SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: October 16, 1998
CORNERSTONE REALTY INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 1-12875 54-1589139
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
FORM 8-K
Index
Page Number
-----------
Item 2. Acquisition or Disposition of Assets 4
Item 5. Other Events 8
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Independent Auditors' Report 10
(Cape Landing Apartments)
Historical Statement of Income and 11
Direct Operating Expenses
(Cape Landing Apartments)
Note to Historical Statement of 12
Income and Direct Operating
Expenses (Cape Landing Apartments)
b. Pro Forma Statement of Operations for 13
the Nine Months ended September 30, 1998
(unaudited)
Pro Forma Balance Sheet as of 14
September 30, 1998 (unaudited)
Pro Forma Statement of Operations 15
for the Year ended December 31, 1997
(unaudited)
c. Exhibits
10.1 Purchase Contract for Cape Landing Apartments
2
<PAGE>
10.2 Agreement of Limited Partnership of Cornerstone Partners, L.P.
10.3 Credit Agreement among Cornerstone Realty Income Trust, Inc.,
CRIT-NC, LLC and First Union National Bank
10.4 Revolving Credit Note made by Cornerstone Realty Income Trust, Inc.
and CRIT-NC, LLC
10.5 Termination of Advisory Agreement Subcontract
10.6 Termination of Property Management Agreement Subcontract
10.7 Bill of Sale and Note Pertaining to Property Acquisition/Disposition
Agreement
10.8 Assignment and Assumption Agreement (Pertaining to Advisory
Agreement for Apple Residential Income Trust, Inc.)
10.9 Amended and Restated Property Acquisition/Disposition Agreement
23.1 Consent of Independent Auditors
3
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
CAPE LANDING APARTMENTS
Myrtle Beach, South Carolina
On October 16, 1998, Cornerstone Realty Income Trust, Inc. (the "Company")
acquired an approximately 88 percent interest in Cornerstone Partners, L.P., a
Virginia limited partnership (the "Limited Partnership"), which was organized by
the Company to acquire Cape Landing Apartments, a 288-unit apartment complex
located at 3851 Cape Landing Drive, Myrtle Beach, South Carolina (the
"Property"). The Company is the general partner of the Limited Partnership.
The Company entered into an agreement of limited partnership (the
"Agreement") with Cape Landing Apartments, LLC, a North Carolina limited
liability company (the "Limited Partner"), which is not affiliated with the
Company or its affiliates. Pursuant to the Agreement, the Limited Partner
contributed an approximately 12 percent interest in the Property to the Limited
Partnership in exchange for 185,887 partnership units with an agreed upon value
of $2 million. The Limited Partner sold its remaining interest in the Property
to the Limited Partnership for $15.1 million. The Company contributed
$15,100,000 to the Limited Partnership, $11.05 million of which the Company
borrowed under its unsecured line of credit and $4.05 million of which was
funded with cash from operations, in exchange for 1,403,445 partnership units
representing an approximately 88 percent interest in the Limited Partnership.
The Limited Partnership's sole asset is the Property. Title to the Property was
conveyed to the Limited Partnership by limited warranty deed.
Each partnership unit held by the Limited Partner is exchangeable any time
after a one-year holding period for a Common Share of the Company on a
one-for-one basis. Each partnership unit held by the Limited Partner is entitled
to a preferred return equal to the dividend paid on one Common Share of the
Company. Except for certain limited matters, all management powers over the
affairs of the Limited Partnership are exclusively vested in the Company, as
general partner.
Location. The Property is in Myrtle Beach, Horry County, South Carolina.
The following information is based in part upon information provided by the
greater Myrtle Beach Chamber of Commerce.
The Myrtle Beach MSA is comprised of Horry and Georgetown Counties. This
area covers 1,956 square miles and has an approximate population of 215,000. The
Myrtle Beach area, also known as South Carolina's Grand Strand, is a 60-mile
stretch of coastline. Highways providing direct access to the Myrtle Beach area
include U.S. Routes 17, 501 and South Carolina Highways 9 and 544. These
connections can be made from Interstates 95 and 20. Considered one of the
nation's top vacation destinations, the Grand Strand hosts an estimated 13
million visitors annually. The increasing number of entertainment attractions,
live music theaters, shopping centers and golf courses attracts visitors
throughout the year. In April 1995, American
4
<PAGE>
Demographics ranked Myrtle Beach as the second fastest growing metro area in
both projected annual population growth and projected employment growth from
1995 to 2005.
Money magazine rated the Grand Strand as one of the top 20 places to retire
in America. The number of persons over the age of 65 has grown from nearly 5,000
in 1970 to 20,840 in 1996. This increase of 317 percent boosted this portion of
the population of Horry County to nearly 13 percent of the resident population.
Similarly, in Georgetown County the population of persons over the age of 65 is
6,650, which is 12.9 percent of the total county population.
Myrtle Beach is rated as one of the fastest growing areas in the U.S. and
current development includes a wide range of new businesses. These businesses
include entertainment centers, restaurants, motels, golf courses, business and
resort centers and general services. Entertainment center openings during 1997
included The All-American Music Theater and The Savoy Theater at Fantasy Harbor.
Construction projects planned for 1998 and 1999 include a $20 million baseball
stadium for an Atlanta Braves Carolina League Class A team. Additionally,
Burroughs and Chapin plans to begin development of the Grande Dunes project, a
high-profile, full-service resort. Further development will include a large
shopping center and several new residential communities, and Myrtle Beach city
government will also continue with plans to redevelop the downtown area,
including a large park.
Tourism continues to be the Grand Strand's dominant economic theme. The
majority of jobs in Horry County are related to the services necessary for
tourism businesses. Sixty-five to 70 percent of Horry County's employment is
tourism related. Over the years, as Horry County has increased the number of
employment opportunities and has seen a growth in population, it has been able
to steadily decrease the annual unemployment rate, dropping this year to 4.9
percent from the 1996 level of 5.3 percent. Some of the largest employers in
both Horry County and Georgetown County include Horry County School District,
AVX, Horry County Government, Sands Oceanfront Resort, Conway Hospital, Coastal
Carolina University and Santee Cooper Electric.
Myrtle Beach is served by the Myrtle Beach International Airport.
The neighborhood in which the Property is located consists of other
multi-family housing, single-family housing, commercial and retail development.
The Property is located near businesses, major shopping, entertainment, schools
and churches. The Property is located on U.S. Highway 17 Bypass, approximately
two miles from U.S. Highway 501.
Description of the Property. The Property consists of 288 garden-style
apartment units in 14 three-story buildings on approximately 21 acres of land.
The Property was built in 1997 and 1998.
The Property is newly constructed and thus is, in the opinion of management
of the Company, in excellent condition. Since the Property is new, the Company
has not budgeted any sums for significant improvements or renovations to the
Property for at least six months after its acquisition by the Company.
5
<PAGE>
The Property offers 11 unit types. The unit mix and rents being charged new
tenants as of August 1998 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR MONTHLY RENTAL
QUANTITY TYPE SQUARE FOOTAGE --------------
-------- ---- --------------
<S> <C> <C> <C>
9 One Bedroom/One Bath W/D Connections 695 $549
48 One Bedroom/One Bath W/D Connections, FP 695 549
15 One Bedroom/One Bath Handicapped 695 549
20 One Bedroom/One Bath W/D Connections 744 570
40 One Bedroom/One Bath W/D Connections, FP 744 570
16 Two Bedrooms/Two Baths W/D Connections 883 670
32 Two Bedrooms/Two Baths W/D Connections, 883 670
FP
20 Two Bedrooms/Two Baths/Den W/D 1108 750
Connections
40 Two Bedrooms/Two Baths/Den W/D 1108 750
Connections, FP
16 Three Bedrooms/Two Baths W/D Connections 1356 839
32 Three Bedrooms/Two Baths W/D 1356 839
Connections, FP
</TABLE>
The apartments provide a combined total of approximately 269,000 square
feet of net rentable area.
Leases at the Property are generally for terms of one year or less. Average
rental rates for the past year have generally increased. As an example, a
two-bedroom, two-bathroom apartment unit (883 square feet) rented for $650 in
1997. The average effective annual rental per square foot at the Property for
1997 was $8.28.
6
<PAGE>
The buildings are wood-frame construction on concrete slabs, and the
exteriors are covered with vinyl siding. Roofs are pitched and covered with
asphalt shingles.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has smoke detectors, a
cable television hook-up and an individually controlled heating and air
conditioning unit. The owner of the property supplies cold water, sewer service
and trash removal. Each resident is responsible for his or her own electricity
usage, which includes air conditioning, lights, heat, hot water and cooking.
Each unit (other than the smallest one-bedroom modified units) includes
washer/dryer connections for full-sized appliances, miniblinds, walk-in closets
and a patio or balcony. A total of 192 units have a wood-burning fireplace. Each
kitchen is equipped with a refrigerator/freezer with icemaker, electric range
and oven, dishwasher and garbage disposal.
The Property has an outdoor swimming pool, two lighted tennis courts, a
fitness center with sauna and steam room, and a laundry facility. The Property
also includes a clubhouse with an entertainment area, kitchenette and leasing
office. There is ample paved parking for tenants.
There are at least five apartment properties in the area that compete with
the Property. All offer similar amenities and have rents that generally are
comparable to those of the Property. Based on a recent telephone survey, the
Company estimates that occupancy in nearby competing properties now averages
approximately 93%.
According to information provided by the seller, leasing at the Property
began in May 1997 and physical occupancy at the Property averaged approximately
63% during the first nine months of 1998. On October 12, 1998, the Property was
88% occupied.
The tenants at the Property are a mix of white-collar and blue-collar
workers, students and retired persons.
For 1998, Horry County specified an assessed value for the Property equal
to $11,176,600. The taxable value is equal to 6% of the assessed value, or
$670,596. The tax rate was $0.1919, and the total real estate taxes were
calculated as $128,687.37.
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $15,826,975) will be depreciated over
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Internal Revenue Code of 1986, as amended (the "Code"). Amounts to
be spent by the Property on repairs and improvements will be treated for tax
purposes as permitted by the Code based on the nature of the expenditures.
The Company believes that the Property is and will continue to be
adequately covered by property and liability insurance.
7
<PAGE>
Material Factors Considered in Assessing the Property. The factors
considered by the Company to be relevant in evaluating the Property for
acquisition by the Company included the following.
1. The Company believes that the greater Myrtle Beach, South Carolina
metropolitan area will continue to enjoy steady population increase and steady
economic development and that such increase and development will support stable
occupancy rates and reasonable increases in rents at the Property. In
particular, the Company believes that the Property is located in a particularly
desirable part of the Myrtle Beach metropolitan area.
2. The Property is newly-constructed and was available for purchase by the
Company at an attractive price.
3. The Property is located near major employment centers, including
Broadway at the Beach, Allied Signal, and Coca-Cola.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that would cause the financial information
contained in this report not to be indicative of future operating results.
ITEM 5. OTHER EVENTS
The Company's Unsecured Line of Credit
On October 16, 1998, the Company closed a $25 million extension on its
unsecured line of credit, bringing to $200 million the maximum permitted
borrowing under the Company's unsecured line of credit. The amount outstanding
under the unsecured line of credit on November 30, 1998 was approximately $196
million.
The lender with respect to the $25 million extension is First Union
National Bank. The borrowing under the $25 million extension must be repaid by
February 28, 1999.
The Company's Providing of Services to Apple Residential Income Trust, Inc.
The Company has been providing property management, advisory and real
estate brokerage services to Apple Residential Income Trust, Inc. ("Apple"). The
property management and advisory services have been provided by the Company
under subcontracts from Apple Residential Management Group, Inc. ("ARMG") and
Apple Residential Advisors, Inc. ("ARA"), the entities that originally
contracted with Apple for the providing of such services. As to the real estate
brokerage services, the Company previously purchased the assets of Apple Realty
Group, Inc. ("ARG") -- consisting principally of the real estate brokerage
agreement -- and thereby succeeded to ARG in providing such services to Apple.
8
<PAGE>
Effective at the close of business on September 30, 1998, the subcontract
agreements described above were terminated, and ARA assigned to ARMG its rights
and responsibilities under the advisory agreement. Thus, as of October 1, 1998,
the property management and advisory services to Apple are now performed by ARMG
using employees leased from the Company. The expenses of providing the services
to Apple will partly offset the fees payable by Apple to ARMG in exchange for
such services. To the extent such fees exceed such expenses, the Company will be
entitled to almost all of the excess, since the Company owns all of the
preferred shares of ARMG, entitling the Company to 95% of any dividends payable
by ARMG. The remaining 5% is payable to Glade M. Knight as the owner of all the
common shares of ARMG.
Effective October 1, 1998, the Company sold to ARMG its rights in the real
estate brokerage agreement. Beginning on such date ARMG will provide the
services and be entitled to the compensation under the real estate brokerage
agreement. ARMG will lease employees necessary to provide such services from the
Company and the leasing expense will partly offset the fees payable to ARMG. As
discussed above, the Company will be entitled to 95% of any amounts remaining
for distribution by ARMG. The purchase price payable by ARMG to the Company for
the real estate brokerage agreement is $311,111. The purchase price is payable
in one installment of principal on September 30, 1999. The principal bears
interest at the rate of 12% per annum and interest is payable at the end of each
calendar quarter commencing December 31, 1998 and ending September 30, 1999. The
obligation is prepayable at any time without penalty. ARMG expects to make such
payment from brokerage fees received under the real estate brokerage agreement.
As of October 1, 1998, the Company and ARMG entered into a restatement of the
real estate brokerage agreement. Pursuant to an amendment made in the
restatement, the real estate brokerage agreement is terminable by either party
on two-weeks notice.
For the reasons set forth above, it is not expected that the restructuring
of the service relationship with Apple will have any material effect on the
Company since in substance the Company will continue to provide such services to
Apple.
9
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
[L.P. MARTIN & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cornerstone Realty Income Trust, Inc.
Richmond, Virginia
We have audited the accompanying statement of income and direct
operating expenses exclusive of items not comparable to the proposed future
operations of the property Cape Landing Apartments located in Myrtle Beach,
South Carolina for the twelve month period ended September 30, 1998. This
statement is the responsibility of the management of Cape Landing Apartments.
Our responsibility is to express an opinion on this statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statement. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in a filing by Cornerstone Realty Income Trust, Inc.) and excludes
material expenses, described in Note 2 to the statement, that would not be
comparable to those resulting from the proposed future operations of the
property.
In our opinion, the statement referred to above presents fairly, in all
material respects, the income and direct operating expenses of Cape Landing
Apartments (as defined above) for the twelve month period ended September 30,
1998, in conformity with generally accepted accounting principles.
/s/ L.P. Martin & Co., P.C.
Richmond, Virginia
November 5, 1998
10
<PAGE>
CAPE LANDING APARTMENTS
STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 1998
INCOME
Rental and Other Income $ 1,298,167
-------------
DIRECT OPERATING EXPENSES
Administrative and Other 188,467
Insurance 56,038
Repairs and Maintenance 175,814
Taxes, Property 106,738
Utilities 103,584
-------------
TOTAL DIRECT OPERATING EXPENSES 630,641
-------------
Operating income exclusive of items not
comparable to the proposed future operations
of the property $ 667,526
=============
See accompanying notes to the financial statement.
11
<PAGE>
CAPE LANDING APARTMENTS
NOTES TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY
TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 1998
NOTE 1 - ORGANIZATION
Cape Landing Apartments is a 288 unit garden style apartment complex located on
20.96 acres in Myrtle Beach, South Carolina. Construction of the apartment
buildings began in 1997 and continued until completion in February, 1998.
Accordingly, the number of occupied units and tenant income increased throughout
the twelve month period presented. The assets comprising the property were owned
by Cape Landing Apartments, L.L.C., an entity unaffiliated with Cornerstone
Realty Income Trust, Inc., during the financial statement period. On October 15,
1998, the apartment property was sold to Cornerstone Partners, L.P. A majority
interest in Cornerstone Partners, L.P. is held by Cornerstone Realty Income
Trust, Inc. with Cape Landing Apartments, L.L.C. holding a minority interest.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
Revenue and Expense Recognition - The accompanying statement of rental
operations has been prepared using the accrual method of accounting. In
accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expenses excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expenses are property depreciation, amortization and professional fees.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Repairs and Maintenance - Repairs and maintenance costs are expensed as
incurred, while significant improvements, renovations and replacements are
capitalized.
Advertising - Advertising costs are expensed in the period incurred.
12
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
The Unaudited Pro Forma Consolidated Statement of Operations for the nine month
period ended September 30, 1998 is presented as if the 6 Property acquisitions
made during 1998 had occurred on January 1, 1998. The Unaudited Pro Forma
Statement of Operations assumes the Company qualifying as a REIT, distributing
at least 95% of its taxable income, and, therefore, incurred no federal income
tax liability for the period presented. In the opinion of management, all
adjustments necessary to reflect the effects of these transactions have been
made.
The Unaudited Pro Forma Consolidated Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
results of the Company would have been for the nine month period ended September
30, 1998 if the acquisitions had occurred at the beginning of the period
presented, nor does it purport to be indicative of the results of operations in
future periods. The Unaudited Pro Forma Statement of Operations should be read
in conjunction with, and is qualified in its entirety by, the Company's
respective historical financial statements and notes thereto.
<PAGE>
<TABLE>
<CAPTION>
Stone Pinnacle Hampton
Historical Point Ridge Pointe
Statement of Pro Forma Pro Forma Pro Forma
Operations Adjustments Adjustments Adjustments
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Date of Acquisitions - 1/15/98 3/31/98 3/31/98
Rental and other income $68,683,654 $ 56,094 $214,941 $495,061
Rental expenses:
Property and maintenance 18,099,464 15,821 73,178 157,479
Taxes and insurance 5,162,507 4,154 15,411 54,874
Property management 1,567,707 - - -
General and administrative 1,347,816 - - -
Amortization and other depreciation 38,460 - - -
Depreciation of rental property 14,995,402 - - -
Other 1,530,189 - - -
-----------------------------------------------------------------------
42,741,545 19,975 88,589 212,353
Income before interest income (expense) 25,942,109 36,119 126,352 282,708
and minority interest
Interest income 323,689 - - -
Interest expense (9,227,446) - - -
-----------------------------------------------------------------------
Net Income before minority interest 17,038,352 36,119 126,352 282,708
Minority interest -
-----------------------------------------------------------------------
Net income $17,038,352 $36,119 $126,352 $282,708
===============
Net income per common share - Basic $0.46
===============
Wgt. avg. number of shares outstanding 37,148,312
===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cape
The Timbers The Gables Landing 1998
Pro Forma Pro Forma Pro Forma Pro Forma Total
Adjustments Adjustments Adjustments Adjustments Pro Forma
------------------------------------------------------------- --------------
<S> <C> <C> <C> <C>
Date of Acquisitions 6/4/98 7/2/98 10/16/98 -
Rental and other income $ 494,369 $ 752,765 $ 973,625 - $71,670,509
Rental expenses:
Property and maintenance 169,870 221,388 350,899 - 19,088,099
Taxes and insurance 31,692 49,381 122,082 - 5,440,101
Property management - - - - 1,567,707
General and administrative - - - - 1,347,816
Amortization and other depreciation - - - - 38,460
Depreciation of rental property - - - 848,674 (A) 15,844,076
Other - - - - 1,530,189
-------------------------------------------------------- ---------------
201,562 270,769 472,981 848,674 44,856,448
Income before interest income (expense) 292,807 481,996 500,644 (848,674) 26,814,061
and minority interest
Interest income - - - (151,875)(D) 171,814
Interest expense - - - (1,359,971)(B) (10,587,417)
-------------------------------------------------------- ---------------
Net Income before minority interest 292,807 481,996 500,644 (2,360,520) 16,398,458
Minority interest (80,749)(E) (80,749)
-------------------------------------------------------- ---------------
Net income $292,807 $481,996 $500,644 ($2,441,269) $16,317,709
===============
Net income per common share - Basic $0.43
===============
Wgt. avg. number of shares outstanding 413,223 (C) 37,561,535
=============== ===============
</TABLE>
(A) Represents the depreciation expense of the properties acquired based on the
purchase price,excluding amounts allocated to land, for the period of time
not owned by the Company. The weighted average life of the property
depreciated was 27.5 years.
(B) Represents the interest expense for the 6 properties purchased using the
line of credit for the period in which the properties were not owned for the
nine month period ended September 30, 1998. Interest was computed based on
interest rates under the Company's line of credit in effect at the time of
the respective acquisition.
(C) Repesents additional common shares used to purchase Timbers based upon the
purchase price of $8,100,000; common shares issued in May 1997 with net
proceeds per share of $10.89 to the Company.
(D) Represents reduction of interest income associated with $4.050 million of
cash used to purchase Cape Landing at an interest rate of 5%.
(E) Represents minority interest of 185,874 operating partnership units in the
Company's operating partnership.
13
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 (UNAUDITED)
The Unaudited Pro Forma Consolidated Balance Sheet is presented as if the
Company had owned the property included in the table below as of September 30,
1998.
The Unaudited Pro Forma Consolidated Balance Sheet is presented for comparative
purposes only and is not necessarily indicative of what the actual financial
position of the Company would have been at September 30, 1998, nor does it
purport to represent the future financial position of the Company. This
Unaudited Pro Forma Consolidated Balance Sheet should be read in conjunction
with, and is qualified in its entirety by, the Company's respective historical
financial statements and notes thereto.
<TABLE>
<CAPTION>
(A)
Cape
Historical Landing
Balance Pro Forma Total
Sheet Adjustments Pro Forma
--------------------------------------------------------------
<S> <C> <C> <C>
Date of acquisition 10/16/98
ASSETS
Investment in rental property
Land $ 86,076,966 $ 1,026,000 $ 87,102,966
Building and improvements 466,514,341 16,074,000 482,588,341
Furniture and fixtures 11,187,945 11,187,945
------------------------------------------------------------
563,779,252 17,100,000 580,879,252
Less accumulated depreciation (42,482,032) (42,482,032)
------------------------------------------------------------
521,297,220 17,100,000 538,397,220
Cash and cash equivalents 4,069,280 (4,050,000) 19,280
Prepaid expenses 446,202 - 446,202
Other assets 9,063,522 - 9,063,522
------------------------------------------------------------
13,579,004 (4,050,000) 9,529,004
------------------------------------------------------------
Total Assets $ 534,876,224 $ 13,050,000 $ 547,926,224
============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable $ 185,499,999 $ 11,050,000 $ 196,549,999
Accounts payable 2,110,858 - 2,110,858
Accrued expenses 4,697,340 - 4,697,340
Rents received in advance 204,525 - 204,525
Tenant security deposits 1,728,587 - 1,728,587
------------------------------------------------------------
Total Liabilities 194,241,309 11,050,000 205,291,309
Minority Interest - 2,000,000 $ 2,000,000
Shareholders'equity
Common stock 385,602,116 - 385,602,116
Deferred compensation (46,479) - (46,479)
Distributions greater than net income (44,920,722) - (44,920,722)
------------------------------------------------------------
Total Shareholders' Equity 340,634,915 - 340,634,915
------------------------------------------------------------
Total Liabilities and Shareholders'
Equity $534,876,224 $ 13,050,000 $ 547,926,224
================================================================
</TABLE>
(A) Represents purchase of Cape Landing for a purchase price of $17,100,000, and
was funded using cash of $4,050,000, the Company's line of credit for
$11,050,000 and issuance of 185,874 operating partnership units valued at
$10.76 per unit.
14
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997 (UNAUDITED)
The Unaudited Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997 is presented as if 11 of the 13 Property acquisitions during
1997 and the 6 Property acquisitions during 1998 had occurred on January 1,
1997. The Unaudited Pro Forma Statement of Operations assumes the Company
qualifying as a REIT, distributing at least 95% of its taxable income, and,
therefore, incurred no federal income tax liability for the period presented. In
the opinion of management, all adjustments necessary to reflect the effects of
these transactions have been made.
The Unaudited Pro Forma Consolidated Statement of Operations is presented for
comparative purposes only and is not necessarily indicative of what the actual
results of the Company would have been for the year ended December 31, 1997 if
the acquisitions had occurred at the beginning of the period presented, nor does
it purport to be indicative of the results of operations in future periods. The
Unaudited Pro Forma Statement of Operations should be read in conjunction with,
and is qualified in its entirety by, the Company's respective historical
financial statements and notes thereto.
<TABLE>
<CAPTION>
Historical Pro Forma
Statement of 1997 Pro Forma Before 1998
Operations Acquisitions Adjustments Acquisitions
---------------- --------------- --------------- ----------------
<S> <C> <C> <C>
Date of Acquisitions
Revenues from rental properties $71,970,624 $8,176,747 $80,147,371
Rental expenses:
Property and maintenance 19,494,692 2,524,622 22,019,314
Taxes and insurance 6,075,991 608,815 6,684,806
Property management 1,769,272 1,769,272
General and administrative 1,351,667 1,351,667
Amortization and other depreciation 56,075 56,075
Depreciation of rental property 15,163,593 $ 1,514,811 (A) 16,678,404
Other 1,200,669 1,200,669
Management contract termination 402,907 402,907
----------------- -------------- ------------------ -------------
45,514,866 3,133,437 1,514,811 50,163,114
Income before interest income (expense) 26,455,758 5,043,310 (1,514,811) 29,984,257
and minority interest
Interest income 331,114 - 331,114
Interest expense (7,561,319) (2,411,653)(B) (9,972,972)
----------------- -------------- ------------------ -------------
Net income before minority interest 19,225,553 5,043,310 (3,926,464) 20,342,399
Minority interest
----------------- -------------- ------------------ ---------------
Net income $19,225,553 $5,043,310 ($3,926,464) $20,342,399
============== ================
Net income per common share - Basic $0.59 $0.59
============== ================
Wgt. avg. number of shares outstanding 32,617,823 2,041,544(C) 34,659,367
============== ================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pinnacle Hampton
Stone Point Ridge Point The Timbers
Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Date of Acquisitions 1/15/98 3/31/98 3/31/98 6/4/98
Revenues from rental properties $ 1,346,251 $859,763 $1,980,245 $ 1,186,485
Rental expenses:
Property and maintenance 379,698 292,713 629,914 407,687
Taxes and insurance 99,704 61,642 219,495 76,060
Property management
General and administrative
Amortization and other depreciation
Depreciation of rental property
Other
Management contract termination
-------------------------------------------------------------
479,402 354,355 849,409 483,747
Income before interest income (expense) 866,849 505,408 1,130,836 702,738
and minority interest
Interest income
Interest expense
-------------------------------------------------------------
Net income before minority interest 866,849 505,408 1,130,836 702,738
Minority interest
-------------------------------------------------------------
Net income $866,849 $505,408 $1,130,836 $702,738
Net income per common share - Basic
Wgt. avg. number of shares outstanding
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Cape
Gables Landing
Pro Forma Pro Forma Pro Forma Total
Adjustments Adjustments Adjustments Pro Forma
----------------------------------------------------- ---------------
<S> <C> <C> <C>
Date of Acquisitions 7/2/98 10/16/98 -
Revenues from rental properties $ 1,505,529 $ 1,298,167 $88,323,811
Rental expenses:
Property and maintenance 442,775 467,865 24,639,966
Taxes and insurance 98,762 162,776 7,403,245
Property management 1,769,272
General and administrative 1,351,667
Amortization and other depreciation 56,075
Depreciation of rental property $ 1,996,381 (A) 18,674,785
Other 1,200,669
Management contract termination 402,907
------------------------------------------------------- ---------------
541,537 630,641 1,996,381 55,498,586
Income before interest income (expense) 963,992 667,526 (1,996,381) 32,825,225
and minority interest
Interest income (202,500)(D) 128,614
Interest expense (3,723,398)(B) (13,696,370)
------------------------------------------------------- ---------------
Net income before minority interest 963,992 667,526 (5,922,279) 19,257,469
Minority interest (100,578)(E) (100,578)
------------------------------------------------------- ---------------
Net income $963,992 $667,526 ($6,022,857) $19,156,891
===============
Net income per common share - Basic $0.54
===============
Wgt. avg. number of shares outstanding 743,802 (C) 35,403,168
=============== ===============
</TABLE>
(A) Represents the depreciation expense of the properties acquired based on the
purchase price, excluding amounts allocated to land, for the period of time
not owned by the Company. The weighted average life of the property
depreciated was 27.5 years.
(B) Represents the interest expense for the portion of the properties purchased
with the Company's unsecured line of credit or other unsecured financing.
Total purchase price of $63,851,388 for 1997 acquisitions (8 properties) and
the portion of the purchase price of $50,206,150 for 1998 acquisitions (6
properties) for the period in which properties were not owned for the year
ended December 31, 1997. Interest was computed based on interest rates under
the Company's line of credit in effect at the time of the respective
acquisition.
(C) Represents additional common shares used to purchase Ashley Run, Carlyle,
Charleston Place and a portion of Dunwoody based upon purchase prices of
$18,000,000 $11,580,000, $9,475,000 and $10,560,312 (total purchase price of
Dunwoody was $15,200,000), respectively; common shares issued in April, 1997
with net proceeds of $9.5875 per share to the Company; purchase of Timbers
using the proceeds of a public offering issuing shares with net proceeds of
$10.89 per share.
(D) Represents reduction of interest income associated with $4.050 million of
cash used to purchase Cape Landing at an interest rate of 5%.
(E) Represents minority interest of 185,874 operating partnership units in the
Company's operating partnership.
15
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997 (UNAUDITED)
The following schedule provides detail of 1997 acquisitions by property included
in the Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997.
<TABLE>
<CAPTION>
Paces Paces Ashley Carlyle Charleston
Westchase Arbor Forest Run Club Place
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma
Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Date of Acquisition 1/15/97 3/1/97 3/1/97 4/30/97 4/30/97 5/13/97
Property operations
Revenues from rental properties $166,656 $128,993 $154,702 $916,820 $637,842 $536,210
Rental expenses:
Property management 54,436 35,902 37,110 246,537 205,723 169,807
Taxes and insurance 16,024 8,094 9,108 69,240 46,970 34,987
General and administrative - - - - - -
Amortization - - - - - -
Depreciation of rental property - - - - - -
Other - - - - - -
-----------------------------------------------------------------------------------
70,460 43,996 46,218 315,777 252,693 204,794
Income before interest income (expense) 96,196 84,997 108,484 601,043 385,149 331,416
Interest income - - - - - -
Interest expense - - - - - -
-----------------------------------------------------------------------------------
Net Income $96,196 $84,997 $108,484 $601,043 $385,149 $331,416
===================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Dunwoody Clarion Remington Stone
Springs Crossing St. Regis Place Brooke 1997
Pro Forma Pro Forma Pro Forma Pro Forma Pro Forma Acquisition
Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Date of Acquisition 7/25/97 9/30/97 10/31/97 10/31/97 10/31/97
Property operations
Revenues from rental properties $1,437,230 $1,141,473 $1,100,453 $918,833 $1,037,535 $8,176,747
Rental expenses: -
Property management 451,935 442,582 294,153 262,938 323,499 2,524,622
Taxes and insurance 144,766 59,664 64,195 60,505 95,262 608,815
General and administrative - - - - - -
Amortization - - - - - -
Depreciation of rental property - - - - - -
Other - - - - - -
------------------------------------------------------------------------------------
596,701 502,246 358,348 323,443 418,761 3,133,437
Income before interest income (expense) 840,529 639,227 742,105 595,390 618,774 5,043,310
Interest income - - - - - -
Interest expense - - - - - -
------------------------------------------------------------------------------------
Net Income $840,529 $639,227 $742,105 $595,390 $618,774 $5,043,310
====================================================================================
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Cornerstone Realty Income Trust, Inc.
Date: December 22, 1998 By: /s/ Stanley J. Olander, Jr.
----------------------------
Stanley J. Olander, Jr.,
Chief Financial Officer of
Cornerstone Realty Income Trust, Inc.
17
<PAGE>
EXHIBIT INDEX
Cornerstone Realty Income Trust, Inc.
Form 8-K dated October 16, 1998
Exhibit Number Exhibit Page Number
10.1 Purchase Contract for
Cape Landing Apartments
10.2 Agreement of Limited
Partnership of Cornerstone
Partners, L.P.
10.3 Credit Agreement among
Cornerstone Realty Income
Trust, Inc., CRIT-NC, LLC
and First Union National Bank
10.4 Revolving Credit Note made
by Cornerstone Realty Income
Trust, Inc. and CRIT-NC, LLC
10.5 Termination of Advisory
Agreement Subcontract
10.6 Termination of Property
Management Agreement Subcontract
10.7 Bill of Sale and Note Pertaining
to Property Acquisition/
Disposition Agreement
10.8 Assignment and Assumption Agreement
(Pertaining to Advisory Agreement for
Apple Residential Income Trust, Inc.)
10.9 Amended and Restated Property
Acquisition/Disposition Agreement
23.1 Consent of Independent Auditors
18
EXHIBIT 10.1
PURCHASE CONTRACT
-----------------
THIS AGREEMENT made and entered into this _________ day of August 1998,
between CORNERSTONE REALTY GROUP, INC. or its nominee, (hereinafter called
"Purchaser") and CAPE LANDING APARTMENTS, LLC, a North Carolina limited
liability company, hereinafter called "Seller").
ARTICLE I
THE PROPERTY
1.1 SALE OF PROPERTY. Seller agrees to sell and convey, and Purchaser
agrees to purchase, Seller's real property known as CAPE LANDING APARTMENTS
located in MYRTLE BEACH, SC, with all buildings and improvements located
thereon, as more particularly described in the attached legal description in
EXHIBIT A including, but not limited to 288 individually heated and air
conditioned apartment units, with ail appurtenances, together with all
appliances, drapes, carpeting, shrubbery and all other personal property used in
connection with the premises, including, the inventory of personal property to
be supplied by Seller and attached hereto as EXHIBIT B (all such real and
personal property hereinafter collectively referred to as the "Property" unless
the context clearly indicates otherwise).
ARTICLE II
PAYMENT OF PURCHASE PRICE
2.1 PURCHASE PRICE. The total purchase price shall be the "Net Equity
Value" as defined in Section 2.3 totaling SEVENTEEN MILLION ONE HUNDRED THOUSAND
($17, 100, 000) DOLLARS, as evidenced by cash, including or partnership units
("Partnership Units") representing an ownership interest in a ("Cornerstone")
limited partnership ("Partnership") to be formed by Cornerstone Realty Income
Trust, Inc. pursuant to Paragraph 2.3. The Partnership's sole material asset
initially will be the Property, but Cornerstone, in its sole discretion, may
cause the Partnership to acquire additional properties by contribution or
purchase.
2.2 DEPOSIT. ONE HUNDRED THOUSAND ($100,000) DOLLARS to be placed in escrow
at the end of the "Inspection Period" described in Article VI below. Said
deposit shall be placed in escrow with Chicago Title Insurance Corporation or
its authorized agent as an earnest money deposit which may be credited against
the purchase
<PAGE>
price or applied as per Article XI below.
2.3 SELLER'S OPTION. (i) Seller shall have the right to elect prior to the
Closing Date to receive Partnership Units in an amount not to exceed the net
equity value of the Property (the "Net Equity Value"). The Net Equity Value
shall be equal to Seventeen Million one Hundred Thousand Dollars ($17,100,000),
subject to all normal adjustments as set forth herein, and less the outstanding
balance of the mortgage loan from First Union National Bank secured by the
Property, all as calculated on the Closing Date as set forth in this Agreement.
To the extent Seller does not elect to receive Partnership Units in an amount
equal to the Net Equity Value, the balance shall be paid in cash so that in all
cases the total consideration shall be equal to $7,100,000 the Net Equity Value.
Under the partnership agreement of the Partnership, Seller shall have the right
to distribute the Partnership Units to its members.
(ii) Each Partnership Unit will have a value at the Closing Date equal to
the average of the closing prices on the New York Stock Exchange ("NYSE") of a
common share of Cornerstone Realty Income Trust, Inc. ("Common Share") for the
30-day period ending with the day preceding the Closing Date. However, in no
event will the value of a Partnership Unit be less than 98% nor more than 102%
of the closing price on the NYSE of a Common Share on the day preceding the
Closing Date.
(iii) Each Partnership Unit will be freely transferable (subject to the
transfer not violating any law or resulting in any material adverse tax
consequences to the Partnership or Cornerstone) and entitle the holder thereof
to receive nonliquidating distributions with respect to such Partnership Unit
equal to the dividends and other distributions payable on or with respect to a
Common Share (with non-cash distributions taking the form of additional
Partnership Units as appropriate). At any time after the expiration of the
twelve-month period beginning with Closing Date ("Redemption Date"), the holder
thereof shall have the right to cause the limited Partnership to redeem each of
its Partnership Units for, at the option of the limited partnership, either (i)
cash in an amount equal to the average of the closing prices the day preceding
on the NYSE of a Common Share for the 30-day period ending with Redemption Date
of (ii) a Common Share that is freely transferable in the hands of the holder
thereof.
(iv) The limited partnership will agree not to dispose of the Property (or
any property received in exchange for such Property in a transaction described
in section 1031 of the Internal Revenue Code of 1986, as amended) in a
transaction in which any gain is recognized for federal tax purposes for a
period of [two] years from the Closing Date. This provision will not prohibit
the Partnership from satisfying or otherwise removing any mortgages,
2
<PAGE>
liens, other charges or any encumbrances on the Property.
ARTICLE III
TITLE MATTERS
3.1 MARKETABLE TITLE. Seller, shall convey good and marketable title by
Special Warranty Deed, in the form attached hereto as EXHIBIT C, subject only to
general taxes for the current year not yet due and payable and utility easements
which do not interfere with the present use of the Property and the exceptions
listed on EXHIBIT G hereto ("Permitted Exceptions").
(A) Title shall be free from any and all liens or mortgages (other
than Permitted Exceptions) and Seller shall be responsible for any prepayment
penalties necessary to deliver such free title.
3.2 TITLE DEFECTS; ELECTION TO CURE. Seller shall deliver to Purchaser a
copy of its previous title insurance. If title is not marketable, except as
stated above in the preceding paragraph, Purchaser shall give written notice of
any defects in title to Seller's counsel within fifteen (15) days after
Purchaser's receipt of a title report which report shall include copies of
backup documents relating to any title exceptions, a current survey, a flood
zone certification letter and a Surveyor's Certification letter. Seller may, at
its option, elect whether to cure said defects or by written notice to Purchaser
indicate its intention not to cure.
3.3 ELECTION NOT TO CURE DEFECTS. Should Seller elect not to cure title
defects, this Agreement, at Purchaser's option, shall be void; each party shall
thereupon be released from all obligations hereunder; and all deposits shall be
immediately returned to Purchaser. If Purchaser does not elect to void this
Agreement, such defects shall become Permitted Exceptions with respect to the
Property.
ARTICLE IV
PRORATIONS
4.1 INCOME AND EXPENSE ALLOCATIONS. The following shall be prorated, on a
calendar-month basis, to the 1st day of the month of the closing: rents and
other income from the Property; operating expenses (on such service contracts
and other obligations as Purchaser may agree to assume); and general and real
property taxes and personal and business property taxes for the year of closing
(based on the most recent assessment and the most recent levy).
3
<PAGE>
4.2 CLOSING COSTS. Purchaser and seller shall pay their customary share of
all taxes. Seller shall pay the recording fees imposed on the Deed or any other
documents executed in connection with the transfer of the Property. Purchaser
agrees to pay cost of title insurance. Seller shall pay any prepayment penalty
charged by the holders of any existing notes.
4.3 ALLOCATION OF RENTS. Rents collected by Seller prior to Closing shall
be prorated as agreed in 4.1 above. Purchaser shall apply rents received after
Closing first to payment of the current rent due to Purchaser, then to
delinquent rents due to Purchaser, and last to rents due to Seller as of the
Closing but uncollected prior to settlement. Purchaser agrees to use its best
efforts in good faith to collect the amount of any rental arrears from tenants
and Purchaser agrees to remit promptly to Seller any such arrears actually paid
by such tenants to Purchaser. Seller shall retain the right to commence legal
action against a tenant for any delinquent rent apportioned to the Seller.
4.4 PRIOR LEASE CONCESSIONS. If Seller has committed to give any future
monetary concessions to tenants under existing leases to which Purchaser would
become liable, then Seller shall pay to Purchaser said amount in a lump sum at
closing.
ARTICLE V
POSSESSION OF THE PROPERTY
5.1 POSSESSION. Possession of the Property shall be delivered to Purchaser
at closing, subject to the rights of the tenants under existing leases and
rental agreements.
ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT. (a) Purchaser's obligation to purchase shall be
subject to and contingent upon the satisfaction of the following conditions
precedent:
(A) Receipt by Purchaser of an engineering report of building and site
conditions (ordered by Purchaser at its expense), satisfactory to Purchaser in
its sole discretion, said report to include in part, a description of any
hazardous waste sites, hazardous wastes and/or hazardous materials affecting the
property. Purchaser shall have fifteen (15) days, pursuant to Paragraph 6.2.4,
in which to review the reports set forth herein and exercise its right to reject
the Property based thereon or the right hereunder shall be deemed waived. At
Seller's request, Purchaser will provide to Seller a copy of each engineering
report prepared in connection with the Property at its actual cost.
4
<PAGE>
(B) The receipt by Purchaser of Seller documents described in 7.2
below.
(C) On the condition that Sellers representations and warranties
described in Article VIII below remain true and correct.
(D) On the condition that there have been no material and adverse
changes to the property or leases.
(E) Seller acknowledges that Purchaser is a public entity and that it
is required to furnish financial statements to the Securities and Exchange
Commission in connection with this acquisition. Seller agrees to make the
information available for Purchaser to audit the last 12 months of operation of
the Property so that a report can be generated that is in compliance with
accounting Regulation S-X of the Securities and Exchange Commission.
(F) Survey which shall show no encroachments onto the Land from any
adjacent property, no encroachments by or from the Land onto adjacent property
and no violation of or encroachments upon any recorded building lines,
restrictions or easements affecting the Property. If the Survey discloses any
such encroachment or violation, Seller shall have thirty (30) days from the date
of delivery of the Survey (with a commensurate extension of the closing date) to
have the Title Insurer issue its endorsement insuring against damage caused by
such encroachment or violation and to provide evidence thereof to Purchaser, and
if Seller fails to or is unable to have the same insured against within such
thirty (30) day period, Purchaser may elect, on or before the Closing Date, to
(i) terminate this Agreement (in which case the Earnest Money shall be returned
to Purchaser) and neither party shall have any further liability or obligation
to the other hereunder, or (ii) accept the property subject to any such
encroachment or violation.
(b) Seller's obligation to sell shall be subject to and contingent
upon the satisfaction of the following conditions precedent:
(A) This Agreement shall have been assigned Purchaser shall have
assigned its rights and obligations under this Agreement to the Partnership and
the transfer of the Property shall take the form of a contribution from Seller
to the Partnership.
(B) Seller shall have received the Limited Partnership Agreement of
the Partnership not less than seven days prior to closing and the terms and
conditions of the Limited Partnership Agreement shall be satisfactory to Seller
in its sole
5
<PAGE>
discretion.
6.2 INSPECTION. This Agreement shall be further subject to and contingent
upon Purchaser's satisfactory inspection as follows herein below.
6.2.1 PREPARATION FOR INSPECTION. Within three (3) business days of the
execution of this Agreement, Seller shall deliver to Purchaser copies of the
following: The current rent roll for the Property; detailed statements of income
and expenses with respect to the Property for the past two years; the most
recent tax bills for the Property; utility bills for the Property for the twelve
(12) months previous to the date hereof; all contract, mortgages, and other
documents creating liens of security interest on the Property, or any part
thereof and all promissory notes secured thereby; all insurance policies
applicable to the Property to include loss runs for the last five (5) years;
Plans and Specifications for the Property, service contracts, Certificates of
Occupancy, to the extent reasonably available; a copy of the title policy and
most recent survey for the Property. A copy of any environmental or engineering
reports on the property. All these items shall be certified by Seller to be
accurate and complete in all material respects to the best of its knowledge and
belief.
6.2.2 INSPECTION OF BOOKS AND RECORDS; ACCESS. Upon receipt by Purchaser of
all documents requested in the paragraph above, Purchaser, its employees, agents
and contractors shall have 21 days (the "Inspection Period") to enter upon the
Property subject to the rights of the tenants during normal business hours for
the purpose of making physical inspections thereof, including but not limited to
roofs, heating, cooling, electrical and plumbing systems, swimming pool,
appliances, and structural elements of the buildings. Purchaser shall also be
permitted to review all original leases, expense records, tenant cards and
occupancy data available. Upon the conclusion of the Inspection Period this
contract shall be deemed to be a firm agreement of purchase and sale binding the
parties hereto, except as it may be terminated by other provisions and
conditions contained herein, including but not limited to the condition imposed
by Paragraph 6.1(A) above.
6.2.3 RIGHT OF TERMINATION DURING INSPECTION PERIOD. If Purchaser is not
satisfied, in its sole and exclusive discretion, with the state of maintenance
and repair of the Property or the rents, occupancy or expenses of the Property,
then notwithstanding anything contained herein to the contrary, Purchaser shall
have the right to terminate this Agreement by giving written notice to Seller
before the end of the Inspection Period, and no party hereto shall have any
further liability to any other party hereto, and all deposits shall he returned
to Purchaser.
6
<PAGE>
6.2.4 TERMINATION OF INSPECTION PERIOD. Notwithstanding anything to the
contrary set forth herein, the Inspection Period shall expire twenty-one (21)
days from the date of this Agreement or such other date as the parties may agree
to in writing.
6.2.5 "RENT READY". During the "Inspection Period", both Seller and
Purchaser will inspect a vacant apartment unit at the Property and mutually
agree that said apartment shall be representative of a "rent ready" unit by
which all other vacant units shall be judged for "rent ready" condition at
closing. All vacant apartment units, are to be in a "rent ready" condition (as
defined above) , at the time of closing, containing, but not limited to the
following amenities, i.e., carpet, refrigerator, range, garbage disposal,
heating, plumbing and electrical systems.
6.2.6 CONDITION OF PERSONAL PROPERTY AT CLOSING. All personal property
included in the sale and all mechanical, electrical, heating, air conditioning,
sewer, water and plumbing systems will be in the same working order at the time
of closing and in the same condition as at the time of the initial inspection by
Purchaser. It Seller fails to make reasonable efforts to conserve the property,
Purchaser shall have the option of waiving such requirement, in writing, and
proceeding to closing, or Purchaser may void this Agreement and obtain a prompt
return of its deposit.
ARTICLE VII
CLOSING
7.1 CLOSING. Closing will be held at such time as the Property shall have
reached 80% occupancy after the completion of the Inspection Period, but no
later than September 15, 1998, at such place and at such time as the parties may
agree.
7.2 SELLER'S DELIVERIES. At closing, Seller shall execute and deliver to
Purchaser the Special Warranty Deed referred to in Paragraph 3 hereof and shall
also execute, where necessary, and deliver to Purchaser, the following:
(A) A Bill of Sale, in the form attached hereto as EXHIBIT D, with
warranty of title transferring the personal property (as shown in Exhibit B) to
Purchaser free of all liens, charges and encumbrances.
(B) Originals or copies of all signed leases and rental agreements in
effect with tenants of the Property.
7
<PAGE>
(C) All security and cleaning deposits made by such tenants. Seller
will give the tenants the required notice of such transfer in compliance with
the laws of SOUTH CAROLINA.
(D) An affidavit of Seller in such form as will cause the Title
Company to omit from the title insurance policy the exclusion relating to
unrecorded mechanic's and materialmen's liens.
(E) A rent roll certified by Seller to be true and correct in all
material respects as of the date of closing showing the name of, and the amount
of monthly rental payable, by each tenant of the Property, the apartment
occupied by the tenant, the date to which rent has been paid, any advance
payment of rent, and the amount of any escrow, or security deposit of tenant.
(F) An affidavit of Seller that to the best of its information and
belief there are, on the date of closing, no unsatisfied judgments, creditor's
claims, tax liens, or pending bankruptcies involving Seller.
(G) Seller shall provide a certificate from a licensed extermination
contractor, who is regularly engaged in the business of pest control, that all
buildings are free from any termite or other wood-boring insect infestation.
Said certificate shall be dated within 90 days of closing, bearing the
Contractor's name, contractors license number, the signature of the party
authorized to sign for the Contractor and the date of the inspection. Should
damage exist, Seller shall proceed to have any corrective work completed prior
to closing or Purchaser, at its option, may either proceed to settlement and
have such sums required for repairs deducted from Seller's proceeds, or may in
its sole discretion terminate this Agreement. Seller shall promptly return
Purchaser's deposit upon such termination.
(H) Assignments of all Seller's interest in the following: (1) all
assignable licenses, and permits relating to the operation of the Property, (2)
the leases and rental agreements with tenants of the Property, (3) the existing
Property telephone number and (4) the business and trade name as set forth in
Par. 1.1.
(I) Assignments of all warranties and guarantees to the extent such
are still in effect and provide Purchaser with copies of all such warranties and
guarantees without limitation for all appliances, dishwashers, disposals,
refrigerators, heating and air conditioning units.
(J) Evidence satisfactory to Purchaser that all water, sewer, gas,
electric, telephone, and drainage facilities and
8
<PAGE>
all other utilities required by law or by the normal use and operation of the
Property are and at the time of closing will be installed to the property line,
are and at the time of closing will be connected pursuant to valid permits, and
are and at the time of closing adequate to service the Property and to permit
full compliance with all requirements of law and normal usage of the Property by
the tenants thereof and their licensees and invitees.
(K) Consent of the Seller's authorized officer to the sale of the
Property and any other approvals required under Seller's articles or by-laws,
which may affect Seller's ability to convey marketable title.
(L) Provide documents for the transfer of the telephone, electric,
water and sewer, and gas utilities, as may be required by the utility, for
execution at closing.
(M) Satisfactory evidence of the power and authority of Seller to
enter into and consummate this agreement, including but not limited to:
(i) An opinion of Seller's counsel, in a form satisfactory to
Purchaser, stating that:
(a) The individual (s) executing the deed and related documents
are duly authorized to do all such acts as are necessary to consummate this
sale.
(b) That the partner or officer can bind the Partnership or
Corporation.
(N) Affidavit that Seller has no actual knowledge of the presence of
asbestos and/or any other hazardous material at the Property.
(O) Seller shall provide a satisfactory and valid written termination
of the management agreement executed by the existing management and rental agent
for the Property, without cost to the Purchaser.
(P) A notice letter to all the residents of the apartment complex as
to change of ownership in the form prepared by the Purchaser.
(Q) All such other documents as are normally transferred at settlement
in the jurisdiction in which the property is located or are reasonably requested
by Purchaser or its counsel.
(R) A representation letter as normally required
9
<PAGE>
by auditors for a public company in the form attached hereto as EXHIBIT E. This
clause shall survive closing for one year.
7.3 PURCHASER'S DELIVERIES. At closing and contemporaneously with the
Seller's compliance with the provisions of Section 7.2, Purchaser shall:
(A) Pay to Seller the cash portion of the purchase price and the
Partnership Units, adjusted for the prorations, allocations and closing costs
herein provided for in Article IV.
(B) Execute and deliver an assumption of obligations under leases,
securities, any contracts which may be accepted by the Purchaser and any other
obligations specifically set forth herein.
(C) Deliver to the Seller a resolution of the Purchaser that:
(i) This Agreement has been duly authorized, executed and
delivered by the Purchaser and is a valid and binding agreement of Purchaser,
and
(ii) Purchaser has complete unrestricted power to buy the
Property from the Seller and to execute any documents required to effectuate the
transfer.
(D) Deliver an opinion of counsel as to the authorization, execution,
validity and binding effect as to the Partnership Units as well as an opinion
that the Units are fully paid for and non-assessable.
ARTICLE VIII
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 REPRESENTATIONS OF THE PARTIES. Seller warrants (which warranties shall
not survive settlement unless designated to the contrary) that as of the date of
closing hereof:
(A) That Seller, is the owner in fee simple of the Property and has
the power to convey same.
(B) That Seller is not subject to any other agreements or
arrangements, with the exception of those contained in any existing mortgage
documents which would prevent Seller from selling the Property to Purchaser.
This warranty shall survive for one year following closing.
10
<PAGE>
(C) All necessary action has been taken by Seller to authorize the
execution of this Agreement and the performance of the obligations contemplated
hereunder, which are not excluded elsewhere in existing mortgage documents. This
warranty shall survive for one year following closing.
(D) Seller has no actual knowledge and has not been advised in writing
that it is in default under any lease, rental agreement service or equipment
contract, or mortgage or other encumbrances relating to the Property. This
warranty shall survive for one year following closing.
(E) Seller has no actual knowledge of any material patent or latent
defect in the Property or any part thereof. This warranty shall survive for one
year following closing.
(F) Seller has no actual knowledge of any existing or threatened
litigation which relates to or which would affect the Property. This warranty
shall survive for one year following closing.
(G) The Property abuts on and has direct vehicular access to a public
road.
(H) All building and other improvements at the Property are located
entirely within the boundary lines of the Property.
(I) Seller has no actual knowledge that any part of the Property or
the operation of the Property, is in material violation or may materially
violate any governmental statute, regulation, ordinance or building code or of
any private restriction, that any governmental authority requires any work to be
done on or affecting the Property, or that any governmental authority has
expressed an intent to condemn or to make special improvements for the benefit
of the Property or any part thereof. This warranty shall survive for one year
following closing.
(J) That to the best knowledge of the Seller, the drainage within the
project is satisfactory and complies in all respects with all government
regulation. This warranty shall survive for one year following closing.
(K) That Seller is not a "foreign person" within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"), and that Seller will
furnish to Purchaser prior to closing an affidavit in form satisfactory to
Purchaser confirming the same.
(L) That to the best of Seller's knowledge, the Property was never
utilized as a disposal site for hazardous waste
11
<PAGE>
products and will furnish to Purchaser an affidavit confirming same.
(M) Seller covenants and agrees that, between this date and the date
of closing, Seller shall continue to maintain, operate and manage the Property
in a manner consistent with its prior practices, making every reasonable effort
to do nothing which might damage the reputation of the Property or the
relationships with the tenants. Seller shall not permit the modification,
extension or cancellation of any tenant lease (except in accordance with the
terms of such lease) or any dealing with any tenant other than the ordinary
course of managing the Property, without the prior written consent of Purchaser.
If the leases of any tenants expire before thirty (30) days after the date of
closing, Seller shall, up to the date of closing and without cost to the
Purchaser, continue its normal course of operation with respect to causing
tenants to be obtained for apartments which are unrented.
8.2 CONTINUATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS TO THE DATE
OF CLOSING. If each of the warranties set forth in this section does not remain
true up to and including the time of closing as to any material matters, this
Agreement, at Purchaser's election, shall be terminated, Seller shall return all
payments made by Purchaser, or Purchaser may elect to close the sale and waive
failure of the warranties. If Purchaser shall have knowledge at closing of the
breach of a representation, warranty, covenant or agreement made for its benefit
herein or in any other document delivered herewith and elects not to terminate
this Agreement but proceed to closing, Purchaser shall be deemed to have waived
the breach of such representation, warranty, covenant or agreement and Seller
shall have no liability with respect thereto.
8.3 BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding
the provisions of 8.2 above, Seller shall indemnify Purchaser for all reasonable
costs incurred as a result of the failure of any of Seller's representations,
warranties or covenants contained herein to remain true as of, which failure
occurs between the date of closing from the date of termination of the
inspection Period and the date of closing.
8.4 OPTION. The parties agree during the Inspection Period to negotiate an
option agreement for the purchase by Purchaser herein of the properties known as
St. Andrews Place, located in Wilmington, NC, and Greystone Crossing, located in
Charlotte, NC and attach said option agreement to this Agreement as EXHIBIT H.
Failure to negotiate an option agreement shall not be a default under the terms
of this Agreement.
12
<PAGE>
ARTICLE IX
CONDEMNATION; RISK OF LOSS
9.1 PROPERTY DAMAGE. If, prior to closing, any part of the Property is
damaged by fire or other casualty in an amount not greater than TWO HUNDRED
THOUSAND ($200,000) DOLLARS, Purchaser agrees to accept the Property with an
assignment of: (i) the insurance proceeds, (ii) any deductible, and (iii) rent
loss insurance proceeds. Seller shall have the option to repair such damage
before the date provided herein for Closing. In the event that the damage as a
result of fire or other casualty cannot be reasonably repaired by such time,
this Agreement may be canceled at the option of the Purchaser. In the event of
cancellation as aforesaid, this Agreement shall become null and void and the
parties shall be released and all payments made shall be returned. Should
Purchaser elect to carry out this Agreement despite such damage Seller shall
assign to Purchaser all insurance proceeds and any deductible arising from such
damage and will compensate Purchaser for lost rent collections to the extent of
insurance proceeds received. Seller shall promptly notify Purchaser in writing
upon the occurrence of any such damage.
9.2 CONDEMNATION. In the event of any actual or threatened taking, pursuant
to the power of eminent domain, all or any part thereof, or any actual or
proposed sale in lieu thereof, the Seller shall give written notice thereof to
the Purchaser promptly after Seller learns or receives notice thereof. Upon a
taking of a material part of the Property greater than TWO HUNDRED THOUSAND
($200,000) DOLLARS or any part of the building or more than 5% of the parking
area, Purchaser may elect to either (a) terminate this Agreement, in which event
the deposit shall be immediately returned to Purchaser and all other rights and
obligations of the parties hereunder shall terminate immediately, or (b) waive
its right to terminate this Agreement and proceed to closing, in which event all
proceeds, awards and other payments arising out of such condemnation or sale
(actual or threatened) shall be paid to the Purchaser at Closing, if such
payment has been received. If payment has not as yet been received, but an
amount has been agreed upon, Seller shall assign the claim to Purchaser.
9.3 RISK OF LOSS. Prior to closing, all risks of loss or damage by every
casualty shall be borne by the Seller.
ARTICLE X
BROKER
10.1 BROKER. Seller and Purchaser represent and warrant to each other that
no broker brought about this transaction
13
<PAGE>
and, therefore, no brokerage fees are or shall be owing in connection with this
transaction. Seller and Purchaser agree to hold each other harmless in
connection with any such brokerage fees.
ARTICLE XI
DEFAULT
11.1 DEFAULT DEFINED. Default for the purpose of this Agreement shall mean
any deliberate or intentional failure by Seller or Purchaser to fulfill all the
terms, conditions and covenants contained herein, however, it shall not be an
event of default for either party to exercise its rights to terminate this
contract as contained in other provisions herein.
11.2 SELLER'S DEFAULT. Upon Seller's default, the Purchaser, at it's
election may either (1) require specific performance of Seller, or pursue its
other remedies at law or equity, (2) cancel this Agreement and obtain a prompt
return of the deposit, in which case this Agreement shall be terminated and the
parties released from all obligations hereunder, or (3) the Purchaser may waive
such defaults and proceed to settlement. Seller shall indemnify Purchaser for
any reasonable costs incurred by Purchaser if Purchaser elects to pursue its
option (1) noted above, to include reasonable attorney fees.
11.3 PURCHASER'S DEFAULT. Upon Purchaser's default, this Agreement shall be
terminated and both parties released from all obligations hereunder, and the
deposit shall be retained by the Seller as liquidated damages. Such amount and
terms are agreed upon by and between Seller and Purchaser as liquidated damages,
due to the difficulty and inconvenience of ascertaining and measuring actual
damages, and the uncertainty thereof, and the payment of the deposit and the
terms provided herein shall constitute full satisfaction of Purchaser's
obligations under this Agreement. Such amount is agreed upon by and between
Seller and Purchaser as a reasonable estimate of just compensation for the harm
caused by Purchaser's default. Seller shall have no other remedy against
Purchaser in the event of Purchaser's default.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
between the parties; it supersedes all previous agreements and representations
which are deemed merged herein and may not be modified except in writing.
12.2 ASSIGNMENT. Purchaser may assign all of its
14
<PAGE>
rights, but not its obligations under this Agreement to the Partnership without
the consent of Seller.
12.3 SEVERABILITY. If any provision, sentence, phrase or word of this
Agreement or the application thereof to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision,
sentence, phrase, or word to persons or circumstances, other than those as to
which it is held invalid, shall remain in full force and effect.
12.4 BINDING EFFECT. The parties to the Agreement mutually agree that it
shall be binding upon and inure to the benefit of their respective heirs,
representatives, successors in interest and assigns.
12.5 CONTROLLING LAW. It is the intent of the parties hereto that all
questions with respect to the construction of this Agreement and the rights and
liabilities of the parties shall be determined in accordance with the provisions
of the laws of the State set forth in Par. 1.1.
12.6 COUNTERPARTS. To facilitate execution, this Agreement may be executed
in as many counterparts as may be required. It shall not be necessary that the
signature on behalf of both parties hereto appear in each counterpart hereof,
and it shall be sufficient that the signature on behalf of both parties hereto
appear on one or more such counterparts. All counterparts shall collectively
constitute a single contract.
12.7 INCORPORATION BY REFERENCE. All of the Exhibits referred to herein
and/or attached hereto shall be deemed to constitute a part of the Agreement.
12.8 HEADINGS. The headings of the Articles and sections hereof are
inserted for convenience only and shall not be deemed to constitute a part of
the Agreement.
12.9 CONSTRUCTION OF CONTRACT. Each party hereto have reviewed and revised
(or requested revisions of) this Agreement, and therefore the normal rule of
construction that any ambiguities are to be resolved against a particular party
shall not be applicable in the construction and interpretation of this Contract
or any amendments or exhibits hereto.
12.10 EXHIBITS. The following exhibits are attached to this Agreement and
are incorporated into this Agreement by this reference and made a part hereof
for all purposes:
EXHIBIT A, legal description of the land
EXHIBIT B, list of personal property
15
<PAGE>
EXHIBIT C, form of Deed
EXHIBIT D, (i) form of Bill of Sale, (ii)
Assignments and Assumptions of Leases, etc.
EXHIBIT E, form of Representation Letter
EXHIBIT F, Option Agreements
EXHIBIT G, Permitted Exceptions
ARTICLE XIII
NOTICE
13.1 NOTICE. All notices required or permitted to be given under this
Agreement shall be in writing and shall be sent or delivered to the address set
forth below (or such other address as may be hereafter specified in writing):
To Seller: Mr. Jeffery W. Kentner
State Street Companies
211 State Street, P.O. Box 29265
Greensboro, NC 27429
Fax: (336) 275-6114
With a copy to
Seller's Attorneys:
Charles M. Schwartz, Esq.
Gibson, Dunn & Crutcher, LLP
1717 Main Street
Dallas, TX 75201-7390
Fax: (214) 571-2953
To Purchaser: Mr. Gus Remppies
Cornerstone Realty Group, Inc.
306 E. Main Street
Richmond, VA 23219
Fax: (804) 782-9302
With a copy to
Purchaser's Attorneys: Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut St., P.O. Box 488
Cedarhurst, NY 11516
Fax: (516) 374-3490
-and-
16
<PAGE>
Michael W. Tighe, Esq.
Callison Tighe Robinson & Hawkins
1812 Lincoln Street
Columbia, SC 29201
Fax: (803) 256-6431
13.2 DELIVERY OF NOTICE. Notices sent either by Registered or Certified
Mail, Return Receipt Requested, or by overnight express mail shall be deemed
given when deposited in the United States Mail, postage prepaid, delivered to a
reliable overnight courier or by facsimile transmission. Notices sent in any
other manner shall be deemed given only when actually delivered at the specified
address.
IN WITNESS WHEREOF, THE Seller and the Purchaser have caused this Agreement
to be executed this day and date first written above.
SELLER:
CAPE LANDING APARTMENTS, LLC
By: STATE STREET, LLC, its Manager
By: STATE STREET RESIDENTIAL, INC., its Manager
By: /s/ TIFFANY N. GAY
------------------------------
Its: Vice President
------------------------------
PURCHASER:
CORNERSTONE REALTY GROUP, INC.
By: /s/ GUS G. REMPPIES
------------------------------
Its: Vice President
------------------------------
17
Exhibit 10.2
AGREEMENT OF LIMITED PARTNERSHIP
OF
CORNERSTONE PARTNERS, L.P.
a Virginia limited partnership
--------------------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP
AN OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN
FORM AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO THE
EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION
MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS.
dated as of October 16, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE 1 - DEFINED TERMS
ARTICLE 2 - ORGANIZATIONAL MATTERS
Section 2.1 Organization......................................................16
Section 2.2 Name..............................................................16
Section 2.3 Registered Office and Agent; Principal Office.....................16
Section 2.4 Power of Attorney.................................................17
Section 2.5 Term..............................................................17
ARTICLE 3 - PURPOSE
Section 3.1 Purpose and Business..............................................18
Section 3.2 Powers............................................................18
Section 3.3 Partnership Only For Purposes Specified...........................18
Section 3.4 Representations and Warranties by the Limited Partners............18
ARTICLE 4 - CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Initial Partners; Sale of Property...20
Section 4.2 Additional Funding and Capital Contributions......................21
Section 4.3 Loans by Third Parties............................................22
Section 4.4 No Interest; No Return............................................22
ARTICLE 5 - DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions.................22
Section 5.2 Distributions In Kind.............................................23
Section 5.3 Amounts Withheld..................................................23
Section 5.4 Distributions upon Liquidation....................................23
Section 5.5 Restricted Distributions..........................................23
ARTICLE 6 - ALLOCATIONS
Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss.......23
Section 6.2 General Allocations...............................................24
Section 6.3 Additional Allocation Provisions..................................24
Section 6.4 Tax Allocations...................................................26
Section 6.5 Other Provisions..................................................27
ARTICLE 7 - MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management........................................................27
Section 7.2 Certificate of Limited Partnership................................29
Section 7.3 Restrictions on General Partner's Authority.......................30
Section 7.4 Refinancing, Sales................................................31
Section 7.5 [Reserved]........................................................32
Section 7.6 Other Business of the General Partner.............................32
Section 7.7 Indemnification...................................................32
Section 7.8 Liability of the General Partner..................................34
Section 7.9 Other Matters Concerning the General Partner......................35
Section 7.10 Title to Partnership Assets......................................36
<PAGE>
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 A Limited Partner...........................36
Section 8.4 Return of Capital.................................................37
Section 8.5 Rights of Limited Partners Relating To the Partnership............37
Section 8.6 Redemption Rights of Qualifying Parties...........................38
Section 8.7 Partnership Right To Call Limited Partner Interests...............40
Section 8.8 Other Redemptions.................................................41
ARTICLE 9 - BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting............................................41
Section 9.2 Fiscal Year.......................................................41
Section 9.3 Reports...........................................................42
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 Withholding......................................................44
ARTICLE 11 - TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer.........................................................44
Section 11.2 Transfer of General Partner's Partnership Interest...............44
Section 11.3 Limited Partners' Rights to Transfer.............................45
Section 11.4 Additional Or Substituted Limited Partners.......................46
Section 11.5 Assignees........................................................47
Section 11.6 General Provisions...............................................47
Section 11.7 Incremental Costs................................................50
ARTICLE 12 - ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner...........................50
Section 12.2 Admission of Additional Limited Partners and Substituted
Limited Partner..................................................50
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership....51
Section 12.4 Limit on Number of Partners......................................51
ARTICLE 13 - DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution......................................................51
Section 13.2 Winding Up.......................................................52
Section 13.3 Deemed Contribution and Distribution.............................53
Section 13.4 Rights of Limited Partners.......................................54
Section 13.5 Notice of Dissolution............................................54
Section 13.6 Cancellation of Certificate of Limited Partnership...............54
Section 13.7 Reasonable Time for Winding-Up...................................54
ARTICLE 14 - PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS;
MEETINGS
Section 14.1 Procedures for Actions and Consents of Partners..................54
Section 14.2 Amendments.......................................................54
Section 14.3 Meetings of the Partners.........................................55
ARTICLE 15 - GENERAL PROVISIONS
Section 15.1 Addresses and Notice.............................................56
Section 15.2 Further Action...................................................56
Section 15.3 Binding Effect...................................................56
Section 15.4 Waiver...........................................................56
Section 15.5 Counterparts.....................................................57
Section 15.6 Applicable Law...................................................57
Section 15.7 Entire Agreement.................................................57
Section 15.8 Invalidity of Provisions.........................................57
Section 15.9 Limitation to Preserve REIT Status...............................57
Section 15.10 No Partition....................................................58
Section 15.11 No Third-Party Rights Created Hereby............................58
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
CORNERSTONE PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF CORNERSTONE PARTNERS, L.P., dated
as of October 16, 1998 (the "Effective Date"), is entered into by and between
Cornerstone Realty Income Trust, Inc., a Virginia corporation, as the "General
Partner", and Cape Landing Apartments, LLC, a North Carolina limited liability
company, as the "Original Limited Partner".
RECITALS
WHEREAS, on August 28, 1998, Cornerstone Realty Group, Inc., a Virginia
corporation, on behalf of the General Partner, entered into a purchase contract
(the "Purchase Contract") with the Original Limited Partner to purchase certain
real property known as Cape Landing apartments located in Myrtle Beach, South
Carolina, with all buildings and improvements located thereon as more
particularly described therein (the "Contributed Property").
WHEREAS, on October 14, 1998, Cornerstone Realty Group, Inc. assigned its
rights and obligations under the Purchase Contract to the General Partner, and
the General Partner wishes to further assign the Purchase Contract to the
Partnership.
WHEREAS, pursuant to the Purchase Contract the Original Limited Partner has
agreed to contribute a portion of the Contributed Property to the Partnership
and sell the remaining portion of the Contributed Property to the Partnership
and the General Partner has agreed to contribute cash to the Partnership.
NOW THEREFORE, in consideration of the foregoing recitals and covenants
between the parties contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
AGREEMENT
ARTICLE 1
DEFINED TERMS
As used in this Agreement, except as otherwise expressly provided or unless
the context otherwise requires, (i) the terms defined in this Article include
the plural as well as the singular; (ii) all accounting terms not otherwise
defined herein have the meanings ascribed to them in accordance with GAAP;
(iii)all references in this Agreement to designated "Articles," "Sections" and
other subdivisions are to the designated Articles, Sections and other
subdivisions of this Agreement; (iv) the words "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; (v) "including" shall mean
"including, without limitation," "including, without limiting the generality of
the foregoing," and other phrases of similar import; and (v) the following terms
shall have the meanings ascribed to them set forth below.
1
<PAGE>
"ACT" means the Virginia Revised Uniform Limited Partnership Act, as it may
be amended from time to time, and any successor to such statute.
"ACTIONS" has the meaning set forth in Section 7.7 hereof.
"ADDITIONAL FUNDS" has the meaning set forth in Section 4.2.A hereof.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 4.2.D or 11.4 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:
(a) decrease such deficit by any amounts that such Partner is
obligated to restore pursuant to this Agreement or by operation of law upon
liquidation of such Partner's Partnership Interest or is deemed to be
obligated to restore pursuant to the penultimate sentence of each of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(b) increase such deficit by the items described in Regulations
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 Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
"ADJUSTMENT FACTOR" means 1.0; provided, however, that in the event that:
(a) the General Partner (i) declares or pays a dividend on its
outstanding REIT Shares in REIT Shares or makes a distribution to all
holders of its outstanding REIT Shares in REIT Shares, (ii) splits or
subdivides its outstanding REIT Shares or (iii) effects a reverse stock
split or otherwise combines its outstanding REIT Shares into a smaller
number of REIT Shares, the Adjustment Factor shall be adjusted by
multiplying the Adjustment Factor previously in effect by a fraction, (1)
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 (2) 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 Adjustment
Factor shall be adjusted by multiplying the Adjustment Factor previously in
effect by a fraction, (i) the numerator of which
2
<PAGE>
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 (ii) the denominator of which shall be the number of
REIT Shares issued and outstanding on the record date plus a fraction, (1)
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 (2) the denominator of which is the
Value of a REIT Share as of the record date; provided, however, that, if
any such Distributed Rights expire or become no longer exercisable, then
the Adjustment 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;
(c) in the event that 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 cash
dividend or any dividend or distribution referred to in subsection (a)
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 Adjustment Factor shall be adjusted to equal the
amount determined by multiplying the Adjustment Factor in effect
immediately prior to the close of business on the date fixed for
determination of shareholders entitled to receive such distribution by a
fraction, (i) the numerator shall be such Value of a REIT Share on the date
fixed for such determination and (ii) the denominator shall be the Value of
a REIT Share on the dated fixed for such determination less the then Fair
Market Value (as reasonably determined by the General Partner) of the
portion of the evidences of indebtedness or assets so distributed
applicable to one REIT Share.
Any adjustments to the Adjustment Factor shall become effective immediately
after the effective date of such event, retroactive to the record date, if any,
for such event. For illustrative purposes, examples of adjustments to the
Adjustment Factor are set forth on Exhibit B attached hereto.
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling or controlled by or under common control with such
Person. For the purposes of this definition, "Control" when used with respect to
any Person means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "Controlling" and "Controlled" have meanings correlative to the foregoing.
"AGREEMENT" means this Agreement of Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"APPLICABLE PERCENTAGE" has the meaning set forth in Section 8.6.B hereof.
"APPRAISAL" means, with respect to real property (other than the
Contributed Property) or any interest therein, the written 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 Fair Market Value
3
<PAGE>
for such asset as set by the General Partner is fair, from a financial point of
view, to the Partners and/or the Partnership.
"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
an Additional Limited Partner or a Substituted Limited Partner, and who has the
rights set forth in Section 11.5 hereof.
"AVAILABLE CASH" means, with respect to any period for which such
calculation is being made,
(a) the sum, without duplication, of:
(1) the Partnership's Net Income or Net Loss (as the case may be)
for such period;
(2) all payments of interest on account of Partner Loans;
(3) Depreciation and all other noncash charges to the extent
deducted in determining Net Income or Net Loss for such period;
(4) any reserves or increases in reserves (including Working
Capital Reserves) of the Partnership;
(5) the excess, if any, of the net cash proceeds from the sale,
exchange, disposition, financing or refinancing of Partnership
property for such period over the Net Income (or Net Loss, as the case
may be) attributable to and recognized as a result of such sale,
exchange, disposition, financing or refinancing during such period
(excluding Terminating Capital Transactions); and
(6) all other cash received (including amounts previously accrued
as Net Income and amounts of deferred income) or any net amounts
borrowed by the Partnership for such period that was not included in
determining Net Income or Net Loss for such period;
(b) Less the sum, without duplication, of:
(1) all principal debt payments made during such period by the
Partnership other than payments on account of Partner Loans in which
anyone other than the Holders of Preferred Partnership Units has
participated; and
(2) any amount included in determining Net Income or Net Loss for
such period that was not received by the Partnership during such
period.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reductions in reserves, or take into account any disbursements made,
or reserves established, after dissolution and the commencement of the
liquidation and winding up of the Partnership.
4
<PAGE>
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in Richmond, Virginia are authorized or required by law
to close.
"CAPITAL ACCOUNT" means, with respect to any Partner, the Capital Account
maintained by the Partnership for such Partner on the Partnership's books and
records 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 distributive share of Net
Income and any items in the nature of income or gain that are specially
allocated pursuant to Section 6.3 hereof, and the principal amount of any
Partnership liabilities assumed by such Partner or that 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 Loss and any items in the nature of expenses or
losses that are specially allocated pursuant to Section 6.3 hereof and the
principal amount of any liabilities of such Partner assumed by the
Partnership or that 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 that it relates to
the Transferred interest.
(d) In determining the principal 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 provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulations Sections
1.704-1(b)and 1.704-2, and shall be interpreted and applied in a manner
consistent with such Regulations. If the General Partner shall determine
that it is prudent to modify the manner in which the Capital Accounts are
maintained in order to comply with such Regulations, the General Partner
may make such modification provided that such modification will not have a
material effect on the amounts distributable to any Partner without the
Consent of the Limited Partners. 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 that unanticipated
events might otherwise cause this Agreement not to comply with Regulations
Section 1.704-1(b) or Section 1.704-2.
"CAPITAL CONTRIBUTION" means, with respect to any Partner, the amount of
money and the initial Gross Asset Value of any Contributed Property that such
Partner contributes to the Partnership pursuant to Section 4.1 or Section 4.2.D
hereof.
5
<PAGE>
"CASH AMOUNT" means an amount of cash equal to the product of (i) the Value
of a REIT Share and (ii) the REIT Shares Amount determined as of the applicable
Valuation Date attributable to the Tendered Units.
"CERTIFICATE" means the Certificate of Limited Partnership of the
Partnership filed in the office of the State Corporation Commission of the
Commonwealth of Virginia, as amended from time to time in accordance with the
terms hereof and the Act.
"CHARTER" means the Articles of Incorporation of the General Partner filed
with the Virginia State Corporation Commission, as amended, supplemented or
restated from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended and in effect
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 Limited Partner given in accordance with Article 14 hereof, which Consent
shall be obtained prior to the taking of any action for which it is required by
this Agreement and, except as otherwise provided in this Agreement, may be given
or withheld by the relevant Limited Partners, in their reasonable discretion.
"CONTRIBUTED PROPERTY" has the meaning set forth in the Recitals of this
Agreement, together with any 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 Code Section 708).
"CUT-OFF DATE" means with respect to Tendered Units covered by a Notice of
Redemption received by the General Partner the later of (i) the last Business
Day of the Calendar month in which a Notice of Redemption is received and (ii)
the first Business Day which is at least fifteen (15) days after the date that
the Notice of Redemption is received.
"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 Person; (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 Person
that, in accordance with generally accepted accounting principles, should be
capitalized.
"DEPRECIATION" means, for each Fiscal Year or other applicable period, an
amount equal to the federal income tax 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
6
<PAGE>
year or period, Depreciation shall be in an amount that 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 or period is zero, Depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
General Partner.
"DISTRIBUTED RIGHT" has the meaning set forth in the definition of
"Adjustment Factor."
"EFFECTIVE DATE" has the meaning set forth in the preamble to this
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"FAIR MARKET VALUE" shall mean, as of the time of determination, (i) with
respect to the Contributed Property or any interest therein, the value of the
Contributed Property or such interest determined by agreement of the General
Partner and the Original Limited Partner and (ii) with respect to other material
real property interests, the value of such property determined by agreement of
the General Partner or the Liquidator, as applicable, and the Original Limited
Partner or, if no such agreement has been reached, the value determined by
Appraisal.
"FAMILY MEMBERS" means, as to a Person that is an individual, (i) such
Person's spouse; (ii) such Person's ancestors; (iii) such Person's descendants
(whether by blood or by adoption); (iv) such Person's brothers and sisters; (v)
Inter Vivos or testamentary trusts of which only such Person and/or his spouse,
ancestors, descendants (whether by blood or by adoption), brothers and/or
sisters are beneficiaries; and (vi) any partnership or limited liability company
all of whose partners or members consist of such Person and/or his spouse,
ancestors, descendants (whether by blood or by adoption), brothers and/or
sisters and/or Inter Vivos or testamentary trusts of which only such Person
and/or his spouse, ancestors, descendants (whether by blood or by adoption),
brothers and/or sisters are beneficiaries.
"FISCAL YEAR" means the fiscal year of the Partnership, which shall be the
calendar year.
"FUNDING NOTICE" has the meaning set forth in Section 4.2.B hereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accounts and statements and pronouncements of the
Financial Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the accounting profession), or in such
other statements by such entity as may be in general use by significant segments
of the United States accounting profession, which are applicable to the
circumstances on the date of determination.
7
<PAGE>
"GENERAL PARTNER" means Cornerstone Realty Income Trust, Inc., a Virginia
corporation, and its successors and assigns, as the general partner of the
Partnership in its capacity as general partner of the Partnership.
"GENERAL PARTNER INTEREST" means the Partnership Interest held by the
General Partner, which Partnership Interest is an interest as a general partner
under the Act. A General Partner Interest may be expressed as a number of
Partnership Units.
"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
Limited Partner to the Partnership shall be set forth on the Partner
Schedule with respect to such Limited Partner.
(b) The Gross Asset Values of all Partnership assets immediately prior
to the occurrence of any event described in clause (1), clause (2), clause
(3), clause (4) or clause (5) hereof shall be adjusted to equal their
respective gross Fair Market Values as of the following times:
(1) the acquisition of an additional interest in the Partnership
(other than in connection with the execution of this Agreement but
including contributions or deemed contributions by a Partner pursuant to
Section 4.2 hereof) 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 interests of the Partners in the Partnership;
(2) the distribution by the Partnership to a Partner of more than
a de minimis amount of property as consideration for an interest in the
Partnership, if the General Partner reasonably determines that such
adjustment is necessary or appropriate to effect the relative economic
interests of the Partners in the Partnership;
(3) the liquidation of the Partnership within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g);
(4) upon the admission of a successor General Partner pursuant to
Section 12.1 hereof; and
(5) 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 Fair Market Value of such asset on the date of
distribution.
(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
8
<PAGE>
not be adjusted pursuant to this subsection (d) to the extent that the
General Partner reasonably determines that an adjustment pursuant to
subsection (b) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
subsection (d).
(e) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subsection (a), subsection (b) or
subsection (d) above, 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.
"GROSS INCOME" means, for each Fiscal Year of the Partnership, an amount
equal to the sum of all items of income and gain taken into account in
determining Net Income or Net Loss.
"HOLDER" means either (i) a Partner or (ii) an Assignee owning a
Partnership Unit that is treated as a member of the Partnership for federal
income tax purposes.
"INCAPACITY" or "INCAPACITATED" means, (i) as to any Partner who is an
individual, death, total physical disability or entry by a court of competent
jurisdiction adjudicating such Partner incompetent to manage his or her person
or his or her estate; (ii) as to any Partner that is a corporation or limited
liability company, the filing of a certificate of dissolution, or its
equivalent, for the corporation or limited liability company or the revocation
of its charter; (iii) as to any Partner that is a partnership, the dissolution
and commencement of winding up of the partnership; (iv) as to any Partner that
is an estate, the distribution by the fiduciary of the estate's entire interest
in the Partnership; (v) as to any trustee of a trust that is a Partner, the
termination of the trust (but not the substitution of a new trustee) other than
in connection with the distribution of the trust assets to a Designated Party or
his spouse; 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 of or against such Partner 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
assets; (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 one hundred twenty (120) days after the
commencement thereof; (g) the appointment without the Partner's consent or
acquiescence of a trustee, receiver or liquidator has not been vacated or stayed
within ninety (90) days of such appointment; or (h) an appointment referred to
in clause (g) above is not vacated within ninety (90) days after the expiration
of any such stay.
9
<PAGE>
"INDEMNITEE" means (i) any Person made a party to a proceeding by reason of
its status as (A) the General Partner or (B) a director of the General Partner
or an officer or employee 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 (whether
before or after the event giving rise to potential liability), in its reasonable
discretion.
"IRS" means the Internal Revenue Service, which administers the internal
revenue laws of the United States.
"LIMITED PARTNER" means the Original Limited Partner or any Additional
Limited Partner or Substituted Limited Partner, in such Person's capacity as a
Limited Partner in the Partnership. In no event shall the General Partner become
or be construed to be a Limited Partner hereunder, even if the General Partner
acquires Partnership Units previously held by a Limited Partner, whether
pursuant to Section 8.6 hereof or otherwise.
"LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the Partnership
Interests 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 Partner Interest may be expressed as
a number of Partnership Units.
"LIQUIDATING EVENT" has the meaning set forth in Section 13.1 hereof.
"LIQUIDATOR" has the meaning set forth in Section 13.2.A hereof.
"LOAN TO VALUE RATIO" shall mean the ratio of the principal amount of Debt
secured by a mortgage or deed of trust to the Fair Market Value of the property
securing such Debt, in each instance as of the time of determination.
"MAJORITY IN INTEREST OF THE LIMITED PARTNERS" means those Limited Partners
holding in the aggregate more than fifty percent (50%) of the aggregate
Partnership Units of all Limited Partners.
"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 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 (or subtracted from, as the case may be) such taxable income (or
loss);
(b) Any expenditure of the Partnership described in Code Section
705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure 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
10
<PAGE>
this definition of "Net Income" or "Net Loss," shall be subtracted from (or
added to, as the case may be) such taxable income (or loss);
(c) In the event that the Gross Asset Value of any Partnership asset
is adjusted pursuant to subsection (b) or subsection (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 that would otherwise be 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 that 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
(g) Notwithstanding any other provision of this definition of "Net
Income" or "Net Loss," any item that is specially allocated pursuant to
Section 6.3.B 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 Fiscal Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(c).
"NONRECOURSE LIABILITY" has the meaning set forth in Regulations Section
1.752-1(a)(2).
"NOTICE OF REDEMPTION" means the Notice of Redemption substantially in the
form of Exhibit C attached to this Agreement.
"ORIGINAL LIMITED PARTNER" has the meaning set forth in the first paragraph
hereof, any Assignee or other transferee, including any Additional Limited
Partner or Substituted Limited Partner succeeding to all or any part of the
Partnership Interest of an Original Limited Partner.
11
<PAGE>
"OWNERSHIP LIMIT" means the applicable restriction on ownership of shares
of the General Partner currently imposed under the Charter; e.g., no ownership
of more than nine and 3/10ths percent (9.3%) of the REIT Shares issued and
outstanding.
"PARTNER" means the General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partner(s).
"PARTNER LOAN" has the meaning set forth in Section 4.2.C hereof.
"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 Fiscal Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(i)(2).
"PARTNER SCHEDULE" means a schedule, substantially in the form attached
hereto as Exhibit A and executed by the General Partner and a Limited Partner
(including the Original Limited Partners and any Additional Limited Partner or
Substituted Limited Partner), that shall set forth, with respect to a Limited
Partner to which Partnership Units are issued pursuant to this Agreement; (i)
the Gross Asset Values, as determined by the General Partner and agreed to by
the contributing Limited Partner, for any Contributed Property contributed by
such contributing Limited Partner; and (ii) the initial Partnership Units issued
to such Limited Partner.
"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
representing a Capital Contribution by either a Limited Partner or the General
Partner and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement. A Partnership Interest may be expressed as a number of
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 Fiscal Year shall be
determined in accordance with the rules of Regulations Section 1.704-2(d).
"PARTNERSHIP RECORD DATE" means the record date established by the General
Partner, which record date shall be the same as the record date established by
the General Partner for a distribution to its shareholders.
"PARTNERSHIP UNIT" means a fractional share of the Partnership Interests of
all Partners issued pursuant to Section 4.1 or Section 4.2 hereof;
12
<PAGE>
provided, however, that the General Partner Interest and the Limited Partner
Interests shall have the differences in rights and privileges as specified in
this Agreement. The ownership of Partnership Units may (but need not, in the
sole and absolute discretion of the General Partner, except in the case of the
Original Limited Partner) be evidenced by a certificate for Partnership Units
issued by the General Partner.
"PERMITTED TRANSFER" has the meaning set forth in Section 11.3.A hereof.
"PERSON" means an individual or a corporation, partnership, trust,
unincorporated organization, association, limited liability company or other
entity.
"PREFERRED PARTNERSHIP UNITS" means Partnership Units issued to the
Original Limited Partner as of the Effective Date, whether subsequently held by
an Original Limited Partner, any other Limited Partner, an Assignee or the
General Partner (following the acquisition of Tendered Units pursuant to Section
8.6 hereof).
"PREFERRED RETURN PER UNIT" means with respect to Preferred Partnership
Units, a return equal to the annualized cash dividends paid on account of a REIT
Share for any applicable period. The Preferred Return Per Unit shall not
constitute a "Guaranteed Payment" under Code Section 707(c).
"PRIME RATE" means the interest rate which First Union National Bank, a
national banking association, announces from time to time as its prime lending
rate; provided, however, that if such Bank (or any successor bank) no longer
announces a prime lending rate, the interest rate announced from time to time by
another bank designated by the General Partner which is one of the twenty (20)
largest national banks, measured by total assets.
"QUALIFIED TRANSFEREE" means an "Accredited Investor" as defined in Rule
501 promulgated under the Securities Act.
"QUALIFYING PARTY" means (i) an Original Limited Partner; (ii) a Designated
Party; (iii) an Additional Limited Partner or a Substituted Limited Partner; or
(iv) a Family Member or an Assignee who is also a Qualified Transferee;
provided, however, that with respect to each such Family Member or Assignee
(other than such an Assignee in a Permitted Transfer pursuant to a pledge of
Partnership Units), until such time as the Original Limited Partner or
Designated Party from whom such Family Member or Assignee derived its
Partnership Units is deceased or Incapacitated, such Family Member or Assignee
shall effect a Redemption and any other rights pursuant to Section 8.6 hereof
solely through, by power of attorney or other method approved by the General
Partner, the Original Limited Partner or Designated Party from whom such Family
Member or Assignee derived its Partnership Units.
"REDEMPTION" has the meaning set forth in Section 8.6.A hereof.
"REDEMPTION DATE" means the date, which is sixty (60) days following the
Cut-Off Date (or if such date is not a Business Day, then the next following
Business Day).
"REGULATIONS" means the applicable income tax regulations under the Code,
whether such regulations are in proposed, temporary or final form, as
13
<PAGE>
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.B(h)
hereof.
"REIT" means a real estate investment trust qualifying under Code Section
856.
"REIT PARTNER" means a Partner or Assignee that is, or has made an election
to qualify as, a REIT.
"REIT PAYMENT" has the meaning set forth in Section 15.9 hereof.
"REIT REQUIREMENTS" has the meaning set forth in Section 5.1. hereof.
"REIT SHARE" means a share of the General Partner's common stock, par value
$0.01 per share or, with respect to any successor General Partner by way of any
merger in which such successor is the survivor, a share of the successor General
Partner's common stock; provided, however, if the successor General Partner has
more than one class of stock or other publicly traded security, REIT Share shall
mean a share of that class of common stock or other publicly traded security
that was acquired by the shareholders of the General Partner as merger
consideration in connection with such merger.
"REIT SHARES AMOUNT" means a number of REIT Shares equal to the product of
(i) the number of Tendered Units and (ii) the Adjustment Factor; provided,
however, that if the General Partner issues to all holders of REIT Shares as of
a certain record date rights, options, warrants or convertible or exchangeable
securities entitling the General Partner's shareholders to subscribe for or
purchase REIT Shares, or any other securities or property (collectively, the
"Rights"), with the record date for such Rights issuance falling within the
period starting on the date of the Notice of Redemption and ending on the day
immediately preceding the Redemption Date, which Rights will not be distributed
before the relevant Redemption Date, then the REIT Shares Amount shall also
include such Rights that a holder of that number of REIT Shares would be
entitled to receive, expressed, where relevant hereunder, in a number of REIT
Shares determined by the General Partner in good faith.
"RELATED PARTY" means, with respect to any Person, any other Person whose
ownership of shares of the General Partner's capital stock would be attributed
to the first such Person under either Code Section 544 (as modified by Code
Section 856(h)(1)(B)) or Code Section 318 (as modified by Code Section
856(d)(5)).
"RELATED PERSON" means with respect to a Partner or a Holder, a Person
bearing a relationship to such Partner or Holder, or a Person to whom such
Partner or Holder bears a relationship, specified in Regulations Section
1.752-4(b).
"RIGHTS" has the meaning set forth in the definition of "REIT Shares
Amount."
"SEC" means the Securities and Exchange Commission.
14
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"SUBSTITUTED LIMITED PARTNER" means an Assignee who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.4 hereof. The term
"Substituted Limited Partner" shall not include any Additional Limited Partner.
"TAX ITEMS" has the meaning set forth in Section 6.4.A hereof.
"TENDERED UNITS" has the meaning set forth in Section 8.6.A hereof.
"TENDERING PARTY" has the meaning set forth in Section 8.6.A hereof.
"TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of
all or substantially all of the assets of the Partnership or a related series of
transactions that, taken together, result in the sale or other disposition of
all or substantially all of the assets of the Partnership.
"TRANSFER," when used with respect to a Partnership Unit or all or any
portion of a Partnership Interest, means any sale, assignment, bequest,
conveyance, devise, gift (outright or in trust), pledge, encumbrance,
hypothecation, mortgage, exchange, transfer or other disposition or act of
alienation, whether voluntary or involuntary or by operation of law; provided,
however, that when the term is used in Article 11 hereof, Transfer does not
include (a) any Redemption of Partnership Units by the Partnership, or
acquisition of Tendered Units from the Limited Partners by the General Partner,
pursuant to Section 8.6 hereof or (b) any redemption of Partnership Units
pursuant to Section 8.7 or Section 8.8 hereof. The terms "Transferred" and
"Transferring" have correlative meanings.
"VALUATION DATE" means (a) in the case of a tender of Partnership Units for
Redemption, 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
or (b) in any other case, the date specified in this Agreement.
"VALUE" means, on any Valuation Date with respect to a REIT Share, the
average of the daily market prices for twenty (20) consecutive trading days
immediately preceding the Valuation Date. The market price for any such trading
day shall be:
(a) if the REIT Shares are listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's 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,
in either case as reported in the principal consolidated transaction
reporting system;
(b) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's 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
15
<PAGE>
(c) if the REIT Shares are not listed or admitted to trading on any
securities exchange or The Nasdaq Stock Market's National Market System and
no such last reported sale price or closing bid and asked prices are
available, the average of the reported high bid and low asked prices on
such day, as reported by a reliable quotation source designated by the
General Partner, or if there shall be no bid and asked prices on such day,
the average of the high bid and low asked prices, as so reported, on the
most recent day (not more than five (5) days prior to the date in question)
for which prices have been so reported; provided, however, that if there
are no bid and asked prices reported during the five (5) days prior to the
date in question, the Value of the REIT Shares shall be determined by
Appraisal. In the event that 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 Appraisal.
ARTICLE 2
ORGANIZATIONAL MATTERS
SECTION 2.1 ORGANIZATION
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and subject to the conditions set forth
in this Agreement. Except as expressly provided herein to the contrary, the
rights and obligations of the Partners and the administration and termination of
the Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
SECTION 2.2 NAME
The name of the Partnership is Cornerstone Partners, L.P. The Partnership's
business may be conducted under any other name or names selected 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 Partners of such change in the next
regular communication to the Partners.
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE
The address of the registered office of the Partnership in the Commonwealth
of Virginia is located at One James Center, 901 East Cary Street, Richmond,
Virginia 23219, and the registered agent for service of process on the
Partnership in the Commonwealth of Virginia at such registered office is James
W. C. Canup, who is a resident of Virginia and a member of the Virginia State
Bar. The principal registered office of the Partnership is located at 306 East
Main Street, Richmond, Virginia 23219 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 Commonwealth of Virginia as the General Partner deems advisable.
16
<PAGE>
SECTION 2.4 POWER OF ATTORNEY
A. Each Limited Partner and each Assignee hereby irrevocably 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 execute, swear to,
seal, acknowledge, deliver, file and record in the appropriate public offices
(a) all certificates, documents and other instruments (including this Agreement
and the Certificate and all amendments, supplements 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 to the extent provided by applicable law) in the Commonwealth of
Virginia and in all other jurisdictions in which the Partnership may conduct
business or own property; (b) all conveyances and other instruments or documents
that are appropriate or necessary to reflect the dissolution and liquidation of
the Partnership pursuant to the terms of this Agreement, including a certificate
of cancellation; (c) all conveyances and other instruments or documents that are
appropriate or necessary to reflect the distribution or exchange of assets of
the Partnership pursuant to the terms of this Agreement; (d) all instruments
relating to the admission, withdrawal, removal or substitution of any Partner
pursuant to, or other events described in, Article 11, Article 12 or Article 13
hereof or the Capital Contribution of any Partner; and (f) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges relating to Partnership Interests. 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 special power coupled with an interest, in recognition of the fact that
each of the Limited Partners and Assignees 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 or Partnership Interest and shall extend to such Limited
Partner's or Assignee's heirs, successors, assigns and personal representatives.
Each Limited Partner or Assignee shall execute and deliver to the General
Partner or the Liquidator, within fifteen (15) days after receipt of the General
Partner's or the Liquidator's request therefor, such 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 shall commence on the Effective Date and shall
continue until December 31, 2100 unless the Partnership is dissolved sooner
pursuant to the provisions of Article 13 hereof or as otherwise provided by law.
17
<PAGE>
ARTICLE 3
PURPOSE
SECTION 3.1 PURPOSE AND BUSINESS
The purpose and nature of the Partnership is to conduct the business of
ownership, construction, development and operation of the Contributed Property
and anything necessary or incidental to the foregoing; provided, however, that
such business may be limited to and conducted in such a manner as to permit the
General Partner, in its sole and absolute discretion, at all times to be
classified as a REIT.
SECTION 3.2 POWERS
A. The Partnership shall be 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.
B. Notwithstanding any other provision in this Agreement, the General
Partner may cause the Partnership not to take, or to refrain from taking, any
action that, 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 Code Section 857 or Code Section 4981 or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner, its securities or the Partnership, unless
such action (or inaction) under clause (i), clause (ii) or clause (iii) above
shall have been specifically consented to by the General Partner in writing.
SECTION 3.3 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED
The Partnership shall be a limited partnership only for the purposes
specified in Section 3.1 hereof, and this Agreement shall not be deemed to
create a company, venture or partnership between or among the Partners with
respect to any activities whatsoever other than the activities within the
purposes of the Partnership as specified in Section 3.1 hereof. Except as
otherwise provided in this Agreement, no Partner shall have any authority to act
for, bind, commit or assume any obligation or responsibility on behalf of the
Partnership, its properties or any other Partner. No Partner, in its capacity as
a Partner under this Agreement, shall be responsible or liable for any
indebtedness or obligation of another Partner, nor shall the Partnership be
responsible or liable for any indebtedness or obligation of any Partner,
incurred either before or after the execution and delivery of this Agreement by
such Partner, except as to those responsibilities, liabilities, indebtedness or
obligations incurred pursuant to and as limited by the terms of this Agreement
and the Act.
SECTION 3.4 REPRESENTATIONS AND WARRANTIES BY THE LIMITED PARTNERS
A. Each Limited Partner that is an individual (including each Additional
Limited Partner or Substituted Limited Partner as a condition to becoming an
Additional Limited Partner or a Substituted Limited Partner) represents and
warrants to the Partnership, the General Partner and each other Limited Partner
that (i) the consummation of the transactions
18
<PAGE>
contemplated by this Agreement to be performed by such Limited Partner will not
result in a breach or violation of, or a default under, any material agreement
by which such Limited Partner or any of such Limited Partner's property is
bound, or any statute, regulation, order or other law to which such Limited
Partner is subject; (ii) such Limited Partner is neither a "Foreign Person"
within the meaning of Code Section 1445(f) nor a "Foreign Partner" within the
meaning of Code Section 1446(e); (iii) to the best of its knowledge, after
reasonable inquiry, such Limited Partner does not own, directly or indirectly or
by attribution under Code Section 318 (as modified by Code Section 856(d)(5)),
(A) stock of any corporation that is a tenant of either (I) the General Partner,
(II) the Partnership or (III) any partnership, venture or limited liability
company of which the General Partner or the Partnership is a member; or (B) an
interest in the assets or net profits of any tenant of either (I) the General
Partner; (II) the Partnership; or (III) any partnership, venture or limited
liability company of which the General Partner or the Partnership is a member;
(iv) such Limited Partner does not own, directly or indirectly or by attribution
under Code Section 544 (as modified by Code Section 856(h)) stock of the General
Partner other than by reason of the Redemption right; and (v) this Agreement is
binding upon and enforceable against such Limited Partner in accordance with its
terms.
B. Each Limited Partner that is not an individual (including each
Additional Limited Partner or Substituted Limited Partner as a condition to
becoming an Additional Limited Partner or a Substituted Limited Partner)
represents and warrants to the Partnership, the General Partner and each other
Limited Partner that (i) all transactions contemplated by this Agreement to be
performed by it have been duly authorized by all necessary action, including
that of its general partner(s), committee(s), trustee(s), beneficiaries,
directors and/or shareholder(s), as the case may be, as required; (ii) the
consummation of such transactions shall not result in a breach or violation of,
or a default under, its partnership or operating agreement, trust agreement,
charter or bylaws, as the case may be, any material agreement by which such
Limited Partner or any of such Limited Partner's properties or any of its
partners, members, beneficiaries, trustees or shareholders, as the case may be,
is or are bound, or any statute, regulation, order or other law to which such
Limited Partner or any of its partners, members, trustees, beneficiaries or
shareholders, as the case may be, is or are subject; (iii) such Limited Partner
is neither a "Foreign Person" within the meaning of Code Section 1445(f) nor a
"Foreign Partner" within the meaning of Code Section 1446(e); (iv) to the best
of its knowledge, after reasonable inquiry, such Limited Partner does not own,
directly or indirectly or by attribution under Code Section 318 (as modified by
Code Section 856(d)(5)), (A) stock of any corporation that is a tenant of either
(I) the General Partner; (II) the Partnership; or (III) any partnership, venture
or limited liability company of which the General Partner or the Partnership is
a member; or (B) an interest in the assets or net profits of any tenant of
either (I) the General Partner; (II) the Partnership; or (III) any partnership,
venture or limited liability company of which the General Partner or the
Partnership is a member; (v) such Limited Partner does not own, directly or
indirectly or by attribution under Code Section 544 (as modified by Code Section
856(h)) stock of the General Partner other than by reason of the Redemption
right; and (vi) this Agreement is binding upon, and enforceable against, such
Limited Partner in accordance with its terms.
19
<PAGE>
C. Each Limited Partner (including each Substituted Limited Partner as a
condition to becoming a Substituted Limited Partner) represents, warrants and
agrees that it has acquired and continues to hold its interest in the
Partnership for its own account for investment only and not for the purpose of,
or with a view toward, the resale or distribution of all or any part thereof,
nor with a view toward selling or otherwise distributing such interest or any
part thereof at any particular time or under any predetermined circumstances.
Each Limited Partner further represents and warrants that it is a sophisticated
investor, able and accustomed to handling sophisticated financial matters for
itself, particularly real estate investments, and that it has a sufficiently
high net worth that it does not anticipate a need for the funds that it has
invested in the Partnership in what it understands to be a highly speculative
and illiquid investment.
D. The representations and warranties contained in Sections 3.4.A, 3.4.B
and 3.4.C hereof shall survive the execution and delivery of this Agreement by
each Limited Partner (and, in the case of an Additional Limited Partner or a
Substituted Limited Partner, the admission of such Additional Limited Partner or
Substituted Limited Partner as a Limited Partner in the Partnership) and the
dissolution, liquidation and termination of the Partnership. The General Partner
may, in its sole and absolute discretion on behalf of the Partnership and its
Partners, grant waivers and exceptions to the representations and warranties
contained in Sections 3.4.A, 3.4.B and 3.4.C hereof, but any such waiver or
exception must be in writing, must refer to this Section 3.4.D and must describe
with particularity the representation or warranty as to which such waiver or
exception shall apply.
E. Each Limited Partner (including each Substituted Limited Partner as a
condition to becoming a Substituted Limited Partner) hereby represents that it
has consulted and been advised by its legal counsel and tax advisor in
connection with, and acknowledges that no representations have been made by any
Partner or any employee or representative or Affiliate of any Partner with
respect to, the potential profit, tax consequences of any sort (including the
tax consequences resulting from making a Capital Contribution, being admitted to
the Partnership or being allocated Tax Items), cash flows, funds from operations
or yield, if any, in respect of the Partnership, and that projections and any
other information, including financial and descriptive information and
documentation, that may have been in any manner submitted to such Limited
Partner shall not constitute any representation or warranty of any kind or
nature, express or implied.
ARTICLE 4
CAPITAL CONTRIBUTIONS
SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE INITIAL PARTNERS; SALE OF PROPERTY
A. At the time of the execution of this Agreement, the Original Limited
Partner and the General Partner shall have made and shall make, respectively,
their respective Capital Contributions shown on Exhibit A attached hereto. The
Original Limited Partner and the General Partner shall initially own Partnership
Units in the respective amounts set forth on such Exhibit A. Except as provided
by law, in Section 4.2.C, Section 4.2.D or Section 10.4 hereof, or as may be
necessary to effect a Redemption, the Partners shall have no obligation or right
to make any additional Capital Contributions or loans to the Partnership.
20
<PAGE>
B. At the time of the execution of this Agreement, the Original Limited
Partner shall have sold the portion of the Contributed Property shown on Exhibit
A to the Partnership for cash in the amount shown on Exhibit A.
C. The General Partner and the Original Limited Partner agree to treat the
portion of the Contributed Property sold pursuant to Section 4.1.B as a sale for
federal income tax purposes, and to treat the conveyance of a portion of the
Contributed Property as a Capital Contribution pursuant to Section 4.1.A
separately from the sale transaction in Section 4.1.B as a transfer described in
Section 721 of the Code. Unless the Original Limited Partner otherwise consents,
the Partnership shall file all federal and state income tax returns, and shall
reflect the Contributed Property on its books, in a manner consistent with this
treatment.
SECTION 4.2 ADDITIONAL FUNDING 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 such 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 4.2 or Section
4.3 hereof. No Person, including any Partner or Assignee, shall have any
preemptive, preferential, participation or similar right or rights to subscribe
for or acquire any Partnership Interest.
B. NOTICE OF ADDITIONAL FUNDS REQUIREMENT. The General Partner shall give
written notice (the "Funding Notice") to the Limited Partners of the need for
Additional Funds and the anticipated source(s) thereof.
C. PARTNER LOANS. The General Partner may lend Additional Funds to the
Partnership (a "Partner Loan") on terms and conditions no less favorable to the
Partnership than would be available to the Partnership from any third party;
provided, however, that each Limited Partner may elect, by delivering written
notice to the General Partner within thirty (30) days of the delivery of the
Funding Notice, to participate in the Partner Loan in the same proportionate
share as such Limited Partner's Units bears to the aggregate Units of all
Holders, including the General Partner, participating in such Loan, or such
other share as the General Partner and such Holders shall agree. In the event
the General Partner has not elected to lend Additional Funds to the Partnership
and a Limited Partner has made a good faith determination that the lack of
Additional Funds could cause the Partnership to default in its obligations to
third parties, including any holder of any Debt secured by a mortgage or deed of
trust on the Contributed Property, such Limited Partner may elect, by delivering
written notice to the General Partner and all other Limited Partners, to lend
Additional Funds to the Partnership as a Partner Loan on terms and conditions no
less favorable to the Partnership than would be available to the Partnership
from any third party. In such event, within thirty (30) days of the delivery of
the foregoing notice, each other Limited Partner may elect, by delivering
written notice to the notifying Limited Partner to participate in the Partner
Loan in the same proportionate share as such Limited Partner's Units bears to
the aggregate Units of all Holders participating in such Loan, or such other
share as the notifying Limited Partner and such Holders shall agree.
D. ADDITIONAL GENERAL PARTNER CONTRIBUTIONS; ADDITIONAL LIMITED PARTNERS.
Whether or not a Funding Notice is given to the Limited Partners, the General
Partner on behalf of the Partnership may raise all or any portion
21
<PAGE>
of the Additional Funds by making additional Capital Contributions and/or
accepting additional Capital Contributions from any other Partners and/or third
parties and either (i) in the case of Partners (including the General
Partner),increasing such Partner's Partnership Units; or (ii) in the case of a
third party, admitting such third party as an Additional Limited Partner.
Subject to the terms of this Section 4.2 and to the definition of "Gross Asset
Value," the General Partner shall determine in good faith the amount, terms and
conditions of such additional Capital Contributions; provided, however, that (i)
in no event shall any such Contribution entitle the maker thereof to a
distribution or return prior to, the distribution and return to which the
Holders of Preferred Partnership Units are entitled hereunder; and (ii) in the
case of an additional Capital Contribution by the General Partner, the
Partnership shall issue to the General Partner the number of Partnership Units
derived by dividing (a) the amount of the additional Capital Contribution (net
of any liabilities assumed or taken subject to by the Partnership) by (b) the
Value determined as of the date of such Capital Contribution.
SECTION 4.3 LOANS BY THIRD PARTIES
The Partnership may incur or assume Debt, or enter into other similar
credit, guarantee, financing or refinancing arrangements, for any purpose, upon
such terms as the General Partner determines appropriate; subject, however, to
the limitations of Sections 7.3 and 7.4 hereof.
SECTION 4.4 NO INTEREST; NO RETURN
No Partner shall be entitled to interest on its Capital Contribution or on
such Partner's Capital Account. Except as provided herein or by law, no Partner
shall have any right to demand or receive the return of its Capital Contribution
from 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 with respect to amounts to be distributed pursuant to clause (2) below, such
portion as the General Partner may in its sole and absolute discretion
determine) of the Available Cash generated by the Partnership with respect to
such quarter as follows:
(1) First, to each Holder of Preferred Partnership Units on the
Partnership Record Date, pari passu, an amount equal to the sum of (i) the
product of (a) the Preferred Return Per Unit for such quarter and (b) the
number of Preferred Partnership Units held by such Holder as of the
Partnership Record Date; and (ii) any accrued but unpaid amounts previously
distributable to such Holder (or its predecessor) under clause (i), above,
plus interest thereon at the Prime Rate in effect on the scheduled date of
such distribution under such clause (i) for the period commencing with such
scheduled date and ending on the date of its distribution hereunder;
provided, however, that the amount distributable pursuant to clause (i) to
any Additional Limited Partner holding Preferred Partnership Units admitted
to the Partnership in the quarter immediately preceding and ending with
such Partnership Record Date shall be prorated based on the number of days
that such Additional
22
<PAGE>
Limited Partner was a Holder of such Preferred Partnership Units during
such quarter; and
(2) Second, 0.001% to the Limited Partners and Assignees in accordance
with their respective Partnership Units and the balance to the General
Partner.
The General Partner in its sole and absolute discretion may distribute to the
Holders Available Cash in accordance with foregoing priorities on a more
frequent basis and provide for an appropriate record date.
SECTION 5.2 DISTRIBUTIONS IN KIND
No right is given to any Holder to demand or receive property other than
cash as provided in this Agreement. With the Consent of a Majority in Interest
of the Limited Partners, the General Partner may make a distribution in kind of
Partnership assets to the Holders and, in such event, subject to Section 8.8
hereof, such assets shall be distributed in such a fashion as to ensure that the
same are distributed and allocated in accordance with Articles 5, 6 and 10
hereof. In the event of a Terminating Capital Transaction, at the request of any
Original Limited Partner, the General Partner will use its best efforts to make
a distribution in kind of Partnership assets in accordance with the preceding
sentence.
SECTION 5.3 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any state or
local tax law and Section 10.4 hereof with respect to any allocation, payment or
distribution to any Holder shall be treated as amounts paid or distributed to
such Holder pursuant to Section 5.1 hereof for all purposes under this
Agreement.
SECTION 5.4 DISTRIBUTIONS UPON LIQUIDATION
Notwithstanding the other provisions of this Article 5, net proceeds from a
Terminating Capital Transaction, and any other cash received or reductions in
reserves made after commencement of the liquidation of the Partnership, shall be
distributed to the Holders in accordance with Section 13.2 hereof.
SECTION 5.5 RESTRICTED DISTRIBUTIONS
Notwithstanding any provision to the contrary contained in this Agreement,
neither the Partnership nor the General Partner, on behalf of the Partnership,
shall make a distribution to any Holder on account of its Partnership Interest
or interest in Partnership Units if such distribution would violate Section
50-73.100 of the Act or other applicable law.
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. Except as otherwise provided in this Article 6, and
23
<PAGE>
subject to Section 11.6.C hereof, an allocation to a Holder 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 and subject to Section
11.6.C hereof, Net Income and Net Loss, net of the Gross Income allocated
pursuant to Section 6.3.A, shall be allocated as follows:
(1) 99.999% to the General Partner; and
(2) 0.001% to the Limited Partners and Assignees (including the
General Partner following the acquisition of Tendered Units pursuant to
Section 8.6 hereof) in accordance with their respective Partnership Units
at the end of each Fiscal Year.
SECTION 6.3 ADDITIONAL ALLOCATION PROVISIONS
Notwithstanding the foregoing provisions of this Article 6:
A. SPECIAL ALLOCATIONS. Gross income shall be allocated to each Holder of
Partnership Units for any Fiscal Year (and, if necessary, subsequent Fiscal
Years) to the extent that such Holder receives a distribution of the Preferred
Return Per Unit pursuant to Section 5.1.1 of this Agreement.
B. REGULATORY ALLOCATIONS.
(a) Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(f), notwithstanding the provisions of Section
6.2 hereof, or any other provision of this Article 6, if there is a net
decrease in Partnership Minimum Gain during any Fiscal Year, each Holder
shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, subsequent years) in an amount equal to such
Holder'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 Holder 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.B(a) is intended to
qualify as a "Minimum Gain Chargeback" within the meaning of Regulations
Section 1.704-2(f) and shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Except as otherwise provided in
Regulations Section 1.704-2(i)(4) or in Section 6.3.B(a) hereof, if there
is a net decrease in Partner Minimum Gain attributable to a Partner
Nonrecourse Debt during any Fiscal Year, each Holder 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
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such Holder'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
24
<PAGE>
respective amounts required to be allocated to each General Partner,
Limited Partner and other Holder 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.B(b) is intended to
qualify as a "Chargeback Of Partner Nonrecourse Debt Minimum Gain" within
the meaning of Regulations Section 1.704-2(i) and shall be interpreted
consistently therewith.
(c) Nonrecourse Deductions and Partner Nonrecourse Deductions. Any
Nonrecourse Deductions for any Fiscal Year shall be specially allocated to
the Holders of Partnership Units in accordance with their share of Net Loss
under Section 6.2. Any Partner Nonrecourse Deductions for any Fiscal Year
shall be specially allocated to the Holder(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).
(d) Qualified Income Offset. If any Holder unexpectedly receives an
adjustment, allocation or distribution described in Regulations Section
1.704-1(b)(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 such Holder in an amount and manner sufficient to
eliminate, to the extent required by such Regulations, the Adjusted Capital
Account Deficit of such Holder as quickly as possible, provided that an
allocation pursuant to this Section 6.3.B(d) shall be made if and only to
the extent that such Holder 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.B(d) were not in the Agreement. It
is intended that this Section 6.3.B(d) qualify and be construed as a
"Qualified Income Offset" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
(e) Gross Income Allocation. In the event that any Holder has a
deficit Capital Account at the end of any Fiscal Year that is in excess of
the sum of (i) the amount (if any) that such Holder is obligated to restore
to the Partnership upon complete liquidation of such Holder's Partnership
Interest and (ii) the amount that such Holder 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 Holder shall be specially
allocated items of Partnership income and gain in the amount of such excess
eliminate such deficit as quickly as possible, provided that an allocation
pursuant to this Section 6.3.B(e) shall be made if and only to the extent
that such Holder 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.B(e) and Section 6.3.B(d) hereof
were not in the Agreement.
(f) Limitation on Allocation of Net Loss. To the extent that any
allocation of Net Loss would cause or increase an Adjusted Capital Account
Deficit as to any Holder of Partnership Units, such allocation of Net Loss
shall be reallocated among the other Holders of Partnership Units in
accordance with their respective Partnership Units, subject to the
limitations of this Section 6.3.B(f).
25
<PAGE>
(g) Section 754 Adjustment. To the extent that 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 Holder of Partnership Units in complete liquidation of
its 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 Holders
in accordance with their Partnership Units in the event that Regulations
Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Holders to whom such
distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Curative Allocations. The allocations set forth in Sections
6.3.B(a), (b), (c), (d), (e), (f) and (g) hereof (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 6.1 hereof, the Regulatory
Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Holders so that, to the extent
possible without violating the requirements giving rise to the Regulatory
Allocations, the net amount of such allocations of other items and the
Regulatory Allocations to each Holder shall be equal to the net amount that
would have been allocated to each such Holder if the Regulatory Allocations
had not occurred.
C. ALLOCATION OF EXCESS NONRECOURSE LIABILITIES. For purposes of
determining a Holder's proportional share of the "Excess Nonrecourse
Liabilities" of the Partnership within the meaning of Regulations Section
1.752-3(a)(3), each Holder's interest in Partnership profits for a Fiscal Year
shall be as follows: one hundred percent (100%) to the Limited Partners and
Assignees (including the General Partner following the acquisition of Tendered
Units pursuant to Section 8.6 hereof) in accordance with their respective
Partnership Units at the end of such Fiscal Year.
SECTION 6.4 TAX ALLOCATIONS
A. IN GENERAL. Except as otherwise provided in this Section 6.4, for income
tax purposes under the Code and the Regulations each Partnership item of income,
gain, loss and deduction (collectively, "Tax Items") shall be allocated among
the Holders 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 hereof.
B. ALLOCATIONS RESPECTING SECTION 704(C) REVALUATIONS. Notwithstanding
Section 6.4.A hereof, Tax Items with respect to the Contributed Property or
other property that is contributed to the Partnership with a Gross Asset Value
that varies from its basis in the hands of the contributing Partner immediately
preceding the date of contribution shall be allocated among the Holders for
income tax purposes pursuant to Regulations promulgated under Code Section
704(c) so as to take into account such variation. The Partnership shall account
for such variation under the "Remedial Method" approved under Code Section
704(c) and the applicable Regulations thereunder. In the event that the Gross
Asset Value of any
26
<PAGE>
Partnership asset is adjusted pursuant to subsection (b) of the definition of
"Gross Asset Value" (provided in Article 1 hereof), 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 Code Section 704(c) and the applicable Regulations.
SECTION 6.5 OTHER PROVISIONS
A. OTHER ALLOCATIONS UPON CHANGE IN LAW. In the event that the Code or any
Regulations require allocations of items of income, gain, loss, deduction or
credit different from those set forth in this Article 6, the General Partner is
hereby authorized to make new allocations in reliance on the Code and such
Regulations, such new allocations shall be effected pursuant to the fiduciary
duty of the General Partner to the Partnership and the other Partners.
B. CONSISTENT TAX REPORTING. The Partners acknowledge and are aware of the
income tax consequences of the allocations made by this Article 6 and hereby
agree to be bound by the provisions of this Article 6 in reporting their shares
of Net Income, Net Losses and other items of income, gain, loss, deduction and
credit for federal, state and local income tax purposes.
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 and shall be
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the 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 that are granted to the General
Partner under any other provision of this Agreement, the General Partner,
subject to the other provisions hereof, including Sections 7.3 and 7.4 hereof,
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:
(1) the making of any expenditures, the lending or borrowing of money
(including 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 (so long as the General Partner qualifies as a
REIT) to avoid the payment of any federal income tax (including, for this
purpose, any excise tax pursuant to Code Section 4981) and to make
distributions to its shareholders sufficient to permit the General Partner
to maintain REIT status or otherwise to satisfy the REIT Requirements), 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 that it
deems necessary for the conduct of the activities of the Partnership;
27
<PAGE>
(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, sale, transfer, exchange or other disposition of
any assets of the Partnership;
(4) the mortgage, pledge, encumbrance or hypothecation of any assets
of the Partnership (including the Contributed Property), the use of the
assets of the Partnership (including cash on hand) for any purpose
consistent with the terms of this Agreement and on any terms that it sees
fit, including the financing of the operations and activities of the
Partnership, and the repayment of obligations of the Partnership;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition, replacement or improvement of any property,
including the Contributed Property, or other asset of the Partnership;
(6) 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,
including contracting with property managers (including as to the
Contributed Property or other property, contracting with the contributing
or any other Limited Partner or its Affiliates for property management
services), contractors, developers, consultants, accountants, legal
counsel, other professional advisors and other agents and the payment of
their expenses and compensation out of the Partnership's assets; provided,
however, that in no event shall the General Partner enter into any such
contract or lease for any consideration in excess of the amount an
independent third party would charge and expect to receive as reimbursable
expenses or compensation for comparable goods or services;
(7) the establishment and maintenance of working capital and other
reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate from time to time;
(8) the distribution of Partnership cash or other Partnership assets
in accordance with this Agreement, the holding, management, investment and
reinvestment of cash and other assets of the Partnership and the collection
and receipt of revenues, rents and income of the Partnership;
(9) the selection and dismissal of agents, outside attorneys,
accountants, consultants and contractors of the Partnership or the General
Partner and the determination of their compensation and other terms of
employment or hiring;
(10) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate,
including casualty insurance on the Contributed Property to the same extent
as maintained on the General Partner's properties held outside the
Partnership;
28
<PAGE>
(11) the control of any matters affecting the rights and obligations
of the Partnership, including the settlement, compromise, submission to
arbitration or any other form of dispute resolution, or abandonment, of any
claim, cause of action, liability, debt or damages, due or owing to or from
the Partnership, the commencement or defense of suits, legal proceedings,
administrative proceedings, arbitrations or other forms of dispute
resolution, and the representation of the Partnership in all suits or legal
proceedings, administrative proceedings, arbitrations or other forms of
dispute resolution, the incurring of legal expense, and the indemnification
of any Person against liabilities and contingencies to the extent permitted
by law;
(12) the enforcement of any rights against any Partner pursuant to
representations, warranties, covenants and indemnities relating to
suchPartner's contribution of property or assets to the Partnership;
(13) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(14) the making, execution and delivery of any and all deeds, leases,
notes, mortgages, deeds of trust, security agreements, conveyances,
contracts, guarantees, warranties, indemnities, waivers, releases or legal
instruments or agreements in writing necessary or appropriate in the
judgment of the General Partner for the accomplishment of any of the powers
of the General Partner enumerated in this Agreement; and
(15) the issuance of additional Partnership Units in connection with
Capital Contributions by Additional Limited Partners and additional Capital
Contributions by Partners pursuant to Article 4 hereof.
B. Each of the Limited Partners agrees that, notwithstanding any other
provision of this Agreement, the Act or any applicable law, rule or regulation,
except as provided in Section 7.3 hereof, 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.
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 Commonwealth of
Virginia and the State of South Carolina and any other state or the District of
Columbia or any other jurisdiction in which the Partnership 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,
29
<PAGE>
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability to the extent
provided by applicable law) in the Commonwealth of Virginia and the State of
South Carolina and any other state or the District of Columbia or any other
jurisdiction in which the Partnership 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. Specifically, the General Partner may not:
(1) take any action that would make it impossible to carry on the
ordinary business of the Partnership, except as provided in Article 13
hereof;
(2) possess Partnership property, or assign any rights in specific
Partnership property, for other than a Partnership purpose;
(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; or
(5) take or fail to take any action that prohibits or restricts, or
has the effect of prohibiting or restricting, the ability of (i) the
General Partner or the Partnership from satisfying its obligations under
Section 5.1 or Section 8.6 hereof in full or (ii) a Limited Partner from
exercising its rights under Section 8.6 hereof to effect a Redemption in
full, except, in either case, with the Consent of such Limited Partner
affected by the prohibition or restriction.
B. The General Partner shall not, without the prior Consent of the Limited
Partners, undertake, on behalf of the Partnership, any of the following actions
or enter into any transaction that would have the effect of any such action:
(1) except as provided in Section 7.3.D hereof, amend, modify or
terminate this Agreement other than to reflect the admission, substitution,
termination or withdrawal of Partners pursuant to Article 11 or 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; or
(4) subject to the rights of Transfer provided in Section 11.2 hereof,
approve or acquiesce to the Transfer of the Partnership Interest of the
General Partner, or admit into the Partnership any additional or successor
General Partners.
C. Notwithstanding Section 7.3.B hereof, the General Partner shall have the
power, without the Consent of the Limited Partners, to amend this
30
<PAGE>
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner for the benefit of the
Limited Partners;
(2) to reflect the admission, substitution or withdrawal of Partners
or the termination of the Partnership 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;
(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; and
(5) to reflect such changes as are reasonably necessary for the
General Partner to maintain its status as a REIT or to satisfy the REIT
Requirements.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.C is taken.
D. Notwithstanding any other provision hereof, this Agreement shall not be
amended, and no action may be taken by the General Partner, without the Consent
of each Limited Partner adversely affected, if such amendment or action would
(i) convert a Limited Partner Interest in the Partnership into a General Partner
Interest (except as a result of the General Partner acquiring such Partnership
Interest); (ii) modify the limited liability of a Limited Partner; (iii) alter
the rights of the Holders of Preferred Partnership Units to receive
distributions pursuant to Article 5 or Section 13.2.A hereof, including amending
or modifying any related definitions, or the allocations specified in Article 6
hereof; (iv) alter or modify the Redemption rights, Cash Amount or REIT Shares
Amount, or amend or modify any related definitions; or (v) amend this Section
7.3 or Section 7.4. Further, no amendment may alter the restrictions on the
General Partners authority set forth elsewhere in this Section 7.3 or Section
7.4 without the Consent specified therein. Any such amendment or action
consented to by any Limited Partner shall be effective as to that Limited
Partner, notwithstanding the absence of such Consent by any other Limited
Partner.
SECTION 7.4 REFINANCING, SALES
A. The General Partner shall not, without the prior Consent of the Original
Limited Partner, incur or assume on behalf of, or causes the Partnership to
incur or assume, any Debt secured by Partnership property or under which a
breach, violation or default would be deemed to occur by virtue of the Transfer
of any Limited Partner Interest. The Partners acknowledge that the Partnership
intends to repay any debt encumbering the Contributed Property by the close of
business on the day the Contributed Property is transferred to the Partnership
and that the Original Limited Partner has not consented to the Partnership
otherwise assuming such debt.
B. The General Partner shall not, without the prior Consent of the Original
Limited Partner, offer to sell or solicit or entertain offers to buy
31
<PAGE>
the Contributed Property in a transaction on which any gain is recognized for
federal income tax purposes prior to the expiration of the second anniversary of
the Effective Date unless, in the good faith opinion of the General Partner, a
sale of the Contributed Property is necessary to enable the General Partner to
preserve its status as a REIT.
C. Nothing contained herein shall prohibit the General Partner from selling
all or any portion of the Contributed Property in a condemnation proceeding or
in lieu of any such proceeding.
SECTION 7.5 [RESERVED]
SECTION 7.6 OTHER BUSINESS OF THE GENERAL PARTNER
The General Partner may engage independently or with others in other
business ventures of every nature and description, including the ownership of
other properties and the making or management of other investments. Nothing in
this Agreement shall be deemed to prohibit the General Partner or any Affiliate
of the General Partner from dealing, or otherwise engaging in business with,
Persons transacting business with the Partnership, or from providing services
related to the purchase, sale, financing, management, development or operation
of real or personal property and receiving compensation therefor, and may have
business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities that
are in direct or indirect competition with the Partnership or that may conflict
with or detract from the activities of the Partnership. Neither the Partnership
nor any Partner shall have any right by virtue of this Agreement or the
partnership relationship established hereby in or to such other ventures or
activities or to the income or proceeds derived therefrom, and the pursuit of
such ventures, even if competitive with the business of the Partnership, shall
not be deemed wrongful or improper and neither the General Partner or any
Affiliate of the General Partner shall have any obligation pursuant to this
Agreement to offer any interest in any such venture or activity to the
Partnership, any Limited Partner or any such 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.
SECTION 7.7 INDEMNIFICATION
A. To the fullest extent permitted by applicable law, the Partnership shall
indemnify each Indemnitee from and against any and all losses, claims, damages,
liabilities, joint or several, expenses (including attorney's fees and other
legal fees and expenses), judgments, fines, settlements and other amounts
arising from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of the
Partnership as set forth in this Agreement ("Actions") in which such Indemnitee
may be involved, or is threatened to be involved, as a party or otherwise;
provided, however, that the Partnership shall not indemnify an Indemnitee (i)
for willful misconduct, gross negligence or a knowing violation of the law; (ii)
for any transaction for which such Indemnitee received an improper personal
benefit in violation or breach of any provision of this Agreement; or (iii) for
liabilities incurred in violation of the terms of this Agreement. The foregoing
indemnity shall extend to any liability of any Indemnitee, pursuant to a loan
guaranty or otherwise, for any indebtedness of the Partnership (including any
indebtedness which the Partnership has assumed or taken subject to), and the
32
<PAGE>
General Partner is hereby authorized and empowered, on behalf of the
Partnership, to enter into one or more indemnity agreements consistent with the
provisions of this Section 7.7 in favor of any Indemnitee having or potentially
having liability for any such indebtedness. It is the intention of this Section
7.7.A that the Partnership indemnify each Indemnitee to the fullest extent
permitted by law. 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. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, and neither the General Partner nor any Limited
Partner shall have any obligation to contribute to the capital of the
Partnership or otherwise provide funds to enable the Partnership to fund its
obligations under this Section 7.7.
B. To the fullest extent permitted by applicable law, each Partner shall
indemnify each Indemnitee from and against any and all Actions in which such
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise attributable to such Partner's willful misconduct, gross negligence,
knowing violation of the law or transaction for which such Partner received an
improper personal benefit in violation or breach of any provision of this
Agreement.
C. To the fullest extent permitted by law, expenses incurred by an
Indemnitee who is a party to a proceeding or otherwise subject to or the focus
of or is involved in any Action shall be paid or reimbursed by the indemnifying
party as incurred by the Indemnitee in advance of the final disposition of the
Action upon receipt by the indemnifying party 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 indemnifying party under this
Section 7.7 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 such
standard of conduct has not been met.
D. 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 and shall inure to the benefit of the heirs, successors, assigns
and administrators of the Indemnitee unless otherwise provided in a written
agreement with such Indemnitee or in the writing pursuant to which such
Indemnitee is indemnified.
E. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of any 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.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 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.
33
<PAGE>
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. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or 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.
I. It is the intent of the Partners that any amounts paid by the
Partnership to a Partner pursuant to this Section 7.7 shall be treated as
"Guaranteed Payments" within the meaning of Code Section 707(c).
SECTION 7.8 LIABILITY OF THE GENERAL PARTNER
A. Notwithstanding anything to the contrary set forth in this Agreement,
neither the General Partner nor any of its directors or officers shall 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 of any act or
omission if the General Partner or such director or officer 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 shareholders collectively and that the General Partner is under no
obligation to give priority to the separate interests of the Limited Partners or
the General Partner's shareholders (including the tax consequences to Limited
Partners, Assignees or the General Partner's shareholders) in deciding whether
to cause the Partnership to take (or decline to take) any actions.
C. 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 employees or agents (subject to the supervision
and control of the General Partner).
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, and its officers' and directors',
liability to the Partnership or 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.
E. To the fullest extent permitted by law, no officer, director or
shareholder of the General Partner shall be liable to the Partnership for money
damages except for (a) active and deliberate dishonesty; or (b) actual receipt
of an improper benefit or profit in money, property or services. This Agreement
is executed by the officers of the General Partner solely as officers of the
same and not in their own individual capacities.
F. To the extent that, at law or in equity, the General Partner has duties
(including fiduciary duties) and liabilities relating thereto to the
34
<PAGE>
Partnership or the Limited Partners, the General Partner shall not be liable to
the Partnership or to any other Partner for its good faith reliance on the
provisions of this Agreement. The provisions of this Agreement, to the extent
that they restrict the duties and liabilities of the General Partner otherwise
existing at law or in equity, are agreed by the Partners to replace such other
duties and liabilities of such General Partner.
G. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner acknowledges that the obligation of the Partnership to
redeem Tendered Units in accordance with Section 8.6.A hereof, and the
obligation of the General Partner to cause the Partnership to deliver the Cash
Amount for Tendered Units in accordance with Section 8.6.B hereof if the General
Partner has failed to exchange REIT Shares for Tendered Units in accordance with
the provisions thereof, are affirmative obligations of the General Partner on
behalf of the Partnership or on its own behalf, and no Tendering Party shall be
obligated to seek or exhaust its remedies against the Partnership prior to
seeking the Cash Amount directly from the General Partner.
SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER
A. Except as otherwise provided to the contrary herein, the General Partner
shall at all times act in its fiduciary capacity as a general partner of a
limited partnership.
B. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it in good faith to be genuine and to have been signed
or presented by the proper party or parties.
C. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants 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 that the General Partner reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
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, (ii) for the General Partner otherwise to satisfy the REIT
Requirements or (iii) to avoid the General Partner incurring any taxes under
Code Section 857 or Code Section 4981, is expressly authorized under this
Agreement and is deemed approved by all of the Limited Partners.
35
<PAGE>
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 Partner, individually or collectively with other Partners or
Persons, shall have any ownership interest in such Partnership assets or any
portion thereof.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
SECTION 8.1 LIMITATION OF LIABILITY
Except for the capital contributed by the Original Limited Partner pursuant
to Section 4.1 hereof, the Original Limited Partner shall have no further
obligation to fund any amounts to the Partnership. 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, member, 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, member,
employee, partner, agent, representative, 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 A LIMITED PARTNER
A Limited Partner may engage independently or with others in other business
ventures of every nature and description, including the ownership of other
properties and the making or management of other investments. Nothing in this
Agreement shall be deemed to prohibit a Limited Partner or any Affiliate of a
Limited Partner from dealing, or otherwise engaging in business with, Persons
transacting business with the Partnership, or from providing services related to
the purchase, sale, financing, management, development or operation of real or
personal property and receiving compensation therefor, and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities that are in direct or
indirect competition with the Partnership or that may conflict with or detract
from the activities of the Partnership. Neither the Partnership nor any Partner
shall have any right by virtue of this Agreement or the partnership relationship
established hereby in or to such other ventures or activities or to the income
or proceeds derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper and neither a Limited Partner or any Affiliate of a Limited Partner
shall have any obligation pursuant to this Agreement to offer any interest in
any such venture or activity to the Partnership, the General
36
<PAGE>
Partner, any other Limited Partner or any such Person, even if such opportunity
is of a character that, if presented to the Partnership, the General Partner,
any other Limited Partner or such other Person, could be taken by such Person.
SECTION 8.4 RETURN OF CAPITAL
Except pursuant to the rights of Redemption set forth in Section 8.6
hereof, no Limited Partner shall be entitled to the withdrawal or return of its
Capital Contribution, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. Except
to the extent provided in Sections 5.1 and 13.2 hereof or otherwise expressly
provided in this Agreement, no Limited Partner or Assignee shall have priority
over any other Limited Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions.
SECTION 8.5 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, upon written demand and at such Limited Partner's own expense:
(1) to obtain a copy of (i) the most recent annual and quarterly
reports filed with the SEC by the General Partner pursuant to the Exchange
Act and (ii) each report or other written communication sent to the
shareholders of the General Partner;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Fiscal Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(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; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services
contributed by each Partner and that each Partner has agreed to contribute
in the future, and the date on which each became a Partner.
B. On written request, the Partnership shall notify any Limited Partner
that is a Qualifying Party of the then current Adjustment Factor or any change
made to the Adjustment Factor or to the REIT Shares Amount applicable to such
Limited Partner.
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 the Partnership or the General Partner is
required by law or by agreements with unaffiliated third parties to keep
confidential.
37
<PAGE>
SECTION 8.6 REDEMPTION RIGHTS OF QUALIFYING PARTIES
A. At any time following the first anniversary of the Effective Date, a
Qualifying Party, but no other Limited Partner or Assignee (the "Tendering
Party"), shall have the right (subject to the terms and conditions set forth
herein) to require the Partnership to redeem all or a portion of the Preferred
Partnership Units held by such Tendering Party (such Preferred Partnership Units
being hereafter called "Tendered Units") in exchange (a "Redemption") for the
Cash Amount, which Cash Amount shall be due and payable on the Cut-Off Date,
unless the General Partner makes an election pursuant to Section 8.6.B hereof.
Any Redemption shall be exercised pursuant to a Notice of Redemption delivered
to the General Partner by the Qualifying Party when exercising the Redemption
right. In the event of a Redemption, the Cash Amount shall be delivered in
exchange for the Tendered Units by a certified check payable to the Tendering
Party or otherwise in immediately available funds.
B. Notwithstanding the provisions of Section 8.6.A hereof, on or before the
close of business on the Cut-Off Date, the General Partner may, in its sole and
absolute discretion but subject to the Ownership Limit, acquire some or all
(such percentage being referred to as the "Applicable Percentage") of the
Tendered Units from the Tendering Party in exchange for REIT Shares instead of
the Cash Amount. If the General Partner so elects, on the Redemption Date the
Tendering Party shall sell such number of the Tendered Units to the General
Partner in exchange for a number of REIT Shares equal to the product of the REIT
Shares Amount and the Applicable Percentage; provided, however, that in lieu of
any fractional REIT Share resulting from such calculation, the General Partner
may tender the Cash Amount attributable to such fractional REIT Share. The
Tendering Party shall submit (i) such information, certification or affidavit as
the General Partner may reasonably require in connection with the application of
the Ownership Limit and other restrictions and limitations of the Charter to any
such acquisition and (ii) such written representations, investment letters
(except in the case of the Original Partner), legal opinions or other
instruments necessary, in the General Partner's good faith opinion, to effect
compliance with the Securities Act. The REIT Shares shall be delivered by the
General Partner as duly authorized, validly issued, fully paid and
nonassessable, fully registered and, in the case of the Original Partner, freely
saleable REIT Shares free of any pledge, lien, encumbrance or restriction, other
than the Ownership Limit and, if applicable, the Rights shall be delivered free
of any pledge, lien, encumbrance or restriction other than the Ownership Limit
and the Securities Act and relevant state securities or "Blue Sky" laws. In the
event that either (i) the General Partner has not or cannot deliver the REIT
Shares and, if applicable, the Rights, subject in each instance only to the
foregoing restrictions, on or before the Redemption Date; or (ii) the Tendering
Party is unable to satisfy the requirements of clauses (i) or (ii), above, the
General Partner shall cause the Partnership to deliver to the Tendering Party,
in lieu thereof, the Cash Amount in accordance with the provisions of Section
8.6.A hereof.
C. Notwithstanding the provisions of Section 8.6.B hereof, the General
Partner shall not, under any circumstances, elect to acquire Tendered Units in
exchange for the REIT Shares Amount if such exchange would be prohibited under
the Charter.
38
<PAGE>
D. Notwithstanding anything herein to the contrary, with respect to any
Redemption or acquisition of Tendered Units pursuant to Section 8.6.B hereof:
(1) All Partnership Units acquired by the General Partner pursuant to
Section 8.6.B hereof 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) No Tendering Party, where the Redemption would consist of less
than all the Partnership Units held by Partners other than the General
Partner, shall be entitled to elect or effect a Redemption to the extent
that the aggregate Partnership Units of the Limited Partners would be
reduced, as a result of the Redemption (or the acquisition of the Tendered
Units by the General Partner pursuant to Section 8.6.B hereof), to less
than one percent (1%) of all Partnership Units outstanding immediately
prior to delivery of the Notice of Redemption.
(3) Subject to the Ownership Limit, no Tendering Party may effect a
Redemption of less than twenty-five percent of its Partnership Units or, if
such Tendering Party holds (as a Limited Partner or, economically, as an
Assignee) less than five hundred (500) Partnership Units, all of the
Partnership Units held by such Tendering Party.
(4) The consummation of such Redemption (or an acquisition of Tendered
Units by the General Partner pursuant to Section 8.6.B hereof, as the case
may be) shall be subject to the expiration or termination of the applicable
waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
(5) The Tendering Party shall continue to own (subject, in the case of
an Assignee, to the provisions of Section 11.5 hereof) all Partnership
Units subject to any Redemption, and be treated as a Limited Partner or an
Assignee, as applicable, with respect such Partnership Units for all
purposes of this Agreement, until such Partnership Units are either paid
for by the Partnership pursuant to Section 8.6.A hereof or transferred to
the General Partner and paid for, by the issuance of the REIT Shares,
pursuant to Section 8.6.B hereof on the Redemption Date. Until a Redemption
Date and an acquisition of the Tendered Units by the General Partner
pursuant to Section 8.6.B hereof, the Tendering Party shall have no rights
as a shareholder of the General Partner with respect to the REIT Shares
issuable in connection with such acquisition.
For purposes of determining compliance with the restrictions set forth in this
Section 8.6.D, all Partnership Units beneficially owned by a Related Party of a
Tendering Party shall be considered to be owned or held by such Tendering Party.
E. In connection with an exercise of Redemption rights pursuant to this
Section 8.6, the Tendering Party shall submit the following to the General
Partner, in addition to the Notice of Redemption:
(1) A written affidavit, dated the same date as, and accompanying, the
Notice of Redemption, (a) disclosing the actual and constructive ownership,
as determined for purposes of Code Sections 856(a)(6), 856(h), 856(d)(2)(B)
and 856(d)(5), of REIT Shares by (i) such
39
<PAGE>
Tendering Party and (ii) any Related Party and (b) representing that, after
giving effect to the Redemption or an acquisition of the Tendered Units by
the General Partner pursuant to Section 8.6.B hereof, neither the Tendering
Party nor any Related Party will own REIT Shares in excess of the Ownership
Limit;
(2) A written representation that neither the Tendering Party nor any
Related Party has any intention to acquire any additional REIT Shares prior
to the closing of the Redemption or an acquisition of the Tendered Units by
the General Partner pursuant to Section 8.6.B hereof on the Redemption
Date; and
(3) An undertaking to certify, at and as a condition to the closing of
(i) the Redemption or (ii) the acquisition of the Tendered Units by the
General Partner pursuant to Section 8.6.B hereof on the Redemption Date,
that either (a) the actual and constructive ownership of REIT Shares by the
Tendering Party and any Related Party remain unchanged from that disclosed
in the affidavit required by Section 8.6.E(1); or (b) after giving effect
to the Redemption or an acquisition of the Tendered Units by the General
Partner pursuant to Section 8.6.B hereof, neither the Tendering Party nor
any Related Party shall own REIT Shares in violation of the Ownership
Limit.
F. Notwithstanding any other provision of this Agreement, a Limited Partner
or Assignee shall not be entitled to effect an exchange for REIT Shares to the
extent the ownership or right to acquire REIT Shares pursuant to such exchange
by such Partner or Assignee would cause such Partner or any other Person to
violate the Ownership Limit. To the extent any attempted exchange would be in
violation of this Section 8.6.F, it shall be null and void ab initio and such
Limited Partner or Assignee shall not require any rights or economic interests
in REIT Shares otherwise issuable upon such exchange.
SECTION 8.7 PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTERESTS
Notwithstanding any other provision of this Agreement, on and after the
date on which the aggregate Partnership Units of the Limited Partners are less
than ten thousand (10,000), the Partnership shall have the right, but not the
obligation, from time to time and at any time to redeem any and all outstanding
Limited Partner Interests by treating any Limited Partner as a Tendering Party
who has delivered a Notice of Redemption pursuant to Section 8.6 hereof for the
amount of Partnership Units to be specified by the General Partner, in its sole
and absolute discretion, by notice to such Limited Partner that the Partnership
has elected to exercise its rights under this Section 8.7. Such notice given by
the General Partner to a Limited Partner pursuant to this Section 8.7 shall be
treated as if it were a Notice of Redemption delivered to the General Partner by
such Limited Partner. For purposes of this Section 8.7, (a) any Limited Partner
(whether or not otherwise a Qualifying Party) may, in the General Partner's sole
and absolute discretion, be treated as a Qualifying Party that is a Tendering
Party; and (b) the provisions of Sections 8.6.D(2) through 8.6.D(4) hereof shall
not apply.
40
<PAGE>
SECTION 8.8 OTHER REDEMPTIONS
Nothing in this Agreement shall preclude the redemption of a Limited
Partner Interest or Partnership Units by the Partnership upon such terms and
conditions as may be negotiated between the Limited Partner or Assignee holding
such Limited Partner Interest or Partnership Units, on the one hand, and the
General Partner, on the other hand, in their sole and absolute discretion;
provided, however, in no event may any such redemption impair or otherwise
affect (i) the amount of Available Cash required to satisfy, on a current basis,
the distribution priority to the Holders of Preferred Partnership Units; or (ii)
the rights of the Tendering Parties to effect a Redemption or the ability of the
Partnership to perform its obligations under Section 8.6.A. Such a redemption
may include the payment of cash by the Partnership to the Limited Partner or
Assignee, in a lump sum or in installments, or the distribution in kind of
Partnership assets to such Limited Partner or Assignee (which assets may be
encumbered), including assets to be designated by the Limited Partner or
Assignee and acquired (with or without debt financing) by the Partnership. In
effecting any such redemption by negotiated agreement, none of the Partnership,
the General Partner, the Limited Partner and the Assignee, as the case may be,
shall have any duty to offer the same or similar terms for redemption of any
other Limited Partner Interest or Partnership Units.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 9.1 RECORDS AND ACCOUNTING
A. The General Partner shall keep or cause to be kept at the principal
office of the Partnership separate books and records for the Partnership as
required to be maintained by the Act or otherwise necessary or appropriate with
respect to the Partnership's business, including 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 8.5.A or 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.
B. Each Limited Partner, but no Assignee, shall have the right, at its sole
cost and expense following reasonable advance notice to the General Partner, to
inspect and copy, or to cause an independent certified public accountant to
inspect and copy, the books and records of the Partnership at such time, in such
place and in such manner as the General Partner may reasonably determine.
C. The books of the Partnership shall be maintained, for financial and tax
reporting purposes, on an accrual basis in accordance with GAAP, or on such
other basis as the General Partner determines to be necessary or appropriate.
SECTION 9.2 FISCAL YEAR
The Fiscal Year of the Partnership shall be the calendar year.
41
<PAGE>
SECTION 9.3 REPORTS
A. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each Fiscal Year, the General Partner shall cause
to be mailed to each Limited Partner of record as of the close of the Fiscal
Year an annual report containing financial statements of the Partnership for
such Fiscal Year, presented in accordance with GAAP. Such statements of the
Partnership need not be audited but, if not audited, shall be accompanied by a
letter or certificate from the accountants for the Partnership certifying that
the same were or will be used in connection with the audited financial
statements of the General Partner for the period covered thereby.
B. As soon as practicable, but in no event later than one hundred five
(105) days after the close of each calendar quarter (except the last calendar
quarter of each year), the General Partner shall cause to be mailed to each
Limited Partner of record as of the last day of the calendar quarter a report
containing unaudited financial statements of the Partnership and such other
information as may be required by 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 with respect to Partnership income, gains, deductions, losses and
other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by Limited Partners for federal and state income tax reporting purposes. The
Limited Partners shall promptly provide the General Partner with such
information relating to the Contributed Property, including tax basis and other
relevant information, as may be reasonably requested by the General Partner from
time to time.
SECTION 10.2 TAX ELECTIONS
Except as otherwise provided herein, the General Partner shall, in its sole
and absolute discretion, determine whether to make or revoke any available
election pursuant to the Code. Notwithstanding the preceding sentence, the
General Partner shall elect to use, on behalf of the Partnership, (i) if
requested by a Limited Partner or Assignee within thirty (30) days of the end of
a taxable year, the optional adjustment to basis of property of the Partnership
as provided by and in accordance with Code Section 754 and (ii) the "Recurring
Item" method of accounting provided under Code Section 461(h) with respect to
property taxes imposed on the Partnership's Properties.
SECTION 10.3 TAX MATTERS PARTNER
A. The General Partner shall be the "Tax Matters Partner" of the
Partnership for federal income tax purposes. The tax matters partner shall
receive no compensation for its services. All third-party costs and expenses
42
<PAGE>
incurred by the tax matters partner in performing its duties as such (including
legal and accounting fees and expenses) shall be borne by the Partnership in
addition to any reimbursement pursuant to Section 7.5 hereof. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder.
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"), 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 Code Section 6231) or a
member of a "Notice Group" (as defined in Code Section 6223(b)(2));
(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 United States
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 that 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 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 within the discretion of the tax matters partner and the
provisions relating to indemnification of the General Partner set forth in
Section 7.7 hereof shall be fully applicable to the tax matters partner in its
capacity as such.
43
<PAGE>
SECTION 10.4 WITHHOLDING
Each Limited Partner hereby authorizes the Partnership to withhold from or
pay on behalf of or with respect to such Limited Partner any amount of federal,
state, local or foreign taxes that the General Partner determines that the
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including any taxes required to be withheld or paid by the Partnership pursuant
to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446.
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 fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution that would otherwise be made to the
Limited Partner or (ii) the General Partner reasonably determines that such
payment may be satisfied out of the Available Funds of the Partnership that
would, but for such payment, be distributed to the 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 10.4. In the event that a Limited Partner fails
to pay any amounts owed to the Partnership pursuant to this Section 10.4 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 the right to receive
distributions). Any amounts payable by a Limited Partner hereunder shall bear
interest at the Prime Rate plus four (4) percentage points (but not higher than
the maximum lawful rate) from the date such amount is due (I.E., fifteen (15)
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
ARTICLE 11
TRANSFERS AND WITHDRAWALS
SECTION 11.1 TRANSFER
A. No part of the interest of a Partner shall be subject to the claims of
any creditor 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 ab initio.
SECTION 11.2 TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST
A. The General Partner may not Transfer any of its General Partner Interest
or withdraw from the Partnership except as provided in Section 11.2.B hereof.
44
<PAGE>
B. The General Partner shall not withdraw from the Partnership and shall
not Transfer all or any portion of its interest in the Partnership other than to
an Affiliate of the General Partner without the Consent of the Limited Partners,
which Consent may be given or withheld in the sole and absolute discretion of
the Limited Partners; provided, however, that no such Consent shall be required
in the event of a Transfer or constructive Transfer to a successor to all or
substantially all of the assets of the General Partner or to a successor by
operation of law or otherwise in connection with the merger or consolidation of
the General Partner. Upon any Transfer or constructive Transfer of such a
Partnership Interest pursuant to the Consent of the Limited Partners or
otherwise in accordance with the provisions of this Section 11.2.B, the
transferee shall become a successor 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 (except that upon a Transfer to an Affiliate of the General
Partner, the General Partner shall remain 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 such Transfer shall, except for a
Transfer to an Affiliate of the General Partner, relieve the transferor General
Partner of its obligations under this Agreement without the Consent of the
Limited Partners. In the event that 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 the Limited Partners may elect to continue the Partnership business
by selecting a successor General Partner in accordance with the Act.
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. GENERAL. No Limited Partner other than the Original 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 the
sole and absolute discretion of the General Partner; provided, however, that a
Limited Partner other than the Original Limited Partner may (i) at any time,
without the consent of the General Partner, Transfer all or part of its
Partnership Interest to a Qualified Transferee who is also (A) a Family Member
of such Limited Partner; (B) a trust, whether or not revocable, of which such
Limited Partner or such Limited Partner's Family Members or Designated Party are
the sole beneficiaries; (C) an organization described in Code Section 501(c)(3);
or (D) an Affiliate; or (ii) pledge all or any portion of its Partnership
Interest to a lending institution that 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 of credit. The Original Limited Partner may transfer all or any
portion of its Partnership Interest without the consent of the General Partner
or any other Limited Partner. Any Transfer permitted by this proviso is
hereinafter referred to as a "Permitted Transfer". It is a condition to any
Transfer otherwise permitted hereunder (whether or not such Transfer is a
Permitted Transfer)
45
<PAGE>
that the transferee assume 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. Notwithstanding the foregoing, any
transferee of any Transferred Partnership Interest shall be subject to any and
all ownership limitations (including the Ownership Limit) contained in the
Charter that may limit or restrict such transferee's ability to exercise its
Redemption rights, including the Ownership Limit. Any transferee, whether or not
admitted as an Additional Limited Partner or a Substituted Limited Partner,
shall take subject to the obligations of the transferor hereunder. Unless
admitted as an Additional Limited Partner or a Substituted Limited Partner, no
transferee, whether by a voluntary Transfer, by operation of law or otherwise,
shall have any rights hereunder other than the rights of an Assignee as provided
in Section 11.5 hereof.
B. INCAPACITY. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate, and such power as the Incapacitated Limited
Partner possessed to Transfer all or any part of its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. OPINION OF COUNSEL. In connection with any Transfer of a Limited Partner
Interest, the General Partner shall have the right to receive an opinion of
counsel satisfactory to it to the effect that the proposed Transfer may be
effected without registration under the Securities Act and will not otherwise
violate any federal or state securities laws or regulations applicable to the
Partnership or the Partnership Interests Transferred. If, in the opinion of such
counsel, such Transfer would require the filing of a registration statement
under the Securities Act or would otherwise violate any federal or state
securities laws or regulations applicable to the Partnership or the Partnership
Units, the General Partner may prohibit any Transfer otherwise permitted under
this Section 11.3 by a Limited Partner of Partnership Interests.
D. ADVERSE TAX CONSEQUENCES. No Transfer by a Limited Partner of its
Partnership Interests (including any Redemption, any other acquisition of
Partnership Units by the General Partner or any acquisition of Partnership Units
by the Partnership) 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 Code Section 7704.
SECTION 11.4 ADDITIONAL OR SUBSTITUTED LIMITED PARTNERS
A. No Limited Partner other than the Original Limited Partner shall have
the right to substitute a transferee (including any transferee pursuant to
Transfers permitted by Section 11.3 hereof) as a Limited Partner in its place. A
transferee of the entire interest of a Limited Partner other than the Original
Limited Partner may be admitted as a Substituted Limited Partner and a
transferee of a portion of the interest of a Limited Partner may be admitted as
an Additional Limited Partner only with the consent of the General Partner,
which consent may be given or withheld by the General Partner in its sole and
absolute discretion. The failure or refusal by the
46
<PAGE>
General Partner to otherwise permit a transferee of any such interests to become
an Additional Limited Partner or a Substituted Limited Partner shall not give
rise to any cause of action against the Partnership or the General Partner.
Subject to the foregoing, an Assignee shall not be admitted as an Additional
Limited Partner or a Substituted Limited Partner until and unless it furnishes
to the General Partner (i) evidence of acceptance, in form and substance
satisfactory to the General Partner, of all the terms, conditions and applicable
obligations of this Agreement, including the power of attorney granted in
Section 2.4 hereof; (ii) a Partner Schedule executed by such Assignee; and (iii)
such other documents and instruments as may be reasonably required or advisable
to effect such Assignee's admission as a Substituted Limited Partner or an
Additional Limited Partner, as the case may be.
B. A transferee who has been admitted as an Additional Limited Partner or 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.
C. Upon the admission of an Additional Limited Partner or a Substituted
Limited Partner, the General Partner shall amend the Partner Schedule(s) to
eliminate, if necessary, the name and address of the predecessor of a
Substituted Limited Partner. In addition, the Additional Limited Partner or
Substituted Limited Partner and the General Partner shall execute a Partner
Schedule with respect to such Additional Limited Partner or Substituted Limited
Partner, which Partner Schedule shall supersede, to the extent necessary, the
Partner Schedule for the predecessor of the Additional Limited Partner or
Substituted Limited Partner.
SECTION 11.5 ASSIGNEES
If the General Partner does not consent to the admission of any Permitted
Transferee under Section 11.3 hereof or Section 11.4 hereof as an Additional
Limited Partner or a Substituted Limited Partner, 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 Gross Income, Net Income, Net Loss and other items of income,
gain, loss, deduction and credit of the Partnership attributable to the
Partnership Units assigned to such transferee and the rights to Transfer the
Partnership Units provided in this Article 11, but shall not be deemed to be a
Holder of Partnership Units for any other purpose under this Agreement (other
than as expressly provided in Section 8.6 hereof with respect to a Qualifying
Party that becomes a Tendering Party), and shall not be entitled to effect a
Consent or vote with respect to such Partnership Units on any matter presented
to the Limited Partners for approval (which such right shall remain with the
transferor Limited Partner). In the event that 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 Transfer permitted pursuant to this Article 11 where such transferee
was admitted as a Substituted Limited Partner, or pursuant to a
47
<PAGE>
Redemption (or acquisition by the General Partner) of all of its Partnership
Units under Section 8.6 hereof.
B. Any Limited Partner who shall Transfer all of its Partnership Units in a
Transfer (i) permitted pursuant to this Article 11 where such transferee was
admitted as a Substituted Limited Partner; (ii) pursuant to the exercise of its
rights to effect a Redemption of all of its Partnership Units under Section 8.6
hereof; or (iii) to the General Partner, whether or not pursuant to Section
8.6.B hereof, shall cease to be a Limited Partner.
C. If any Partnership Unit is Transferred in compliance with the provisions
of this Article 11, or is redeemed by the Partnership or acquired by the General
Partner pursuant to Section 8.6 hereof, on any day other than the first day of a
Fiscal Year, then Gross Income, Net Income, Net Loss, each item thereof and all
other items of income, gain, loss, deduction and credit attributable to such
Partnership Unit for such Fiscal Year shall be allocated to the transferor
Partner or the Tendering Party, as the case may be, and, in the case of a
Transfer or assignment other than a Redemption, to the transferee Partner
(including the General Partner in the case of an acquisition of Partnership
Units pursuant to Section 8.6.B hereof) or Assignee, by taking into account
their varying interests during the Fiscal Year in accordance with Code Section
706(d), using the "Daily Proration" or "Interim Closing of the Books" method or
another permissible method selected by the General Partner. Solely for purposes
of making such allocations, the General Partner, in its sole and absolute
discretion, may determine that each of such items for the calendar month in
which a Transfer occurs shall be allocated to the transferee Partner or Assignee
and none of such items for the calendar month in which a Transfer or a
Redemption occurs shall be allocated to the transferor Partner or the Tendering
Party, as the case may be, if such Transfer occurs on or before the fifteenth
(15th) day of the month; otherwise such items for such calendar month shall be
allocated to the transferor. All distributions of Available Cash attributable to
such Partnership Unit with respect to which the Partnership Record Date is
before the date of such Transfer, assignment or Redemption shall be made to the
transferor Partner or the Tendering Party, as the case may be, and, in the case
of a Transfer other than a Redemption, all distributions of Available Cash
thereafter attributable to such Partnership Unit shall be made to the transferee
Partner or Assignee.
D. 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
(exclusive of any acquisition of Partnership Units by the General Partner or any
other acquisition of Partnership Units by the Partnership) be made:
(1) to any person or entity who lacks the legal right, power or
capacity to own a Partnership Interest;
(2) in violation of applicable law;
(3) 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;
(4) in the event that such Transfer could, in the good faith opinion
of the General Partner, cause the General Partner to cease to comply with
the REIT Requirements;
48
<PAGE>
(5) if such Transfer could, in the opinion of counsel to the
Partnership or the General Partner, cause a termination of the Partnership,
in either case for federal or state income tax purposes (except as a result
of the Redemption (or acquisition by the General Partner) of Partnership
Units held by the Original Limited Partner);
(6) if such Transfer could, in the opinion of legal counsel to the
Partnership, cause the Partnership either (i) to cease to be classified as
a partnership or (ii) to be classified as a publicly traded partnership, in
either case for federal income tax purposes (except as a result of the
Redemption (or acquisition by the General Partner) of Partnership Units
held by the Original Limited Partner);
(7) if such Transfer could, in the opinion of legal counsel to the
Partnership, cause the Partnership to become, with respect to any employee
benefit plan subject to Title I of ERISA, a "Party-In-Interest" (as defined
in ERISA Section 3(14)) or a "Disqualified Person" (as defined in Code
Section 4975(c));
(8) if such Transfer could, in the opinion of legal 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;
(9) if such Transfer requires the registration of such Partnership
Interest pursuant to any applicable federal or state securities laws;
(10) if such Transfer could cause the Partnership to have more than
one hundred (100) Partners (including as Partners for such purpose those
Persons indirectly owning an interest in the Partnership through another
partnership, a limited liability company, subchapter S corporation or a
grantor trust, if substantially all the value of such Person's interest in
any such entity is attributable to such entity's interest (direct or
indirect) in the Partnership);
(11) if such Transfer causes the Partnership (as opposed to the
General Partner) to become a reporting company under the Exchange Act; or
(12) if such Transfer subjects the Partnership to regulation under the
Investment Company Act of 1940, the Investment Advisors Act of 1940 or
ERISA, each as amended.
49
<PAGE>
SECTION 11.7 INCREMENTAL COSTS
The General Partner shall be entitled to be reimbursed for its reasonable
incremental administrative costs incurred in connection with making payments to,
preparing reports and statements for, effecting Redemptions with respect to and
otherwise servicing all transferees of Preferred Partnership Units, whether
directly or indirectly and, whether or not such transferee is an Additional
Limited Partner, a Substituted Limited Partner or an Assignee, over and above
the amount of such costs incurred in connection with providing such services to
the General Partner and an aggregate of ten (10) additional Holders or
transferees of Preferred Partnership Units. Such costs may include a reasonable
allocation of the General Partner's internal costs and expenses, including a pro
rata portion of the salaries or wages, benefits and overhead of its employees
engaged in servicing the Holders and transferees. The General Partner may effect
such reimbursement by deducting the reimbursable amount from the distributions
otherwise payable to the Holders of the Preferred Partnership Units pursuant to
Section 5.1(1) hereof.
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 immediately prior to such Transfer. Any such successor 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, conditions and applicable
obligations 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 AND SUBSTITUTED
LIMITED PARTNER
A. After the admission to the Partnership of the Original Limited Partner
on the date hereof, a Person (other than an existing Partner) who is admitted to
the Partnership as an Additional Limited Partner or a Substitute Limited Partner
shall furnish to the General Partner (i) evidence of acceptance, in form and
substance satisfactory to the General Partner, of all of the terms, conditions
and applicable of this Agreement, including the power of attorney granted in
Section 2.4 hereof; (ii) a Partner Schedule executed by such Person; and (iii)
such other documents or instruments as may be reasonably required with respect
to Designated Parties, or may be required in the sole and absolute discretion of
the General Partner with respect to other Persons, in order to effect such
Party's or other Person's admission as an Additional Limited Partner or a
Substitute Limited Partner.
B. If any Additional Limited Partner or Substituted Limited Partner is
admitted to the Partnership on any day other than the first day of a Fiscal
Year, then Gross Income, Net Income, Net Loss, each item thereof and all other
items of income, gain, loss, deduction and credit allocable among Partners and
Assignees for such Fiscal Year shall be allocated among such Additional Limited
Partner or Substituted Limited Partner and all other Partners and Assignees by
taking into account their varying interests during
50
<PAGE>
the Fiscal Year in accordance with Code Section 706(d), using the "Interim
Closing Of The Books" method or another permissible method selected by the
General Partner. Solely for purposes of making such allocations, each of such
items for the calendar month in which an admission of any Additional Limited
Partner or Substituted Limited Partner occurs shall be allocated among all the
Partners and Assignees, including such Additional Limited Partner or Substituted
Limited Partner, in accordance with the principles described in Section 11.6.C
hereof. All distributions of Available Cash with respect to which the
Partnership Record Date is before the date of such admission shall be made
solely to Partners and Assignees other than the Additional Limited Partner or
Substituted Limited Partner, and all distributions of Available Cash thereafter
shall be made to all the Partners and Assignees including such Additional
Limited Partner or Substituted Limited Partner.
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment to the Partner Schedule(s)
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.
SECTION 12.4 LIMIT ON NUMBER OF PARTNERS
No Person shall be admitted to the Partnership as a Substituted Limited
Partner or an Additional Limited Partner if the effect of such admission would
be to cause the Partnership to have more than one hundred (100) Partners
including as Partners for such purpose those Persons indirectly owning an
interest in the Partnership through another partnership, a limited liability
company, a subchapter S corporation or a grantor trust, if substantially all the
value of such Person's interest in any such entity is attributable to such
entity's interest (direct or indirect) in the Partnership, or otherwise cause
the Partnership to become a reporting company under the Exchange Act.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
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 without dissolution. However, the
Partnership shall dissolve, and its affairs shall be wound up, upon the first to
occur of any of the following (each a "Liquidating Event"):
(1) the expiration of its term as provided in Section 2.5 hereof;
(2) an event of withdrawal, as defined in the Act (including
bankruptcy), of the sole General Partner unless, within ninety (90) days
after the withdrawal, a "Majority in Interest" (as such phrase is used in
Section 17-801(3) of the Act) of the remaining Partners and the
51
<PAGE>
Original Limited Partner agree in writing, in its sole and absolute
discretion, to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a successor General
Partner;
(3) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act;
(4) the occurrence of a Terminating Capital Transaction; or
(5) the Redemption (or acquisition by the General Partner) of all
Partnership Units other than Partnership Units held by the General Partner.
SECTION 13.2 WINDING UP
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of effecting any Redemptions or the acquisition
by the General Partner of Tendered Units and winding up its affairs in an
orderly manner, liquidating its assets and satisfying the claims of its
creditors and Partners. After the occurrence of a Liquidating Event, no Partner
shall take any action that is inconsistent with, or not necessary to or
appropriate for, such purposes. The General Partner (or, in the event that there
is no remaining General Partner or the General Partner has dissolved, become
bankrupt within the meaning of the Act or ceased to operate, any Person elected
by a Majority in Interest of the Limited Partners (the General Partner or such
other Person being referred to herein as the "Liquidator")) shall be responsible
for overseeing the winding up and dissolution of the Partnership and shall take
full account of the Partnership's liabilities and property, and the Partnership
property shall be liquidated as promptly as is consistent with obtaining the
fair value thereof, and the proceeds therefrom (which may, to the extent
determined by the General Partner, include shares of stock in the General
Partner) shall be applied and distributed in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners and their Assignees
(whether by payment or the making of reasonable provision for payment
thereof);
(2) Second, to the satisfaction of all of the Partnership's debts and
liabilities to the General Partner other than Partner Loans (whether by
payment or the making of reasonable provision for payment thereof),
including amounts due as reimbursements under Section 7.5 hereof;
(3) Third, to the payment of the accrued but unpaid amounts payable to
the Holders of Preferred Partnership Units, PARI PASSU in accordance with
their ownership of such Units, pursuant to Section 5.1(1) hereof;
(4) Fourth, to the satisfaction of all of the Partnership's debts and
liabilities to the other Partners and any Assignees, including the
repayment of Partner Loans, pari passu in accordance with their ownership
of such Loans (whether by payment or the making of reasonable provision for
payment thereof); and
52
<PAGE>
(5) The balance, if any, to the General Partner, the Limited Partners
and any Assignees in accordance with and in proportion to their positive
Capital Account balances, after giving effect to all contributions,
distributions and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof that 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 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 interest of the Partners, and shall be
subject to such conditions relating to the disposition and management of such
properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operation of such properties at such time.
C. In the event that 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 Partners and Assignees that have positive Capital
Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the
extent of, and in proportion to, their respective positive Capital Account
balances. If any Partner has a deficit balance in its Capital Account (after
giving effect to all contributions, distributions and allocations for all
taxable years, including the year during which such liquidation occurs), such
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any purpose
whatsoever. In the sole and absolute discretion of the General Partner or the
Liquidator, a pro rata portion of the distributions that would otherwise be made
to the Partners pursuant to this Article 13 may be withheld or escrowed to
provide a reasonable reserve for Partnership liabilities (contingent or
otherwise) and to reflect the unrealized portion of any installment obligations
owed to the Partnership, provided that such withheld or escrowed amounts shall
be distributed to the General Partner and Limited Partners in the manner and
order of priority set forth in Section 13.2.A hereof as soon as practicable.
SECTION 13.3 DEEMED CONTRIBUTION AND DISTRIBUTION
Notwithstanding any other provision of this Article 13, in the event that
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.
53
<PAGE>
SECTION 13.4 RIGHTS OF LIMITED PARTNERS
Except as provided in Section 8.6 hereof, (i) each Partner shall look
solely to the assets of the Partnership for the return of its Capital
Contribution and (ii) no Partner shall have the right or power to demand or
receive property other than cash from the Partnership. Except as provided in
Sections 5.1 and 13.2.A hereof, no Partner shall have priority over any other
Partner as to the return of its Capital Contributions, distributions or
allocations.
SECTION 13.5 NOTICE OF DISSOLUTION
In the event that a Liquidating Event occurs or an event occurs that would,
but for an election or objection by one or more Partners pursuant to Section
13.1 hereof, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners and, in the General Partner's sole and absolute discretion
or as required by the Act, to all other parties with whom the Partnership
regularly conducts business, and the General Partner may, or, if required by the
Act, shall, publish notice thereof in a newspaper of general circulation in each
place in which the Partnership regularly conduct business.
SECTION 13.6 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership as provided in
Section 13.2 hereof, the Partnership shall be terminated, a certificate of
cancellation shall be filed with the Commonwealth of Virginia, all
qualifications of the Partnership as a foreign limited partnership or
association in jurisdictions other than the Commonwealth of Virginia shall be
cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.
SECTION 13.7 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.
ARTICLE 14
PROCEDURES FOR ACTIONS AND CONSENTS
OF PARTNERS; AMENDMENTS; MEETINGS
SECTION 14.1 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS
The actions requiring Consent of the Limited Partners pursuant to this
Agreement, including Sections 7.3 or 7.4 hereof, or otherwise pursuant to
applicable law, are subject to the procedures set forth in this Article 14.
SECTION 14.2 AMENDMENTS
Amendments to this Agreement may be proposed by the General Partner or by a
Majority in Interest of the Limited Partners. Following any such proposal by the
General Partner, the General Partner shall submit the
54
<PAGE>
proposed amendment to the Limited Partners. The General Partner may seek the
written consent of the Limited Partners on any other proposed amendment or call
a meeting to vote thereon and to transact any other business that the General
Partner 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 fifteen (15) days, and failure to respond in such time period
shall constitute a Consent that is consistent with the General Partner's
recommendation with respect to the proposal; provided, however, that an action
shall become effective at such time as requisite Consents are received even if
prior to such specified time.
SECTION 14.3 MEETINGS OF THE PARTNERS
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by a
Majority in Interest of the 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 seven (7) days nor more than thirty (30) days prior to
the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or Consent of Limited 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
14.3.B hereof.
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 Partners holding a majority of the Partnership
Units (or such other 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 Partners
holding a majority of the Partnership Units (or such other percentage as is
expressly required by this Agreement). Such consent shall be filed with the
General Partner. An action so taken shall be deemed to have been taken at a
meeting held on the effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting or voting or participating at a meeting.
Every proxy must be signed by the Limited Partner or its attorney-in-fact. No
proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy (or there is receipt of a proxy
authorizing a later date). Every proxy shall be revocable at the pleasure of the
Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Limited
Partner executing such proxy.
D. Each meeting of 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. Meetings of Partners may be conducted in the same manner as
meetings of the General Partner's shareholders and may be held at the same time
as, and as part of, the meetings of the General Partner's shareholders.
55
<PAGE>
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 (i) when delivered in person, (ii) three (3) Business
Days following deposit in the United States mail if sent by certified mail,
return receipt requested or (iii) the next Business Day if sent by a
nationally-recognized commercial courier service (A) in the case of a Partner,
to such Partner at the address set forth below or, if not set forth below, on
the Partner Schedule with respect to such Partner) or such other address of
which the Partner shall notify the General Partner in writing; and (B) in the
case of an Assignee, to the address of which such Assignee shall notify the
General Partner in writing:
Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, VA 23219
Attention: S. J. Olander, Jr.
Cape Landing Apartment, LLC
C/o State Street Companies
211 State Street, P. O. Box 29265
Greensboro, North Carolina
Attention: Jeffery W. Kentner
SECTION 15.2 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 15.3 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 15.4 WAIVER
A. No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
B. The restrictions, conditions and other limitations on the rights and
benefits of the Limited Partners contained in this Agreement, and the
representations, duties, covenants and other requirements of performance or
notice by the Limited Partners, are for the benefit of the Partnership and may
be waived or relinquished by the General Partner, in its sole and absolute
discretion, on behalf of the Partnership in one or more instances from time to
time and at any time; provided, however, that any such waiver or relinquishment
may not made if it would have the effect of (i) creating liability for any other
Limited Partner; (ii) causing the Partnership to cease to qualify as a limited
partnership; (iii) reducing the amount of cash
56
<PAGE>
otherwise distributable to the Limited Partners; (iv) resulting in the
classification of the Partnership as an association or publicly traded
partnership taxable as a corporation; or (v) violating the Securities Act, the
Exchange Act or any state "Blue Sly" or other securities laws; provided,
further, that any waiver relating to compliance with the Ownership Limit or
other restrictions in the Charter shall be made and shall be effective only as
provided in the Charter.
SECTION 15.5 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 or upon execution of a Partner Schedule.
SECTION 15.6 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Virginia, without regard to the
principles of conflicts of law. In the event of a conflict between any provision
of this Agreement and any non-mandatory provision of the Act, the provisions of
this Agreement shall control and take precedence.
SECTION 15.7 ENTIRE AGREEMENT
This Agreement contains all of the understandings and agreements between
and among the Partners with respect to the subject matter of this Agreement and
the rights, interests and obligations of the Partners with respect to the
Partnership.
SECTION 15.8 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 15.9 LIMITATION TO PRESERVE REIT STATUS
Notwithstanding anything else in this Agreement, to the extent that the
amount paid, credited, distributed or reimbursed by the Partnership to, for or
with respect to any REIT Partner or its officers, directors, employees or
agents, whether as a reimbursement, fee, expense or indemnity (a "REIT
Payment"), would constitute gross income to the REIT Partner for purposes of
Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any
other provision of this Agreement, the amount of such REIT Payments, as selected
by the General Partner in its discretion from among items of potential
distribution, reimbursement, fees, expenses and indemnities, shall be reduced
for any Fiscal Year so that the REIT Payments, as so reduced, to, for or with
respect to such REIT Partner shall not exceed the lesser of:
(1) an amount equal to the excess, if any, of (i) four and nine-tenths
percent (4.9%) of the REIT Partner's total gross income (but excluding the
amount of any REIT Payments) for the Fiscal Year that is described in
subsections (A) through (H) of Code Section 856(c)(2) over (ii) the amount
of gross income (within the meaning of Code
57
<PAGE>
Section 856(c)(2)) derived by the REIT Partner from sources other than
those described in subsections (A) through (H) of Code Section 856(c)(2)
(but not including the amount of any REIT Payments); or
(2) an amount equal to the excess, if any, of (i) twenty-four percent
(24%) of the REIT Partner's total gross income (but excluding the amount of
any REIT Payments) for the Fiscal Year that is described in subsections (A)
through (I) of Code Section 856(c)(3) over (ii) the amount of gross income
(within the meaning of Code Section 856(c)(3)) derived by the REIT Partner
from sources other than those described in subsections (A) through (I) of
Code Section 856(c)(3) (but not including the amount of any REIT Payments);
provided, however, that REIT Payments in excess of the amounts set forth in
clauses (a) and (b) above may be made if the General Partner, as a condition
precedent, obtains an opinion of tax counsel that the receipt of such excess
amounts shall not adversely affect the REIT Partner's ability to qualify as a
REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a
consequence of the limitations set forth in this Section 15.9, such REIT
Payments shall carry over and shall be treated as arising in the following
Fiscal Year. The purpose of the limitations contained in this Section 15.9 isto
prevent any REIT Partner from failing to qualify as a REIT under the Code by
reason of such REIT Partner's share of items, including distributions,
reimbursements, fees, expenses or indemnities, receivable directly or indirectly
from the Partnership, and this Section 15.9 shall be interpreted and applied to
effectuate such purpose.
SECTION 15.10 NO PARTITION
No Partner nor any successor-in-interest to a Partner shall have the right
while this Agreement remains in effect to have any property of the Partnership
partitioned, or to file a complaint or institute to any proceeding at law or in
equity to have such property of the Partnership partitioned, and each Partner,
on behalf of itself and its successors and assigns hereby waives any such right.
It is the intention of the Partners that the rights of the parties hereto and
their successors-in-interest to Partnership property, as among themselves, shall
be governed by the terms of this Agreement, and that the rights of the Partners
and their successors-in-interest shall be subject to the limitations and
restrictions as set forth in this Agreement.
SECTION 15.11 NO THIRD-PARTY RIGHTS CREATED HEREBY
The provisions of this Agreement are solely for the purpose of defining the
interests of the Partners, inter se; and no other person, firm or entity (i.e.,
a party who is not a signatory hereto or a permitted successor to such signatory
hereto) shall have any right, power, title or interest by way of subrogation or
otherwise, in and to the rights, powers, title and provisions of this Agreement.
No creditor or other third party having dealings with the Partnership shall have
the right to enforce the right or obligation of any Partner to make Capital
Contributions or loans to the Partnership or to pursue any other right or remedy
hereunder or at law or in equity. None of the rights or obligations of the
Partners herein set forth to make Capital Contributions or loans to the
Partnership shall be deemed an asset of the Partnership for any purpose by any
creditor or other third party, nor may any such rights or obligations be sold,
transferred or assigned by the Partnership or pledged or encumbered by the
58
<PAGE>
Partnership to secure any debt or other obligation of the Partnership or any of
the Partners.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
CORNERSTONE REALTY INCOME TRUST, INC.,
a Virginia corporation
By /s/ S.J. Olander
------------------------------------
ORIGINAL LIMITED PARTNER:
CAPE LANDING APARTMENTS, LLC
a North Carolina limited liability
company
By: State Street, LLC, its Manager
By: State Street Residential, Inc., its
Manager
By /s/ Tiffany N. Gay
------------------------------------
<PAGE>
EXHIBIT A
THIS PARTNER SCHEDULE is executed by Cornerstone Realty Income Trust, Inc.,
a Virginia corporation (the "General Partner"), and the party named below (the
"New Partner") in respect of Cornerstone Partners, L.P., a Virginia limited
partnership (the "Partnership").
1. NAME, ADDRESS AND TAXPAYER IDENTIFICATION NUMBER OF NEW PARTNER
-------------------------------
-------------------------------
-------------------------------
TIN:
2. CAPITAL CONTRIBUTIONS
Cash contribution: General Partner $ 15,100,000
PLUS expenditures actually incurred by the General Partner in connection
with the transactions contemplated under the Purchase Contract that would
ordinarily be capitalized in accordance with GAAP; provided, however, in no
event shall the aggregate amount of the foregoing expenditures result in the
issuance of Partnership Units to the General Partner in excess of the aggregate
number of Partnership Units issued to the Original Limited Partner.
Portion of Contributed Property contributed as a Capital Contribution
(Buildings 4, 5, 6, 7, 8, 9 and 10 and related land improvements and personal
property, signage and equipment): Original Limited Partner
Gross Asset Value $ 7,308,000
Initial Indebtedness 4,810,000
-------------
Net Asset Value $ 2,498,000
The Gross Asset Value will be allocated $0 to land and $7,308,000 to
improvements.
3. PARTNERSHIP UNITS
General Partner: 1,403,445
Original Limited Partner: 185,887
4. Admission of Substituted Partner (if applicable)
The Partner is admitted to the Partnership as an Additional Limited
Partner or a Substituted Limited Partner. The General Partner hereby consents to
such admission. The Partner acknowledges receipt of a copy of, and agrees to be
bound by, the Agreement of Limited Partnership, as amended, for the Partnership.
The Partner specifically confirms (a) the representations and warranties
contained in Section 3.4 of such Agreement of Limited Partnership, as amended,
for the Partnership and (b) the grant of the power of attorney set forth in
Section 2.4 of such Agreement. In connection with such amount, Apple and Buyer
have entered into an amendment to the Agreement, as described therein (a copy of
which is attached as Exhibit A).
<PAGE>
5. ADDITIONAL TERMS AND CONDITIONS
The remaining portion of the Contributed Property (the "Sales Portion,"
consisting of the Land, Clubhouse, Buildings 1, 2, 3, 11, 12, 13 and 14, and
related land improvements and personal property, signage and equipment) will be
sold to the Partnership. The Sales Portion has a Gross Asset Value of
$9,792,000, is subject to Initial Indebtedness of $6,190,000, and is allocated
$1,440,000 to land and $8,352,000 to improvements. In exchange for the sales
portion, the Original Limited Partner shall receive cash of $3,602,000.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Partner Schedule as of
the Effective Date.
"GENERAL PARTNER":
CORNERSTONE REALTY INCOME TRUST, INC., as
General Partner of CORNERSTONE PARTNERS, L.P.
By
-------------------------------
" PARTNER"
-----------------
By
------------------------------
<PAGE>
EXHIBIT B
EXAMPLES REGARDING ADJUSTMENT FACTOR
For purposes of the following examples, it is assumed that (a) the
Adjustment Factor in effect on June 30, 1995 is 1.0 and (b) on July 1, 1995 (the
"Partnership Record Date" for purposes of these examples), prior to the events
described in the examples, there are 100 REIT Shares issued and outstanding.
EXAMPLE 1
On the Partnership Record Date, the General Partner declares a dividend on
its outstanding REIT Shares in REIT Shares. The amount of the dividend is one
REIT Share paid in respect of each REIT Share owned. Pursuant to Paragraph (i)
of the definition of "Adjustment Factor," the Adjustment Factor shall be
adjusted on the Partnership Record Date, effective immediately after the stock
dividend is declared, as follows:
1.0 X (200 DIVIDED BY 100) = 2.0
Accordingly, the Adjustment Factor after the stock dividend is declared is 2.0.
EXAMPLE 2
On the Partnership Record Date, the General Partner distributes options to
purchase REIT Shares to all holders of its REIT Shares. The amount of the
distribution is one option to acquire one REIT Share in respect of each REIT
Share owned. The strike price is $4.00 a share. The Value of a REIT Share on the
Partnership Record Date is $5.00 per share. Pursuant to Paragraph (ii) of the
definition of "Adjustment Factor," the Adjustment Factor shall be adjusted on
the Partnership Record Date, effective immediately after the options are
distributed, as follows:
1.0 X ((100 + 100) DIVIDED BY (100 + (100 * $4.00) DIVIDED BY $5.00)) = 1.1111
Accordingly, the Adjustment Factor after the options are distributed is 1.1111.
If the options expire or become no longer exercisable, then the retroactive
adjustment specified in Paragraph (ii) of the definition of "Adjustment Factor"
shall apply.
EXAMPLE 3
On the Partnership Record Date, the General Partner distributes assets to
all holders of its REIT Shares. The amount of the distribution is one asset with
a Fair Market Value of $1.00 in respect of each REIT Share owned. It is also
assumed that the assets do not relate to assets received by the General Partner
pursuant to a pro rata distribution by the Partnership. The Value of a REIT
Share on the Partnership Record Date is $5.00 a share. Pursuant to Paragraph
(iii) of the definition of "Adjustment Factor," the Adjustment Factor shall be
adjusted on the Partnership Record Date, effective immediately after the assets
are distributed, as follows:
1.0 X ($5.00 DIVIDED BY ($5.00 - $1.00)) = 1.25
Accordingly, the Adjustment Factor after the assets are distributed is 1.25.
<PAGE>
EXHIBIT C
NOTICE OF REDEMPTION
To: Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, VA 23219
The undersigned Limited Partner or Assignee[, acting on behalf of
_______________ as Assignee] hereby irrevocably tenders for Redemption
__________ Partnership Units of [the undersigned and/or _______________ as
Assignee] in Cornerstone Partners, L.P. in accordance with the terms of the
Agreement of Limited Partnership of Cornerstone Partners, L.P., dated as of
___________, , as amended (the "Agreement"), and the Redemption rights referred
to therein. The undersigned:
(a) undertakes (i) to surrender such Partnership Units and any
certificate therefor at the closing of the Redemption and (ii) to furnish
to the General Partner, prior to the Redemption Date, the documentation,
instruments and information required under Section 8.6 of the Agreement;
(b) directs that the certified check representing the Cash Amount
deliverable upon the closing of such Redemption be delivered to the address
specified below;
(c) represents, warrants, certifies and agrees that:
(1) the undersigned Limited Partner or the Assignee is a
Qualifying Party,
(2) the undersigned Limited Partner or the Assignee has, and at
the closing of the Redemption will have, good, marketable and unencumbered
title to such Partnership Units, free and clear of the rights or interests
of any other person or entity,
(3) the undersigned Limited Partner or the Assignee has, and at
the closing of the Redemption will have, the full right, power and
authority to tender and surrender such Partnership Units as provided
herein, and
(4) the undersigned Limited Partner or the Assignee has obtained
the consent or approval of all persons and entities, if any, having the
right to consent to or approve such tender and surrender; and
(d) acknowledges that he or such Assignee will continue to own such
Partnership Units until and unless either (1) such Partnership Units are
acquired by the General Partner pursuant to Section 8.6.B of the Agreement
or (2) such Redemption transaction closes.
All capitalized terms used herein and not otherwise defined shall have the
same meaning ascribed to them respectively in the Agreement.
<PAGE>
Dated:
------------------------
Name of Limited Partner [or Assignee]:
----------------------------------------------------
----------------------------------------------------
(Signature of Limited Partner [or Assignee]:
----------------------------------------------------
(Street Address)
----------------------------------------------------
(City) (State) (Zip Code)
Issue Check Payable to:
-------------------------------------------
Please insert social security or
identifying number:
-------------------------------------------
Exhibit 10.3
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of the 16th day of
October, 1998 by and among CORNERSTONE REALTY INCOME TRUST, INC., a corporation
organized under the laws of the Commonwealth of Virginia, ("Cornerstone") and
CRIT-NC, LLC, a limited liability company organized under the laws of the
Commonwealth of Virginia ("CRIT-NC" and together with Cornerstone, the
"Borrowers") and FIRST UNION NATIONAL BANK, a national banking association (the
Bank).
STATEMENT OF PURPOSE
The Borrowers have requested and the Bank has agreed to extend certain
credit facilities to the Borrowers on the terms and conditions of this Credit
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
1. Revolving Credit Loans. Subject to the terms and conditions of this Credit
Agreement, Bank agrees to make Loans to the Borrowers on a joint and several
basis from time to time from the date hereof through the Termination Date as
requested by Cornerstone on behalf of the Borrowers in accordance with the terms
of this Credit Agreement.
2. Incorporation by Reference. All of the terms, conditions and provisions of
that certain Credit Agreement dated as of October 30, 1997 by and among
Cornerstone Realty Income Trust, Inc., each Additional Borrower that may become
party thereto, the lenders who are or may become parties to that Agreement and
the Bank as agent for such lenders, as said Agreement may be amended, restated,
supplemented or otherwise modified from time to time including, without
limitation, by that certain Joinder Agreement dated as of December 31, 1997 by
and among Cornerstone Realty Income Trust, Inc., CRIT-NC, LLC, the lenders party
to said Credit Agreement and Bank as agent (collectively "Original Credit
Agreement") are hereby incorporated by reference and govern the credit facility
provided hereby except as otherwise set forth below. Capitalized terms not
defined in this Credit Agreement shall have the meanings attributed to them in
the Original Credit Agreement except as otherwise expressly provided for herein.
Notwithstanding the foregoing, the following provisions of the Original Credit
Agreement are hereby modified with respect to the facility which is provided by
this Credit Agreement (but not with respect to the credit facility being
provided under Original Credit Agreement):
(a) For purposes of this Credit Agreement, the "Maturity Date" means
February 28, 1999 and is not subject to any extension.
<PAGE>
(b) The term "Termination Date" for purposes of this Credit Agreement shall
be determined based on using the Maturity Date specified in subparagraph (a) of
this Paragraph 2 above and not the Maturity Date as defined in the Original
Credit Agreement.
(c) The term "Aggregate Commitment" for purposes of this Credit Agreement
shall be Twenty-Five Million Dollars ($25,000,000) and is not subject to any
increase.
(d) "Loan" for purposes of the Credit Agreement means any revolving loan
made to any Borrower pursuant to Paragraph 1 above and all such Loans,
collectively, as the context requires.
(e) The parties acknowledge that Bank does not have L/C Obligations under
this Credit Agreement.
(f) The parties acknowledge that the Original Credit Agreement is an
agented multi-lender facility and that the credit facility being provided under
this Credit Agreement is being provided solely by Bank in its capacity as lender
and that all requirement for voting, consents or waivers among lenders and all
provisions relating to Bank's role as Agent under the Original Credit Agreement
will not apply to this Agreement and that all decisions, consents, waivers or
other actions required to be made or given by the Lenders under the Original
Credit Agreement will, for purposes of this Credit Agreement, be made solely by
Bank.
(g) For purposes of this Credit Agreement, the six-month Interest Period
with respect to each LIBOR Rate Loan will not be available under this Credit
Agreement.
(h) For purposes of the Credit Agreement, it is acknowledged that there is
only one Note which is the Revolving Credit Note being executed by Borrowers of
even date herewith to the order of Bank and any amendments and modifications
thereto, any substitutes therefor, and any replacements, restatements, renewals
or extensions thereof, in whole or in part, a copy of which is attached hereto
as Exhibit A.
(i) The parties acknowledge that some or all of the proceeds of the Loan
may be contributed by Cornerstone to Cornerstone Partners, L.P., a Virginia
limited partnership (the "Partnership"), in which Cornerstone shall serve as
sole general partner with an effective economic interest of more than 88%. The
parties further acknowledge that the actions required to be taken by Section
8.17 of the Original Credit Agreement with respect to the Partnership will be
taken after the date of this Credit Agreement.
3. Reaffirmation. Borrowers hereby reaffirm that all representations and
warranties contained in the Original Credit Agreement are true and correct as of
the date hereof, and Borrowers hereby further certify and confirm to Bank that
no Event of Default under the Original Credit Agreement and that no Default
under the Original Credit Agreement is currently in existence.
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby causes this Credit Agreement to
be executed and delivered as of the date first above written.
BORROWERS:
[CORPORATE SEAL] CORNERSTONE REALTY INCOME TRUST, INC.
By:/s/ S.J. Olander
--------------------------------------
Name: S.J. Olander
------------------------------------
Title: Chief Financial Officer
-----------------------------------
CRIT-NC, LLC
[CORPORATE SEAL] By: Cornerstone Realty Income Trust, Inc., its sole
member/manager
By:/s/ S.J. Olander
--------------------------------------
Name: S.J. Olander
------------------------------------
Title: Chief Financial Officer
-----------------------------------
BANK:
FIRST UNION NATIONAL BANK
By:/s/ John A. Schissel
--------------------------------------
Name: John A. Schissel
------------------------------------
Title: Director
-----------------------------------
EXHIBIT 10.4
REVOLVING CREDIT NOTE
---------------------
$25,000,000 October 16, 1998
FOR VALUE RECEIVED, the undersigned, CORNERSTONE REALTY INCOME TRUST, INC.,
a corporation organized under the laws of Virginia ("Cornerstone"), and CRIT-NC,
LLC, a limited liability company organized under the laws of Virginia
("CRIT-NC", and together with Cornerstone, the "Borrowers") hereby jointly and
severally promise to pay to the order of FIRST UNION NATIONAL BANK (the "Bank"),
at the times, at the place and in the manner provided in the Credit Agreement
hereinafter referred to, the principal sum of up to Twenty-Five Million Dollars
($25,000,000), or, if less, the aggregate unpaid principal amount of all Loans
disbursed by the Bank under the Credit Agreement referred to below, together
with the interest at the rates as in effect from time to time with respect to
each portion of the principal amount hereof, determined and payable as provided
in the Credit Agreement.
This Note is the Note referred to in, and is entitled to the benefits of,
the Credit Agreement dated of even date herewith (as amended, restated,
supplemented or otherwise modified, the "Credit Agreement") by and among the
Borrowers and the Bank. The Credit Agreement contains, among other things,
provisions for the time, place and manner of payment of this Note, the
determination of the interest rate borne by and fees payable in respect of this
Note, acceleration of the payment of this Note upon the happening of certain
stated events and the mandatory repayment of this Note under certain
circumstances,
The Borrowers agree to pay on demand all costs of collection, including
reasonable attorneys' fees, if any part of this Note, principal or interest, is
collected after maturity with the aid of an attorney.
Presentment for payment, notice of dishonor, protest and notice of protest
are hereby waived.
THIS NOTE IS MADE AND DELIVERED IN THE STATE OF NORTH CAROLINA AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NORTH
CAROLINA.
The Debt evidenced by this Note is senior in right of payment to all
Subordinated Debt referred to (either directly or by incorporation by reference)
in the Credit Agreement.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Borrowers have caused this Note to be executed
under seal by a duly authorized person as of the day and year first above
written.
[CORPORATE SEAL] CORNERSTONE REALTY INCOME TRUST, INC.
By:/s/ S.J. Olander
------------------------------------
Name: S.J. Olander
----------------------------------
Title: Chief Financial Officer
---------------------------------
CRIT-NC, LLC [SEAL]
[CORPORATE SEAL] By: CORNERSTONE REALTY INCOME TRUST, INC.
its sole Member/Manager
By:/s/ S.J. Olander
------------------------------------
Name: S.J. Olander
----------------------------------
Title: Chief Financial Officer
---------------------------------
Exhibit 10.5
CORNERSTONE REALTY INCOME TRUST, INC.
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
September 30, 1998
Apple Residential Management Group, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: Glade M. Knight
Apple Residential Income Trust, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: S. J. Olander, Jr.
Dear Sirs:
Pursuant to section 3 of the Property Management Agreement Subcontract
dated March 1, 1997 (the "Agreement") by and among Apple Residential Income
Trust, Inc., Apple Residential Management Group, Inc. and Cornerstone Realty
Income Trust, Inc. ("Cornerstone"), Cornerstone hereby terminates the Agreement
in its entirety effective September 30, 1998.
Sincerely,
Cornerstone Realty Income Trust, Inc.
By: /s/ S. J. Olander, Jr.
---------------------------------
S. J. Olander, Jr.
Title: Vice President and Secretary
Exhibit 10.6
CORNERSTONE REALTY INCOME TRUST, INC.
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
September 30, 1998
Apple Residential Advisors, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: Glade M. Knight
Apple Residential Income Trust, Inc.
306 East Main Street
Richmond, Virginia 23219
Attention: Board of Directors
Dear Sirs:
Pursuant to section 3 of the Advisory Agreement Subcontract dated March 1,
1997 (the "Agreement") by and among Apple Residential Income Trust, Inc., Apple
Residential Advisors, Inc. and Cornerstone Realty Income Trust, Inc.
("Cornerstone"), Cornerstone hereby terminates the Agreement in its entirety
effective September 30, 1998.
Sincerely,
Cornerstone Realty Income Trust, Inc.
By: /s/ S. J. Olander, Jr.
---------------------------------
S. J. Olander, Jr.
Title: Vice President and Secretary
EXHIBIT 10.7
BILL OF SALE AND NOTE
This BILL OF SALE AND NOTE ("Bill of Sale and Note") is made and entered
into this 1st day of October 1998, by and between CORNERSTONE REALTY INCOME
TRUST, INC., a Virginia corporation ("Seller"), and APPLE RESIDENTIAL MANAGEMENT
GROUP, INC., a Virginia corporation ("Buyer"), and consented to, with respect to
paragraph 4, by APPLE RESIDENTIAL INCOME TRUST, INC., a Virginia corporation
("Apple").
RECITALS
WHEREAS, effective October 1, 1998 (the "Effective Date"), Seller wishes to
sell and Buyer wishes to purchase a certain Property Acquisition/Disposition
Agreement dated as of November 1, 1996 (the "Agreement") by and between Apple
and Apple Realty Group, Inc., a Virginia corporation, under which Apple Realty
Group, Inc. was to provide certain services to Apple in connection with the
acquisition and disposition of residential apartment complexes in exchange for
certain compensation as described in the Agreement.
WHEREAS, as of March 1, 1997, Seller acquired all of the assets of Apple
Realty Group, Inc., consisting primarily of the Agreement, and in connection
with such acquisition agreed to perform the services of Apple Realty Group,
Inc., as successor to Apple Realty Group, Inc., under the Agreement, in exchange
for the consideration described in the Agreement.
NOW, THEREFORE, in consideration of the premises herein contained and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Effective as of the Effective Date, Seller hereby sells, transfers, conveys,
assigns and delivers to Buyer the Agreement which belongs to Seller, as
successor to Apple Realty Group, Inc.
2. Seller hereby agrees that it will, at the request of Buyer and without
further consideration, promptly take such further action and execute and deliver
such additional consents or similar instruments as Buyer may reasonably deem
necessary to complete the transfer of the Agreement to Buyer and to endeavor to
obtain any required consents of third parties, and if any such consents are
unobtainable, to use its best efforts to assure the benefits thereof to Buyer.
3. Buyer hereby agrees to provide to Apple services in connection with the
acquisition and disposition of residential apartment complexes in exchange for
certain compensation all as described in the Agreement.
<PAGE>
Page 2 of 3
4. Apple hereby consents to (a) the transfer of the Agreement by Seller to Buyer
and (b) the assumption by Buyer of the obligation to furnish services to Apple
in exchange for certain compensation all as described in the Agreement. In
connection with such consent, Apple and Buyer have entered into an amendment to
the Agreement, as described therein (a copy of which is attached as Exhibit A).
5. Buyer hereby promises to pay to the order of Seller, as the purchase price of
the Agreement, the principal sum of Three Hundred Eleven Thousand, One Hundred
Eleven Dollars ($311,111) together with interest thereon in the manner provided
as follows:
(a) a single principal payment in the amount of Three Hundred Eleven
Thousand, One Hundred Eleven Dollars ($311,111) due on September 30,
1999, together with interest thereon from the date hereof until paid
in full. Interest on the outstanding principal amount shall be payable
at the end of each calendar quarter commencing December 31, 1998, and
ending on September 30, 1999, at a rate per annum equal to twelve
percent (12%); provided, however, that, to the extent permitted by
law, any overdue interest shall bear interest for each day until paid
at a rate per annum equal to fifteen percent (15%). The final payment
due on September 30, 1999, shall in any event be in an amount
sufficient to repay in full the then unpaid principal amount of this
Bill of Sale and Note plus interest thereon as determined herein;
(b) Buyer may prepay this Bill of Sale and Note in whole or in part at
any time on or after December 31, 1998, without penalty; and
(c) Buyer shall make each payment of principal or interest on this
Bill of Sale and Note not later than 11:00 A.M. (Eastern Time) on the
date when due, in funds immediately available to Seller.
6. Buyer agrees to pay on demand to Seller all costs of collection, including
reasonable attorneys' fees, if any part of this Bill of Sale and Note, principal
or interest, is collected after maturity with the aid of an attorney.
7. This Bill of Sale and Note represents the entire understanding between the
Buyer and Seller with regard to the transaction described herein and may only be
amended by a written instrument signed by the party against whom enforcement is
sought.
8. This Bill of Sale and Note shall be construed in accordance with and be
governed by the laws of the Commonwealth of Virginia.
<PAGE>
Page 3 of 3
IN WITNESS WHEREOF, the Parties hereto have executed this Bill of Sale and
Note as of the day and year first above written.
SELLER:
Cornerstone Realty Income Trust, Inc.,
a Virginia corporation
By: S.J. Olander
----------------------------------
Title: CFO
-------------------------------
BUYER:
Apple Residential Management Group, Inc.,
a Virginia corporation
By: Glade M. Knight
----------------------------------
Title: President
-------------------------------
With respect to Paragraph 4,
Consented to by:
Apple Residential Income Trust, Inc.
a Virginia corporation
By: Glade M. Knight
----------------------------------
Title: President
-------------------------------
[EXHIBIT A - AMENDED AND RESTATED
PROPERTY ACQUISITION/DISPOSITION
AGREEMENT - NOT ATTACHED]
EXHIBIT 10.8
ASSIGNMENT AND ASSUMPTION AGREEMENT
(PERTAINING TO ADVISORY AGREEMENT FOR
APPLE RESIDENTIAL INCOME TRUST, INC.)
This Assignment and Assumption Agreement (the "Agreement") is made as of
October 1, 1998, by and among Apple Residential Income Trust, Inc. ("Apple"),
Apple Residential Advisors, Inc. ("ARA"), Apple Residential Management Group,
Inc. ("ARMG") and Cornerstone Realty Income Trust, Inc. ("Cornerstone"), and
provides as follows:
RECITALS:
A. Under an Advisory Agreement dated as of November 1, 1996 (the "Advisory
Agreement"), ARA agreed to provide certain advisory services to Apple as more
particularly described in the Advisory Agreement.
B. Pursuant to an Advisory Agreement Subcontract dated as of March 1, 1997
(the "Subcontract"), among Apple, ARA, and Cornerstone, ARA delegated and
assigned to Cornerstone and Cornerstone accepted from ARA a delegation and
assignment of ARA's duties, obligations, rights, powers and benefits under the
Advisory Agreement.
C. Pursuant to a letter dated September 30, 1998 from Cornerstone to ARA
and Apple, the Subcontract was terminated effective at the close of business on
September 30, 1998, with the effect that the Advisory Agreement was again in
full force and effect according to its terms.
D. ARA desires to delegate and assign to ARMG, and ARMG desires to accept
the delegation and assignment from ARA of, all of ARA's duties, obligations,
rights, powers and benefits under the Advisory Agreement attributable to the
period beginning on the date of this Agreement, and Apple is willing to consent
to such delegation and assignment, all as more particularly set forth herein.
E. Cornerstone, which is expected to provide to ARMG certain employees
necessary to perform the services required under the Advisory Agreement, enters
into this Agreement so as to evidence its acknowledgment and understanding of
the assignment from ARA to ARMG.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
parties agree as follows:
1. Assignment and Assumption. ARA does hereby delegate and assign to ARMG
all of ARA's duties, obligations, rights, powers and benefits under the Advisory
Agreement attributable to the period beginning on the date of this Agreement.
ARMG accepts such delegation and assignment. The intent of such delegation and
assignment is to impose upon ARMG all duties and obligations of ARA under the
terms of the Advisory Agreement attributable
<PAGE>
to the period beginning on the date of this Agreement, and to confer upon ARMG
all of the correlative rights, powers and benefits (including, without
limitation, the right to receive all fees and expense reimbursements) conferred
by or provided for in the Advisory Agreement, and this Agreement shall be
interpreted and construed consistently with such intent. For as long as this
Agreement remains in effect, the term "Advisor" as used in the Advisory
Agreement shall be deemed to refer to ARMG, unless the context clearly requires
otherwise.
2. Consent of Apple; Acknowledgment of Cornerstone. Apple consents to the
delegation and assignment referred to Section 1. Cornerstone understands and
acknowledges the delegation and assignment referred to in Section 1.
3. Capitalized Terms. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in the Advisory Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first above written.
APPLE RESIDENTIAL INCOME TRUST, INC.,
a Virginia corporation
By: Glade M. Knight
----------------------------------
Title: President
-------------------------------
APPLE RESIDENTIAL ADVISORS, INC.,
a Virginia corporation
By: Glade M. Knight
----------------------------------
Title: President
-------------------------------
APPLE RESIDENTIAL MANAGEMENT
GROUP, INC., a Virginia corporation
By: Glade M. Knight
----------------------------------
Title: President
-------------------------------
CORNERSTONE REALTY INCOME TRUST,
INC., a Virginia corporation
By: Glade M. Knight
----------------------------------
Title: Chief Executive Officer
-------------------------------
2
AMENDED AND RESTATED
PROPERTY ACQUISITION/DISPOSITION AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT (this "Agreement") is made and
entered into as of the 1st day of October, 1998, by and between Apple
Residential Income Trust, Inc., a Virginia corporation (the "Owner"), and Apple
Residential Management Group, Inc., a Virginia corporation (the "Agent").
RECITALS
A. The Owner and Apple Realty Group, Inc., a Virginia corporation, entered
into a certain Property Acquisition/Disposition Agreement dated as of
November 1, 1996 (the "Original Agreement"), under which Apple Realty
Group, Inc. was to provide services to the Owner in connection with the
acquisition and disposition of residential apartment complexes in exchange
for the compensation described in the Original Agreement.
B. As of March 1, 1997, Cornerstone Realty Income Trust, Inc., a Virginia
corporation ("Cornerstone"), acquired all the assets of Apple Realty
Group, Inc., consisting primarily of the Original Agreement, and in
connection with such acquisition agreed to perform the services of the
agent under the Original Agreement, in exchange for the compensation
described in the Original Agreement.
C. As of the date hereof, the Agent acquired the Original Agreement from
Cornerstone and in connection with such acquisition agreed to perform the
services of the agent under the Original Agreement, in exchange for the
compensation described in the Original Agreement.
D. In exchange for the Owner's consent to the transfer of the Original
Agreement from Cornerstone to the Agent, the Owner desires to enter into
an amendment and restatement of the Original Agreement and the Agent is
willing to enter into such Amended and Restated Agreement.
E. The Owner conducts business as a "real estate investment trust," and, in
connection therewith, plans to, from time to time, acquire and dispose of
real property, including particularly residential apartment complexes
(hereinafter referred to individually as a "Property" and collectively as
the "Properties").
F. The Owner desires to use the services of Agent as a broker in connection
with the acquisition and disposition of the Properties on the terms set
forth in this Agreement.
G. The Owner and the Agent desire to enter into this Agreement for the
purposes herein contained.
<PAGE>
NOW, THEREFORE, in consideration of the promises herein contained, and
for other valuable consideration, receipt of which is hereby acknowledged, the
parties agree as follows:
1. Engagement of Agent as Broker for the Properties. The Owner hereby
engages the Agent as a broker in connection with the purchase and sale of the
Properties, upon the conditions and for the term and compensation herein set
forth. All or any portion of the services being performed by the Agent may be
contracted or subcontracted by the Agent to another company, provided that such
company agrees to be bound by the terms of this Agreement.
2. Term of Agreement; Renewal.
(a) Subject to Section 2(b), this Agreement shall be valid for
an initial term of five (5) years beginning November 1, 1996. Unless either
party by written notice sent to the other party at least sixty (60) days before
the end of any 5-year term hereof elects not to renew this Agreement, this
Agreement shall renew automatically for successive terms of five (5) years on
the same terms as contained herein.
(b) This Agreement may be terminated by either party by
written notice sent to the other party at least two (2) weeks before the
effective date of such termination. Notice of termination shall be made to the
parties as follows, or at such other address as a party may subsequently
designate in writing to the other party:
If to the Owner: Apple Residential Income Trust, Inc.
Old City National Bank Building
120 W. Third Street, Suite 220
Fort Worth, TX 76102
If to the Agent: Apple Residential Management Group, Inc.
306 East Main Street
Richmond, VA 23219
3. Acceptance of Engagement. The Agent hereby accepts its engagement as
a broker for the purchase and sale of the Properties and agrees to perform all
services necessary to effectuate such purchases and sales which are customarily
provided by commercial real estate brokers, and, without limitation, the Agent
agrees:
(a) To supervise, on behalf of the Owner, the preparation of
contracts of purchase or sale for each Property, on such terms as are specified
by the Owner or its duly authorized representatives, and all other documents
related thereto or required to effectuate such purchase or sale;
2
<PAGE>
(b) To coordinate the activities of, and act as liaison
between the Owner and independent professionals connected with the purchase or
sale of a Property, including attorneys, appraisers, engineers, inspectors,
lenders, if any, and others;
(c) To assist the Owner and its authorized representatives in
satisfying any conditions precedent to the purchase or sale of a Property, which
shall include contracting on behalf of the Owner with any third parties whose
services are required to close any such purchase or sale;
(d) To represent the Owner at the closing of the purchase or
sale of a Property, to coordinate the activities of professionals and other
third persons connected with such closing, and to supervise the compliance by
the Owner with all requirements and customary actions associated with such
purchase or sale, including, without limitation, the obtaining of property title
insurance, the delivery and recordation of deeds and other instruments of
conveyance, and the delivery and recordation, as required, of any documents
evidencing loans obtained or made by the Owner;
(e) Generally to act on behalf of the Owner in connection with
such purchase or sale as a commercial real estate broker would customarily act
with respect to such transaction, including the provision of such additional
services as would normally be provided by such a person.
4. Indemnification. The Owner hereby agrees to indemnify and hold
harmless the Agent against and in respect of any loss, cost or expense
(including reasonable investigative expenses and attorneys' fees), judgment,
award, amount paid in settlement, fine, penalty and liability of any and every
kind incurred by or asserted against the Agent by reason of or in connection
with the engagement of the Agent hereunder, the performance by the Agent of the
services described herein or the occurrence or existence of any event or
circumstance which results or is alleged to have resulted in death or injury to
any person or destruction of or damage to any property and any suit, action or
proceeding (whether threatened, initiated or completed) by reason of the
foregoing; provided, however, that no such indemnification of the Agent shall be
made, and the Agent shall indemnify and hold the Owner harmless against, and to
the extent of, any loss that a court of competent jurisdiction shall, by final
adjudication, determine to have resulted from willful misconduct, gross
negligence or fraud by or on the part of the Agent.
5. Compensation of Agent. The Owner shall pay to the Agent a real
estate commission in connection with each purchase of a Property in an amount
equal to two percent (2%) of the gross purchase price of the Property (which
does not include amounts budgeted for repairs and improvements), in
consideration of the Agent (or any person with whom the Agent subcontracts or
contracts hereunder) performing the services provided for in this Agreement in
connection with the purchase of the Property, provided, that if indebtedness is
assumed or incurred in connection with the acquisition, the fee that would have
been payable with respect to the portion of the purchase price represented by
such indebtedness shall not be
3
<PAGE>
payable until such time, if ever, that such indebtedness is repaid with the
proceeds of the sale of the Owner's common shares or other equity financing. In
consideration of the Agent (or any person with whom the Agent subcontracts or
contracts hereunder) performing the services provided for in this Agreement in
connection with the sale of a Property, the Owner shall pay to the Agent the
following: a real estate commission in connection with the sale of a Property in
an amount equal to two percent (2%) of the gross sales price of the Property,
if, but only if, the sales price of the Property exceeds the sum of (A) the
Company's cost for the Property (consisting of the original purchase price plus
all capitalized costs and expenditures connected with the Property), without any
reduction for depreciation, and (B) ten percent (10%) of such cost. If the sales
price of the Property does not equal such amount, the Agent shall be entitled
only to payment by the Company of its "direct costs" incurred in marketing such
property (where "direct costs" refers to a reasonable allocation of all costs,
including salaries of personnel, overhead and utilities), allocable to services
in marketing such property. If the two percent (2%) real estate commission is
payable in connection with sale of a Property, the Agent shall not also be paid
the reimbursement of its "direct costs" as described in the preceding sentence.
If the person from whom the Owner purchases or to whom the Owner sells a
Property pays any fee to the Agent, such amount shall decrease the amount of the
Owner's obligation to the Agent. Furthermore, the Agent shall not be entitled to
any real estate commission in connection with a sale of a Property by the Owner
to Cornerstone Realty Income Trust, Inc. or any Affiliate or the Agent (where
"Affiliate" has the meaning specified in the Prospectus of the Owner dated
November 16, 1996), but the Agent will, in such case, be entitled to payment by
the Owner of its direct costs in such regard.
6. Power of Attorney. The Owner hereby makes, constitutes and appoints
the Agent its true and lawful attorney-in-fact, for it and in its name, place
and stead and for its use and benefit to sign, acknowledge and file all
documents and agreements (other than contracts for purchase or sale of a
Property, promissory notes, mortgages, deeds of trust or other documents or
instruments which would bind the Owner to purchase or sell a Property, result or
evidence the incurrence of debt by the Owner, or encumber a Property) necessary
to perform or effect the duties and obligations of the Agent under the terms of
this Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It shall terminate when this Agreement terminates as
provided herein.
7. Relationship of Parties. The parties agree and acknowledge that the
Agent is and shall operate as an independent contractor in performing its duties
under this Agreement, and shall not be deemed an employee of the Owner.
8. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
9. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE OWNER:
APPLE RESIDENTIAL INCOME TRUST, INC.,
a Virginia corporation
By: S.J. Olander
---------------------------------
Title: Secretary
------------------------------
THE AGENT:
APPLE RESIDENTIAL MANAGEMENT GROUP,
INC., a Virginia corporation
By: Glade M. Knight
---------------------------------
Title: President
------------------------------
[L.P. MARTIN & COMPANY LETTERHEAD]
Consent of Independent Auditors'
The Board of Directors
Cornerstone Realty Income Trust, Inc.
Richmond, Virginia
We consent to the use of our report dated November 5, 1998 with respect
to the statement of income and direct operating expenses exclusive of items not
comparable to the proposed future operations of the property Cape Landing
Apartments for the twelve month period ended September 30, 1998, for inclusion
in the following registration statements of Cornerstone Realty Income Trust,
Inc.
Registration
Statement Number Description
----------------- -----------
333-24871 Form S-8, pertaining to the Company's 1992
Non-Employee Directors Stock Option Plan, Special
Non-Employee Directors Stock Option Plan, and
Non-Employee Directors Fees Plan
333-24875 Form S-8, pertaining to the Company's 1992 Incentive
Plan
333-34441 Form S-3, Shelf Registration Statement, pertaining
to the registration of $200 million of Common Stock,
Preferred Stock and Debt Securities
333-19187 Form S-3, pertaining to the Company's Dividend
Reinvestment and Stock Purchase Plan
Richmond, Virginia /s/ L.P. Martin & Co., P.C.
November 5, 1998
