affected by any decrease in the
authorized number of Directors.
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(b) Until the first annual meeting of the stockholders, the Board of
Directors shall initially consist of the persons named as the Directors of the
Corporation by the incorporator in the charter. At the first annual meeting and
at each subsequent annual meeting of the stockholders, the stockholders shall
elect the successors of the class of Directors whose term have expired at that
meeting to serve for a term expiring in accordance with Section 3.02(d). The
number of Directors shall in no event be less than three.
(c) Unless by the terms of the action pursuant to which he was elected
any special condition or conditions must be fulfilled in order for him to be
qualified, a person elected as a Director shall be deemed to be qualified (1)
upon his receipt of notice of election and his indication of acceptance thereof
or (2) upon the expiration of ten days after notice of election is given to him
without his having given notice of inability or unwillingness to serve.
(d) The initial Directors shall serve until the first meeting of the
stockholders of the Corporation. Thereafter, the Directors shall be classified,
with respect to the time for which they severally hold office, into three
classes, as nearly equal in number as possible, with one class expiring at each
of the three subsequent annual meetings of stockholders. Each class will hold
office until its successors are elected and qualified. At each annual meeting of
the stockholders of the Corporation, the successors of the class of directors
whose terms expire at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election. Directors need not be stockholders of the
Corporation.
Section 3.03. Vacancies. Whenever between annual meetings of the
stockholders any vacancy exists in the Board of Directors by reason of death,
resignation, removal, or increase in the authorized number of Directors, or
otherwise, it may be filled by the Board of Directors (if permitted under the
Act) or by the stockholders at a special meeting of the stockholders called for
that purpose.
Section 3.04. Place of Meetings. Any meeting of the Board of
Directors may be held either within or without the State of Maryland.
Section 3.05. Annual Meeting. There shall be an annual meeting of the
Board of Directors for the election of officers and the transaction of such
other business as may be brought before the meeting. The annual meeting of the
Board shall be held immediately following the annual meeting of the stockholders
or any adjournment thereof, at the place where the annual meeting of the
stockholders was held or at such other place as a majority of the Directors who
are then present determine. If the annual meeting is not so held, it shall be
called and held in the manner provided herein for special meetings of the Board
or conducted pursuant to Section 3.11.
Section 3.06. Regular Meetings. Regular meetings of the Board of
Directors, other than the annual meeting, may be held without notice at such
times and places as the Board may have fixed by resolution.
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<PAGE>
Section 3.07. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President and shall
be called on the written request of a majority of the Directors. Not less than
one day's notice of a special meeting shall be given by the Secretary to each
Director.
Section 3.08. Organization. Every meeting of the Board of Directors
shall be presided over by the Chairman of the Board, or in his absence by the
President. In the absence of the Chairman of the Board and the President, a
presiding officer shall be chosen by a majority of the Directors present. The
Secretary of the Corporation shall act as secretary of the meeting. In his
absence the presiding officer shall appoint another person to act as secretary
of the meeting.
Section 3.09. Quorum. The presence of a majority of the number of
Directors then serving shall be necessary to constitute a quorum for the
transaction of business at a meeting of the Board of Directors. If less than a
quorum is present, a majority of the Directors present may adjourn the meeting
to another time or place until a quorum is present, whereupon the meeting may be
held, as adjourned, without further notice.
Section 3.10. Vote. The act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by law, by the
Articles of Incorporation, or by these By-Laws. Where a vote of the Directors
present results in a tie, the action proposed shall not constitute an act of the
Board of Directors.
Section 3.11. Action in Lieu of a Meeting. 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 of the members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
Section 3.12. Conference Call Meeting. Members of the Board of
Directors or of any committee thereof may participate in a meeting of the Board
or committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 3.13. Removal of Director. Any Director shall be subject to
removal with or without cause at any time by the holders of a majority of the
shares of capital stock then entitled to be voted at an election of Directors.
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ARTICLE 4
COMMITTEES
Section 4.01. Committees of the Board. The Board of Directors may, by
resolution passed by a majority of the Directors in office, establish one or
more committees, each committee to consist of two or more of the Directors. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member or members at any meeting of
the committee. Any such committee, to the extent provided in the resolution of
the Board, shall have and may exercise all the power and authority of the Board
for direction and supervision of the management of the business and affairs of
the Corporation, and may authorize the seal of the Corporation to be affixed to
all papers that may require it. No such committee, however, shall have power or
authority in reference to (i) amending the charter or the By-Laws, (ii) adopting
an agreement of merger or consolidation, (iii) recommending to the stockholders
the sale, lease, or exchange of all or substantially all of the Corporation's
property and assets, (iv) recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, (v) electing a Director, or
electing or removing an officer; and (vi) unless the resolution expressly so
provided, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
Section 4.02. Procedures; Minutes of Meetings. Each committee shall
determine its rules with respect to notice, quorum, voting, and the taking of
action, provided that such rules shall be consistent with law, the rules in
these By-Laws applicable to the Board of Directors, and the resolution of the
Board establishing the committee. Each committee shall keep regular minutes of
its meetings and report the same to the Board of Directors when required.
ARTICLE 5
OFFICERS
Section 5.01. General. The Board of Directors shall elect the officers
of the Corporation, which shall include a President, Treasurer and a Secretary
and such other officers, including, without limitation, Chairman of the Board,
Vice Chairman, Chief Operating Officer, Vice-Presidents, Comptroller and General
Counsel as in the Board's opinion are desirable for the conduct of the business
of the Corporation. Any two or more offices may be held by the same person
except that the President shall not hold the office of Vice-President or
Secretary.
Section 5.02. Powers and Duties. Each of the officers of the
Corporation shall, unless otherwise ordered by the Board of Directors, have such
powers and duties as generally pertain to his respective office as well as such
powers and duties as from time to time may be conferred upon him by the Board
and these By-Laws.
Section 5.03. Term of Office; Removal and Vacancy. Each officer shall
hold his office until his successor is elected and qualified or until his
earlier resignation or removal and shall be subject to removal with or without
cause at any time by the affirmative vote of a majority of the Directors in
office. Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
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Section 5.04. Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer and, if present, shall preside at meetings of the
Board and of the stockholders, shall be the principal executive officer of the
Corporation and, subject to the control of the Board of Directors, shall
supervise and control in general all of the business and affairs of the
Corporation. He may sign, with the Secretary or any other proper officer of the
Corporation authorized by the Board of Directors, certificates for shares of the
Corporation and deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of chairman of the board and
chief executive officer and such other duties as may be prescribed by the Board
of Directors from time to time.
Section 5.05. President. The President shall be the chief operating
officer of the Corporation and, subject to the control of the Board of
Directors, shall supervise and control in general those operations of the
Corporation designated by the Chairman of the Board. He may sign, with the
Secretary or any other proper officer of the Corporation authorized by the Board
of Directors, certificates for shares of the Corporation and deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
By-Laws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and chief operating officer and such
other duties as may be prescribed by the Board of Directors from time to time.
Section 5.06. Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies, or other depositaries as shall be
selected by the Board of Directors; and (c) in general, perform all of the
duties incident to the office of treasurer and such other duties as from time to
time may be assigned to him by the Chairman of the Board, the President or by
the Board of Directors. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the Board of Directors shall determine.
Section 5.07. Secretary. The Secretary shall: (a) keep the minutes of
the proceedings of the stockholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of any seal of the Corporation and if
there is a seal of the Corporation, see that it is affixed to all documents the
execution of which on behalf of the Corporation under its seal is duly
authorized; (d) when requested or required, authenticate any records of the
Corporation; (e) keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder; (f) sign with the
Chairman of the Board, the President or a Vice-President, certificates for
shares of the Corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (g) have general charge of the stock
transfer books of the Corporation; and (h) in general perform all duties
incident to the offices of secretary and such other duties as from time to time
may be assigned to him by the Chairman of the Board, the President or by the
Board of Directors.
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ARTICLE 6
CAPITAL STOCK
Section 6.01. Certificates of Stock. Certificates for shares of capital
stock of the Corporation shall be in such form as the Board of Directors may
from time to time prescribe and shall be signed by the Chairman of the Board,
the President or a Vice-President and by the Secretary or the Treasurer. Any or
each of the signatures on a stock certificate, including that of any transfer
agent or registrar, may be a facsimile. If any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent, or registrar before
the certificate is issued, the certificate may be issued by the Corporation with
the same effect as if the officer, transfer agent, or registrar were the
officer, transfer agent, or registrar at the date of issuance.
Section 6.02. Transfer of Stock. Shares of stock of the Corporation
shall be transferable on the books of the Corporation only by the holder of
record thereof, in person or by duly authorized attorney, upon surrender and
cancellation of a certificate or certificates for a like number of shares, with
an assignment or power of transfer endorsed thereon or delivered therewith, duly
executed, and with such proof of the authenticity of the signature and of
authority to transfer, and of payment of transfer taxes, as the Corporation or
its agents may require.
Section 6.03. Ownership of Stock. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the owner thereof
in fact 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 has express or other notice thereof, except as otherwise expressly provided
by law or in the charter.
Section 6.04. Lost, Stolen, or Destroyed Certificates. In case any
certificate for stock of the Corporation is lost, stolen, or destroyed, the
Corporation may require such proof of the fact and such indemnity to be given to
it, to its transfer agent, or to its registrar, if any, as deemed necessary or
advisable by it.
8
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ARTICLE 7
MISCELLANEOUS
Section 7.01. Corporate Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation, the year of
incorporation, and the word "Maryland."
Section 7.02. Fiscal Year. The Corporation's fiscal year shall end on
December 31. The Board of Directors shall have power to change the fiscal year
of the Corporation from time to time.
ARTICLE 8
INDEMNIFICATION; TRANSACTIONS
WITH INTERESTED PERSONS
Section 8.01. Indemnification. The Corporation shall, to the fullest
extent required or permitted by applicable law, indemnify any person who is or
was, or is the personal representative of a deceased person who was, a Director,
officer, employee, or agent of the Corporation against any judgments, penalties,
fines, settlements and reasonable expenses and any other liabilities to the
fullest extent permitted by Section 2-418 of the Act as in effect from time to
time; provided that, unless applicable law otherwise requires, indemnification
shall be contingent upon a determination, by the Board of Directors by a
majority vote of a quorum consisting of Directors not, at the time, parties to
the proceeding, or, if such a quorum cannot be obtained, then by a majority vote
of a committee of the Board of Directors consisting solely of two or more
Directors not, at the time, parties to such proceeding and who were duly
designated to act in the matter by a majority vote of the full board in which
the designated Directors who are parties may participate or by special legal
counsel selected by and if directed by the Board of Directors as set forth
above, that indemnification is proper in the circumstances because such
Director, officer, employee, or agent has met the applicable standard of conduct
prescribed by Section 2-418(b) of the Act.
Section 8.02. Transactions With Interested Persons. No contract or
transaction between the Corporation and any of its Directors or officers, or
between the Corporation and any other corporation, partnership, association, or
other organization in which any of its Directors or officers is a director or
officer or has a financial interest, shall be void or voidable solely for that
reason, or solely because the Director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof at which the
contract or transaction is authorized or solely because his vote is counted for
such purpose, if
(a) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors or
the committee, and the Board of Directors or committee in good faith approves or
ratifies the contract or transaction by the affirmative vote of a majority of
the disinterested Directors, even though the disinterested Directors are less
than a quorum;
9
<PAGE>
(b) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by a majority of the votes cast by the stockholders other than the
votes of shares owned of record or beneficially by the interested Director,
officer, corporation, firm or other entity; or
(c) the contract or transaction is fair and reasonable as to the
Corporation as of the time it is authorized, approved, or ratified by the Board
of Directors, a committee thereof, or the stockholders.
ARTICLE 9
AMENDMENT
The power to amend or repeal these By-Laws and to adopt new By-Laws is
vested exclusively in the Board of Directors.
10
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--------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
CEDAR INCOME FUND PARTNERSHIP, L.P.
--------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE 1
DEFINED TERMS
<S> <C> <C>
Section 1.1 Definitions.....................................................................................1
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization...................................................................................15
Section 2.2 Name...........................................................................................15
Section 2.3 Registered Office and Agent; Principal Office..................................................16
Section 2.4 Power of Attorney..............................................................................16
Section 2.5 Term...........................................................................................17
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business...........................................................................17
Section 3.2 Powers.........................................................................................18
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners..........................................................18
Section 4.2 Additional Capital Contributions Generally.....................................................18
Section 4.3 Loans by Partners..............................................................................18
Section 4.4 Loans by Third Parties.........................................................................19
Section 4.5 Additional Funding, Additional Partnership Interests and Capital
Contributions..................................................................................19
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions..............................................21
Section 5.2 Distributions in Kind..........................................................................21
Section 5.3 Amounts Withheld...............................................................................22
Section 5.4 Distributions Upon Liquidation.................................................................22
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss....................................22
Section 6.2 General Allocations............................................................................22
Section 6.3 Additional Allocation Provisions...............................................................22
Section 6.4 Tax Allocations................................................................................25
</TABLE>
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<TABLE>
<CAPTION>
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
<S> <C> <C>
Section 7.1 Management.....................................................................................25
Section 7.2 Certificate of Limited Partnership.............................................................28
Section 7.3 Restrictions on General Partner's Authority....................................................28
Section 7.4 Reimbursement of the General Partner...........................................................31
Section 7.5 Outside Activities of the General Partner......................................................31
Section 7.6 Contracts with Affiliates......................................................................32
Section 7.7 Indemnification................................................................................32
Section 7.8 Liability of the General Partner...............................................................34
Section 7.9 Other Matters Concerning the General Partner...................................................34
Section 7.10 Title to Partnership Assets....................................................................35
Section 7.11 Reliance by Third Parties......................................................................35
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability........................................................................36
Section 8.2 Management of Business.........................................................................36
Section 8.3 Outside Activities of Limited Partners.........................................................36
Section 8.4 Return of Capital..............................................................................37
Section 8.5 Rights of Limited Partners Relating to the Partnership.........................................37
Section 8.6 Redemption Right...............................................................................38
Section 8.7 Representations of Limited Partners............................................................39
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting.........................................................................41
Section 9.2 Fiscal Year....................................................................................41
Section 9.3 Reports........................................................................................41
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns.....................................................................42
Section 10.2 Tax Elections..................................................................................42
Section 10.3 Tax Matters Partner............................................................................42
Section 10.4 Organizational Expenses........................................................................44
Section 10.5 Withholding....................................................................................44
</TABLE>
ii
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<TABLE>
<CAPTION>
ARTICLE 11
TRANSFERS AND WITHDRAWALS
<S> <C> <C>
Section 11.1 Transfer.......................................................................................45
Section 11.2 Transfer of General Partner's Partnership Interest.............................................45
Section 11.3 Limited Partners' Rights to Transfer...........................................................45
Section 11.4 Substituted Limited Partners...................................................................47
Section 11.5 Assignees......................................................................................48
Section 11.6 General Provisions.............................................................................48
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner.........................................................49
Section 12.2 Admission of Additional Limited Partners.......................................................49
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership..................................50
ARTICLE 13
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution....................................................................................50
Section 13.2 Winding Up.....................................................................................51
Section 13.3 Compliance with Timing Requirements of Regulations.............................................52
Section 13.4 Deemed Distribution and Recontribution.........................................................53
Section 13.5 Rights of Limited Partners.....................................................................53
Section 13.6 Notice of Dissolution..........................................................................53
Section 13.7 Cancellation of Certificate of Limited Partnership.............................................53
Section 13.8 Reasonable Time for Winding-Up.................................................................54
Section 13.9 Waiver of Partition............................................................................54
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1 Amendments.....................................................................................54
Section 14.2 Action by the Partners.........................................................................54
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice...........................................................................55
Section 15.2 Titles and Captions............................................................................55
Section 15.3 Pronouns and Plurals...........................................................................55
Section 15.4 Further Action.................................................................................56
Section 15.5 Binding Effect.................................................................................56
Section 15.6 Creditors......................................................................................56
Section 15.7 Waiver.........................................................................................56
Section 15.8 Counterparts...................................................................................56
Section 15.9 Applicable Law.................................................................................56
Section 15.10 Invalidity of Provisions.......................................................................56
Section 15.11 Limitation to Preserve REIT Status.............................................................57
</TABLE>
iii
<PAGE>
EXHIBITS
A Partners, Contributions and Partnership Units
B Notice of Redemption
iv
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
CEDAR INCOME FUND PARTNERSHIP, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of June 25th,
1998, is entered into by and among Cedar Income Fund, Ltd. (the "General
Partner"), a Maryland corporation, as the General Partner and the Persons whose
names are set forth on Exhibit A attached hereto, as the Limited Partners,
together with any other Persons who become Partners in the Partnership as
provided herein.
ARTICLE 1
DEFINED TERMS
Section 1.1 Definitions.
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
"Additional Funds" shall have the meaning set forth in Section
4.5.A.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 hereof and who is
shown as such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant fiscal year, after giving effect to the following
adjustments:
(i) decrease such deficit by any amounts which such
Partner is obligated to restore pursuant to this
Agreement or is deemed to be obligated to restore
pursuant to the penultimate sentence of each of
Treasury Regulation Sections 1.704-2(i)(5) and
1.704-2(g); and
(ii) increase such deficit by the items described in
Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),
(5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)
and shall be interpreted consistently therewith.
<PAGE>
"Adjustment Date" means, with respect to any Capital
Contribution, the close of business on the Business Day last preceding the date
of the Capital Contribution, provided, that if such Capital Contribution is
being made by the General Partner in respect of the proceeds from the issuance
of REIT Shares (or the issuance of the General Partner's securities exercisable
for, convertible into or exchangeable for REIT Shares), then the Adjustment Date
shall be as of the close of business on the Business Day last preceding the date
of the issuance of such securities.
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by or under common control with
such Person.
"Agreed Value" means (i) in the case of any Contributed
Property set forth in Exhibit A and as of the time of its contribution to the
Partnership, the value of such property as set forth in Exhibit A; (ii) in the
case of any Contributed Property not set forth in Exhibit A and as of the time
of its contribution to the Partnership, the fair market value of such property
or other consideration as determined by the General Partner, reduced by any
liabilities either assumed by the Partnership upon such contribution or to which
such property is subject when contributed; and (iii) in the case of any property
distributed to a Partner by the Partnership, the fair market value of such
property as determined by the General Partner at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of the
distribution as determined under Section 752 of the Code and the Regulations.
"Agreement" means this Agreement of Limited Partnership, as it
may be amended, supplemented or restated from time to time.
"Appraisal" means with respect to any assets, the opinion of
an independent third party experienced in the valuation of similar assets,
selected by the General Partner in good faith, such opinion may be in the form
of an opinion by such independent third party that the value for such property
or asset as set by the General Partner is fair, from a financial point of view,
to the Partnership.
"Articles of Incorporation" means the Articles of
Incorporation of the General Partner filed in the State of Maryland on June 12,
1998 as amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5.
"Available Cash" means, with respect to any period for which
such calculation is being made, (i) the sum of:
a. the Partnership's Net Income or Net Loss (as the case may
be) for such period,
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b. Depreciation and all other noncash charges deducted in
determining Net Income or Net Loss for such period,
c. the amount of any reduction in reserves of the Partnership
referred to in clause (ii)(f) below (including, without limitation, reductions
resulting because the General Partner determines such amounts are no longer
necessary),
d. the excess of the net proceeds from the sale, exchange,
disposition, financing or refinancing of Partnership property for such period
over the gain (or loss, as the case may be) recognized from any such sale,
exchange, disposition, financing or refinancing during such period (excluding
Terminating Capital Transactions), and
e. all other cash received by the Partnership for such period
that was not included in determining Net Income or Net Loss for such period;
(ii) less the sum of:
a. all principal debt payments made during such period by the
Partnership,
b. capital expenditures made by the Partnership during such
period,
c. repayments of investments in any entity (including
repayments of loans made thereto) to the extent that such repayments of
investments are not otherwise described in clauses (ii)(a) or (b),
d. all other expenditures and payments not deducted in
determining Net Income or Net Loss for such period,
e. any amount included in determining Net Income or Net Loss
for such period that was not received by the Partnership during such period, and
f. the amount of any increase in reserves established during
such period which the General Partner determines is necessary or appropriate in
its sole and absolute discretion.
Notwithstanding the foregoing, Available Cash shall not
include the amount of any cash received or reductions in reserves, or take into
account any disbursements made or reserves established, after commencement of
the dissolution and liquidation of the Partnership.
"Bankruptcy" means any event where the General Partner, or the
Partnership, as the case may be, makes an assignment for the benefit of
creditors, files a voluntary petition in bankruptcy, is adjudicated a bankrupt
or insolvent, files a petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, files an answer or other pleading
admitting or failing to contest the material allegations of a petition filed
against it in any proceeding of this nature, or seeks, consents to or acquiesces
in the appointment of a trustee, receiver or liquidator for all or any
substantial part of its properties.
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<PAGE>
"Board of Directors" means the Board of Directors of the
General Partner.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to be closed.
"Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Partner in accordance with the following
provisions:
a. To each Partner's Capital Account there shall be added such
Partner's Capital Contributions, such Partner's share of Net Income and any
items in the nature of income or gain which are specially allocated pursuant to
Section 6.3 hereof, and the amount of any Partnership liabilities assumed by
such Partner or which are secured by any property distributed to such Partner.
b. From each Partner's Capital Account there shall be
subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Net Losses and any items in the nature of
expenses or losses which are specially allocated pursuant to Section 6.3 hereof,
and the amount of any liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such Partner to the
Partnership.
c. In the event any interest in the Partnership is transferred
in accordance with the terms of this Agreement, the transferee shall succeed to
the Capital Account of the transferor to the extent it relates to the
transferred interest.
d. In determining the amount of any liability for purposes of
subsections (a) and (b) hereof, there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
e. The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Section 1.704-1(b) and Section 1.704-2, and shall be
interpreted and applied in a manner consistent with such Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto
(including, without limitation, debits or credits relating to liabilities which
are secured by contributed or distributed property or which are assumed by the
Partnership, the General Partner, or the Limited Partners) are computed in order
to comply with such Regulations, the General Partner may make such modification,
provided that it is not likely to have a material effect on the amounts
distributable to any Person pursuant to Article 13 of this Agreement upon the
dissolution of the Partnership. The General Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership capital reflected
on the Partnership's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2.
-4-
<PAGE>
"Capital Contribution" means, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the Partnership by such Partner.
"Cash Amount" means an amount of cash per Partnership Unit
equal to the Value on the Valuation Date of the REIT Shares Amount.
"Certificate" means the Certificate of Limited Partnership
relating to the Partnership filed in the office of the Delaware Secretary of
State, as amended from time to time in accordance with the terms hereof and the
Act.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time or any successor statute thereto, as interpreted by the
applicable regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Consent" means the consent to, approval of, or vote on a
proposed action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a
Majority in Interest of the Limited Partners, which Consent shall be obtained
prior to the taking of any action for which it is required by this Agreement and
may be given or withheld by a Majority in Interest of the Limited Partners,
unless otherwise expressly provided herein, in their sole and absolute
discretion.
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act, but excluding cash, contributed or
deemed contributed to the Partnership (or deemed contributed to the Partnership
on termination and reconstitution thereof pursuant to Section 708 of the Code).
"Conversion Factor" initially 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 to all holders of its
outstanding REIT Shares or makes a distribution to
all holders of its outstanding REIT Shares in REIT
Shares,
-5-
<PAGE>
(ii) splits or subdivides its REIT Shares into a larger
number of REIT Shares, or
(iii) effects a reverse split or combines its outstanding
REIT Shares into a smaller number of REIT Shares,
the Conversion Factor shall be adjusted by multiplying the Conversion Factor
previously in effect 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, split, subdivision, reverse split or combination (assuming for
such purposes that such dividend, distribution, split, subdivision, reverse
split or combination has occurred as of such time), and the denominator of which
shall be the actual number of REIT Shares (determined without the above
assumption) issued and outstanding on the record date for such dividend,
distribution, split, subdivision, reverse split or combination;
b. in the event that the General Partner distributes any
rights, options or warrants to all holders of its REIT Shares to subscribe for
or to purchase or to otherwise acquire REIT Shares (or other securities or
rights convertible into, exchangeable for or exercisable for REIT Shares) at a
price per share less than the Value of a REIT Share on the record date for such
distribution (each a "Distributed Right"), then the Conversion Factor shall be
adjusted by multiplying the Conversion Factor previously in effect by a
fraction, the numerator of which shall be the number of REIT Shares issued and
outstanding on the record date plus the maximum number of REIT Shares
purchasable under such Distributed Rights, and the denominator of which shall be
the number of REIT Shares issued and outstanding on the record date plus a
fraction, the numerator of which is the maximum number of REIT Shares
purchasable under such Distributed Rights times the minimum purchase price per
REIT Share under such Distributed Rights, and the denominator of which is the
Value of a REIT Share as of the record date; provided, that if any such
Distributed Rights expire or become no longer exercisable, then the Conversion
Factor shall be adjusted, effective retroactive to the date of distribution of
the Distributed Rights, to reflect a reduced maximum number of REIT Shares or
any change in the minimum purchase price for the purposes of the above
fractions; and
c. in the event the General Partner shall, by dividend or
otherwise, distribute to all holders of its REIT Shares evidences of its
indebtedness or assets (including securities, but excluding any dividend or
distribution referred to in clause (a)(i) above), which evidences of
indebtedness or assets relate to assets not received by the General Partner
pursuant to a pro rata distribution by the Partnership, then the Conversion
Factor shall be adjusted to equal the amount determined by multiplying the
Conversion Factor in effect immediately prior to the close of business on the
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be such Value of each
REIT Share on the date fixed for such determination, and the denominator shall
be the Value of each REIT Share on the date fixed for such determination less
the then fair market value (as determined by the Board of Directors, whose
determination shall be conclusive) of the portion of the evidences of
indebtedness or assets so distributed applicable to one REIT Share.
-6-
<PAGE>
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 that any Limited Partner may waive, by written notice to
the General Partner, the effect of any adjustment to the Conversion Factor
applicable to the Units held by such Limited Partner, and thereafter, such
adjustment will not be effective as to such Units. For purposes of this
definition, the term "REIT Share" shall not include any Trust Shares (as defined
in the Articles of Incorporation of the General Partner).
"Debt" means, as to any Person, as of any date of
determination, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services; (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar instruments guaranteeing
payment or other performance of obligations by such Persons; (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof; and (iv) lease
obligations of such Persons which, in accordance with generally accepted
accounting principles, should be capitalized.
"Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
"Deemed Partnership Interest Value" means, as of any date, the
Deemed Value of the Partnership multiplied by the applicable Partner's
Percentage Interest.
"Deemed Value of the Partnership" means, as of any date, (a)
the total number of REIT Shares issued and outstanding as of the close of
business on such date (excluding any treasury shares) multiplied by the Value of
a REIT Share on such date, (i) minus the net fair market value of the General
Partner Properties determined by the Board of Directors of the General Partner
in good faith or (ii) if the face amount of the General Partner's liabilities
(other than those arising through the Partnership) exceeds the value of the
General Partner Properties, plus such excess and (b) divided by the Percentage
Interest of the General Partner on such date;
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"Effective Date" means the effective date of the merger of
Cedar Income Fund, Ltd., an Iowa corporation, into the General Partner, upon
which contributions set forth on Exhibit A that are to be effective on the
Effective Date shall become effective.
"Funding Debt" means the incurrence of any Debt by or on
behalf of the General Partner for the purpose of providing funds to the
Partnership.
"General Partner" means the REIT or its successors as general
partner of the Partnership.
"General Partner Interest" means a Partnership Interest held
by the General Partner that is a general partnership interest. A General Partner
Interest may be expressed as a number of Partnership Units.
"General Partner Loan" is defined in Section 4.5.C.
"General Partner Properties" means any property or assets
owned by the General Partner directly, and which are not owned by the
Partnership.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
a. The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such asset,
as determined by the contributing Partner and the General Partner; provided
that, if the contributing Partner is the General Partner and contributes assets
in an amount valued at above cost, then the determination of the fair market
value of the contributed asset shall be determined by Appraisal.
b. The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the General Partner using such reasonable method of valuation as it may adopt,
provided however, that for this purpose the net value of all of the Partnership
assets, in the aggregate, shall be equal to the Deemed Value of the Partnership,
regardless of the method of valuation adopted by the General Partner, as of the
following times:
(i) the acquisition of an additional interest in the
Partnership by a new or existing Partner in exchange
for more than a de minimis Capital Contribution if
the General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the
relative economic interest of the Partners in the
Partnership;
(ii) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property
as consideration for an interest in the Partnership
if the General Partner reasonably determines that
such adjustment is necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership;
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<PAGE>
(iii) the liquidation of the Partnership within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g) and
1.704-2; and
(iv) at such other times as the General Partner shall
reasonably determine necessary or advisable in order
to comply with Regulations Sections 1.704-1(b) and
1.704-2.
c. The Gross Asset Value of any Partnership asset distributed
to a Partner shall be the gross fair market value of such asset on the date of
distribution as determined by the distributee and the General Partner, or if the
distributee and the General Partner cannot agree on such a determination, by
Appraisal.
d. The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
subparagraph (d) to the extent that the General Partner reasonably determines
that an adjustment pursuant to subparagraph (b) is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (d).
e. If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subparagraph (a), (b) or (c), such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Income and Net Losses.
"Holder" means either the Partner or Assignee owning a Unit.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person,
the ancestors and descendants of such natural Person, the spouse of such natural
Person and the ancestors and descendants of such spouse, the estate or heirs
thereof, and any trust or estate, all of the beneficiaries of which consist of
the foregoing persons.
"Incapacity" or "Incapacitated" means, (i) as to any
individual Partner, death, physical disability which renders him unable to work
on a full-time basis or entry by a court of competent jurisdiction adjudicating
him incompetent to manage his Person or his estate; (ii) as to any corporation
which is a Partner, the filing of a certificate of dissolution, or its
equivalent, for the corporation or the revocation of its charter; (iii) as to
any partnership which is a Partner, the dissolution and commencement of winding
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up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar law
now or hereafter in effect has been entered against the Partner, (c) the Partner
executes and delivers a general assignment for the benefit of the Partner's
creditors, (d) the Partner files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Partner in any proceeding of the nature described in clause (b) above, (e) the
Partner seeks, consents to or acquiesces in the appointment of a trustee,
receiver or liquidator for the Partner or for all or any substantial part of the
Partner's properties, (f) any proceeding seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect has not been dismissed within 120 days after the
commencement thereof, (g) the appointment without the Partner's consent or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within 90 days of such appointment, or (h) an appointment referred to in clause
(g) is not vacated within 90 days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding
by reason of his status as (A) the General Partner or (B) a director or officer
of the Partnership or the General Partner, and (ii) such other Persons
(including Affiliates of the General Partner or the Partnership) as the General
Partner may designate from time to time, in its sole and absolute discretion.
"Limited Partner" means any Person named as a Limited Partner
in Exhibit A attached hereto, as such Exhibit may be amended from time to time,
or any Substituted Limited Partner or Additional Limited Partner, in such
Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of
a Limited Partner in the Partnership representing a fractional part of the
Partnership Interest of all Limited Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such person to comply with
the terms and provisions of this Agreement. A Limited Partnership Interest may
be expressed as a number of Partnership Units.
"Liquidator" has the meaning set forth in Section 13.2.A.
"Majority in Interest of the Limited Partners" means those
Limited Partners (other than any Limited Partner 50% or more of whose equity is
owned, directly or indirectly, by the General Partner) holding Percentage
Interests that are greater than fifty percent (50%) of the aggregate Percentage
Interest of all Limited Partners (other than any Limited Partner 50% or more
whose equity is owned, directly or indirectly, by the General Partner).
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"Net Income" or "Net Loss" means for each fiscal year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such fiscal year, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss, or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
a. Any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Net Income or Net
Loss pursuant to this definition of Net Income or Net Loss shall be added to
such taxable income or loss;
b. Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Net Income or Net Loss pursuant to this definition of
Net Income or Net Loss shall be subtracted from such taxable income or loss;
c. In the event the Gross Asset Value of any Partnership asset
is adjusted pursuant to subparagraph (b) or subparagraph (c) of the definition
of Gross Asset Value, the amount of such adjustment shall be taken into account
as gain or loss from the disposition of such asset for purposes of computing Net
Income or Net Loss;
d. Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
e. In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year;
f. To the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's interest in the Partnership, the amount of
such adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Net Income or Net Loss; and
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g. Notwithstanding any other provision of this definition of
Net Income or Net Loss, any items which are specially allocated pursuant to
Section 6.3 hereof shall not be taken into account in computing Net Income or
Net Loss. The amounts of the items of Partnership income, gain, loss, or
deduction available to be specially allocated pursuant to Section 6.3 hereof
shall be determined by applying rules analogous to those set forth in this
definition of Net Income or Net Loss.
"Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means a Notice of Redemption
substantially in the form of Exhibit B to this Agreement.
"Partner" means a General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
"Partnership" means the limited partnership formed under the
Act and pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means an ownership interest in the
Partnership of either a Limited Partner or the General Partner and includes any
and all benefits to which the holder of such a Partnership Interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. A Partnership
Interest may be expressed as a number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
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"Partnership Record Date" means the record date established by
the General Partner for the distribution of Available Cash pursuant to Section
5.1 hereof which record date shall be the same as the record date established by
the General Partner for a distribution to its stockholders of some or all of its
portion of such distribution.
"Partnership Unit" means a fractional, undivided share of the
Partnership Interest of all Partners issued pursuant to Sections 4.1 and 4.2. As
of the Effective Date of this Agreement, there shall be considered to be
2,245,411 Partnership Units outstanding, with all such Partnership Units
representing 100% of the Percentage Interests of the Partnership.
"Partnership Year" means the fiscal year of the Partnership,
which shall be the calendar year.
"Percentage Interest" means, as to a Partner, its interest in
the Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding and as
specified in Exhibit A attached hereto, as such Exhibit may be amended from time
to time.
"Person" means an individual or a corporation, partnership,
trust, limited liability company, unincorporated organization, association or
other entity.
"Properties" means such interests in real property and
personal property including, without limitation, fee interest, interests in
ground leases, interests in joint ventures, interests in mortgages, and Debt
instruments as the Partnership may hold from time to time.
"Qualified Transferee" means an "Accredited Investor" as
defined in Rule 501 promulgated under the Securities Act.
"Redemption Right" has the meaning set forth in Section 8.6
hereof.
"Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" has the meaning set forth in Section
6.3(A)(viii) of this Agreement.
"REIT" means a real estate investment trust under Section 856
of the Code.
"REIT Requirements" has the meaning set forth in Section 5.1.
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"REIT Share" shall mean a share of common stock of the General
Partner, but shall not, for purposes of the definition of "Conversion Factor,"
include any Trust Shares (as defined in the Articles of Incorporation of the
General Partner).
"REIT Shares Amount" shall mean 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 in effect on the
Valuation Date.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Specified Redemption Date" means the tenth (10th) Business
Day after receipt by the Partnership of a Notice of Redemption.
"Stock Option Plan" means any stock option plan of the General
Partner.
"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 interest is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Valuation Date" means the date of receipt by the General
Partner of a Notice of Redemption or, if such date is not a Business Day, the
immediately preceding Business Day.
"Value" means, with respect to a REIT Share, the average of
the daily market price for the ten (10) consecutive trading days immediately
preceding the Valuation Date. The market price for each such trading day shall
be: (i) if the REIT Shares are listed or admitted to trading on any securities
exchange or the Nasdaq National Market System, the closing price, regular way,
on such day, or if no such sale takes place on such day, the average of the
closing bid and asked prices on such day, (ii) if the REIT Shares are not listed
or admitted to trading on any securities exchange or the Nasdaq National Market
System, the last reported sale price on such day or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day, as
reported by a reliable quotation source designated by the General Partner, or
(iii) if the REIT Shares are not listed or admitted to trading on any securities
exchange or the Nasdaq National Market System and no such last reported sale
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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 10 days prior to the date in
question) for which prices have been so reported; provided that if there are no
bid and asked prices reported during the 10 days prior to the date in question,
the Value of the REIT Shares shall be determined by the General Partner acting
in good faith on the basis of such quotations and other information as it
considers, in its reasonable judgment, appropriate. In the event the REIT Shares
Amount includes rights that a holder of REIT Shares would be entitled to
receive, 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; and
provided further that in connection with determining the Deemed Value of the
Partnership for purposes of determining the number of additional Units issuable
upon a Capital Contribution funded by an underwritten public offering of REIT
Shares, then the Value of the REIT Shares shall be the public offering price per
share of the REIT Shares sold.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization
The Partnership is a limited partnership pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
The Partnership has been formed with an initial contribution
of $1.00 by the General Partner for one Partnership Unit of general partnership
interest, and an initial contribution of $1.00 by Cedar Bay Company, for one
Partnership Unit of limited partnership interest. Upon the Effective Date, the
contributions specified on Exhibit A as being made on the Effective Date shall
be made and the Partnership Units specified therein shall be issued. Upon such
issuance, the initial Partnership Unit issued to the General Partner and the
initial Partnership Unit issued to Cedar Bay Company shall be redeemed for the
price of $1.00 each.
Section 2.2 Name
The name of the Partnership is Cedar Income Fund Partnership,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
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Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the
State of Delaware is located at 1209 Orange Street, Wilmington, Delaware 19801,
and the registered agent for service of process on the Partnership in the State
of Delaware at such registered office shall be as set forth in the Certificate,
as it may be amended from time to time. The principal office of the Partnership
is 44 South Bayles Avenue, Port Washington, New York 11050 or such other place
as the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner and each Assignee constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) Execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all
certificates, documents and other instruments
(including, without limitation, this Agreement and
the Certificate and all amendments or restatements
thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or
continue the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the limited partners have
limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may
conduct business or own property; (b) all instruments
that the General Partner deems appropriate or
necessary to reflect any amendment, change,
modification or restatement of this Agreement in
accordance with its terms; (c) all conveyances and
other instruments or documents that the General
Partner deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including,
without limitation, a certificate of cancellation;
(d) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner
pursuant to, or other events described in, Article
11, 12 or 13 hereof or the Capital Contribution of
any Partner; and (e) all certificates, documents and
other instruments relating to the determination of
the rights, preferences and privileges of Partnership
Interests; and
(2) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and
absolute discretion of the General Partner, to make,
evidence, give, confirm or ratify any vote, consent,
approval, agreement or other action which is made or
given by the Partners hereunder or is consistent with
the terms of this Agreement or appropriate or
necessary, in the sole discretion of the General
Partner, to effectuate the terms or intent of this
Agreement.
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Nothing contained herein shall be construed as authorizing the General Partner
to amend this Agreement except in accordance with Article 14 hereof or as may be
otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
to act as contemplated by this Agreement in any filing or other action by it on
behalf of the Partnership, and it shall survive and not be affected by the
subsequent Incapacity of any Limited Partner or Assignee and the transfer of all
or any portion of such Limited Partner's or Assignee's Partnership Units and
shall extend to such Limited Partner's or Assignee's heirs, successors, assigns
and personal representatives. Each such Limited Partner or Assignee hereby
agrees to be bound by any representation made by the General Partner, acting in
good faith pursuant to such power of attorney, and each such Limited Partner or
Assignee hereby waives any and all defenses which may be available to contest,
engage or disaffirm the action of the General Partner, taken in good faith under
such power of attorney. Each Limited Partner or Assignee shall execute and
deliver to the General Partner or the Liquidator, within 15 days after receipt
of the General Partner's request therefor, such further designations, powers of
attorney and other instruments as the General Partner or the Liquidator, as the
case may be, deems necessary to effectuate this Agreement and the purposes of
the Partnership.
Section 2.5 Term
The term of the Partnership commenced on June 12, 1998 and
shall continue until December 31, 2098 unless it is dissolved sooner pursuant to
the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act, (ii) to enter into any
partnership, joint venture or other similar arrangement to engage in any of the
foregoing or the ownership of interest in any entity engaged in any of the
foregoing and (iii) to do anything necessary or incidental to the foregoing;
provided, however, that with respect to subparagraphs (i), (ii) and (iii) above
such business shall be limited to and conducted in such a manner as to permit
the General Partner at all times to be classified as a REIT for federal income
tax purposes, unless the General Partner has determined to cease to qualify as a
REIT, and, to the extent not inconsistent with the preceding clause, to permit
any other Partner which is a REIT to be so classified for federal income tax
purposes.
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Section 3.2 Powers
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, provided that the Partnership
shall not take, or refrain from taking, any action which, in the judgment of the
General Partner, in its sole and absolute discretion, (i) could adversely affect
the ability of the General Partner to continue to qualify as a REIT, (ii) could
subject the General Partner to any additional taxes under Section 857 or Section
4981 of the Code, or (iii) could violate any law or regulation of any
governmental body or agency having jurisdiction over the General Partner or its
securities, unless any such action (or inaction) under (i), (ii) or (iii) first
shall have been specifically consented to by the General Partner in writing.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
At the time of the execution of this Agreement, the Partners
shall make Capital Contributions as set forth in Exhibit A to this Agreement. To
the extent the Partnership acquires after the date of this Agreement any
property by acquisition or by the merger of any other Person into the
Partnership or otherwise, Persons who receive Partnership Interests in
connection with the acquisition or in exchange for their interests in the Person
merging into the Partnership shall become Partners and shall be deemed to have
made Capital Contributions as provided in the applicable acquisition or merger
agreement and as set forth in Exhibit A as amended. The Partners shall own
Partnership Units in the amounts set forth in Exhibit A, which Exhibit A shall
be amended from time to time by the General Partner to the extent necessary to
reflect accurately exchanges, redemptions, Capital Contributions, the issuance
of additional Partnership Units, or similar events having an effect on a
Partner's Percentage Interest.
Section 4.2 Additional Capital Contributions Generally
Except as otherwise required by law or pursuant to this
Article 4, no Partner shall be required or permitted to make any additional
Capital Contributions to the Partnership.
Section 4.3 Loans by Partners
Except as otherwise provided in Section 4.5, no Partner shall
be required or permitted to make any loans to the Partnership.
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Section 4.4 Loans by Third Parties
The Partnership may incur Debt, or enter into other similar
credit, guarantee, financing or refinancing arrangements for any purpose
(including, without limitation, in connection with any further acquisition of
Properties) upon such terms as the General Partner determines appropriate;
provided that loans from the General Partner shall be subject to Section 4.5.C.
Section 4.5 Additional Funding, Additional Partnership
Interests and Capital Contributions
A. General. The General Partner may, at any time and
from time to time, determine that the Partnership
requires additional funds ("Additional Funds") for
the acquisition or development of additional
Properties or for such other purposes as the General
Partner may determine. Additional Funds may be raised
by the Partnership, at the election of the General
Partner, in any manner provided in, and in accordance
with, the terms of this Section 4.5. No Person shall
have any preemptive rights or rights to subscribe for
or acquire any Partnership Interest.
B. Additional General Partner Capital Contributions. The
General Partner may, or, to the extent the General
Partner raises all or any portion of the Additional
Funds through the sale or other issuance of REIT
Shares or other equity interests in the General
Partner, the General Partner shall, contribute the
Additional Funds to the capital of the Partnership in
exchange for Partnership Units.
C. General Partner Loans. The General Partner may, or,
to the extent the General Partner enters into a
Funding Debt, the General Partner shall, lend the
Additional Funds to the Partnership (a "General
Partner Loan"). If the General Partner enters into
such a Funding Debt, the General Partner Loan will
consist of the net proceeds to the General Partner
from such Funding Debt and will be on the same terms
and conditions, including interest rate, repayment
schedule and costs and expenses, as shall be
applicable with respect to or incurred in connection
with such Funding Debt. Otherwise, all General
Partner Loans made pursuant to this Section 4.5 shall
be on terms and conditions no less favorable to the
Partnership than would be available to the
Partnership from any third party.
D. Additional Limited Partners. The General Partner on
behalf of the Partnership may raise all or any
portion of the Additional Funds by accepting
additional Capital Contributions, (i) in the case of
cash, from the General Partner or any Limited
Partner, or, (ii) in the case of property other than
cash, from any Partner and/or third parties, and
either (a) in the case of a Partner, issuing
additional Units, or (b) in the case of a third
party, admitting such third party as an Additional
Limited Partner. The General Partner shall determine
the amount, terms and conditions of such additional
Capital Contributions.
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E. Additional Units. Upon the acceptance of a Capital
Contribution, the contributing Partner shall receive
the following number of additional whole Partnership
Units (rounded down to the nearest whole Partnership
Unit):
U(1)= CC x TU
--
DV
where
U(1) = number of additional Partnership Units to be issued
CC = Agreed Value of the Capital Contribution
DV = Deemed Value of the Partnership as of the Adjustment Date for such
Capital Contribution
TU = total number of Partnership Units outstanding immediately prior to
the Capital Contribution
F. Additional Partnership Interests. The General Partner
shall be authorized to issue additional limited
partnership interests in the form of Partnership
Units for any Partnership purpose at any time or from
time to time, to any Partner or other Person (other
than the General Partner, except in accordance with
the provisions contained below). The Partnership also
may from time to time issue to the General Partner
additional Partnership Units or other Partnership
Interests in such classes and having such
designations, preferences and relative rights
(including preferences and rights senior to the
existing Limited Partnership Interests) as shall be
determined by the General Partner in accordance with
the Act and governing law. Any such issuance of
Partnership Units or Partnership Interests to the
General Partner shall be conditioned upon (i) the
undertaking by the General Partner of a related
issuance of REIT Shares (with such shares having
designations, rights and preferences such that the
economic rights of the holders of such REIT Shares
are substantially similar to the rights of the
additional Partnership Interests issued to the
General Partner) and the General Partner making a
Capital Contribution in an amount equal to the net
proceeds raised in the issuance of such REIT Shares
or (ii) the issuance by the General Partner of REIT
Shares under any stock option or bonus plan and the
General Partner making a Capital Contribution in an
amount equal to the exercise price of the option
exercised by any employee pursuant to such stock
option or other bonus plan.
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G. Additional REIT Shares. The General Partner shall not
issue any (i) additional REIT Shares, (ii) rights,
options or warrants containing the right to subscribe
for or purchase REIT Shares or (iii) securities
convertible or exchangeable into REIT Shares
(collectively, "Additional REIT Securities") other
than to all holders of REIT Shares, pro rata, unless
(x) the Partnership issues to the General Partner (i)
Partnership --- ---- Interests, (ii) rights, options
or warrants containing the right to subscribe for or
purchase Partnership Interests or (iii) securities
convertible or exchangeable into Partnership
Interests such that the General Partner receives an
economic interest in the Partnership substantially
similar to the economic interest in the General
Partner represented by the Additional Securities and
(y) the General Partner contributes the net proceeds
from the issuance of the Additional REIT Securities
and from the exercise of any rights contained in any
Additional REIT Securities to the Partnership.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
The General Partner shall cause the Partnership to distribute
quarterly all or such portion as the General Partner may in its discretion
determine, of Available Cash generated by the Partnership during such quarter to
the Holders of Partnership Units on the Partnership Record Date with respect to
such quarter, pro rata in accordance with the respective number of Partnership
Units so held on such Partnership Record Date. The General Partner shall take
such reasonable efforts, as determined by it in its sole and absolute discretion
and consistent with its qualification as a REIT, to cause the Partnership to
distribute sufficient amounts to enable the General Partner to pay stockholder
dividends that will (a) satisfy the requirements for qualifying as a REIT under
the Code and Regulations ("REIT Requirements"), and (b) avoid any federal income
or excise tax liability of the General Partner.
Section 5.2 Distributions in Kind
No right is given to any Partner to demand and receive
property or cash. The General Partner may determine, in its sole and absolute
discretion, to make a distribution in kind to the Partners of Partnership assets
and such assets shall be distributed in such a fashion as to ensure that the
fair market value is distributed and allocated in accordance with Articles 5, 6
and 13.
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Section 5.3 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of
any state or local tax and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners or Assignees, as the case may be, pursuant to Section 5.1 for
all purposes under this Agreement.
Section 5.4 Distributions Upon Liquidation
Notwithstanding the foregoing, proceeds from a Terminating
Capital Transaction shall be distributed to the Partners in accordance with
Section 13.2.
ARTICLE 6
ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and
Net Loss
Net Income and Net Loss of the Partnership shall be determined
and allocated with respect to each fiscal year of the Partnership as of the end
of each such year. Subject to the other provisions of this Article 6, an
allocation to a Partner of a share of Net Income or Net Loss shall be treated as
an allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Income or Net Loss.
Section 6.2 General Allocations
Except as otherwise provided in this Article 6, Net Income and
Net Loss shall be allocated to each of the Partners in accordance with their
respective Percentage Interests during the year.
Section 6.3 Additional Allocation Provisions
Notwithstanding the foregoing provisions of this Article 6:
A. Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 of
this Agreement, or any other provision of this Article 6, if there is a net
decrease in Partnership Minimum Gain during any fiscal year, each Partner shall
be specially allocated items of Partnership income and gain for such year (and,
if necessary, subsequent years) in an amount equal to such Partner's share of
the net decrease in Partnership Minimum Gain, as determined under Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be allocated shall be determined in accordance
with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
6.3(A)(i) is intended to qualify as a "minimum gain chargeback" within the
meaning of Regulations Section 1.704-2(f) which shall be controlling in the
event of a conflict between such Regulation and this Section 6.3(A)(i).
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(ii) Partner Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(i)(4), and notwithstanding the
provisions of Section 6.2 of this Agreement, or any other provision of this
Article 6 (except Section 6.3(A)(i)), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any fiscal year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), shall be specifically allocated items of Partnership income and
gains for such year (and, if necessary, subsequent years) in an amount equal to
such Partner's share of the net decrease in Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section
6.3(A)(ii) is intended to qualify as a "chargeback of partner nonrecourse debt
minimum gain" within the meaning of Regulations Section 1.704-2(i) which shall
be controlling in the event of a conflict between such Regulation and this
Section 6.3(A)(ii).
(iii) Nonrecourse Deductions and Partner Nonrecourse
Deductions. Any Nonrecourse Deductions for any fiscal year shall be specially
allocated to the Partners in accordance with their Percentage Interests. Any
Partner Nonrecourse Deductions for any fiscal year shall be specially allocated
to the Partner(s) who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable, in accordance with Regulations Section 1.704-2(i).
(iv) Qualified Income Offset. If any Partner unexpectedly
receives an adjustment, allocation or distribution described in Regulations
Section 1.704-1(h)(2)(ii)(d)(4), (5) or (6), items of Partnership income and
gain shall be allocated, in accordance with Regulations Section
1.704-1(b)(2)(ii)(d), to the Partner in an amount and manner sufficient to
eliminate to the extent required by such Regulations, the Adjusted Capital
Account Deficit of the Partner as quickly as possible provided that an
allocation pursuant to this Section 6.3(A)(iv) shall be made if and only to the
extent that such Partner would have an Adjusted Capital Account Deficit after
all other allocations provided in this Article 6 have been tentatively made as
if this Section 6.3(A)(iv) were not in this Agreement. It is intended that this
Section 6.3(A)(iv) qualify and be construed as a "qualified income offset"
within the meaning of Regulations Section 1.704.1(b)(2)(ii)(d), which shall be
controlling in the event of a conflict between such Regulations and this Section
6.3(A)(iv).
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(v) Gross Income Allocation. In the event any Partner has a
deficit Capital Account at the end of any fiscal year which is in excess of the
sum of (1) the amount (if any) such Partner is obligated to restore to the
Partnership, and (2) the amount such Partner is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations Sections
1.704.2(g)(1) and 1.704-2(i)(5), each such Partner shall be specially allocated
items of Partnership income and gain in the amount of such excess as quickly as
possible, provided that an allocation pursuant to this Section 6.3(A)(v) shall
be made if and only to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations provided in this
Article 6 have been tentatively made as if this Section 6.3(A)(v) and Section
6.3(A)(iv) were not in this Agreement.
(vi) Limitation on Allocation of Net Loss. To the extent any
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Partner, such allocation of Net Loss shall be reallocated
among the other Partners in accordance with their respective Partnership
Interests, subject to the limitations of this Section 6.3(A)(vi).
(vii) Section 745 Adjustment. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or Code Section 743(b) is required, pursuant to Regulations Section
1.704.1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be
taken into account in determining Capital Accounts as the result of a
distribution to a Partner in complete liquidation of his interest in the
Partnership, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their interests in the
Partnership in the event that Regulations Section 1.704-1(b(2)(iv)(m)(2)
applies, or to the Partners to whom such distribution was made in the event that
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocation. The allocations set forth in
Sections 6.3(A)(i), (ii), (iii), (iv), (v), (vi), and (vii) (the "Regulatory
Allocations") are intended to comply with certain regulatory requirements,
including the requirements of Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding the provisions of Section 6.2, the Regulatory Allocations shall
be taken into account in allocating other items of income, gain, loss and
deduction among the Partners so that, to the extent possible, the net amount of
such allocations of other items and the Regulatory Allocations to each Partner
shall be equal to the net amount that would have been allocated to each such
Partner if the Regulatory Allocations had not occurred.
B. For purposes of determining a Partner's proportional share
of the "excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), each Partner's interest in Partnership
profits shall be such Partner's Percentage Interest.
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Section 6.4 Tax Allocations
A. In General. Except as otherwise provided in this Section
6.4, for income tax purposes each item of income, gain, loss and deduction
(collectively, "Tax Items") shall be allocated among the Partners in the same
manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.2 and 6.3.
B. Allocations Respecting Section 704(c) Revaluations.
Notwithstanding Section 6.4(A), Tax Items with respect to Partnership property
that is contributed to the Partnership by a Partner shall be shared among the
Partners for income tax purposes pursuant to Regulations promulgated under
Section 704(c) of the Code, so as to take into account the variation, if any,
between the basis of the property to the Partnership and its initial Gross Asset
Value. With respect to Partnership property that is initially contributed to the
Partnership upon its formation, such variation between basis and initial Gross
Asset Value shall be taken into account under the "traditional method" as
described in Proposed Treasury Regulation Section 1.704-3(b) and Treasury
Regulation Section 1.704-1(c)(2). With respect to properties subsequently
contributed to the Partnership the Partnership shall account for such variation
under any method approved under Section 704(c) of the Code and the applicable
regulations as chosen by the General Partner. In the event the Gross Asset Value
of any Partnership asset is adjusted pursuant to subparagraph (b) of the
definition of Gross Asset Value (provided in Article 1 of this Agreement),
subsequent allocations of Tax Items with respect to such asset shall take
account of the variation, if any, between the adjusted basis of such asset and
its Gross Asset Value in the same manner as under Section 704(c) of the Code and
the applicable regulations.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause, except with the consent of the
General Partner. 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 other provisions hereof including Section 7.3, shall
have full power and authority to do all things deemed necessary or desirable by
it to conduct the business of the Partnership, to exercise all powers set forth
in Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
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(1) the making of any expenditures, the lending or
borrowing of money (including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the General
Partner (as long as the General Partner has
determined to qualify as a REIT) to avoid the payment
of any federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of
the Code) and to make distributions to its
stockholders sufficient to permit the General Partner
to maintain REIT status), the assumption or guarantee
of or other contracting for, indebtedness and other
liabilities, the issuance of evidences of
indebtedness (including the securing of same by
mortgage, deed of trust or other lien or encumbrance
on the Partnership's assets) and the incurring of any
obligations it deems necessary for the conduct of the
activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to
governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets
of the Partnership or the merger or other combination
of the Partnership with or into another entity. In
the event of any such sale, exchange, disposition or
other transfer of any property of the Partnership,
the Partnership shall no later than 15 days after the
end of the calendar quarter in which such sale,
exchange, disposition or other transfer becomes a
taxable event to Partners, to the extent of the net
cash Proceeds of such sale, exchange, disposition or
other transfer, effect a distribution of cash in an
amount which shall be such that the pro rata share
thereof received by each Partner shall equal or
exceed the total liability of such Partner for
federal, state and local income and franchise taxes
resulting from such sale, exchange, disposition or
other transfer and from such distribution;
(4) the mortgage, pledge, encumbrance or hypothecation of
any assets of the Partnership, and the use of the
assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent
with the terms of this Agreement and on any terms it
sees fit, including without limitation, the financing
of the conduct or the operations of the General
Partner and of the Partnership, the lending of funds
to other Persons and the repayment of obligations of
the Partnership and any other Person in which it has
an equity investment;
(5) the negotiation, execution, and performance of any
contracts, leases, conveyances or other instruments
that the General Partner considers useful or
necessary to the conduct of the Partnership's
operations or the implementation of the General
Partner's powers under this Agreement;
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(6) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(7) the appointment of a manager or advisor to manage the
business of the Partnership and the entering into of
a management agreement in connection therewith and
the selection and dismissal of employees of the
Partnership or of the General Partner (including,
without limitation, employees having titles such as
"president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys,
accountants, consultants and contractors of the
General Partner or of the Partnership and the
determination of their compensation, management fees
and other terms of engagement, employment or hiring;
(8) the maintenance of such insurance for the benefit of
the Partnership and the Partners as it deems
necessary or appropriate;
(9) the formation of, or acquisition of an interest in,
and the contribution of 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
any Subsidiary and any other Person in which it has
an equity investment from time to time); provided
that as long as the General Partner has determined to
continue to qualify as a REIT, the General Partner
may not engage in any such formation, acquisition or
contribution that would cause it to fail to qualify
as a REIT;
(10) the control of all matters affecting the rights and
obligations of the Partnership, including the conduct
of litigation and the incurring of legal expense and
the settlement of claims and litigation, and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(11) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any
Person (including, without limitation, the
contribution or loan of funds by the Partnership to
such Persons); and
(12) Subject to the other provisions in this Agreement,
the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as it may adopt,
provided that such methods are otherwise consistent
with the requirements of this Agreement.
B. Each of the Limited Partners agrees that the General
Partner is authorized to execute, deliver and perform the above-mentioned
agreements and transactions on behalf of the Partnership without any further
act, approval or vote of the Partners, notwithstanding any other provisions of
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this Agreement (except as provided in Section 7.3), the Act or any applicable
law, rule or regulation. None of the execution, delivery and performance by the
General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. At all times from and after the date hereof, the General
Partner may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnitees hereunder.
D. At all times from and after the date hereof, the General
Partner may cause the Partnership to establish and maintain working capital
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
E. 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 (including the General Partner) of any action
taken by it. The General Partner and the Partnership shall not have liability to
a 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 pursuant to its authority under this Agreement.
Section 7.2 Certificate of Limited Partnership
To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and each other state, the District of Columbia or other jurisdiction, in which
the Partnership, or any of its subsidiaries, may elect to do business or own
property. Subject to the terms of Section 8.5.A(4) hereof, the General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate or any amendment thereto to any Limited Partner. The General Partner
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware, any other state, or the District of Columbia or other jurisdiction,
in which the Partnership, or any of its Subsidiaries, may elect to do business
or own property.
Section 7.3 Restrictions on General Partner's Authority
A. The General Partner may not take any action in
contravention of this Agreement, including, without limitation:
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(1) take any action that would make it impossible to
carry on the ordinary business of the Partnership,
except as otherwise provided in this Agreement;
(2) possess Partnership property, or assign any rights in
specific Partnership property, for other than a
Partnership purpose except as otherwise provided in
this Agreement;
(3) admit a Person as a Partner, except as otherwise provided
in this Agreement;
(4) perform any act that would subject a Limited Partner
to liability as a general partner in any jurisdiction
or any other liability except as provided herein or
under the Act; or
(5) enter into any contract, mortgage, loan or other
agreement that prohibits or restricts, or has the
effect of prohibiting the ability of a Limited
Partner to exercise its rights to an Exchange in
full, except with the written consent of such Limited
Partner.
B. The General Partner shall not, without the prior written
Consent of the Limited Partners, undertake, on behalf of the Partnership, any of
the following actions or enter into any transaction which would have the effect
of such transactions:
(1) Except as provided in Section 7.3.C amend, modify or
terminate this Agreement other than to reflect the
admission, substitution, termination or withdrawal of
Partners pursuant to Article 12 hereof;
(2) Make a general assignment for the benefit of
creditors or appoint or acquiesce in the appointment
of a custodian, receiver or trustee for all or any
part of the assets of the Partnership;
(3) Institute any proceeding for Bankruptcy on behalf of
the Partnership;
(4) Approve or acquiesce in the transfer of the
Partnership Interest of the General Partner to any
Person other than the Partnership; or
(5) Admit into the Partnership any Additional or
Substitute General Partners.
C. Notwithstanding Section 7.3.B, the General Partner shall
have the power, without the Consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
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(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General
Partner or any Affiliate of the General Partner for
the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination,
or withdrawal of Partners in accordance with this
Agreement;
(3) to reflect a change that is of an inconsequential
nature and does not adversely affect the Limited
Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in
this Agreement not inconsistent with law or with
other provisions, or make other changes with respect
to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of
this Agreement;
(4) to satisfy any requirements, conditions, or
guidelines contained in any order, directive,
opinion, ruling or regulation of a federal or state
agency or contained in federal or state law;
(5) to amend the provisions of this Agreement to protect
the qualification of the General Partner as a REIT
because of a change in applicable law (or an
authoritative interpretation thereof) or a ruling of
the Internal Revenue Service, unless the General
Partner has determined to cease qualifying as a REIT;
and
(6) to modify, as set forth in the definition of "Capital
Account," the manner in which Capital Accounts are
computed.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.
D. Notwithstanding Sections 7.3.B and 7.3.C hereof, this
Agreement shall not be amended, and no action may be taken by the General
Partner, without the Consent of each Partner adversely affected if such
amendment or action would (i) convert a Limited Partner's interest in the
Partnership into a general partner's interest (except as the result of the
General Partner acquiring such interest), (ii) modify the limited liability of a
Limited Partner, (iii) alter rights of the Partner to receive distributions
pursuant to Article 5 or Section 7.1.A(3), or the allocations specified in
Article 6 (except as permitted pursuant to Section 4.5 and Section 7.3.C(3)
hereof); (iv) alter or modify the rights to an Exchange or REIT Shares Amount as
set forth in Section 8.6, and related definitions thereof or (v) amend this
Section 7.3.D. Further, no amendment may alter the restrictions on the General
Partner's authority set forth elsewhere in this Section 7.3 without the Consent
specified in such Section.
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E. The General Partner shall not take, on behalf of the
Partnership, without the prior written Consent of the Limited Partners, as long
as the Limited Partners have at least 10% of the aggregate Percentage Interests
of the Partnership, any of the following actions:
(1) Dissolve the Partnership;
(2) Agree to or consummate any merger, consolidation,
reorganization or other business combination to which
the Partnership or the General Partner is a party; or
(3) Sell, dispose, convey or otherwise transfer all or
substantially all of the assets of the Partnership or
the General Partner in one or a series of
transactions.
Section 7.4 Reimbursement of the General Partner
A. Except as provided in this Section 7.4 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. Subject to Section 15.11, the General Partner shall be
reimbursed on a monthly basis, or such other basis as the General Partner may
determine in its sole and absolute discretion, for all expenses it incurs
relating to the ownership of interests in and operation of, or for the benefit
of, the Partnership. The Limited Partners acknowledge that the General Partner's
sole business is the ownership of interests in and operation of the Partnership
and that such expenses are incurred for the benefit of the Partnership;
provided, that, the General Partner shall not be reimbursed for expenses it
incurs relating to the organization of the Partnership and the General Partner
and any public offering of REIT Shares by the General Partner, but shall be
reimbursed for expenses it incurs with respect to any other issuance of
additional Partnership Interests pursuant to the provisions hereof. Such
reimbursements shall be in addition to any reimbursement to the General Partner
as a result of indemnification pursuant to Section 7.7 hereof.
Section 7.5 Outside Activities of the General Partner
A. The General Partner shall not directly or indirectly enter
into or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner and
the management of the business of the Partnership, its operation as a public
reporting company with a class (or classes) of securities registered under the
Securities Exchange Act of 1934, as amended, its operation as a REIT and such
activities as are incidental to same. Without the Consent of the Limited
Partners, the General Partner shall not, directly or indirectly, participate in
or otherwise acquire any interest in any real or personal property, except its
General Partner Interest, and other than such short-term liquid investments,
bank accounts or similar instruments as it deems necessary to carry out its
responsibilities contemplated under this Agreement and its Articles of
Incorporation. Any Limited Partner Interests acquired by the General Partner,
whether pursuant to exercise by a Limited Partner of its right to an Exchange or
otherwise, shall be automatically converted into a General Partner Interest
comprised of an identical number of Partnership Units.
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B. In the event the General Partner exercises its rights under
Article IV of the Articles of Incorporation to purchase REIT Shares, then the
General Partner shall cause the Partnership to purchase from it a number of
Partnership Units as determined based on the application of the Conversion
Factor on the same terms that the General Partner purchased such REIT Shares.
Section 7.6 Contracts with Affiliates
A. The Partnership may lend or contribute to 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 Person.
B. Except as provided in Section 7.5.A, the Partnership may
transfer assets to joint ventures, other partnerships, corporations or other
business entities in which it is or thereby becomes a participant upon such
terms and subject to such conditions consistent with this Agreement and
applicable law.
C. The General Partner, in its sole and absolute discretion
and without the approval of the Limited Partners, may propose and adopt on
behalf of the Partnership employee benefit plans funded by the Partnership for
the benefit of employees of the General Partner, the Partnership, Subsidiaries
of the Partnership or any Affiliate of any of them in respect of services
performed, directly or indirectly, for the benefit of the Partnership, the
General Partner, or any of the Partnership's Subsidiaries.
D. The General Partner is expressly authorized to enter into,
in the name and on behalf of the Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various Affiliates of
the Partnership and the General Partner, on such terms as the General Partner,
in its sole and absolute discretion, believes are advisable.
Section 7.7 Indemnification
A. The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including 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
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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 7.7.A. The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
any 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 7.7.A. Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership.
B. Reasonable expenses incurred by an Indemnitee who is a
party to a proceeding may be paid or reimbursed by the Partnership 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 7.7.A has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be
in addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise and shall continue as to an Indemnitee who has ceased
to serve in such capacity.
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 7.7, 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 Section 7.7; 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 that is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject the Limited Partners
to personal liability by reason of the indemnification provisions set forth in
this Agreement.
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G. An Indemnitee shall not be denied indemnification in whole
or in part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
Section 7.8 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable or accountable in damages or
otherwise to the Partnership, any Partners or any Assignees for losses
sustained, liabilities incurred or benefits not derived as a result of errors in
judgment or mistakes of fact or law or any act or omission if the General
Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General
Partner is acting for the benefit of the Partnership, the Limited Partners and
the General Partner's stockholders collectively, that the General Partner is
under no obligation to give priority to the separate interests of the Limited
Partners or the General Partner's stockholders (including, without limitation,
the tax consequences to Limited Partners or Assignees or to stockholders) in
deciding whether to cause the Partnership to take (or decline to take) any
actions.
C. Subject to its obligations and duties as General Partner
set forth in Section 7.1.A hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. 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. Any amendment, modification or repeal of this Section 7.8
or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the Partnership and
to the Limited Partners under this Section 7.8 as in effect immediately prior to
such amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture,
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
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B. The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such Persons as to matters which such
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any
of its powers or obligations hereunder, to act through any of its duly
authorized officers and a duly appointed attorney or attorneys-in-fact. Each
such attorney shall, to the extent provided by the General Partner in the power
of attorney, have full power and authority to do and perform all and every act
and duty which is permitted or required to be done by the General Partner
hereunder.
D. 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 avoid the General Partner
incurring any taxes under Section 857 or Section 4981 of the Code, is expressly
authorized under this Agreement and is deemed approved by all of the Limited
Partners.
Section 7.10 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed
and whether tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partners, by virtue of their status as such,
individually or collectively, shall have any ownership interest in any of 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.
Section 7.11 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement,
any Person dealing with the Partnership shall be entitled to assume that the
General Partner has full power and authority to encumber, sell or otherwise use
in any manner any and all assets of the Partnership and to enter into any
contracts on behalf of the Partnership, and such Person shall be entitled to
deal with the General Partner as if it were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives any
and all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (iii)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
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ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement or under the Act.
Section 8.2 Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, partner,
agent or trustee of the General Partner, the Partnership or any of their
Affiliates, in their capacity as such) shall take part in the operations,
management or control (within the meaning of the Act) of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. The transaction of any
such business by the General Partner, any of its Affiliates or any officer,
director, employee, partner, agent or trustee of the General Partner, the
Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to any agreements entered into by a Limited Partner or
its Affiliates with the General Partner, Partnership or a Subsidiary, any
Limited Partner and any officer, director, partner, employee, agent, trustee,
Affiliate or shareholder of any Limited Partner shall be entitled to and may
have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities in
direct competition with the Partnership. Neither the Partnership nor any
Partners shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee. Subject to such agreements, 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
business ventures of any other Person, other than the General Partner, and such
Person shall have no obligation pursuant to this Agreement to offer any interest
in any such business ventures to the Partnership, any Limited Partner or any
such other Person, even if such opportunity is of a character that, if presented
to the Partnership, any Limited Partner or such other Person, could be taken by
such Person.
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Section 8.4 Return of Capital
Except pursuant to the rights of Redemption set forth in
Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of
his Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. No
Limited Partner or Assignee shall have priority over any other Limited Partner
or Assignee either as to the return of Capital Contributions, or otherwise
expressly provided in this Agreement, as to profits, losses, distributions or
credits.
Section 8.5 Rights of Limited Partners Relating to the
Partnership
A. In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 8.5.C hereof, each Limited Partner
shall have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at the Partnership's expense:
(1) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the General Partner pursuant
to the Securities Exchange Act of 1934, as amended,
and each communication sent to the stockholders of
the General Partner;
(2) to obtain a copy of the Partnership's federal, state
and local income tax returns for each Partnership
Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner; and
(4) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate and all
amendments thereto have been executed.
B. The Partnership shall notify each Limited Partner, upon
request, of the then current Conversion Factor and the REIT Shares Amount per
Partnership Unit and, with reasonable detail, how the same were determined.
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C. Notwithstanding any other provision of this Section 8.5,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
believes to be in the nature of trade secrets or other information the
disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or (ii) the Partnership or the General Partner
is required by law or by agreements with unaffiliated third parties to keep
confidential.
Section 8.6 Redemption Right
A. Subject to Sections 8.6.B and 8.6.C hereof, 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 per Unit equal to and in the form of the Cash Amount to be paid
by the Partnership. The Redemption Right shall be exercised pursuant to a Notice
of Redemption delivered to the Partnership (with a copy to the 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 General Partner elects to purchase the
Partnership Units subject to the Notice of Redemption pursuant to Section 8.6.B.
A Limited Partner may not exercise the Redemption Right for less than one
thousand (1,000) Partnership Units, or, if such Limited Partner holds less than
one thousand (1,000) Partnership Units, all of the Partnership Units held by
such Partner. The Redeeming Partner shall have no right, with respect to any
Partnership Units so redeemed, to receive any distributions paid on or after the
Specified Redemption Date. The Assignee of any Limited Partner may exercise the
rights of such Limited Partner pursuant to this Section 8.6, and such Limited
Partner shall be deemed to have assigned such rights to such Assignee and shall
be bound by the exercise of such rights by such Assignee. In connection with any
exercise of such rights by an Assignee on behalf of a Limited Partner, the Cash
Amount shall be paid by the Partnership directly to such Assignee and not to
such Limited Partner.
B. Notwithstanding the provisions of Section 8.6.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 will, at the direction of the Partnership as
determined in the Partnership's sole and absolute discretion and only if so
directed, 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
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 rights to purchase
Partnership Units under this Section 8.6.B with respect to a Notice of
Redemption, it shall so notify the Redeeming Partner within five (5) Business
days after the receipt by it of such Notice of Redemption. Unless the General
Partner shall exercise its right to purchase Partnership Units from the
Redeeming Partner pursuant to this Section 8.6.B, the General Partner shall not
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have any obligation to the Redeeming Partner or the Partnership with respect to
the Redeeming Partner's exercise of the Redemption Right. In the event the
General Partner shall exercise its right to purchase Partnership Units with
respect to the exercise of a Redemption Right in the manner described in the
first sentence of this Section 8.6.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 8.6.A and Section
8.6.B, a Partner shall not be entitled to exercise the Redemption Right pursuant
to Section 8.6.A if the delivery of REIT Shares to such Partner on the Specified
Redemption Date by the General Partner pursuant to Section 8.6.B (regardless of
whether or not the General Partner would in fact exercise its rights under
Section 8.6.B) would be prohibited under the Articles of Incorporation of the
General Partner.
D. With respect to any Redemption Right pursuant to this
Section 8.6:
(1) All Partnership Units acquired by the General Partner
pursuant thereto shall automatically, and without
further action required, be converted into and deemed
to be General Partner interests comprised of the same
number of Partnership Units.
(2) The consummation of such Redemption shall be subject
to the requisite filings, if any, and the expiration
or termination of the applicable waiting period, if
any, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(3) Each Redeeming Partner shall continue to own all
Partnership Units subject to any Notice of Redemption
and be treated as a Limited Partner with respect to
such Partnership Units for all purposes of this
Agreement, until such Partnership Units are
transferred to the General Partner.
Section 8.7 Representations of Limited Partners
Each Limited Partner by execution of this Agreement represents
and warrants to every other Partner and to the Partnership as follows:
(i) it is acquiring the Partnership Units to be received by it for
its own account and not with the view to the sale or
distribution of the same or any part thereof in violation of
the Securities Act;
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(ii) it understands that the Partnership Units (or REIT Shares
issued upon exchange of the Partnership Units) to be issued to
it will not be registered under the Securities Act, or the
securities laws of any state ("Blue Sky Laws") by reason of a
specific exemption or exemptions from registration under the
Securities Act and applicable Blue Sky Laws and that the
REIT's and Partnership's reliance on such exemptions is
predicated in part on the accuracy and completeness of the
representations and warranties of it;
(iii) it understands that, for the reasons set forth in paragraph
(ii) above the Partnership Units (or REIT Shares issued upon
exchange of the Partnership Units) may not be offered, sold,
transferred, pledged, or otherwise disposed of by it except
(A) pursuant to an effective registration statement under the
Securities Act and any applicable Blue Sky Laws, (B) pursuant
to a no-action letter issued by the Securities and Exchange
Commission to the effect that a proposed transfer of the
Partnership Units (or REIT Shares issued upon exchange of the
Partnership Units) may be made without registration under the
Securities Act, together with either registration or an
exemption under applicable Blue Sky Laws, or (C) upon the REIT
and the Partnership receiving an opinion of counsel
knowledgeable in securities law matters and reasonably
acceptable to the REIT and the Partnership to the effect that
the proposed transfer is exempt from the registration
requirements of the Securities Act and any applicable Blue Sky
Laws, and that, accordingly, it must bear the economic risk of
an investment in the Partnership Units (and the REIT Shares
issued upon exchange of the Partnership Units) for an
indefinite period of time;
(iv) it is a Qualified Transferee;
(v) it understands that an investment in the Partnership and the
REIT involves substantial risks; it has had the opportunity to
review all documents and information which it has requested
concerning its investment in the Partnership and the REIT and
to ask questions of the management of the Partnership and the
REIT, which questions were answered to its satisfaction; and
(vi) it understands that any certificates representing the
Partnership Units (and any REIT Shares issued upon exchange of
the Partnership Units) will bear a legend substantially to the
effect of the following:
"The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended (the "Act"), or the securities laws of any
state. The securities may not be offered, sold,
transferred, pledged or otherwise disposed of without
an effective registration statement under the Act and
under any applicable state securities laws, receipt
of a no-action letter issued by the Securities and
Exchange Commission (together with either
registration or an exemption under applicable state
securities laws) or an opinion of counsel acceptable
to the Partnership and the REIT that the proposed
transaction will be exempt from registration under
the Act and applicable state securities laws."
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and that the Partnership and the REIT reserve the right to
place a stop order against the transfer of any certificates
representing the Partnership Units (and any REIT Shares issued
upon exchange of the Partnership Units), and to refuse to
effect any transfers thereof, in the absence of satisfying the
conditions contained in the foregoing legend.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3 hereof. Any
records maintained by or on behalf of the Partnership in the regular course of
its business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2 Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 Reports
A. As soon as practicable, but in no event later than 105 days
after the close of each Partnership Year, or such earlier date as they are filed
with Securities and Exchange Commission, the General Partner shall cause to be
mailed to each Limited Partner as of the close of the Partnership Year, an
annual report containing financial statements of the Partnership, or of the
General Partner if such statements are prepared solely on a consolidated basis
with the General Partner, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner.
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B. As soon as practicable, but in no event later than 105 days
after the close of each calendar quarter (except the last calendar quarter of
each year) the General Partner shall cause to be mailed to each Limited Partner
as of the last day of the calendar quarter, a report containing unaudited
financial statements of the Partnership, or of the General Partner, if such
statements are prepared solely on a consolidated basis with applicable law or
regulation, or as the General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within 90 days of the
close of each taxable year, the tax information reasonably required by Limited
Partners for federal and state income tax reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code, including the election under Section
754 of the Code. The General Partner shall have the right to seek to revoke any
such election (including without limitation, any election under Section 754 of
the Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profit interest of each
of the Limited Partners; provided, however, that such information is provided to
the Partnership by the Limited Partners.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings
for the adjustment of Partnership items required to
be taken into account by a Partner for income tax
purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"),
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and in the settlement agreement the tax matters
partner may expressly state that such agreement shall
bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within
the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing
that the tax matters partner shall not have the
authority to enter into a settlement agreement on
behalf of such Partner or (ii) who is a "notice
partner" (as defined in Section 6231 of the Code) or
a member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item
required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition
for readjustment with the Tax Court or the United
States Claims Court, or the filing of a complaint for
refund with the District Court of the United States
for the district in which the Partnership's principal
place of business is located;
(3) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(4) to file a request for an administrative adjustment
with the IRS at any time and, if any part of such
request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for
judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken into account by a
Partner for tax purposes, or an item affected by such
item; and
(6) to take any other action on behalf of the Partners of
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by
the tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
tax matters partner and the provisions relating to indemnification of the
General Partner set forth in Section 7.7 of this Agreement shall be fully
applicable to the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for
its services. All third party costs and expenses incurred by the tax matters
partner in performing his duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging legal counsel or an accounting firm to assist the
tax matters partner in discharging his duties hereunder, as long as the
compensation paid by the Partnership for such services is reasonable.
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Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any,
incurred by it in organizing the Partnership ratably over a 60-month period as
provided in Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of federal, state, local or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within 15 days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited Partner
or (ii) the General Partner determines, in its sole and absolute discretion,
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner
and shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner (including, without limitation, the right to receive
distributions). Any amounts payable by a Limited Partner hereunder shall bear
interest at the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
plus four percentage points (but not higher than the maximum lawful rate) from
the date such amount is due (i.e., 15 days after demand) until such amount is
paid in full. Each Limited Partner shall take such actions as the Partnership or
the General Partner shall request in order to perfect or enforce the security
interest created hereunder.
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ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
A. The term "transfer," when used in this Article 11 with
respect to a Partnership Unit, shall be deemed to refer to a transaction by
which the General Partner purports to assign its General Partner Interest to
another Person or by which a Limited Partner purports to assign its Limited
Partnership Interest to another Person, and includes a sale, assignment, gift
(outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange
or any other disposition by law or otherwise. The term "transfer" when used in
this Article 11 does not include a redemption pursuant to Section 8.6 No part of
the interest of a Limited Partner shall be subject to the claims of any
creditor, any spouse for alimony or support, or to legal process, and may not be
voluntarily or involuntarily alienated or encumbered except as may be
specifically provided for in this Agreement.
B. No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of General Partner's Partnership
Interest
The General Partner shall not withdraw from the Partnership
and shall not transfer all or any portion of its interest in the Partnership
(whether by sale, statutory merger or consolidation, liquidation or otherwise)
without the consent of all of the Limited Partners, which may be withheld by
each Limited Partner in its sole and absolute discretion, and only upon the
admission of a successor General Partner pursuant to Section 12.1. Upon any
transfer of a Partnership Interest in accordance with the provisions of this
Section 11.2, the transferee shall become a Substitute General Partner for all
purposes herein, and shall be vested with the powers and rights of the
transferor General Partner, and shall be liable for all obligations and
responsible for all duties of the General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership Interest so
acquired. It is a condition to any transfer otherwise permitted hereunder that
the transferee assumes, by operation of law or express agreement, all of the
obligations of the transferor General Partner under this Agreement with respect
to such transferred Partnership Interest, and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor General Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor General Partner of
its obligations under this Agreement without the Consent of the Limited
Partners, in their reasonable discretion. In the event the General Partner
withdraws from the Partnership, in violation of this Agreement or otherwise, or
otherwise dissolves or terminates, or upon the bankruptcy of the General
Partner, a majority in interest of all the remaining Partners may elect to
continue the Partnership business by selecting a Substitute General Partner in
accordance with the Act.
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Section 11.3 Limited Partners' Rights to Transfer
A. Prior to the first anniversary of the Effective Date, no
Limited Partner shall transfer all or any portion of its Partnership Interest to
any transferee without the consent of the General Partner, which consent may be
withheld in its sole and absolute discretion; provided, however, that any
Limited Partner may, at any time, without the consent of the General Partner,
(i) transfer all or any portion of its Partnership Interest to the General
Partner, subject to the provisions of Section 11.6, (ii) transfer its
Partnership Interest pursuant to its right of redemption as provided in Section
8.6 hereof, (iii) transfer all or any portion of its Partnership Interest to its
Immediate Family, to a corporation controlled by such Limited Partner or, if the
Limited Partner is an entity, to its beneficial owners (or members of the
Immediate Family of such beneficial owners) or (iv) pledge (a "Pledge") all or
any portion of its Partnership Interest to a lending institution, which is not
an Affiliate of such Limited Partner, as collateral or security for a bona fide
loan or other extension of credit, and transfer such pledged Partnership
Interest to such lending institution in connection with the exercise of remedies
under such loan or extension or credit. After such first anniversary, each
Limited Partner or Assignee, pursuant to the proviso of the preceding sentence,
shall have the right to transfer all or any portion of its Partnership Interest,
or subject to the provisions of Section 11.6 and the satisfaction of each of the
following conditions, transfer all or any portion of its Partnership Interests
to any other Person:
(a) General Partner Right of First Refusal. The
transferring Partner shall give written notice of the
proposed transfer to the General Partner, which
notice shall state (i) the identity of the proposed
transferee, and (ii) the amount and type of
consideration proposed to be received for the
Partnership Units to be transferred. The General
Partner shall have twenty (20) days upon which to
give the transferring Partner notice of its election
to acquire the Partnership Units on the proposed
terms. If it so elects, it shall purchase the
Partnership Units on such terms within twenty (20)
days after giving notice of such election. If it does
not so elect, the transferring Partner may transfer
such Partnership Units to a third party, on economic
terms no more favorable to the transferee than the
proposed terms, subject to the other conditions of
this Section 11.3.
(b) Qualified Transferee. Any transfer of a Partnership
Interest shall be made only to Qualified Transferees.
It is a condition to any transfer otherwise permitted
hereunder that the transferee assumes by operation of law or express agreement
all of the obligations of the transferor Limited Partner under this Agreement
with respect to such transferred Partnership Interest and no such transfer
(other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor partner are assumed by a successor
entity by operation of law) shall relieve the transferor Partner of its
obligations under this Agreement without the approval of the General Partner, in
its reasonable discretion. Notwithstanding the foregoing, any transferee of any
transferred Partnership Interest shall be subject to any and all ownership
limitations contained in the Articles of Incorporation. Any transferee, whether
or not admitted as a Substituted Limited Partner, shall take subject to the
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obligations of the transferor hereunder and by accepting such transfer makes the
representations and warranties contained in Section 8.7 hereof. Unless admitted
as a Substitute Limited Partner, no transferee, whether by a voluntary transfer,
by operation of law or otherwise, shall have rights hereunder, other than the
rights of an Assignee as provided in Section 11.5.
B. If a Limited Partner is subject to Incapacity, the
executor, administrator, trustee, committee, guardian, conservator, or receiver
of such Limited Partner's estate shall have all the rights of a Limited Partner,
but not more rights than those enjoyed by other Limited Partners, for the
purpose of settling or managing the estate, and such power as the Incapacitated
Limited Partner possessed to transfer all or any part of his or its interest in
the Partnership. The Incapacity of a Limited Partner, in and of itself, shall
not dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer otherwise
permitted under Section 11.3 by a Limited Partner of his Partnership Units if,
in the opinion of legal counsel to the Partnership, such transfer would require
the filing of a registration statement under the Securities Act by the
Partnership or would otherwise violate any federal or state securities laws or
regulations applicable to the Partnership or the Partnership Unit.
D. No transfer by a Limited Partner of his Partnership Units
(including any Exchange) may be made to any person if (i) in the opinion of
legal counsel for the Partnership, it would result in the Partnership being
treated as an association taxable as a corporation, or (ii) 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.
Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in his place (including any transferee permitted
by Section 11.3). The General Partner shall, however, have the right to consent
to the admission of a transferee of the interest of a Limited Partner pursuant
to this Section 11.4 as a Substituted Limited Partner, which consent may be
given or withheld by the General Partner in its sole and absolute discretion.
The General Partner's failure or refusal to permit a transferee of any such
interests to become a Substituted Limited Partner shall not give rise to any
cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement. Upon such admission, the transferee makes the
representations and warranties contained in Section 8.7 hereof.
C. Upon the admission of a Substituted Limited Partner, the
General Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
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Section 11.5 Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
as a Substituted Limited Partner, as described in Section 11.4, such transferee
shall be considered an Assignee for purposes of this Agreement. An Assignee
shall be entitled to all the rights of an assignee of a limited partnership
interest under the Act, including the right to receive distributions from the
Partnership and the share of Net Income, Net Losses, gain and loss attributable
to the Partnership Units assigned to such transferee, the rights to transfer the
Partnership Units provided in this Article 11, and the right of redemption
provided in Section 8.6, but shall not be deemed to be a holder of Partnership
Units for any other purpose under this Agreement, and shall not be entitled to
effect a Consent with respect to such Partnership Units on any matter presented
to the Limited Partners for approval (such Consent remaining with the transferor
Limited Partner). In the event any such transferee desires to make a further
assignment of any such Partnership Units, such transferee shall be subject to
all the provisions of this Article 11 to the same extent and in the same manner
as any Limited Partner desiring to make an assignment of Partnership Units.
Section 11.6 General Provisions
A. No Limited Partner may withdraw from the Partnership other
than as a result of a permitted transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11 or pursuant to the exercise
of its Redemption Right with respect to all of its Partnership Units under
Section 8.6.
B. Any Limited Partner who shall transfer all of his
Partnership Units in a transfer permitted pursuant to this Article 11, where
such transferee was admitted as a Limited Partner, or pursuant to the exercise
of its Redemption Right with respect to all of its Partnership Units under
Section 8.6, shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on
the first day of a fiscal quarter of the Partnership, unless the General Partner
otherwise agrees.
D. If any Partnership Interest is transferred during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 or transferred pursuant to Section 8.6, Net
Income, Net Losses, each item thereof and all other items attributable to such
interest for such fiscal year shall be divided and allocated between the
transferor Partner and the transferee Partner by taking into account their
varying interests during the fiscal year in accordance with Section 706(d) of
the Code, using the interim closing of the books method or any other permissible
method selected by the General Partner in the exercise of its reasonable
discretion. Solely for purposes of making such allocations, each of such items
for the calendar month in which the transfer or redemption occurs shall be
allocated to the Person who is a Partner as of midnight on the last day of said
month. All distributions of Available Cash with respect to which the Partnership
Record Date is before the date of such transfer or redemption shall be made to
the transferor Partner, and all distributions of Available Cash thereafter shall
be made to the transferee Partner.
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E. In addition to any other restrictions on transfer herein
contained, in no event may any transfer or assignment of a Partnership Interest
by any Partner (including by way of an Exchange) be made (i) to any person or
entity who lacks the legal right, power or capacity to own a Partnership
Interest; (ii) in violation of applicable law; (iii) of any component portion of
a Partnership Interest, such as the Capital Account, or rights to distributions,
separate and apart from all other components of a Partnership Interest; (iv) in
the event such transfer would cause the General Partner to cease to comply with
the REIT Requirements, if the General Partner at such time has determined to
continue to meet the REIT Requirements; (v) if such transfer would cause a
termination of the Partnership for federal or state income tax purposes (except
as a result of the Exchange of all Partnership Units held by all Limited
Partners); (vi) if such transfer would, in the opinion of counsel to the
Partnership, cause the Partnership to cease to be classified as a partnership
for federal income tax purposes (except as a result of the Exchange of all
Partnership Units held by all Limited Partners); (vii) if such transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), a "party-in-interest" (as defined in Section 23(14) of ERISA)
or a "disqualified person" (as defined in Section 4975(c) of the Code); (viii)
if such transfer would, in the opinion of counsel to the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.2-101;
(ix) if such transfer requires the registration of such Partnership Interest
pursuant to any applicable federal or state securities laws; (x) if such
transfer causes the Partnership to become a "Publicly Traded Partnership," as
such term is defined in Sections 469(k)(2) or 7704(b) of the Code; or (xi) if
such transfer subjects the Partnership to be regulated under the Investment
Company Act of 1940 or the Investment Advisors Act of 1940, each as amended, or
ERISA.
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all of the General Partner's General Partner
Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a
successor General Partner shall be admitted to the Partnership as the General
Partner, effective upon such transfer. Any such transferee shall carry on the
business of the Partnership without dissolution. In each case, the admission
shall be subject to the successor General Partner executing and delivering to
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission.
Section 12.2 Admission of Additional Limited Partners
A. After the admission to the Partnership of the initial
Limited Partners on the date hereof, a Person who makes a Capital Contribution
to the Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 hereof and (ii) such
other documents or instruments as may be required in the discretion of the
General Partner in order to effect such Person's admission as an Additional
Limited Partner.
B. Notwithstanding anything to the contrary in this Section
12.2, no Person shall be admitted as an Additional Limited Partner without the
consent of the General Partner, which consent may be given or withheld in the
General Partner's sole and absolute discretion. The admission of any Person as
an Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the receipt of the Capital Contribution in respect of such Limited
Partner and the consent of the General Partner to such admission.
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Section 12.3 Amendment of Agreement and Certificate of Limited
Partnership
For the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE 13
DISSOLUTION AND LIQUIDATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs shall be wound up, upon the first to occur of any of the following
("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5
hereof;
B. an event of withdrawal of the General Partner, as defined
in the Act, unless, within 90 days after the withdrawal, at least a majority in
interest of all the remaining Partners agree in writing, in their sole and
absolute discretion, to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a substitute General
Partner;
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C. an election to dissolve the Partnership made by the General
Partner, approved by the Consent of the Limited Partners;
D. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
E. the sale of all or substantially all of the assets and
properties of the Partnership;
F. a Bankruptcy of the General Partner, unless a majority in
interest of 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 Bankruptcy, of a substitute General Partner; or
G. the Exchange by all Partners (other than the General
Partner) of all Units into REIT Shares.
Section 13.2 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 Interest of the Limited Partners
(the "Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and distributed
in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General
Partner;
(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the Limited
Partners; and
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(4) The balance, if any, to the General Partner and
Limited Partners in accordance with their positive
Capital Account balances, determined after taking
into account all Capital Account adjustments for the
Partnership taxable year during which the liquidation
occurs (other than those made as a result of the
liquidating distribution set forth in this Section
13.2.A(4)).
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4.
B. Notwithstanding the provisions of Section 13.2.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 13.2.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 interests of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
Section 13.3 Compliance with Timing Requirements of
Regulations
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 13 to the General Partner and Limited Partners who have
positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(h)(2). If any Partner has a deficit balance in his Capital
Account (after giving effect to all contributions, distributions and allocations
for the taxable years, including the year during which such liquidation occurs),
such Partner shall have no obligation to make any contribution to the capital of
the Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the discretion of the General Partner, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
A. distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner and Limited Partners from
time to time, in the reasonable discretion of the General Partner, in the same
proportions and amounts as would otherwise have been distributed to the General
Partner and Limited Partners pursuant to this Agreement; or
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B. withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
Section 13.4 Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the
event the Partnership is 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, 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.
Section 13.5 Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of his
Capital Contribution and shall have no right or power to demand or receive
property from the General Partner. No Limited Partner shall have priority over
any other Limited Partner as to the return of his Capital Contributions,
distributions or allocations.
Section 13.6 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs
that would, but for provisions of Section 13.1 result in a dissolution of the
Partnership, the General Partner shall, within 30 days thereafter, provide
written notice thereof to each of the Partners and to all other parties with
whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conduct business (as determined in the discretion of the General
Partner).
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Section 13.7 Cancellation of Certificate of Limited
Partnership
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2 hereof, the Partnership shall be
terminated and the Certificate and all qualifications of the Partnership as a
foreign limited partnership in jurisdictions other than the State of Delaware
shall be canceled and such other actions as may be necessary to terminate the
Partnership shall be taken.
Section 13.8 Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 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.
Section 13.9 Waiver of Partition
Each Partner hereby waives any right to partition of the
Partnership property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1 Amendments
A. The actions requiring Consent of Limited Partners pursuant
to this Agreement, including Section 7.3, or otherwise pursuant to applicable
law, are subject to the procedures in this Article 14.
B. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partner. Following such proposal, the General Partner
shall submit any proposed amendment to the Limited Partners. The General Partner
shall seek the written consent of the Partners on the proposed amendment or
shall call a meeting to vote thereon and to transact any other business that it
may deem appropriate. For purposes of obtaining a written consent, the General
Partner may require a response within a reasonable specified time, but not less
than 15 days, and failure to respond in such time period shall constitute a
consent which is consistent with the General Partner's recommendation (if so
recommended) with respect to the proposal; provided, that, an action shall
become effective at such time as requisite consents are received even if prior
to such specified time.
Section 14.2 Action by 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 holding 25 percent or more of the Partnership
Interests held by Limited Partners. The call shall state the nature of the
business to be transacted. Notice of any such meeting shall be given to all
Partners not less than ten days nor more than 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 Partners is permitted or required under this Agreement, such
vote or Consent may be given at a meeting of Partners or may be given in
accordance with the procedure prescribed in Section 14.1 hereof.
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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 the percentage as is expressly required
by this Agreement for the action in question. Such consent may be in one
instrument or in several instruments, and shall have the same force and effect
as a vote of the Percentage Interests of the Partners (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 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.
D. Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
Any notice, demand, request or report required or permitted to
be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by first class United States mail or by other means of written communication to
the Partner or Assignee at the address set forth in Exhibit A or such other
address as the Partners shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
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Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
Section 15.6 Creditors
None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon any breach thereof shall constitute waiver
of any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
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Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.11 Limitation to Preserve REIT Status
To the extent that any amount paid or credited to the General
Partner or its officers, directors, employees or agents, whether as a
reimbursement, fee, expense or indemnity (a "GP Payment"), would constitute
gross income to the General Partner for purposes of Sections 856(c)(2) or
856(c)(3) of the Code (but is not described in subsections (A) through (H) of
Section 856(c)(2) or subsections (A) through (I) of Section 856(c)(3)) then,
notwithstanding any other provision of this Agreement, the amount of such GP
Payments for any fiscal year shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a) 5.00% of the
General Partner's total gross income for the fiscal year which
is described in subsections (A) through (H) of Section
856(c)(2) of the Code over (b) the amount of gross income
(within the meaning of Section 856(c)(2) of the Code) derived
by the General Partner from sources other than those described
in subsections (A) through (H) of Section 856(c)(2) of the
Code (but not including the amount of any GP Payments); or
(ii) an amount equal to the excess, if any, of (a) 25% of the
General Partner's total gross income for the fiscal year which
is described in subsections (A) through (I) of Section
856(c)(3) of the Code over (b) the amount of gross income
(within the meaning of Section 856(c)(3) of the Code) derived
by the General Partner from sources other than those described
in subsections (A) through (I) of Section 856(c)(3) of the
Code (not including the amount of any GP Payments).
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
CEDAR INCOME FUND, LTD.
By: /s/ Leo S. Ullman
--------------------
Name: Leo S. Ullman
Title: President
LIMITED PARTNERS:
CEDAR BAY COMPANY
By: THE POINT ASSOCIATES, L.P., Partner
By: SELBRIDGE CORP., General Partner
By: /s/ Leo S. Ullman
--------------------
Name: Leo S. Ullman
Title:
By: TRIANGLE CENTER ASSOCIATES, L.P.,
Partner
By: BUTTZVILLE CORP., General Partner
By: /s/ Leo S. Ullman
--------------------
Name: Leo S. Ullman
Title:
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EXHIBIT A
PARTNERS, CONTRIBUTIONS AND PARTNERSHIP UNITS
I. Initial Contributions (cancelled 6/26/98)
Name and Address of the Capital Partnership
of Partner Contribution Units
- - ---------------- -------------- -----------
General Partner
Cedar Income Fund, Ltd. $1.00 1
44 South Bayles Avenue
Port Washington, NY 11050
Limited Partner
Cedar Bay Company $1.00 1
44 South Bayles Avenue
Port Washington, NY 11050
II. Contributions To Be Made On Effective Date
Name and Address of Partner Partnership Units
- - --------------------------- -----------------
General Partner
Cedar Income Fund, Ltd. 542,111
44 South Bayles Avenue
Port Washington, NY 11050
Cedar Bay Company 1,703,300
44 South Bayles Avenue
Port Washington, NY 11050
A-1
<PAGE>
EXHIBIT B
NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) elects to have redeemed
__________ Limited Partnership Units in Cedar Income Fund Partnership, L.P. in
accordance with the terms of the Limited Partnership Agreement of Cedar Income
Fund Partnership, L.P. and the Redemption Rights referred to therein, (ii)
surrenders such Limited Partnership Units and all right, title and interest
therein, and (iii) directs that the cash and any REIT Shares deliverable upon
redemption be delivered to the address specified below, and such REIT Shares be
registered or placed in the name(s) and at the address(es) specified below.
Dated: _______________________
Name of Limited Partner
---------------------------------
(Signature of Limited Partner)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
Issue REIT Shares to:
Please insert social security or identifying number:
Name:
B-1
<PAGE>
ADMINISTRATIVE AND ADVISORY AGREEMENT
THIS AGREEMENT is made and entered into as of this __ day of ___________,
1998 by and between CEDAR INCOME FUND, LTD., an Iowa corporation (hereinafter
referred to as the "Company" and CEDAR BAY REALTY ADVISORS, INC., a New York
corporation with its principal place of business at 44 South Bayles Avenue, Port
Washington, NY 11050 (hereinafter referred to as "the Advisor"). In
consideration of the mutual covenants, promises and agreements herein
contained, the Company and the Advisor do hereby covenant, promise and agree to
and with each other as follows:
W I T N E S S E T H:
1. PARTIES AND INTEREST:
The Company intends to operate as a Real Estate Investment Trust under the
provisions of Section 856 et seq. of the Internal Revenue Code of 1954, as
amended. The Company has no employees and, therefore, must hire an administrator
to perform the day-to-day administrative functions of the Company. The Advisor
has the experience and employees necessary and suitable for the administration
of the Company's business and desires to undertake the administration of the
Company's day-to-day operations. The Advisor is an independent contractor and
the Company shall have no voice in the selection or discharge of the Advisor's
employees, representatives or subcontractors, and no control over the specific
manner in which the work shall be done, but the Advisor are not, and shall not
be deemed to be, partners or joint venturers with each other.
2. TERM:
The Company does hereby designate the Advisor, and the Advisor hereby
accepts such designation, as the administrator and advisor for the Company's
operations for the term of one (1) year commencing on the effective date hereof.
This designation shall be automatically renewed annually on each anniversary of
such commencement date for an additional one (1) year period. This Agreement
may, however, be terminated by either party at any time, with or without cause,
upon not less than sixty (60) days prior written notice given by the Company by
a majority of the Independent Directors (as defined in the Articles of
Incorporation of the Company) or by the Advisor by its duly authorized
representatives, to the other party of its intention to so terminate. In the
event of termination of this Agreement, neither party shall have any further
rights, obligations or liabilities under this Agreement except those which are
accrued through the effective date of such termination; provided, however, the
Advisor shall cooperate with the Company and take all reasonable steps requested
to assist the Company in making an orderly transition of the advisory function.
<PAGE>
3. DUTIES OF THE ADVISOR:
Subject to the ultimate supervision, direction and control of the Board of
Directors of the Company and consistent with the Articles of Incorporation of
the Company, the Advisor shall administer the day-to-day operations of the
Company, which shall include the following services:
(1) Provide office space and equipment, personnel and general office
services necessary to conduct the day-to-day operations of the Company;
(2) Select and conduct relations with accountants, attorneys, brokers,
banks and other lenders, and such other parties as may be considered necessary
in connection with the Company's business and investment activities,
including, but not limited to, obtaining services required in the acquisition,
management and disposition of investments, collection and disbursement of
funds, payment of debts and fulfillment of obligations of the Company, and
prosecuting, handling and settling any claims of the Company;
(3) Provide property acquisition and disposition services, research,
economic and statistical data, and investment and financial advice to the
Company; and
(4) Maintain appropriate legal, financial, tax, accounting and general
business records of activities of the Company and render appropriate periodic
reports to the Directors and shareholders of the Company and to regulatory
agencies, including the Internal Revenue Service, Securities and Exchange
Commission, and similar state agencies.
The Advisor may perform additional services which are of an extraordinary
nature requiring time, resources and expertise beyond that reasonably expected
of the Advisor for a separately negotiated fee or expense reimbursement on
such other terms and conditions as are agreed to between the Advisor and the
Company. Any such additional fees shall be approved by a majority of the
Independent Directors of the Company. The Advisor may subcontract to
affiliated and unaffiliated entities, firms and organizations for those
services necessary to accomplish the duties specified above; provided,
however, any agreement with an affiliated entity performing services for a
separate fee shall be approved by a majority of the Independent Directors.
Nothing herein contained shall prevent the Advisor from engaging in other
activities, including without limitation, the rendering of advisory to other
investors and the management of other investments, including investors and
investments advised, sponsored, or organized by the Advisor, nor shall this
Agreement limit or restrict the right of any director, officer, employee,
affiliate or shareholder of the Advisor to engage in any other business or to
render services of any kind to any other partnership, corporation, firm,
individual, trust or association.
<PAGE>
4. COMPANY EXPENSES:
The Company shall bear the cost of the following expenditures:
(1) Audit, legal, appraisal and other professional services provided by
third parties to the extent such services are not considered duties of the
Advisor;
(2) Supplies, printing, postage and related expenses incurred in the
preparation, filing and mailing of regulatory reports and reports to
shareholders and Directors of the Company;
(3) Fees and other compensation of Directors and officers of the Company;
(4) Expenses of meetings and travel of Directors and officers of the
Company; and
(5) All such other expenses related to Company activities considered to be
appropriate or advisable by the Directors.
5. COMPENSATION OF THE ADVISOR:
A. Subject to the provisions of paragraph 5B hereof, for the services
provided hereunder, the Advisor shall be paid the following fees:
(1) An administrative and advisory fee, payable monthly, equal to 1/12 of
3/4 of 1% of the Estimated Current Value (as hereinafter defined) of the real
estate assets of the Company, plus 1/12 of 1/4 of 1% of the Estimated Current
Value of all other assets of the Company. The monthly base fee shall be based
on the daily average of the Estimated Current Value of the assets during the
month for which the fee is payable and shall be payable in arrears on the last
day of each month. The base fee for any partial month at the beginning or end
of the term of this Agreement shall be prorated.
(2) An acquisition fee equal to 5% of the gross purchase price (before
expenses of purchase, including the acquisition fee, but without deducting any
indebtedness against the property) for any real property acquired by the
Company during the term of this Agreement, such fee to be paid at the closing
of the acquisition; provided, however, that the total of all Acquisition Fees
(as hereinafter defined) and Acquisition Expenses (as hereinafter defined)
paid in connection with the purchase of any real property by the Company shall
be reasonable and in no event exceed an amount equal to 6% of the Contract
Price for the Property (as hereinafter defined).
<PAGE>
(3) A subordinated disposition fee equal to 3% of the gross sales price
(before expenses of sale, including the subordinated disposition fee, but
without deducting any indebtedness against the property) of any real property
sold by the Company during the term of this Agreement, limited to the amount
by which the sales price, less all expenses of sale other than the
subordinated disposition fee, exceeds the original purchase price of the
property, including the acquisition fee and all expenses of purchase;
provided, however, no subordinated disposition fee shall be payable unless and
until cumulative cash distributions have been made to shareholders
representing the "Amount Available for Investment" (as hereinafter defined),
plus an annual 10% cumulative (but not compounded) return on the Amount
Available for Investment commencing with the date hereof. The subordinated
disposition fee shall be paid at the closing of any sale, provided, however,
the Advisor may only receive up to one-half of the brokerage commission paid
but in no event to exceed 3% of the Contract Price for the Property and such
fee when added to the sums paid to unaffiliated third parties in a similar
capacity shall not exceed the lesser of the Competitive Real Estate Commission
(as hereinafter defined) or an amount equal to 6% of the Contract Price for
the Property. If this Agreement is terminated before the Company is completely
liquidated, the subordinated disposition fee with continue to be payable in an
amount computed as follows: the subordinated disposition fee as provided above
multiplied by a fraction, the numerator of which is the number of years that
this Agreement was operative and the denominator of which is the number of
years from the date this Agreement became operative to the date the fee
becomes payable.
B. Notwithstanding anything in this Agreement to the contrary, in the event
Total Operating Expenses (as defined in the Articles of Incorporation of the
Company) exceed the limitations contained in Section 7.2 of the Articles of
Incorporation of the Company, the Advisor shall reimburse the Company at or
within a reasonable time after the end of the applicable twelve (12) month
period, the amount by which Total Operating Expenses paid or incurred by the
Company exceed such limitations. The compensation of the Advisor shall be
audited by the Company's independent certified public accountant in connection
with the annual audit of the Company's financial statements after the end of
each year and any necessary adjustments by the parties made between the
compensation so computed and that already paid.
C. For purposes of this paragraph 5, the following definitions shall apply:
(1) "Estimated Current Value" of real estate assets shall mean the fair
market value of such real estate as determined by yearly appraisals certified
by independent appraisers. Until the first appraisals are made (as the end of
the first fiscal year of the Company), the Estimated Current Value shall equal
the cost of the Company's properties, including the acquisition fees and
acquisition expenses. The Estimated Current Value of the assets of the Company
other than real estate shall be their fair market value as determined by
industry standards.
(2) "Acquisition Expenses" means expenses, including, but not limited to,
legal fees and expenses, travel and communications expenses, costs of
appraisals, non-refundable option payments on property not acquired,
accounting fees and expenses, title insurance, and miscellaneous expenses
related to selection and acquisition of properties, whether or not acquired.
<PAGE>
(3) "Acquisition Fee" means the total or all fees and commissions paid by
any party in connection with the making or investing in mortgage loans or the
purchase or development of property by the Company, except a development fee
paid to a person not affiliated with the Sponsor (as hereinafter defined) in
connection with the actual development of a project after acquisition of the
land by the Company. Included in the computation of such fees or commissions
are any real estate commission, selection fee, development fee, nonrecurring
management fee, or any fee of a similar nature, however designated.
(4) "Contract Price for the Property" means the amount actually paid or
allocated to the purchase, development, construction or improvement of a
property exclusive of Acquisition Fees and Acquisition Expenses.
(5) "Competitive Real Estate Commission" means that real estate or
brokerage commission paid for the purchase or sale of a property which is
reasonable, customary and competitive in light of the size, type and location
of such property.
(6) "Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, the Company or any person who will manage or
participate in the management of the Company and any affiliate of any such
person but would not include a person whose only relationship with the Company
is as that of an independent property manager, whose only compensation is as
such. Sponsor also does not include wholly independent third parties such as
attorneys, accountants and underwriters whose only compensation is for
professional services.
6. AMENDMENTS:
This Agreement may be amended only in writing with the mutual consent of
the parties. However, no amendment shall become effective unless it specifically
refers to this Agreement and is signed by the parties.
7. LIABILITY OF THE ADVISOR:
The Advisor shall provide the Company the benefit of its best judgment and
efforts in rendering services hereunder and shall be considered in a fiduciary
relationship with the Company. The Advisor and its officers, directors,
shareholders, affiliates, agents and employees shall not be liable to the
Company or to any other person for any act or omission except for any act or
omission resulting from willful misfeasance, gross negligence or reckless
disregard of duty or not having acted in good faith in the reasonable belief
that the act or omission was in the best interests of the Company. The Company
shall defend, indemnify and save harmless the Advisor and its officers,
<PAGE>
directors, shareholders, affiliates, agents and employees from and against any
and all liabilities, claims, damages, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by reason of
or arising out of the performance or nonperformance of their duties under or by
reason of this Agreement; provided, however, there shall be no such
indemnification for liabilities, claims, damages, costs or expenses incurred by
any such person or entity by reason of their willful misfeasance, gross
negligence, reckless disregard of duty or bad faith. Notwithstanding the
foregoing provisions of this paragraph 7, the Advisor may only be indemnified by
the Company for losses arising from the operation of the Company if all of the
following conditions are met:
(a) The Advisor has determined, in good faith, that the course of conduct
which caused the loss or liability was in the best interests of the Company,
and
(b) Such liability or loss was not the result of negligence or misconduct
by the Advisor, and
(c) Such indemnification or agreement to hold harmless is recoverable only
out of the assets of the Company and not from the shareholders of the Company,
and
(d) Indemnification will not be allowed for any liability imposed by
judgment, and costs associated therewith, including attorneys' fees, arising
from or out of a violation of state or federal securities laws associated with
the offer and sale of shares of the Company, and
(e) Indemnification will be allowed for settlements and related expenses of
lawsuits alleging securities law violations, and for expenses incurred in
successfully defending such lawsuits, provided that a court either (1)
approves the settlement and finds that indemnification of the settlement and
related costs should be made, or (2) approves indemnification of litigation
costs if a successful defense is made.
The provisions of this paragraph 7 shall survive the termination of this
Agreement.
8. STATUS OF THE COMPANY:
In the event the terms of this Agreement at any time shall, in the opinion
of counsel for the Company, impair the status of the Company as a "real estate
investment trust" within the meaning of Part II, subchapter M of the Internal
Revenue Code of 1954, as amended, the parties shall, within 30 days after the
Company shall have given to the Advisor written notice of such impairment,
negotiate such amendments as may be necessary to restore, in the opinion of
counsel for the Company, such status of the Company.
<PAGE>
9. DEFAULT:
If either party shall default under this Agreement, the other party shall
be reimbursed by the defaulting party for all costs and expenses incurred in the
enforcement of the provisions of this Agreement, including reasonable attorneys'
fees.
10. NOTICE:
Whenever, under the terms of this Agreement, any notice is required or
permitted to be served upon the other party, said notice may be served upon the
other party by personal service or certified mail. Any such notice shall be
deemed given when personally received by the party to whom the notice is
directed; provided, however, in the event notice is mailed, such notice shall be
deemed given when deposited in the United States Mail with postage prepaid.
Notices shall be in writing and until further notification in writing, shall be
delivered to the following addresses:
To the Company:
Cedar Income Fund, Ltd.
c/o/ Cedar Bay Realty Advisors, Inc.
44 South Bayles Avenue
Port Washington, NY 11050
To the Advisor:
Cedar Bay Realty Advisors, Inc.
SKR Management Corp.
44 South Bayles Avenue
Port Washington, NY 11050
11. CUMULATIVE RIGHTS:
The various rights and remedies of the Company and the Advisor provided in
this Agreement shall be construed as cumulative and no one of them is exclusive
of the other or exclusive of any rights or remedies allowed the Company or the
Advisor by law.
12. CONSENT:
Neither the Company nor the Advisor shall unreasonably withhold its consent
whenever such consent shall be required under the terms of this Agreement.
13. PARAGRAPH HEADINGS:
The paragraph headings contained herein are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of this Agreement or in any way affect the terms and provisions
hereof.
<PAGE>
14. RULES AND CONSTRUCTION:
Words and phrases herein shall be construed as in the singular or plural
number and as masculine, feminine or neuter gender, according to the context.
15. SUCCESSORS AND ASSIGNS:
The provisions of this Agreement shall be binding upon and inure to the
benefit of the immediate parties hereto and their respective legal
representatives, successors and assigns. Neither party may assign this Agreement
without the prior written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
CEDAR INCOME FUND, LTD. CEDAR BAY REALTY ADVISORS, INC.
By xxxxxxxxxxxxxxxxxxxxx By xxxxxxxxxxxxxxxxxxxxx
- - ----------------------------- -------------------------------
Title: Title:
<PAGE>
MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of 1998, by and
between CEDAR INCOME FUND, LTD., an Iowa corporation, (hereinafter referred to
as "OWNER") and BRENTWAY MANAGEMENT LLC, with its principal place of business
at 44 South Bayles Avenue, Port Washington, NY 11050 (hereinafter referred to as
"MANAGER"). In consideration of the mutual covenants, promises and agreements
herein contained, OWNER and MANAGER do hereby covenant, promise and agree to and
with each other as follows:
W I T N E S S E T H:
1. PARTIES AND INTEREST: OWNER is or will be the owner of certain real
property which may be located throughout the continental United States and will
continue to acquire additional property during the term of this Agreement.
MANAGER has the experience and staff necessary and suitable for the management
and operation of real estate properties in the United States and desires to
undertake the management and operation of the real estate properties of OWNER.
MANAGER is an independent contractor and OWNER shall have no voice in the
selection or discharge of MANAGER'S employees, representatives, or
subcontractors, or in their number or in the compensation to be received by them
or in the period of hours of their employment, and no control over the specific
manner in which the work shall be done, but MANAGER shall be responsible for
the quality of work done and of the materials furnished, and warrants that they
shall conform to the terms of this Agreement. OWNER and MANAGER are not, and
shall not be deemed to be, partners or joint venturers with each other.
2. TERM: OWNER does hereby designate MANAGER, and MANAGER hereby accepts
such designation, as the manager of the real estate interests of OWNER which are
from time to time included in a schedule of such properties mutually agreed upon
by OWNER and MANAGER (hereinafter referred to collectively as the "Premises"),
for a term of one (1) year commencing on the effective date hereof. Thereafter,
this Agreement shall be renewed automatically for one year periods. This
Agreement may, however, be terminated by either party at any time, with or
without cause, upon not less than sixty (60) days prior written notice given by
the OWNER by a majority of the Independent Directors (as defined in the Articles
of Incorporation of OWNER) or by MANAGER by its duly authorized representatives,
to the other party of its intention to so terminate. In the event of termination
of this Agreement, neither party shall have any further rights, obligations or
liabilities under this Agreement except those which are accrued through the
effective date of such termination; provided, however, MANAGER shall cooperate
with OWNER and take all reasonable steps requested to assist OWNER in making an
orderly transition of the property management function OWNER AND MANAGER agree,
<PAGE>
upon request of either party at any time during the term of this Agreement, to
acknowledge a schedule of properties covered hereby, including the legal
descriptions thereof. Nothing herein contained shall prevent the MANAGER from
engaging in other activities, including without limitation. the management of
other properties; nor shall this Agreement limit or restrict the right of any
director, officer, employee, affiliate or shareholder of the MANAGER to engage
in any other business or to render services of any kind to any other
partnership, corporation, firm, individual, trust or association.
3. SERVICES OF MANAGER: Subject to such express restrictions or limitations
on its authority and to such written instructions as may from time to time be
imposed or given by the OWNER, MANAGER shall, on behalf of and for the account
of the OWNER:
A. LEASING: Use its best efforts to lease and keep leased to desirable
tenants all space held for lease at no less than the prevailing rental
rates for similar properties in the community in which the property is
located and calculated to provide a reasonable return on investment to
OWNER, unless otherwise approved in writing by OWNER. MANAGER shall
lease the Premises with each lease identifying the OWNER (or the trade
name of the Premises) as the titleholder of the Premises and owner of
the lease. No lease shall be for a term of sixty (60) months or longer,
including options, if any. In the event that a lease contract
contemplated to be entered into by MANAGER in the name of OWNER is not
within the limitations set forth in this subparagraph 3A, such lease
contract shall first be subject to the written approval of OWNER, which
approval shall not be unreasonably withheld. MANAGER shall advise OWNER
personally or by certified mail of any such proposed lease or amendment
thereto. If OWNER fails to advise MANAGER within four (4) days after
receipt of such notice, it shall be presumed that OWNER granted OWNER'S
written approval thereto and, accordingly, MANAGER shall be authorized
to execute such lease contract in the name of OWNER without being in
violation of MANAGER'S duties hereunder. All leases of the Premises
shall remain the property of OWNER and copies shall be promptly provided
to OWNER. MANAGER shall have the right, without prior consent, at
OWNER'S expense, to repair, alter, modify and improve (as distinguished
from expand) the existing structures, in connection with any such lease;
prior approval, however, of OWNER to be secured by MANAGER on all such
matters involving costs in excess of Twenty Thousand Dollars ($20,000)
for any one item. MANAGER may collect from lessees, security deposits as
security for the performance under the leases, the amount of such
security deposits to be for such sum as is customary in the locality of
said real estate. Failure by MANAGER to obtain any security deposit
shall not constitute any nature of default by MANAGER hereunder. The
security deposits, as collected, shall be paid over each month to the
OWNER following the month of collection by MANAGER. Without the specific
prior written approval of OWNER, no lease with respect to the Premises
shall provide for rents the determination of which depends in whole or
in part on the
<PAGE>
net income or net profits derived by any person from such property and
no tenant shall be permitted to sublease any property wherein the
determination of rent depends in whole or in part on the net income or
net profits derived by any person from such property; provided, however,
leases and subleases may, except as otherwise directed by OWNER or as
otherwise provided in this Agreement, provide for rental payments based
upon a fixed percentage or percentages of receipts or sales.
B. BOOKS AND RECORDS: The term "Agreement Year" as used herein shall mean
the calendar year ending December 31st of each year. The first
Agreement Year shall be the period beginning on the date hereof and
ending December 31, 1998, and the last Agreement Year shall be the
period beginning January 1st of the last year of the term of this
Agreement and ending with the last day of the term of this Agreement.
MANAGER shall maintain in manner and form consistent with generally
accepted methods of accounting at its office, during each Agreement Year
and retain such for a period of three (3) consecutive years thereafter,
complete and accurate general books of account, which will reflect all
receipts derived from the operation of the Premises by MANAGER during
such Agreement Year, including but not limited to, original invoices,
sales and other records provided by lessees, sales and occupation tax
returns, if any, relating to MANAGER'S operation of the Premises, and
all other original records pertaining to the business of operating the
Premises and other pertinent papers and documents which will enable the
OWNER to determine the gross receipts derived by the MANAGER from the
Premises. All of the aforementioned records shall be open to the
inspection and audit by the OWNER or its agents at all reasonable times
during ordinary business hours. On termination of this Agreement, all
records shall be delivered to the OWNER at the Premises. OWNER and
MANAGER recognize that OWNER, itself, may have records pertaining to the
Premises as to which MANAGER does not have actual knowledge, and nothing
in this paragraph shall be interpreted to impose any duty on MANAGER
with respect to such records or any other records of a type which would
not be kept by a reasonably prudent property manager. MANAGER shall
establish a bank account into which receipts relating to the Premises of
the OWNER transmitted to MANAGER or collected by MANAGER shall be
deposited. From the funds in such bank account, MANAGER shall pay the
following types of expenses associated with operation of the Premises
(it being understood that nothing herein shall be interpreted to impose
on MANAGER liability for the payment of any of such expenses from
MANAGER'S own funds): on-site salary expenses of every kind and nature,
utility charges, custodial service, management fees hereunder to MANAGER
and all other recurring-type charges relating to the operation of the
Premises (all of the aforesaid being
<PAGE>
herein sometimes referred to as "Premises Operating Expenses"). MANAGER
shall submit to OWNER on or before the tenth (10th) day of each month
during the term hereof (including the tenth (10th) day of the month
following the end of the term) at the place then fixed for the payments
hereunder, a check in a sum equal to all funds, if any, in the bank
account for the Premises except a nominal sum to pay obligations due
prior to receipt of additional rentals, and a written statement,
certified by MANAGER to be true and correct to the best of his knowledge
and belief, showing in reasonably accurate detail, the amount of
aforesaid receipts and the amount of Premises Operating Expenses
disbursed from such bank account and the resulting difference for the
preceding month. MANAGER shall submit to the OWNER on or before the
thirtieth (30th) day following the end of each Agreement Year, at all
places then fixed for payments, a complete statement of the aforesaid
annual figures for the preceding Agreement Year in reasonable detail
certified by MANAGER. Relative to the authority of MANAGER to pay from
the bank account Premises Operation Expenses (as hereinabove referred
to), such authority of MANAGER shall be limited as stated in
subparagraph SD hereof.
C. MAINTENANCE:
MANAGER shall use its best efforts, at OWNER'S expense (but subject to
the limitations hereinafter set forth), at all times during the term of
this Agreement, to keep the Premises, both exterior and interior,
structural and otherwise, in good repair, subject to ordinary wear and
tear or casualty occurring without the fault of MANAGER, and make all
repairs and replacements, both exterior and interior, structural and
otherwise; and MANAGER shall use its best efforts, at OWNER'S expense
(subject however, to the limitations hereinafter set forth) to satisfy
each and every obligation, duty or payment required of the lessor on the
leases or any substitute leases entered into during the term of this
Agreement except in the event of a default by the tenant under any such
lease. MANAGER shall also use its best efforts, at OWNER'S expense
(subject, however, to the limitations hereinafter set forth), to keep
the Premises in a clean condition, and not permit or allow any refuse or
debris to accumulate thereon, or upon the sidewalks, alleys or streets
adjoining the same, and remove any obstruction from the sidewalks
adjoining the Premises. MANAGER shall exercise reasonable efforts to see
that no article deemed extra-hazardous on account of fire or other
dangerous properties, nor any explosive, shall be brought on or into the
Premises, except that this provision shall not apply to articles usually
held for storage in substantially similar building.
<PAGE>
D. AUTHORITY:
All of the duties of MANAGER pursuant to this Agreement shall be
fulfilled at OWNER'S expense and the funds of OWNER shall be utilized by
MANAGER for the purpose of fulfilling such responsibilities subject,
however, to the following limitations:
(i) MANAGER is authorized to enter into any agreement, verbal or
written, for performance of its responsibilities if the
consideration payable by OWNER pursuant to such agreement is
Twenty Thousand One Hundred and 00/100 Dollars ($20,100.00) or
less; however, MANAGER may enter into such agreements where the
consideration payable pursuant thereto is more than Twenty
Thousand and 00/100 Dollars ($20,000.00), if in MANAGER'S opinion
such repairs are emergency repairs necessary to protect the
Premises, fulfill obligations to OWNER under leases or rental
agreements or prevent bodily injury.
(ii) If any written contract for the performance of such responsibility
is in the name of OWNER (other than any lease authorized herein to
be executed by MANAGER on behalf of OWNER), then irrespective of
the amount payable pursuant thereto, only an authorized agent of
OWNER shall be authorized to execute any such contract (and for
these purposes MANAGER shall not be deemed to be an authorized
agent of OWNER).
(iii) If any contract for performance of the aforesaid duties is not
cancellable by MANAGER on sixty (60) days' notice or less, then
MANAGER shall not enter into such contract without the prior
written approval of OWNER, notwithstanding that the consideration
payable thereunder may be Twenty Thousand Dollars ($20,000.00) or
less. The preceding provisions do not relate to the contractual
authority of MANAGER as to signing leases of building space in the
Premises.
(iv) If any contract for performance of the aforesaid duties is
cancellable by MANAGER on sixty (60) days' notice or less, then
MANAGER may enter into such contract without the prior written
approval of Owner, subject, however, to the limitations contained
in subparagraph 3(D) (i).
E. EMPLOYEES: MANAGER shall engage and discharge such employees as it deems
necessary for the operation and maintenance of the Premises. Such
employees shall be deemed employees of the MANAGER, or such local agent
or agents as may be retained by the MANAGER and not in the employ of the
OWNER. The MANAGER at its expense shall retain adequate fidelity
insurance on those of its
<PAGE>
employees who handle funds or assets of the OWNER. The OWNER shall
reimburse MANAGER for all salary expenses, benefits and moving and
traveling expenses, except for those personnel of MANAGER performing
property management functions operating out of the home office of the
MANAGER.
F. WORKER'S COMPENSATION: MANAGER agrees to provide and OWNER agrees to
reimburse MANAGER for all premiums, contributions and taxes for Worker's
Compensation insurance, unemployment insurance, and for old age
pensions, annuities and retirement benefits, now or hereafter imposed by
or pursuant to federal or state laws, which are measured by the wages,
salaries or other remuneration paid to persons employed by MANAGER in
connection with the performance of the Management Agreement except as it
relates to personnel of MANAGER performing property management functions
operating out of the home office of MANAGER. MANAGER agrees to carry
Worker's Compensation insurance and Employer's Liability insurance in
accordance with the laws of the states in which the OWNER owns real
estate to be at all times in force and OWNER agrees to reimburse MANAGER
for the cost thereof.
G. CODE REQUIREMENTS: MANAGER, at OWNERS expense, shall use its best
efforts to comply in all material respects with all building codes,
zoning and licensing requirements, and other requirements of the duly
constituted federal, state and local governmental authorities with
respect to the Premises. MANAGER may, in its discretion, any requirement
it deems unwarranted and it may appeal from compromise or settle any
dispute regarding such requirements.
H. REAL ESTATE EXPERTS. MANAGER may enlist the services of other real
estate brokers or agents in the performance of its duties hereunder to
the extent deemed necessary or appropriate. The expense of the services
will be paid by the OWNER.
I. RENT COLLECTION: MANAGER will use its best efforts to collect rent and
other income from the real estate interests of the OWNER. MANAGER may in
its discretion compromise claims for such rent and other income and, at
the expense of the OWNER, institute legal proceedings in its own name or
in the name of the OWNER to collect the same, to oust or dispossess
tenants or others occupying such real estate interests, and otherwise to
enforce the rights of the OWNER with respect thereto and in its
discretion may compromise or settle such proceedings.
J. INSURANCE: MANAGER, at OWNER'S expense, shall at all times during the
term of this Agreement, carry such (i) general liability, accident and
property damage insurance, (with OWNER and MANAGER as named insureds),
(ii) fire, extended coverage and
<PAGE>
malicious mischief insurance, (iii) rental insurance and (iv) such other
insurance for the protection of OWNER and MANAGER, as shall be directed
from time to time by OWNER. All such policies shall be in the name of
and made payable to OWNER.
5. COMPENSATION; OWNER hereby agrees to pay the MANAGER a monthly
management fee in the amount of five percent (5%) of Gross Income (as
hereinafter defined) derived from the operation of the Premises during the
preceding month. "Gross Income" shall mean any and all receipts from the
Premises including: rents, percentage rents, overage rents, expense
participation rents and all rents or payments from tenants of any nature, income
from services rendered to tenants (i.e., maid service, janitorial or cleaning
service, telephone answering service, watchman or guard service, trash
collection, elevator service and similar services customarily furnished or
rendered in connection with the rental of real property), and all income from
concessions of any kind, including all coin-operated facilities on the Premises.
Also included in Gross Income shall be any amounts collected in lieu of the
above-enumerated items such as forfeited security deposits and judgments or
awards collected in the enforcement of any lease or rental agreement.
6. LEASING COMMISSIONS: OWNER shall also pay MANAGER a leasing fee in
conjunction with leases of space in OWNER'S commercial (as opposed to
residential) properties which are procured by MANAGER. The leasing fee shall be
at the prevailing rate for similar services performed by independent qualified
persons regularly performing such services in the community in which the
property is located; provided, however, in no event shall such leasing fee
exceed six percent (6%) of the rent to be paid during the term (including any
renewals) of the lease procured. The amount and timing of payment of such
leasing fees shall be agreed to by OWNER and MANAGER prior to execution of the
lease with respect to which the leasing fee is payable. MANAGER may divide its
leasing fee with outside leasing agents or other third parties. Any division of
the leasing fee payable pursuant to this Agreement shall be disclosed to OWNER
at the time the fee is negotiated.
7. STATUS OF OWNER: In the event the terms of this Agreement at any time
shall, in the opinion of the counsel for the OWNER, impair the status of the
OWNER as a "real estate investment trust" within the meaning of Part II,
subchapter M of the Internal Revenue Code of 1954, as amended, OWNER and MANAGER
shall, within 30 days after the OWNER shall have given to the MANAGER written
notice of such impairment, negotiate such amendments as may be necessary to
restore, in the opinion of counsel for the OWNER, such status of the OWNER.
8. CONFORMITY WITH LAW; MANAGER covenants, with respect to the Premises,
and the fixtures and appurtenances thereto, that at OWNER'S expense (subject to
the limitations on MANAGER'S contractual authority as herein set forth), MANAGER
shall use due diligence to cause them to conform in all material respects to
applicable requirements of law or duly constituted authority, and to the
applicable requirements of all carriers of insurance on the Premises, and Board
of Underwriters, Rating Bureau, or similar organizations including, but not
limited to, requirements pertaining to the health, welfare, or safety of
employees or the public, such as adequate toilet facilities, fire exits, exit
signs, safe electric wiring and elevators. MANAGER
<PAGE>
shall, at OWNER'S cost and expense (but subject to the herein set forth
limitations on MANAGER'S contractual authority), use its best efforts to make
such improvements or installations as may be necessary to satisfy this
requirement and shall, at all times during the term, promptly comply in all
material respects with such requirements whether now or hereafter in effect and
whether now or hereafter applicable for any reason whatsoever. Manager shall use
due diligence to prevent the Premises from being used for any unlawful purpose.
9. INSURANCE CLAIMS: MANAGER shall settle and adjust any claims against any
insurance company under the fire or extended coverage policies of insurance as
described in paragraph 3J hereof, but before making final settlement of any
claim over Fifty Thousand Dollars ($50,000.00), the written approval of OWNER
shall be obtained.
10. SUBORDINATION: OWNER and MANAGER agree that this Agreement is and shall
be subordinated to any mortgages or trust deeds held by or for any bank,
insurance company, seller or accredited lending institution that may be now an
or hereafter placed upon the Premises, and to any and all advances to be made
thereunder, and to the interests thereon and all renewals, replacements and
extensions thereof.
11. CONDEMNATION: In the event of any condemnation or taking of all or any
part of the Premises, all damages shall be the exclusive property of OWNER;
provided, however, MANAGER shall be entitled to any proceeds recovered by
MANAGER in its own right on account of any damage to MANAGER'S business by
reason of such condemnation.
12. DEFAULT; If either party shall default under this Agreement, the
successful party shall be reimbursed by the other for all costs and expenses
incurred in the enforcement of any of the provisions of this Agreement,
including reasonable attorney's fees.
13. LIABILITY OF MANAGER: MANAGER and its officers, directors,
shareholders, affiliates, agents and employees shall not be liable to OWNER or
to any other person for any act or omission in the course of performance of
their duties hereunder except for their willful misfeasance, gross negligence or
reckless disregard of duty or their not having acted in good faith in the
reasonable belief that their action was in the best interests of OWNER. The
OWNER shall defend, indemnify and save harmless MANAGER and its officers,
directors, shareholders, affiliates, agents and employees from and against any
and all liabilities, claims, damages, costs and expenses (including reasonable
attorneys fees and amounts reasonably paid in settlement) incurred by reason of
or arising out of the performance or nonperformance of their duties under or by
reason of this Agreement; provided, however, there shall be no such
indemnification for liabilities, claims, damages, costs or expenses incurred by
any such person or entity by reason of their willful misfeasance, gross
negligence, reckless disregard of duty or bad faith in the conduct of their
duties under or by reason of this Agreement. This paragraph 13 shall survive the
termination Of this Agreement.
<PAGE>
14. NOTICE: Whenever, under the terms of this Agreement, any notice is
required or permitted to be served upon the other party, said notice shall be
served upon the other party by personal service or by certified mail. Any such
notice shall be deemed given when personally received by the party to whom the
notice is directed; provided, however, in the event notice is mailed, such
notice shall be deemed given when deposited in the United States Mail with
postage prepaid. Notices to each party shall be until further notification in
writing, shall be delivered to the following addresses:
To OWNER
Cedar Income Fund, Ltd.
c/o Cedar Bay Realty Advisors, Inc.
44 South Bayles Avenue
Port Washington, NY 11050
To MANAGER:
Brentway Management LLC
44 South Bayles Avenue
Port Washington, NY 11050
15. CUMULATIVE RIGHTS: The various rights and remedies of OWNER and MANAGER
provided in this Agreement shall be construed as cumulative and no one of them
is exclusive of the others or exclusive of any rights or remedies allowed OWNER
or MANAGER by law.
16. CONSENT: Neither OWNER nor MANAGER shall unreasonably withhold its
conset whenever such consent shall be required under the terms of this
Agreement.
17. PARAGRAPH READINGS: The paragraph headings contained herein are
inserted only as a matter of convenience and for reference and in no way define,
limit or describe the scope or intent of this Agreement or in any way affect the
terms and provisions hereof.
18. RULES OF CONSTRUCTION: Words and phrases herein shall be construed as
in the singular or plural number and as masculine, feminine or neuter gender,
according to the context.
19. AMENDMENTS: This Agreement may be amended only by the mutual consent of
the parties. However, no such amendment shall become effective unless it be
reduced to an instrument in writing specifically referring to this Agreement and
signed by both parties.
20. SUCCESSORS AND ASSIGNS: The provisions of this Agreement shall be
binding upon and inure to the benefit of the immediate parties hereto and their
respective legal representatives, successors and assigns. Neither party may
assign this Agreement without the prior written consent of the other party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
OWNER MANAGER
CEDAR INCOME FUND, LTD. BRENTWAY MANAGEMENT LLC
BY /s/ BY /s/
------------------------ -------------------------
TITLE: TITLE:
<PAGE>
6/1/98
FINANCIAL ADVISORY AGREEMENT
----------------------------
AGREEMENT made as of June 1, 1998 by and between Cedar Income Fund,
Ltd. (the "Company"), a real estate investment trust organized under the laws of
the State of Iowa, with offices at 44 South Bayles Avenue, Port Washington, New
York and B.V. Capital Markets Inc. ("B.V.C."), a New York corporation, an
affiliate of Bayerische Vereinsbank AG, a German banking institution, with
offices at 150 East 42nd Street, New York, New York.
Whereas the Company wishes to avail itself of the experience, sources
of information, advice, and assistance of B.V.C. and to have B.V.C. perform
certain services on behalf of, and subject to the supervision of, the board of
directors of the Company (the "Board"), as provided herein;
Whereas B.V.C. is willing to undertake to render such services, subject
to the approval of the Board, on the terms and conditions hereinafter set forth;
Now therefore, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. Services of financial advisor. Subject to acceptance of this
Agreement by the Company, B.V.C., under the direction and supervision of, and
subject to the approval of, the Board, shall serve as the Company's financial
advisor and consultant in connection with financial policy decisions to be made
by the Company. In this regard, B.V.C. shall:
<PAGE>
o advise on acquisition financing and/or a line of credit for future
acquisitions by the Company;
o advise on contributions, sales, assignments or other transfers to or for the
benefit of the Company by U.S. and foreign clients or contacts of B.V.C. of
U.S. real property interests appropriate to or consistent with the desired
investment parameters of the Company in exchange for cash, shares of the
Company interests in an Upreit partnership of which the Company is general
partner and/or other consideration;
o advise on a private placement of Company shares;
o assist the Board in developing suitable investment parameters for the
Company;
o develop and maintain contacts on behalf of the Company with U.S. and foreign
commercial and investment banking firms, non-bank financial institutions, and
others with substantial interests in real estate and capital securities
markets, other REITS, and national and regional associations of such persons
and entities;
o advise the Board as to issues relevant to additional private placements or
public issues of shares and various alternate debt financing opportunities;
-2-
<PAGE>
o review certain financial policy matters with consultants, accountants,
lenders, attorneys, and persons acting in any other capacity deemed by the
Board to be necessary or desirable; and
o prepare periodic (generally quarterly) reports of its performance of the
foregoing services to the Company.
Notwithstanding any other provision in this agreement to the contrary, B.V.C.
shall not furnish or render services to tenants of the Company's properties, or
manage or operate property of the Company, or do any other act which would
adversely affect the status of the Company as a real estate investment trust as
defined and limited in Section 856 et. seq. of the Internal Revenue Code of
1986, as amended, or Regulations promulgated thereunder. The Board does not have
any obligation to accept or approve any proposal made by B.V.C.
It is specifically contemplated that Roland Palm would continue to serve as a
consultant or employee to B.V.C. in performing its services hereunder and that
Mr. Palm would be compensated by B.V.C. for his services in helping B.V.C.
discharge its duties hereunder.
2. Furnishing information to advisor. Subject to the acceptance of this
Agreement by the Company, the Company shall at all times keep B.V.C. fully
informed with regard to the investments which it owns, its funds available or to
become available for investment, and generally as to the condition of its
affairs. In particular, the Company shall notify B.V.C. promptly of any proposal
or offer for sale or other disposition of any of the Company's investments, or
-3-
<PAGE>
for any new investment. B.V.C. shall enter into such confidentiality and
non-competition agreements with respect to such disclosed information as counsel
for the Company may reasonably require.
3. Recommendation by advisor. Subject to acceptance of this Agreement
by the Company, B.V.C. shall consult with the Board and the officers of the
Company and furnish them with advice and recommendations with respect to the
acquisition, by purchase, exchange, or otherwise, the holding and the disposal,
through sale, exchange, or otherwise, of investments of, or investments
considered by, the Company. B.V.C. shall at the request of the Board or the
officers of the Company furnish advice and recommendations with respect to other
aspects of the business and affairs of the Company. In the absence of a director
designated by B.V.C., and unless otherwise notified by the Board, a duly
authorized representative of B.V.C., may attend all regular and special meetings
of the Board. The Company shall notify B.V.C. of all such meetings.
4. Books. B.V.C. shall maintain appropriate records of all its
activities hereunder.
5. Position of Directors and relationship with the Company. Officers
and employees of B.V.C. may serve as Directors and as officers of the Company.
Subject to approval by the Bayerische Vereinsbank AG of his election as Director
of the Company, Cedar Bay Company will cause its shares to be voted in favor of
Jean-Bernard Wurm as director of the Company.
-4-
<PAGE>
6. Compensation. (a) For services rendered by it, B.V.C. shall be
entitled to the following compensation commencing as of the date hereof, as
determined by, and subject to the approval of the Board:
(i) 0.25% (25 basis points) of the Fund's net asset value ("Net
Asset Value") as defined in the Agreement of Limited Partnership of Cedar Income
Fund Partnership, L.P. (the "Upreit") less any indebtedness of the Company,
affecting the net value of the Company's assets, the Upreit or the properties,
but in any event no less than $100,000 per annum, payable in equal quarterly
installments on the last business day of each calendar quarter;
(ii) A one-time payment of 1.5% (150 basis points) of the "Agreed
Value", as defined in the Agreement of Limited Partnership of Cedar Income
Partnership, L.P. of properties contributed to the Company or its affiliates,
including the "Upreit" partnership(s) by entities or persons introduced by
B.V.C. to the Company. The fee shall be payable only after the property has been
contributed to the Company;
(iii) As soon as the Company becomes self administered, B.V.C. shall
have the option, in its sole discretion to convert its claim to received its
financial advisory fees payable under (ii) above into an ownership interest in
the company or cash, equal to 5x those fees.
(b) B.V.C. shall promptly furnish to the Company a statement for any
fees payable hereunder for each quarter annual period during which B.V.C.
performed services hereunder. Such statement shall include the calculation by
which such fee was determined.
-5-
<PAGE>
(c) In the absence of a bona fide dispute between the parties as to
such payment, the Company shall pay to B.V.C. the amount payable pursuant to any
such statement not later than the 20th day of the month following the quarter
during which the services for the payment of which the fee is payable were
rendered.
(d) If the Company shall request B.V.C., or any director, officer, or
employee thereof, to render services for the Company other than those to be
rendered by B.V.C. hereunder, such additional services shall be compensated
separately on terms to be agreed upon between B.V.C. and the Company from time
to time.
7. Responsibility of advisor. B.V.C. assumes no responsibility
hereunder other than to render the services required hereunder in good faith and
shall not be responsible for any action of the Board or officers of the Company
in following or declining to follow any advice or recommendations of B.V.C..
B.V.C., its officers, and employees shall not be liable to the Company, the
Company's shareholders, or others except for acts constituting bad faith,
willful misfeasance, gross negligence, or reckless disregard of its or his
duties. The Company and B.V.C. are not partners or joint venturers, and nothing
herein shall be construed so as to make them partners or joint venturers or
impose any liability as such on either of them. B.V.C. agrees to devote
appropriate time and personnel to performing its obligations under this
Agreement.
8. Freedom of officers of advisor. Nothing herein shall limit or
restrict the right of any director, officer, or employee of B.V.C. who may also
be a Director, officer, or employee of the Company to engage in any other
business or to render services of any kind to any other corporation, firm,
-6-
<PAGE>
individual, or association, except that such person shall not engage in any
activity which shall be competitive with, or otherwise in the reasonable
judgment of the Board, be adverse to the interests of the Company.
9. Term of contract. This contract shall be in force for a period of 12
months commencing on the effective date hereof. It shall continue thereafter
from year to year unless cancelled by either party at the end of any year, upon
60 days' prior written notice. The Company may cancel this agreement only by
affirmative vote of a majority of the independent Directors then in office at a
meeting called for such purpose. For purposes of the preceding sentence
"independent Trustee" means a Director who is not a director, officer, affiliate
or shareholder of B.V.C.
10. Nonassignability. This contract shall terminate automatically if
B.V.C. shall assign it without the written consent of the Company. The Company
shall not assign this contract without B.V.C.'s consent. No consent shall be
necessary, however, where the assignment is to a corporation or other
organization that is a successor to the Company, in which case the other
corporation shall be bound hereunder and by the terms of such assignment in the
same manner as is the Company.
11. Termination. This agreement shall terminate immediately upon
written notice of termination from the Company to B.V.C. if any of the following
events shall happen:
(a) If B.V.C. shall violate any provision of the contract, and after
notice of such violation, shall not cure such default within 30 days; or
(b) If, B.V.C. shall be adjudged bankrupt or insolvent by a court of
competent jurisdiction, or an order shall be made by a court of competent
jurisdiction for the appointment of a receiver, liquidator, or trustee of the
-7-
<PAGE>
Corporation, or of all or substantially all of its property by reason of the
foregoing, or approving any petition filed against B.V.C. for its
reorganization, and such adjudication or order shall remain in force or unstayed
for period of 30 days; or
(c) If B.V.C. shall institute proceedings for voluntary bankruptcy, or
shall file a petition seeking reorganization under the federal bankruptcy laws,
or for relief under any law for the relief of debtors, or shall consent to the
appointment of a receiver of B.V.C. or of all or substantially all of its
property, or shall make a general assignment for the benefit of its creditors,
or shall admit in writing its inability to pay its debts generally as they
become due.
If any event specified in subparagraphs (b) and (c) of this paragraph
11 shall occur, B.V.C. shall give written notice thereof to the Company within
seven days thereof.
Should Agreement be terminated at the end of year 1, B.V.C. will
receive from company a cancelation fee equal to 50% of the advisory fee to which
it would have been entitled for the first 32 months but no less than $50,000 if
Agreement is terminated by Company and not more than $50,000 if Agreement is
terminated by B.V.C.
12. Notices. Any notice, report, or other communication required or
permitted to be given hereunder shall be in writing and shall, unless some other
method of giving such notice, report, or other communication is accepted by the
party to whom it is given, be mailed by certified mail to the following
addresses parties thereto:
-8-
<PAGE>
Cedar Bay:
Cedar Bay Company
c/o SKR Management Corp.
44 South Bayles Avenue
Port Washington, NY 11050
Attn.: Leo S. Ullman
The Company:
Cedar Income Fund, Ltd.
c/o SKR Management Corp.
44 South Bayles Avenue
Port Washington, NY 11050
Attn.: Brenda J. Walker
B.V.C.:
B.V. Capital Markets Inc.
150 East 42 Street
New York, NY 10017
Attn.: Mr. Jean-Bernard Wurm
with a copy to Mr. Roland Palm
c/o B.V. Capital Markets Inc.
150 East 42 Street, 39th Floor
New York, NY 10017
-9-
<PAGE>
Any party may at any time give notice to the other party that it wishes to
change its address for the purpose of this paragraph.
14. Modification. This agreement shall not be changed, modified,
terminated, or discharged in whole or in part, except by an instrument signed by
both parties hereto, or their respective successors or assigns.
15. Binding effect. This agreement shall bind all of the parties'
successors and all of the Company's assigns.
16. Applicable law. The provisions of this agreement shall be construed
and interpreted in accordance with the law of the State of New York.
17. Effect on Company. No director, officer, agent, or shareholder of
the Company shall be bound or held to any personal liability in connection with
the Company's obligations hereunder.
18. Headings for reference only. Headings preceding the text and
sections of this agreement have been inserted solely for convenience and
reference, and shall not be construed to affect its meaning, construction, or
effect.
19. Entire agreement. This agreement supersedes all agreements
previously made between the parties relating to its subject matter. There are no
other understandings or agreements between them.
20. Non-waiver. No delay or failure by either party to exercise any
right under this agreement, and no partial or single exercise of that right,
shall constitute a waiver of that or any other right, unless otherwise expressly
provided herein.
-10-
<PAGE>
21. Counterparts. This agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
22. Effective Date. This Agreement shall only become effective after
formal approval by the Board of the Company.
IN WITNESS WHEREOF the parties hereto have caused this contract to be executed
by their officers thereunto duly authorized as of the day and year first above
written.
B.V. Capital Markets Inc.
By:_______________________
By: _______________________
Attest: BV Capital Markets Inc.
___________________________ By: _______________________
Secretary President
-11-
<PAGE>
Cedar Income Fund, Ltd.
By: _______________________
Section 5 is agreed to
Cedar Bay Company
By:________________________
-12-
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 678,196
<SECURITIES> 0
<RECEIVABLES> 108,196
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,117,657
<PP&E> 18,903,767
<DEPRECIATION> (4,698,109)
<TOTAL-ASSETS> 15,323,315
<CURRENT-LIABILITIES> 377,732
<BONDS> 0
0
0
<COMMON> 5,421
<OTHER-SE> 3,284,099
<TOTAL-LIABILITY-AND-EQUITY> 15,323,315
<SALES> 0
<TOTAL-REVENUES> 2,565,025
<CGS> 0
<TOTAL-COSTS> 1,377,363
<OTHER-EXPENSES> 787,567
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<INTEREST-EXPENSE> 130,197
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