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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997
or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 1-11918
TRINET CORPORATE REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 94-3175659
(State of incorporation) (I.R.S. employer identification no.)
ONE EMBARCADERO CENTER, 33RD FLOOR (415) 391-4300
SAN FRANCISCO, CA 94111-3722 (Registrant's telephone number)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
PREFERRED STOCK, $.01 PAR VALUE
SERIES A, SERIES B AND SERIES C
(Title of class)
NEW YORK STOCK EXCHANGE
(Name of exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days.
YES X NO____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $889.2 million based on the closing price on the
New York Stock Exchange for such stock on March 20, 1998.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING WAS 24,161,504 AS OF MARCH 20,
1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 TriNet Corporate Realty Trust, Inc. Proxy Statement to be
filed with the Securities and Exchange Commission within 120 days after the end
of the year covered by this Form 10-K with respect to the Annual Meeting of
Stockholders to be held on May 27, 1998 are incorporated by reference into Part
III.
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TABLE OF CONTENTS
<TABLE>
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Item Description Page
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<S> <C> <C>
PART I
1. Business ....................................................................... 3
2. Properties ..................................................................... 10
3. Legal Proceedings .............................................................. 12
4. Submission of Matters to a Vote of Security Holders ............................ 12
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters .......... 13
6. Selected Financial Data ........................................................ 14
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................................... 15
8. Financial Statements and Supplementary Data .................................... 25
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ........................................................... 25
PART III
10. Directors and Executive Officers of the Registrant ............................. 25
11. Executive Compensation ......................................................... 25
12. Security Ownership of Certain Beneficial Owners and Management ................. 25
13. Certain Relationships and Related Transactions ................................. 25
PART IV
14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K .............. 26
</TABLE>
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PART I
ITEM 1. BUSINESS
THE COMPANY
TriNet Corporate Realty Trust, Inc. (the "Company" or "TriNet") is a
real estate investment trust ("REIT") that acquires, owns and manages primarily
office and industrial properties leased to major corporations nationwide. As of
December 31, 1997, TriNet's portfolio consisted of 118 properties, which
comprise more than 16.7 million square feet in 25 states. During 1997, the
Company acquired a total of 40 properties for an aggregate purchase price of
approximately $462 million. As of December 31, 1997, the Company's five largest
tenants collectively accounted for approximately 21% of the Company's annualized
rent revenue, and the Company's largest single tenant accounted for
approximately 5% of the Company's annualized rent revenue.
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"). As a result, the Company generally will
not be subject to federal income taxation at the corporate level to the extent
it distributes annually at least 95% of its REIT taxable income, as defined in
the Code, to its stockholders and satisfies certain other requirements.
A majority of TriNet's leases currently include provisions that place,
to the greatest extent possible, the economic costs of ownership of its
properties on its tenants. Such costs include real property taxes and
assessments, insurance, operating expenses, responsibility for structural
repairs and maintenance. In some cases, TriNet has agreed to retain
responsibility for some of these obligations. As used herein, the terms "triple
net lease" and "net lease" refer to leases in which the tenant is responsible
for all or most of such obligations.
The Company also generally seeks to include in its leases (i) clauses
providing for periodic rent increases, either fixed or based on an index, such
as the All Urban Consumer Price Index, (ii) covenants providing that the tenant
must indemnify the Company against environmental and other contingent
liabilities (although such lease provisions may not entirely protect the Company
as an owner in the event of a tenant's inability to satisfy an adverse
judgment), (iii) guarantees from parent companies or other parties, (iv)
additional security and credit enhancement through recourse to other assets or
letters of credit and (v) cross-default provisions for leases in multiple
property transactions.
The Company was incorporated under the laws of the State of Maryland on
March 4, 1993. The Company's principal executive offices are located at One
Embarcadero Center, 33rd Floor, San Francisco, California 94111, and its
telephone number is (415) 391-4300. TriNet's web site address is
http://www.tricorp.com. The Company maintains regional corporate offices in
Berwyn, Pennsylvania, in Alpharetta, Georgia, and in Jacksonville, Florida. The
Company's property management subsidiary maintains offices in San Francisco,
California, in Jacksonville, Florida, in Atlanta, Georgia and in Irving, Texas.
As of March 20, 1998, the Company employed 73 individuals.
BUSINESS OBJECTIVES
TriNet's business objective is to maximize the total return to
stockholders through growth in Funds From Operations ("FFO") (FFO is defined in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Funds From Operations") per common share and increases in dividends
per common share. Since the Company's initial public offering in June 1993,
TriNet has increased annualized dividends on its common shares from $2.19 in
June 1993 to $2.56 as of December 31, 1997. The Company will seek to continue to
grow its FFO per common share and to further increase dividends per common share
through the acquisition of additional office and industrial properties leased
to major corporate tenants which provide for contractual rent increases. The
Company generally intends to hold its properties for long-term investment.
However, the Company may dispose of a property if it deems such a disposition to
be in its best interest and may either reinvest the proceeds of such a
disposition or distribute the proceeds to stockholders.
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The Company's primary investment focus is the acquisition of office and
industrial properties leased to major corporations. Recently, the Company has
expanded the way in which it acquires properties leased to corporate tenants. In
addition to structuring purchase/leaseback transactions directly with
corporations and acquiring properties subject to existing leases, the Company
has acquired "build-to-suit" properties through strategic alliances with
developers and also formed operating partnerships in which TriNet is the sole
general partner to acquire properties in tax-deferred transactions in which a
selling partnership exchanges its interest in the properties for units in the
new operating partnership. TriNet, as a part of these transactions and its
overall strategy, will also acquire multi-tenanted office and industrial
properties and land for development and will also pursue new strategic
initiatives. Forging new business relationships will also play a key role in the
Company's growth as the Company pursues alliances, not just with developers, but
also with corporate service providers and property managers. This will help the
Company serve its tenants more effectively and generate new business
opportunities. As the Company implements these new initiatives, the Company's
portfolio will remain primarily single-tenanted to major corporate users. (See
"Business Strategies" below.)
BUSINESS STRATEGIES
Internal Growth Strategy. TriNet seeks to grow its income internally by
negotiating leases which have scheduled rent increases and by renegotiating
expiring leases at higher rental rates.
External Growth Strategy. From its inception, TriNet has acquired new
properties and increased its rent revenue by acquiring properties subject to
existing leases with major corporate tenants which provide for rental
escalations. In addition, in 1997 the Company completed build-to-suit
acquisition transactions working with corporate users and developers, and
concluded a portfolio acquisition using an operating partnership structure. The
Company expects to continue to pursue these types of transactions and also to
pursue new strategic acquisition initiatives, described herein.
TriNet will also acquire office and industrial properties by structuring
purchase/leaseback transactions with corporations. In a typical
purchase/leaseback transaction, TriNet purchases the land and building from an
operating company and simultaneously leases them back to the operating company
under a long-term (i.e., more than five years) operating lease. These
transactions are structured to provide TriNet with a consistent stream of income
which typically increases periodically pursuant to the lease. A
purchase/leaseback transaction enables an operating company (the seller/tenant)
to realize the value of its owned real estate while continuing occupancy on a
long-term basis. A purchase/leaseback transaction also may provide the seller
with accounting, earnings, and market value benefits. For example, the lease on
a property may be structured by the operating company as an off-balance sheet
operating lease, consistent with generally accepted accounting principles, which
may increase the seller's earnings, net worth, and borrowing capacity.
In "build-to-suit" transactions, the Company seeks to negotiate with
third-party developers and corporations to acquire properties under development.
In these transactions, TriNet typically acquires the property after construction
is completed, subject to certain conditions, which generally include, but are
not limited to: (i) completion of the building within a specified period of
time; (ii) execution of a lease; (iii) receipt of a certificate of occupancy;
and (iv) the tenant's occupancy of the building.
In the operating partnership structure, the Company forms a new
operating partnership in which the Company is the sole general partner. The
seller then contributes its interest in the properties in exchange for interests
in the new operating partnership. In some instances, the seller also receives
part of the sales consideration in cash. This form of transaction is designed to
enable TriNet to achieve attractive investment returns by offering selling
partnerships a structure which defers tax consequences on the portion of the
sales price received in the form of partnership interests.
TriNet will also invest in joint ventures which involve the acquisition
and/or development of single, and/or multi-tenanted office and industrial
properties, and/or land parcels for future development.
INVESTMENT FOCUS
In acquiring properties, the Company focuses on several key factors in
seeking types of properties, types of transactions, and seller circumstances
that will allow it to obtain favorable terms:
Market Focus. Pursuant to its national operating strategy, the Company
focuses its acquisition efforts on markets with growing employment, increasing
real estate occupancy rates, and rising rents. In 1997, the Company completed
acquisitions in two new markets, suburban Baltimore and Boston, which are
included in its current target
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markets, and increased its ownership of properties in the San Francisco Bay
Area, the metropolitan areas of Denver, Dallas, Los Angeles, Phoenix and
Tampa/St. Petersburg.
Corporate Solutions. The Company focuses its investment activities on
office and industrial properties involving companies that are trying to achieve
corporate financial and strategic goals and objectives, and to raise capital for
their primary operating business, including repayment of high-cost debt and
obtaining infusions of working capital for growth, rather than on businesses
that are simply solving specific real estate financing problems.
Tenant Credit Characteristics. The Company concentrates on businesses
that possess strong or improving credit quality characteristics, successful
operating histories, potential for growth, recognized business franchises and
market presence. The majority of TriNet's rent revenue is derived from tenants
with investment grade or implied investment grade ratings. The Company will
consider transactions with tenants of diverse credit quality provided the real
estate meets the Company's standards and the Company believes that the property
is well located, easily re-tenanted, and/or is strategically important to the
prospective corporate tenant. The Company's tenants may include public and
private companies which are rated investment grade or below investment grade or
are unrated.
Multiple Property Transactions. The Company believes that there is
significantly less competition for office and industrial property acquisitions
involving portfolios containing a number of properties located in more than one
geographic region. The Company believes its national presence, acquisition
experience, and access to capital allow it to compete effectively for such
transactions.
NEW STRATEGIC INITIATIVES
In addition to these types of transactions and types of properties, the
Company intends to pursue new strategic initiatives. These will include
investment in suburban and "central business district" ("CBD") properties leased
predominantly to one or more major corporate tenants in downtown urban and
suburban locations, the acquisition of properties leased to more than one
corporate user, and the purchase of development land in partnership with
established local developers.
TriNet Property Management, Inc., a wholly-owned subsidiary of the
Company, was formed in July 1997 and provides on-site property management
services at two of the Company's properties. One on-site office was opened at
the RiverEdge property in Atlanta, Georgia, in July 1997 and the other was
opened at the Microsoft property in Irving, Texas, in September 1997. As a
result of this development, the Company has realized increased management fee
income. The Company expects to open additional on-site property management
offices in geographic areas where it presently has or expects to have
significant holdings.
UNDERWRITING EXPERTISE
In underwriting a prospective transaction, the Company undertakes the
following analyses, each of which the Company believes is critical to the
long-term profitability of the investment:
Real Estate Analysis. The Company evaluates the value of the property,
present and anticipated conditions in the local real estate market and the
prospects for selling or re-tenanting the property on favorable terms in the
event of a vacancy. The Company typically seeks to acquire general purpose
office and industrial properties that can accommodate single or multiple tenants
and that may be easily re-leased to new tenants without significant investment
by TriNet.
Tenant Credit Analysis. The Company evaluates the tenants' businesses
and their financial outlook to determine their ability to meet the ongoing
obligations under the lease and the need to obtain additional security for these
obligations, such as deposits, letters of credit and guarantees from parent
companies or other parties. The Company evaluates a number of strategic factors,
including the position of the prospective tenant in its industry, the strength
of the prospective tenant's business franchise and the importance of the
property to the prospective tenant's business.
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OPERATING AND FINANCING STRATEGIES
The Company monitors real estate market conditions, including market
rents and occupancy trends in the areas where its properties are located. The
Company will respond to changes in such market conditions as appropriate,
including by negotiating to extend the lease terms or by selling the property
subject to the existing lease. The Company also monitors, on an ongoing basis,
compliance by its tenants with their lease obligations and the factors that
could affect the financial performance of each of its properties. The Company
reviews periodic financial statements with respect to each of its tenants and
undertakes regular physical inspections of the condition and maintenance of its
properties.
The Company's tenants are generally responsible for most operating and
capital expenses relating to the properties they occupy, including real estate
taxes, utilities, insurance, maintenance and capital improvements. As a result,
the Company's operating costs are lower than would be the case if it invested in
properties that were not net leased.
Consistent with its investment policies, the Company employs leverage,
when available on favorable terms, in connection with funding transactions. The
Company seeks to maintain its operating flexibility and reduce its financing
costs through unsecured borrowings, its public offerings of unsecured debt
securities, and by reducing its FFO payout ratio over time as FFO increases.
The Company may re-evaluate its financing policies and increase or
decrease its ratio of total debt to total market capitalization from time to
time in response to economic conditions, relative costs to the Company of debt
and equity capital, growth and acquisition opportunities, and other facts and
circumstances.
COMPETITION
The Company faces competition for the acquisition of office and
industrial properties in general, and such properties net leased to major
corporations in particular, from insurance companies, credit companies, pension
funds, private individuals, investment companies and other REITs. The Company
also faces competition from institutions that provide or arrange for other types
of commercial financing through private or public offerings of equity or debt or
traditional bank financings. The Company believes its management's experience in
real estate, credit underwriting and transaction structuring will allow the
Company to compete effectively for office and industrial properties.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, regulations
and ordinances, current or former owners of real estate, as well as certain
other categories of parties, may be required to investigate and clean up
hazardous or toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damage and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. The Company's leases often
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
Such a contractual arrangement does not eliminate the Company's statutory
liability or preclude claims against the Company by governmental authorities or
persons who are not a party to such an arrangement. Contractual arrangements in
the Company's leases may provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable.
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The cost of investigation and cleanup of Hazardous Materials on, under,
in or from property can be substantial, and the fact that the property has had a
release of Hazardous Materials, even if remediated, may adversely affect the
value of the property and the owner's ability to sell or lease the property or
to borrow using the property as collateral. In addition, some environmental laws
create a lien on a property in favor of the government for damages and costs it
incurs in connection with the release or threatened release of Hazardous
Materials, and certain state environmental laws provide that such a lien has
priority over all other encumbrances on the property or that a lien can be
imposed on other property owned by the responsible party. Finally, the presence
of Hazardous Materials on a property could result in a claim by a private party
for personal injury or a claim by a neighboring property owner for property
damage.
Other federal, state and local laws and regulations govern the removal
or encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. In addition, federal, state and local laws,
regulations and ordinances may impose prohibitions, limitations and operational
standards on, or require permits, approvals and notifications in connection
with, the discharge of wastewater and other water pollutants, the emission of
air pollutants and operation of air polluting equipment, the generation and
management of Hazardous Materials, and workplace health and safety.
Non-compliance with environmental or health and safety requirements may also
result in the need to cease or alter operations at a property, which could
affect the financial health of a tenant and its ability to make lease payments.
Furthermore, if there is a violation of such a requirement in connection with a
tenant's operations, it is possible that the Company, as the owner of the
property, could be held accountable by governmental authorities for such
violation and could be required to correct the violation.
The Company typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Where warranted, Phase I
and/or Phase II assessments are performed by independent environmental
consulting and engineering firms. Phase I assessments do not involve subsurface
testing, whereas Phase II assessments involve some degree of soil and/or
groundwater testing. The Company may acquire a property which is known to have
had a release of Hazardous Materials in the past, subject to a determination of
the level of risk and potential cost of remediation. The Company normally
requires property sellers to fully indemnify it against any environmental
problem existing as of the date of purchase. Additionally, the Company often
structures its leases to require the tenant to assume most or all responsibility
for environmental compliance or environmental remediation relating to the
tenants operations and to provide that non-compliance with environmental laws is
deemed a lease default. In certain instances, the Company may also require a
cash reserve, a letter of credit or a guarantee from the tenant, the tenant's
parent company or a third party to assure lease compliance and funding of
remediation. The value of any of these protections depends on the amount of the
collateral and/or financial strength of the company providing the protection.
Some of the properties are located in urban and industrial areas where
fill or current or historic industrial uses of the areas may have caused site
contamination at the properties. In addition, the Company is aware of
environmental conditions at certain of the properties that require some degree
of remediation. All such environmental conditions are primarily the
responsibility of the respective tenants under their leases. The Company and its
consultants estimate that the aggregate cost of addressing environmental
conditions known to require remediation at the properties is approximately $3.0
million, the majority of which is covered by existing letters of credit and
corporate guarantees. The Company believes that its tenants are taking or will
soon be taking all required remedial action with respect to any material
environmental conditions at the properties. However, the Company could be
responsible for some or all of these costs if one or more of the tenants fails
to perform its obligations or to indemnify the Company. Furthermore, no
assurance can be given that the environmental assessments that have been
conducted at the properties disclosed all environmental liabilities, that any
prior owner did not create a material environmental condition not known to the
Company, or that a material condition does not otherwise exist as to any of the
properties.
RECENT DEVELOPMENTS
Acquisitions. During 1997, the Company acquired 40 properties for an
aggregate purchase price of approximately $462 million, resulting in a net
increase in its portfolio of approximately 4.46 million rentable square feet.
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The following table lists the properties acquired by the Company in 1997:
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NET
NUMBER RENTABLE
PROPERTY NAME/ OF SQUARE SIGNIFICANT
STREET ADDRESS CITY, STATE TYPE PROPERTIES FEET TENANTS
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7700/7720 Hubble Dr. Lanham, MD Office 1 120,000 Computer Sciences Corp.
7621 Energy Pkwy. Baltimore, MD Industrial 1 222,636 Sunbelt Beverage Corp.
100 Longwater Cir. Norwell, MA Office 1 53,000 Serono Laboratories
101 Philip Dr. Norwell, MA Office 1 32,500 Kluwer Boston
1022 Hingham St. Rockland, MA Office 1 125,366 Blue Cross & Blue Shield of Mass.
105 Forbes Blvd. Mansfield, MA Office 1 15,625 Chrysler Corp.
30 Dan Rd. Canton, MA Office 1 80,000 Parsons Main
300 Foxborough Blvd. Foxborough, MA Office 1 45,000 Pezrow New England
300 Friberg Pkwy. Westborough, MA Office 1 88,000 Bay State Gas Company
6 Riverside Dr. Andover, MA Office 1 77,048 MultiLink
65 Dan Rd. Canton, MA Office 1 67,185 Avitar
85 Dan Rd. Canton, MA Office 1 80,000 Vacant
One Longwater Cir. Norwell, MA Office 1 27,100 Giga Infromation
RiverPark (office section) North Reading, MA Office 1 150,000 Lotus Development
RiverPark (industrial section) North Reading, MA Industrial 2 292,000 Lotus, Central National-Gottesman
Warner Crossing Tempe, AZ Office 5 381,712 AlliedSignal, Wells Fargo
1565 Barber Ln. Milpitas, CA Office 1 102,240 Hitachi PC Corp.
2000 & 2050 Corporate Ctr. Dr. Thousand Oaks, CA Office 2 217,613 WellPoint Health Networks
Canyon Corporate Center Anaheim, CA Office 3 309,144 Experian, L.A. Cellular
Charleston Place Mountain View, CA Office 3 187,380 Sun Microsystems, 3Com
Edenvale San Jose, CA Office 1 286,330 Xerox, Western Digital
1499 West 121st St. Westminster, CO Office 1 62,100 Frontier Corp.
1500/1600 RiverEdge Pkwy. Atlanta, GA Office 1 444,362 IBM Corp., Siemens
Gateway Lakes II St. Petersburg, FL Industrial 2 179,000 MC Graphics, Jabil Circuit
13800 Diplomat Dr. Farmers Branch, TX Office 1 222,267 IBM Corp.
1460 North Glenville Dr. Richardson, TX Office 1 121,068 Northern Telecom
17201 Waterview Pkwy. Dallas, TX Office 1 61,750 ADS Alliance Data Systems
3000 Waterview Pkwy. Richardson, TX Office 1 300,820 Hewlett-Packard Co.
105 West Bethany Rd. Allen, TX Industrial 1 261,700 Electronic Data Systems Corp.
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40 4,612,946
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1998 Acquisitions. On January 20, 1998, the Company acquired a
recently completed office property in Denver, Colorado, in a purchase/leaseback
transaction with ICG Holdings, Inc. ("ICG") for a purchase price of
approximately $44.2 million. The six-story 239,749 square-foot office property
is located on 16 acres in the Inverness Business Park, approximately 12 miles
southeast of downtown Denver and is leased to ICG for a period of 15 years.
On January 30, 1998, the Company acquired three office buildings and two
adjacent land parcels in Concord, Massachusetts, 14 miles west of downtown
Boston, for total consideration of $26.6 million. The office properties consist
of a 68,077 square foot, three-story office building leased to Welch Foods, Inc.
as its world headquarters; and a 62,062 square foot, three-story office building
and a 60,250 square foot, two-story office building, both of which are leased to
Sybase, Inc. The properties were acquired via a merger and as part of the merger
consideration, the seller received 47,956 shares of restricted common stock,
subject to certain registration rights, and has the right to receive $2.4
million of deferred consideration in additional shares upon satisfaction of
certain obligations.
On February 25, 1998, TriNet Property Partners, L.P. (a partnership in
which a subsidiary of the Company is the sole general partner) acquired two
properties in metropolitan Boston, Massachusetts, through an operating
partnership structure for approximately $13.25 million. One of the properties is
a two-story, 108,085 square foot office/distribution building in Braintree
leased to the Massachusetts State Lottery Commission and to GTech Holdings Co.
The second property is a single-story, 104,765 square foot
warehouse/distribution facility located in Lakeville leased to KAO Infosystems
Company.
On March 12, 1998, the Company via a joint venture with Whitehall Street
Real Estate Limited Partnership IX ("Whitehall"), an affiliate of Goldman, Sachs
& Co., acquired two downtown office towers, a parking facility, and a
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development parcel in New Orleans, Louisiana, for a purchase price of
approximately $114.3 million. The properties consist of a 28-story, 526,041
square foot office tower; a 24-story, 422,890 square foot office tower; a 1,078
space parking garage; a 1.5 acre development parcel; and a 0.68 acre garage
expansion site. The Company has a 50% interest in the joint venture and will
manage the assets of behalf of the venture. Commencing in March 2001, subject
to acceleration under certain circumstances, Whitehall has the right to
exchange its interest in the joint venture for shares of the Company's Common
Stock.
Property Dispositions. The Company continually evaluates local market
conditions and property-related factors and will sell a property when it
believes it is to the Company's advantage to do so. In March 1997, a 5,353
square foot parcel which was part of the Lockheed Martin Aerospace Corporation
property, located in Sunnyvale, California, was expropriated by the Santa Clara
County Transit District for construction of a light rail system. The Company
received proceeds of $122,000 resulting in an extraordinary gain of $98,000. In
May 1997, the Company sold a 148,595 square foot property located in Malvern,
Pennsylvania, formerly leased to Unisys Corporation. The sale price was
approximately $5.3 million and resulted in a gain of approximately $985,000.
Financing Activities. On February 28, 1997, the Company completed an
equity offering of 6,250,000 shares of Common Stock at a price of $33.625 per
share, generating net proceeds to the Company of $198.2 million. On July 14,
1997, the Company completed a public offering of $100.0 million of its 7.70%
Notes due 2017 (the "2017 Notes") resulting in net proceeds to the Company of
approximately $97.1 million. The 2017 Notes are senior unsecured obligations of
the Company. On September 16, 1997, the Company completed an equity offering of
567,720 shares of Common Stock at a price of $35.875 per share, generating net
proceeds to the Company of $19.3 million. On October 16, 1997, the Company
completed a public offering of 4,000,000 shares of 8.00% Series C Cumulative
Preferred Stock (the "Series C Preferred Stock") which generated net proceeds to
the Company of $96.6 million. The net proceeds of these offerings of Common
Stock, Series C Preferred Stock and the 2017 Notes were used for real estate
acquisitions, to repay outstanding borrowings, principally under the Acquisition
Facility, and for general corporate purposes.
Effective April 22, 1997, the Company amended its Acquisition Facility
to obtain a reduction of the interest rate for outstanding borrowings, which
reduced the interest rate to 92.5 basis points over LIBOR. In addition, the
amendment includes a $100.0 million competitive bid facility which allows the
banks participating in the Acquisition Facility to provide financings at their
option by selectively bidding on certain borrowings at more competitive rates.
Also, the commitment fee on the average undrawn commitment was changed to a 17.5
basis point facility fee on the entire amount of the Acquisition Facility and
the maximum loan-to-value ratio of unsecured debt to unleveraged assets was
increased from 54% to 57%.
1998 Financing Activities. On January 8, 1998, the Company completed a
follow-on equity offering of 2,405,000 shares of common stock at a price of
$37.00 per share (the "January 1998 Offering"). Net proceeds from the January
1998 Offering were approximately $87.6 million and were used to pay down the
Acquisition Facility.
On February 24, 1998, the Company sold to the public $125 million of
6.75% Dealer remarketable securities due March 1, 2013, (the "Drs.") at a price
of 99.706% of the principal amount. Net proceeds (before issuance costs) from
the Drs. were approximately $124.0 million, of which $120.6 million was used to
pay down the balance on the Acquisition Facility. The Drs. are subject to a
mandatory tender on March 1, 2003, to J.P. Morgan Securities, Inc. (the
"Dealer"), and subject to certain terms and conditions, must be remarketed by
the Dealer. The Drs. are senior unsecured obligations of the Company and rank
equally with the Company's other senior unsecured indebtedness. Subject to
certain conditions, the Drs. are redeemable at any time, in whole or in part, at
the option of the Company. Interest on the Drs. will be paid semi-annually in
arrears on March 1 and September 1 of each year. In conjunction with this
issuance, the Dealer paid the Company a premium for the right to require the
mandatory tender of all outstanding Drs. at March 1, 2003. Additionally, the
Company settled its interest rate hedge agreements in conjunction with this debt
issuance. The all-in effective interest rate, including the estimated issuance
costs, the premium received from the Dealer, and the cost associated with the
settlement of the interest rate hedge agreements, is 6.86% over the initial
five-year term of the Drs.
On March 18, 1998, the Company completed a direct placement of 800,000
shares of common stock priced at $37.50 per share to several institutional
investors. The $30.0 million of proceeds, before transaction costs, were used to
reduce debt outstanding under the Acquisition Facility.
9
<PAGE> 10
ITEM 2. PROPERTIES.
As of December 31, 1997, the Company's portfolio consisted of 118
properties, including office (including research and development), industrial
(e.g., warehouse and distribution) and retail facilities, which are located in
25 states and are leased to tenants in a variety of industries. Set forth below
is certain information relating to the Company's properties.
<TABLE>
<CAPTION>
NET
RENTABLE
PROPERTY NAME/ NUMBER OF SQUARE SIGNIFICANT
STREET ADDRESS CITY, STATE TYPE PROPERTIES FEET TENANTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
MID ATLANTIC
7700/7720 Hubble Dr. Lanham, MD Office 1 120,000 Computer Sciences Corp.
Gatehall Corporate Center II Parsippany, NJ Office 1 420,000 AT&T Capital Corp.
2 Corporate Center Melville, NY Office 1 270,000 Olympus America
2476 Swedesford Rd. Paoli, PA Office 2 370,562 Unisys Corp.
935 First Ave. King of Prussia, PA Office 1 118,800 Lockheed Martin Corp.
7621 Energy Pkwy. Baltimore, MD Industrial 1 222,636 Sunbelt Beverage Corp.
200 Dunn Rd. Lyons, NY Industrial 1 240,000 GATX Logistics
2900 McLane Dr. Lysander, NY Industrial 1 240,000 GATX Logistics
4472 Steelway Blvd. N. (A - F) Clay, NY Industrial 1 372,500 GATX Logistics
4472 Steelway Blvd. N. (G & H) Clay, NY Industrial 1 160,000 GATX Logistics
4580 Steelway Blvd. S. Clay, NY Industrial 1 123,000 GATX Logistics
45-10 19th Ave. Astoria, NY Industrial 1 48,673 Caterair International Corp.
24-20 49th Ave. Astoria, NY Industrial 1 24,939 Caterair International Corp.
8401 Escort St. Philadelphia, PA Industrial 1 31,218 Caterair International Corp.
MIDWEST
2611 Corporate West Dr. Lisle, IL Office 1 236,000 Unisys Corp.
440 North Fairway Dr. Vernon Hills, IL Office 1 102,208 Komatsu America
100 Terrace Point Dr. Muskegon, MI Office 1 143,754 SPX Corp.
700 Terrace Point Dr. Muskegon, MI Office 1 70,700 SPX Corp.
1275 Red Fox Rd. Arden Hills, MN Office 1 73,150 Deluxe Corp.
3115 Centre Point Dr. Roseville, MN Office 1 41,574 Northern States Power Co.
401 West Michigan St. Milwaukee, WI Office 1 229,888 Blue Cross & Blue Shield United of WI
4000 South Racine Ave. Chicago, IL Industrial 1 140,000 Uarco Incorporated
450 Barclay Blvd. Lincolnshire, IL Industrial 1 161,840 Volkswagen of America
600 North Kilbourn Ave. Chicago, IL Industrial 1 172,846 Art Line
2201 East Loew Rd. Marion, IN Industrial 1 249,920 Dunham's Athleisure Corp.
3900 William Richardson Dr. South Bend, IN Industrial 1 225,000 Tech Data Corp.
5015 South Water Cir. Wichita, KS Industrial 1 105,600 Case Swayne Co.
221 West 79th St. Bloomington, MN Industrial 1 22,536 Caterair International Corp.
3501 East Terra Dr. O'Fallon, MO Industrial 1 402,192 Lever Brothers Co.
2875 Needmore Rd. Dayton, OH Industrial 1 345,325 REX Stores Corp.
4150 Lockbourne Industrial Pkwy. Columbus, OH Industrial 1 398,471 Sears Logistics Services
NEW ENGLAND
100 Longwater Cir. Norwell, MA Office 1 53,000 Serono Laboratories
101 Philip Dr. Norwell, MA Office 1 32,500 Kluwer Boston
1022 Hingham St. Rockland, MA Office 1 125,366 Blue Cross & Blue Shield of Mass.
105 Forbes Blvd. Mansfield, MA Office 1 15,625 Chrysler Corp.
30 Dan Rd. Canton, MA Office 1 80,000 Parsons Main
300 Foxborough Blvd. Foxborough, MA Office 1 45,000 Pezrow New England
300 Friberg Pkwy. Westborough, MA Office 1 88,000 Bay State Gas Company
6 Riverside Dr. Andover, MA Office 1 77,048 MultiLink
65 Dan Rd. Canton, MA Office 1 67,185 Avitar
85 Dan Rd. Canton, MA Office 1 80,000 Vacant
One Longwater Cir. Norwell, MA Office 1 27,100 Giga Information
RiverPark (office section) North Reading, MA Office 1 150,000 Lotus Development
RiverPark (industrial section) North Reading, MA Industrial 2 292,000 Lotus, Central National-Gottesman
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
NET
RENTABLE
PROPERTY NAME/ NUMBER OF SQUARE SIGNIFICANT
STREET ADDRESS CITY, STATE TYPE PROPERTIES FEET TENANTS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PACIFIC
Warner Crossing Tempe, AZ Office 5 381,712 AlliedSignal, Wells Fargo
1210 California Cir. Milpitas, CA Office 1 120,576 Lam Research Corp.
1260 Crossman Ave. Sunnyvale, CA Office 1 174,600 Lockheed Martin Aerospace Corp.
1565 Barber Ln. Milpitas, CA Office 1 102,240 Hitachi PC Corp.
18880 Homestead Rd. Cupertino, CA Office 1 101,373 Rational Software Corp.
2000 & 2050 Corporate Ctr. Dr. Thousand Oaks, CA Office 2 217,613 WellPoint Health Networks
3701 Doolittle Dr. Redondo Beach, CA Office 1 124,400 TRW, Inc.
46702 Bayside Pkwy. Fremont, CA Office 1 44,941 Cirrus Logic
46831 Lakeview Blvd. Fremont, CA Office 1 76,641 Cirrus Logic
5200 Sheila St. Commerce, CA Office 1 108,000 Certified Grocers of California
6300 Dumbarton Cir. Fremont, CA Office 1 44,000 Kelley-Clarke
Canyon Corporate Center Anaheim, CA Office 3 309,144 Experian, L.A. Cellular
Charleston Place Mountain View, CA Office 3 187,380 Sun Microsystems, 3Com
Edenvale San Jose, CA Office 1 286,330 Xerox, Western Digital
Sunnyvale Research Center Sunnyvale, CA Office 4 215,481 Mitsubishi Electronics America
Walnut Creek Center Walnut Creek, CA Office 2 145,000 Teradyne, Fresenius USA
12110 North Pecos St. Westminster, CO Office 1 55,310 Frontier Corp.
1499 West 121st St. Westminster, CO Office 1 62,100 Frontier Corp.
6162 South Willow Dr. Englewood, CO Office 1 158,146 Lucent Technologies
6901 South Havana St. Englewood, CO Office 1 137,900 Galileo International
Decker Lake Lane Center Salt Lake City, UT Office 1 173,107 First Health Strategies
3002 North 27th Ave. Phoenix, AZ Industrial 1 106,763 Universal Technical Institute
10054 Old Grove Rd. San Diego, CA Industrial 1 90,500 Fluid Systems Corp.
2652 East Long Beach Ave. E. Los Angeles, CA Industrial 1 272,236 Ralph's Grocery Co.
370 Adrian Rd. Millbrae, CA Industrial 1 20,019 Caterair International Corp.
50 Adrian Ct. Burlingame, CA Industrial 1 35,375 Caterair International Corp.
500 South Seventh Ave. City of Industry, CA Industrial 1 286,822 Volkswagen of America
7621 Energy Pkwy. Aurora, CO Industrial 1 119,200 Arrow Electronics
1085 Bible Way Reno, NV Industrial 1 20,066 Caterair International Corp.
18850 28th Ave. Seattle, WA Industrial 1 30,750 Caterair International Corp.
SOUTH ATLANTIC
Oak Grove Plaza Jacksonville, FL Office 3 230,346 AT&T Universal Card, HomeSide
Lending
1500/1600 RiverEdge Pkwy. Atlanta, GA Office 1 444,362 IBM Corp., Siemens
3120 Breckinridge Blvd. Duluth, GA Office 1 190,000 Primerica Life Insurance
11650 Central Pkwy. Jacksonville, FL Industrial 1 180,054 Volkswagen of America
2800 Collingswood Dr. Orlando, FL Industrial 1 49,148 Caterair International Corp.
3500 Northwest 24th St. Miami, FL Industrial 1 108,534 Caterair International Corp.
3630 Northwest 25th St. Miami, FL Industrial 1 55,610 Caterair International Corp.
4101 Northwest 25th St. Miami, FL Industrial 1 46,749 Caterair International Corp.
Gateway Lakes II St. Petersburg, FL Industrial 2 179,000 MC Graphics, Jabil Circuit
5675 North Blackstock Rd. Spartanburg, SC Industrial 1 563,210 adidas America
SOUTH CENTRAL
2424 Manhattan Blvd. Harvey, LA Retail 1 124,348 SGSM Acquisition Co.(*)
3900 Airline Hwy. Metairie, LA Retail 1 108,308 Schwegmann Giant Super Markets
4500 Tchoupitoulas St. New Orleans, LA Retail 1 80,005 SGSM Acquisition Co.
8000 Greenwell Springs Rd. Baton Rouge, LA Retail 1 69,272 Schwegmann Giant Super Markets
2003, 2005, & 2007 Corporate Ave. Memphis, TN Office 1 241,927 Federal Express Corp.
1321 Greenway Ave. Irving, TX Office 1 87,635 Microsoft Corp.
13800 Diplomat Dr. Farmers Branch, TX Office 1 222,267 IBM Corp.
1460 North Glenville Dr. Richardson, TX Office 1 121,068 Northern Telecom
17201 Waterview Pkwy. Dallas, TX Office 1 61,750 ADS Alliance Data Systems
2021 Lakeside Blvd. Richardson, TX Office 1 60,000 Northern Telecom
2901 Kinwest Pkwy. Irving, TX Office 1 174,421 Nissan Motor Acceptance Corp.
3000 Waterview Pkwy. Richardson, TX Office 1 300,820 Hewlett-Packard Co.
8400 Winchester Rd. Memphis, TN Industrial 1 812,697 NIKE, Inc.
100 Donwick Dr. Conroe, TX Industrial 1 251,850 Compaq Computer Corp.
105 West Bethany Rd. Allen, TX Industrial 1 261,700 Electronic Data Systems Corp.
500 Airline Dr. Coppell, TX Industrial 1 510,654 MJDesigns
--- ----------
Total 118 16,759,616
=== ==========
</TABLE>
(*) Lease began January 7, 1998
11
<PAGE> 12
LEASE EXPIRATIONS
The following table shows scheduled lease expirations for all leases for
the properties as of December 31, 1997:
<TABLE>
<CAPTION>
CURRENT TOTAL
NUMBER OF NET RENTABLE SQUARE ANNUAL RENTS UNDER
LEASES FEET SUBJECT TO EXPIRING LEASES (1)
YEAR OF LEASE EXPIRATION (2) EXPIRING EXPIRING LEASES (IN THOUSANDS)
<S> <C> <C> <C>
1998............................................................... 4 115,108 $ 1,501
1999............................................................... 4 548,944 2,720
2000............................................................... 13 1,760,544 13,108
2001............................................................... 10 1,586,305 8,025
2002............................................................... 10 1,751,014 15,961
2003............................................................... 8 1,617,897 12,815
2004............................................................... 17 3,294,925 21,391
2005............................................................... 3 234,549 2,066
2006............................................................... 12 1,657,445 19,002
2007............................................................... 4 292,854 3,358
2008 and thereafter................................................ 34 3,820,031 29,824
---- ---------- ---------
Total ...................................................... 119 16,679,616 $ 129,771
==== ========== =========
</TABLE>
(1) Reflects monthly base rent in effect on December 31, 1997,
multiplied by 12.
(2) Lease expirations, assuming tenants do not exercise existing
renewal, termination or purchase options.
PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's
properties as of December 31, 1997:
<TABLE>
<CAPTION>
CURRENT TOTAL PERCENT OF TOTAL
ANNUAL RENTS ANNUAL RENTS
BY PROPERTY TYPE (1) REPRESENTED BY NUMBER OF
(IN THOUSANDS) PROPERTY TYPE PROPERTIES
<S> <C> <C> <C>
Office ...................... $ 93,021 71.7% 71
Industrial .................. 32,613 25.1% 43
Retail ...................... 4,137 3.2% 4
-------- ----- --------
Total ...................... $129,771 100.0% 118
======== ===== ========
</TABLE>
(1) Reflects monthly base rent in effect on December 31, 1997,
multiplied by 12.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fiscal quarter ended December 31, 1997.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock is listed and traded on the New York Stock
Exchange ("NYSE") under the symbol "TRI." The high and low sales prices per
share of Common Stock and the distributions declared per share of Common Stock
are set forth below for the periods indicated.
<TABLE>
<CAPTION>
Common Stock
Quarter Ended High Low Dividends Declared
- ------------- ---- --- ------------------
<S> <C> <C> <C>
1996
- ----
March 31 $ 30.375 $ 27.000 $ 0.62
June 30 $ 30.875 $ 27.125 $ 0.62
September 30 $ 32.375 $ 29.125 $ 0.62
December 31 $ 35.500 $ 31.125 $ 0.63
1997
- ----
March 31 $ 36.750 $ 31.000 $ 0.63
June 30 $ 33.875 $ 31.625 $ 0.63
September 30 $ 36.125 $ 32.875 $ 0.63
December 31 $ 39.125 $ 34.500 $ 0.64
</TABLE>
On March 20, 1998, the reported closing sale price per share of Common
Stock on the NYSE was $37.4375.
(b) Holders
The Company had 466 record stockholders of Common Stock as of March 16,
1998.
(c) Dividends
In addition to the dividends declared to holders of Common Stock, the
Company also declared dividends to holders of its Series A Preferred Stock,
Series B Preferred Stock, and Series C Preferred Stock. For the year ended
December 31, 1997, the Company declared dividends of $2.34375 per share on its
Series A Preferred Stock and $2.30 per share on its Series B Preferred Stock.
For the period from October 10, 1997 to December 15, 1997, the Company declared
dividends of $0.3778 per share on its Series C Preferred Stock.
Since the consummation of the Company's initial public offering in June
1993, the Company has paid regular and uninterrupted distributions. The Company
intends to continue to declare quarterly distributions on its Common Stock. No
assurance, however, can be given as to the amounts or timing of future
distributions, as such distributions are subject to the Company's earnings,
financial condition, capital requirements, and such other factors as the
Company's Board of Directors deems relevant.
(d) Recent Sales of Unregistered Securities
On December 31, 1997, TriNet Property Partners, L.P. ("TPP"), a
newly-formed partnership in which a wholly-owned subsidiary of the Company is
the sole general partner, acquired a portfolio of nine office/R&D buildings from
a group of limited partnerships controlled by Keller/Davis Company, L.L.C. (the
"Private Partnerships"). In the transaction, the Private Partnerships
contributed the properties to TPP and TPP issued limited partnership units (the
"Units") having an initial value of $765,000 to holders of interests in the
Private Partnerships. The offering and sale of the Units was exempt from
registration under the Securities Act of 1933, as amended (the "Act"), pursuant
to the exemption provided by Section 4(2) of the Act for transactions not
involving a public offering of securities. Under the terms of the TPP limited
partnership agreement, the holders of the Units have the right to require TPP to
redeem their Units, subject to certain conditions. TPP may redeem the Units for
cash or may elect to deliver an equivalent number of shares of the Company's
Common Stock to the holders of the Units.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth summary financial, and operating and other data
on an historical basis for the Company and, for the periods prior to the Initial
Offering, the properties that were owned by seven predecessor partnerships. The
Company's operating data is presented for the years ended December 31, 1993
through 1997. The balance sheet data is presented at December 31st of the
corresponding year. This data should be read in conjunction with the financial
statements of the Company and Management's Discussion and Analysis of Financial
Condition and Results of Operations, each included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ------------- ------------ ------------ ------------
(in thousands, except per share and property data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
- ---------------
Rent revenues $ 106,862 $ 75,252 $ 56,199 $ 35,020 $ 17,511
Income before gain on sale of real estate and
extraordinary items 53,249 24,835 20,234 15,912 6,767
Gain on sale of real estate 985 6,807 -- -- --
Income before
extraordinary items 54,234 31,642 20,234 15,912 6,767
Extraordinary gain on expropriation 98 -- -- -- --
Extraordinary gain from casualty loss -- 3,178 -- -- --
Extraordinary charge from early
extinguishment of debt -- (2,191) (9,561) -- --
Net income $ 54,332 $ 32,629 $ 10,673 $ 15,912 $ 6,767
Earnings available per common share - basic $ 2.31 $ 2.09 $ 0.95 $ 1.84 $ --
Earnings available per common share - diluted $ 2.28 $ 2.08 $ 0.95 $ 1.83 $ --
Dividends declared per common share $ 2.53 $ 2.49 $ 2.45 $ 2.38 $ 1.27
OTHER DATA:
- -----------
Funds From Operations (1) $ 63,574 $ 41,551 $ 30,642 $ 22,380 $ 10,440
Cash flows provided by (used in):
Operating activities $ 71,272 $ 46,683 $ 38,788 $ 24,531 $ 9,416
Investing activities (448,165) (162,700) (161,474) (156,352) (130,454)
Financing activities 372,212 111,625 122,751 138,063 123,298
Total properties (at end of period) 118 79 97 82 67
Total net rentable square feet (at end
of period, in thousands) 16,760 12,295 10,747 8,590 5,851
Ratio of earnings to combined fixed charges
and preferred stock dividends(2) 2.26x 1.78x -- -- --
Ratio of earnings to fixed charges(2) 3.10x 2.05x 1.97x 2.65x 2.17x
BALANCE SHEET DATA (AT END OF PERIOD):
- --------------------------------------
Real estate, before accumulated depreciation $ 1,164,956 $ 704,329 $ 538,717 $ 377,522 $ 221,477
Total assets 1,155,904 708,238 559,727 401,241 229,099
Total unsecured debt 367,676 251,918 77,000 -- --
Total secured debt 66,446 55,013 167,750 204,415 114,912
Total liabilities 479,916 342,190 270,387 214,554 120,151
Total minority interest 765 -- -- -- --
Stockholders' equity 675,223 366,048 289,340 186,687 108,948
</TABLE>
(1) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for definition of Funds From Operations.
(2) The ratios of (i) earnings to combined fixed charges and preferred stock
dividends and (ii) earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges (excluding preferred stock dividends).
Fixed charges consist of interest expense and the amortization of debt issuance
costs, and with respect to the ratio of earnings to combined fixed charges and
preferred stock dividends, preferred stock dividend requirements. For the
periods presented, the Company had no capitalized interest.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following discussion and analysis of financial condition and results
of operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Form 10-K.
Unless otherwise defined in this report, or unless the context otherwise
requires, the capitalized words or phrases referred to in this section have the
meanings ascribed to them in such financial statements and the notes thereto.
RESULTS OF OPERATIONS
COMPARISON OF YEAR ENDED DECEMBER 31, 1997, TO YEAR ENDED DECEMBER 31, 1996:
REVENUES
For the year ended December 31, 1997, rent revenues increased $31.6
million, or 42%, to $106.9 million, from $75.3 million for the same period in
1996. This significant increase was the result of the Company's acquisitions
during 1997 and 1996. The 1997 Acquired Properties contributed $22.4 million to
rent revenues during 1997. The remaining net increase of $9.2 million was
primarily due to rents received for a full year of operations on the properties
acquired during 1996 , offset by a decrease of approximately $5.7 million due to
the properties sold since January 1, 1996. On a cash basis, "same store" rents
increased 2.57% or $1.3 million.
The Company's joint venture investment in the Sunnyvale Partnership
contributed $812,000 to revenues in 1997, compared to $455,000 for 1996. This
increase reflects a full year of operations from the Sunnyvale Partnership as
the Company made its initial investment on June 26, 1996.
TriNet Property Management, Inc., a newly formed subsidiary of the
Company, realized increased management fee income as a result of opening on-site
property management offices at two of the Company's properties. One such office
was opened at the RiverEdge property in Atlanta, Georgia, in July 1997, and the
other was opened at the Microsoft property in Irving, Texas, in September 1997.
In prior years, management fees were presented as an offset to property
operating costs and have been reclassified to conform to the current year
presentation.
Management fees for the year ended December 31, 1997, were $707,000
reflecting a 190% increase from the same period of 1996. This increase was
primarily the result of opening the new on-site property management offices and
eliminating some third party fee managers on other existing properties. The
Company expects to open additional on-site property management offices in
geographic areas where it presently has or expects to have significant holdings.
Other revenues which include interest income, advisory fees and
structuring fees decreased by 18% to $911,000 for the year ended December 31,
1997. Contributing to the decrease was approximately $500,000 of revenues
recognized in 1996. Such revenues were comprised of a fee from the sale of the
34 retail stores leased to REX Stores Corporation and a settlement structuring
fee from the settlement with MacFrugal's. This decreased revenue was offset by
recognition of approximately $319,000 of income from the Company's advisory
services provided in connection with certain build-to-suit acquisitions.
PROPERTY OPERATING AND GENERAL AND ADMINISTRATIVE COSTS
Property operating costs were $3.8 million for the year ended December
31, 1997, compared to $3.0 million for the same period of 1996. The 30% increase
is attributable to the continued growth in the Company's portfolio resulting in
higher operating costs and compares favorably to the 42% increase in rent
revenue.
General and administrative expenses were $6.6 million for the year ended
December 31, 1997, compared to $5.4 million for 1996. This 23% increase is
attributable to increased personnel and related overhead as a result of the
Company's growth. Although general and administrative expenses have increased
for 1997 when compared to
15
<PAGE> 16
1996, these expenses significantly decreased as a percentage of rent revenues
from 7.1% in 1996 to 6.2% in 1997. This decrease continues the downward trend in
this percentage, which was 7.2% in 1995 and 7.3% in 1994. Additionally, general
and administrative expenses have decreased as a percentage of gross real estate
assets, including investment in joint venture, from 0.76% in 1996 to 0.57% in
1997. The Company believes this downward trend is due to realizing economies of
scale in the Company's administrative operations as it acquires properties with
higher rents.
INTEREST
Interest expense for the year ended December 31, 1997, was $25.8 million
compared to $23.6 million for 1996. Included in these numbers is amortization of
interest rate protection agreements and loan costs of $2.5 million and $2.9
million for the years ended December 31, 1997 and 1996, respectively. Thus, the
overall increase of $2.2 million is a combination of a $2.6 million increase in
interest expense offset by a $400,000 decrease in the amortization of financing
costs.
The 12% increase in interest expense (excluding amortization of
financing costs) from 1996 to 1997 was principally due to a larger weighted
average debt balance of $319.1 million for 1997 versus $279.5 million for 1996.
This increase resulted from the issuance of the 2017 Notes (defined hereafter)
in July 1997, offset by a $9.1 million reduction in the average outstanding
balance on the Acquisition Facility. Counteracting the larger weighted average
debt balance was a lower weighted average interest rate on borrowings which fell
from 7.27% in 1996 to 7.18% in 1997, a nine basis point decrease. This decrease
continues the Company's trend of reducing its overall cost of debt. In April
1997, the Acquisition Facility was amended to include a $100.0 million
competitive bid facility. Through December 31, 1997, borrowings under the bid
option were at a weighted average spread over LIBOR of 59.6 basis points, a 32.9
basis point reduction from the contractual interest rate of 92.5 basis points
over LIBOR. During 1997, LIBOR ranged from 5.375% to 6.000%. The overall
decrease was offset in part by the higher average interest rates payable on the
Company's long term fixed rate debt compared to the variable rate debt replaced.
While the Company intends to continue to lower its cost of debt, such a result
is dependent upon factors which are beyond the Company's control, and as such,
there can be no assurance that this result will be achieved.
The 12% decrease in the amortization of financing costs from 1996 to
1997 resulted from both the October 1996 amendment of the Acquisition Facility,
which extended the maturity and therefore increased the amortization period of
the loan costs, and the partial repayment on the 1994 Mortgage Loan during 1996,
which resulted in the write-off of a portion of the deferred loan costs. These
savings were countered by additional amortization of financing costs relating to
the 2001 Notes and the 2006 Notes issued in May 1996, and the 2017 Notes issued
in July 1997.
OTHER INCOME (EXPENSE) ITEMS
Depreciation and amortization for the year ended December 31, 1997,
increased $6.3 million, or 46%, over that of 1996 as a result of the Company's
larger asset base. This increase was partially offset by the sale of properties
subsequent to January 1, 1996.
In March 1997, a 5,353 square foot parcel which was part of the Lockheed
Martin Aerospace Corporation property, located in Sunnyvale, California, was
expropriated by the Santa Clara County Transit District for construction of a
light rail system. The Company received proceeds of $122,000 resulting in an
extraordinary gain of $98,000. In May 1997, the Company sold a 148,595 square
foot property located in Malvern, Pennsylvania, formerly leased to Unisys
Corporation. The sale price was approximately $5.3 million and resulted in a
gain of approximately $985,000.
PREFERRED DIVIDEND REQUIREMENT
For the year ended December 31, 1997, the dividends applicable to
preferred stock were $9.5 million compared to $3.6 million in 1996. This
increase was due to the completion of a preferred stock offering in October 1997
(see "Liquidity and Capital Resources") together with a full year of dividend
recognition related to the preferred stock issued in 1996.
16
<PAGE> 17
EARNINGS AVAILABLE TO COMMON SHARES
Earnings available to common shares for the year ended December 31, 1997, were
$44.8 million, a 55% increase over the 1996 amount of $29.0 million. This
increase resulted from the continued growth in the Company's portfolio.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996, TO YEAR ENDED DECEMBER 31, 1995:
REVENUES
For the year ended December 31, 1996, rent revenues increased $19.1
million, or 34%, to $75.3 million, from $56.2 million for the same period in
1995. This significant increase is the result of the Company's acquisitions
during 1996 and 1995. The 1996 Acquired Properties, not including the properties
owned by the Sunnyvale Partnership, contributed $11.5 million to rent revenues
during 1996. The remaining net increase of $7.6 million was primarily due to
rents received for a full year of operations on the properties acquired during
1995 , offset by a decrease of approximately $1.0 million due to the properties
which were sold during the year.
The Company's joint venture investment in the Sunnyvale Partnership
contributed $455,000 to revenues in 1996 from the initial investment date of
June 26, 1996, through December 31, 1996.
Management fees for the year ended December 31, 1996, increased 126%
over that of the same period in 1995. This was due in part to management fees
being charged to tenants of new properties acquired during 1996. The remaining
increase resulted from a monthly management fee for post-sale management of the
Linvatec property which was sold in July 1996.
Compared to 1995, other revenues for 1996 increased by 61% to $1.1
million. The increase was primarily due to a fee from the sale of the 34 retail
stores leased to REX Stores Corporation and a settlement structuring fee from
the settlement with MacFrugal's, which together comprised approximately $500,000
of other revenues in 1996.
PROPERTY OPERATING AND GENERAL AND ADMINISTRATIVE COSTS
Property operating costs were $3.0 million for the year ended December
31, 1996, compared to $1.2 million in 1995. Expenses relating to the Federal
Express property, which was acquired in March 1996, contributed $1.2 million to
this $1.8 million increase. The Company has a maximum annual obligation under
the Federal Express lease for operating expenses and taxes of approximately $1.5
million. The remaining increase was due to the continued growth in the Company's
real estate portfolio.
General and administrative expenses were $5.4 million for the year ended
December 31, 1996, compared to $4.1 million for 1995. This increase of $1.3
million, or 32%, is attributable to increased personnel and related overhead as
a result of the Company's growth. Although general and administrative expenses
have increased for 1996 when compared to 1995, these expenses decreased as a
percentage of rent revenues from 7.2% in 1995 to 7.1% in 1996.
INTEREST
Interest expense for the year ended December 31, 1996, was $23.6 million
compared to $20.9 million for 1995. Included in these numbers is amortization of
interest rate protection agreements and loan costs of $2.9 million and $3.6
million for the years ended December 31, 1996 and 1995, respectively. Thus, the
overall increase of $2.7 million was a combination of a $3.4 million increase in
interest expense offset by a $700,000 decrease in the amortization of financing
costs.
This 20% increase in interest expense (excluding amortization of
financing costs) from 1995 to 1996 was due to an increased weighted average debt
balance, offset in part by a decreased weighted average interest rate during
1996. The weighted average debt balance was $279.5 million for 1996 compared to
$235.8 million in 1995. The increase in the weighted average debt balance in
1996 was primarily due to borrowings to finance the 1996 Acquired Properties,
offset by the net proceeds from the preferred stock offerings which were used to
reduce
17
<PAGE> 18
mortgage loans and borrowings under the Acquisition Facility. The weighted
average interest rate for 1996 was 7.27% compared to 7.35% in 1995. The decrease
was due to a 25 basis point decrease in the spread over LIBOR on the 1994
Mortgage Loan and to a 25 basis point decrease in the spread over LIBOR on the
Acquisition Facility due to the Company's attainment of investment grade
ratings. During 1996, LIBOR ranged from 5.3125% to 5.6875%. The overall decrease
was offset in part by the higher average interest rates payable on the Company's
long term fixed rate debt compared to the variable rate debt replaced.
The 21% decrease in the amortization of financing costs from 1995 to
1996 was primarily the result of significantly less amortization on the
Acquisition Facility compared to the amortization from the debt instruments
which were repaid in connection with the debt refinancing that occurred in the
fourth quarter of 1995. In addition, amortization expense decreased during 1996
due to the two partial repayments on the 1994 Mortgage Loan that occurred during
1996. Partially offsetting this decrease was amortization relating to the 2001
Notes and the 2006 Notes, which were issued in May 1996.
OTHER INCOME (EXPENSE) ITEMS
Depreciation and amortization for the year ended December 31, 1996, was
$13.5 million compared to $10.6 million in 1995. This increase of approximately
$2.9 million, or 28%, was primarily a result of the Company's larger asset base.
As of December 31, 1996, the Company owned four properties leased to
Schwegmann which represented approximately 5% of annualized rental revenues as
of such date. On February 14, 1997, SGSM Acquisition Company, L.L.C. ("SGSM"),
an entity formed by Kohlberg & Co., L.L.C., a privately owned investment firm,
acquired the retail grocery operations of Schwegmann and, in connection
therewith, assumed the lease on the Schwegmann property in New Orleans for the
remaining 18 years of the primary lease term. In addition, SGSM subleased the
three other Schwegmann properties through February 1998. The agreement also
provided that the Company receive a $100,000 transaction structuring fee over
two years and that Schwegmann pay for all of the Company's legal costs related
to this transaction. Obligations with respect to all four of the Schwegmann
properties were secured by a first mortgage and assignment of rents on a
separate property that was owned by Schwegmann and leased to SGSM (the
"Collateral Property"). The Collateral Property generates approximately $500,000
in annual rents.
Schwegmann was experiencing financial difficulties due to an
increasingly competitive grocery retailing environment. In consideration of the
Company's focus on decreasing its retail property holdings and in response to
Schwegmann's deteriorating financial condition, the Company recorded a provision
for portfolio repositioning as of December 31, 1996, in the amount of $6.8
million, and therefore reduced the depreciable basis of the retail properties by
$5.9 million and the related deferred rent receivable by $900,000.
During 1996, the Company sold 36 real estate properties for an aggregate
gain of approximately $6.8 million. On April 24, 1996, the Company sold its
property in Denham Springs, Louisiana, to Schwegmann, the former tenant, for
approximately $1.3 million, which resulted in an insignificant gain. On July 3,
1996, the Company sold a 124,950 square foot office building occupied by
Linvatec Corporation and located in Largo, Florida, to Largo Lakes-1 Limited
Partnership for a sale price of approximately $11.0 million. The Company
recognized a gain of approximately $650,000 in connection with the sale. On
November 26, 1996, the Company sold 34 retail stores net leased to REX Stores
Corporation for $24.8 million. The Company recognized a gain of approximately
$6.2 million in connection with this sale.
On March 21, 1996, a property leased to an affiliate of MacFrugal's was
destroyed by fire. On December 13, 1996, the Company received a $30.0 million
cash settlement from MacFrugal's as compensation for the destruction of this
warehouse/distribution building and as consideration for termination of the
lease. Through December 13, 1996, the Company continued to receive rent payments
from MacFrugal's in accordance with the lease. The Company recognized an
extraordinary gain of $3.2 million from the settlement proceeds. The $30.0
million cash settlement included a lease cancellation fee of $3.5 million, which
is being amortized over the remainder of the original lease term. The Company
used approximately $20.0 million of the proceeds from this cash settlement to
partially repay the 1994 Mortgage Loan, which resulted in an extraordinary
charge as discussed below.
18
<PAGE> 19
During the third quarter of 1996, the Company prepaid $35.0 million of
the 1994 Mortgage Loan. In connection with this transaction and the prepayment
on the 1994 Mortgage Loan made with the proceeds from the MacFrugal's
settlement, the Company incurred certain fees and recognized certain unamortized
loan costs previously paid by the Company, which resulted in an extraordinary
charge of $2.2 million, of which $400,000 was cash and $1.8 million was
non-cash.
PREFERRED DIVIDEND REQUIREMENT
For the year ended December 31, 1996, the dividends applicable to the
preferred stock were $3.6 million. These dividends resulted from the Series A
Preferred Stock offering and the Series B Preferred Stock offering which
occurred during 1996. There was no preferred dividend requirement in 1995.
EARNINGS AVAILABLE TO COMMON SHARES
Earnings available to common shares for the year ended December 31,
1996, were $29.0 million, an increase of 172% over the 1995 amount of $10.7
million. This increase resulted from the growth of the Company's portfolio.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased by $24.6 million, or
53%, to $71.3 million for the year ended December 31, 1997, when compared to the
same period in 1996. The increase was primarily due to increased net income
resulting from the growth in the Company's portfolio.
Net cash used in investing activities was $448.2 million for the year
ended December 31, 1997. These funds were expended primarily to acquire
properties. The following table quantifies the Company's capital expenditures
(in thousands) for the indicated years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Real estate acquisitions $453,572 $222,412 $160,389
Investment in unconsolidated joint venture 176 6,550 --
Building improvements 417 379 806
Corporate FF&E 295 303 279
-------- -------- --------
$454,460 $229,644 $161,474
======== ======== ========
</TABLE>
Net cash provided by financing activities for the year ended December
31, 1997, was $372.2 million, primarily a result of the proceeds from the
February 1997 Offering (defined hereafter), the issuance of the 2017 Notes and
the Series C Preferred Stock (defined hereafter) offering. Net proceeds from the
February 1997 Offering were approximately $198.2 million, of which $111.7
million was used to pay down the balance on the Acquisition Facility and the
remainder was used to purchase properties during March 1997. Net proceeds from
issuance of the 2017 Notes were approximately $97.1 million. These proceeds were
used to reduce the balance on the Acquisition Facility. Net proceeds on the
Series C Preferred Stock offering were $96.6 million of which $80.9 million was
used to reduce the balance on the Acquisition Facility and the remainder was
used to purchase a property in October 1997. Net cash provided by financing
activities was offset by common dividends paid of $47.5 million and preferred
dividends paid of $9.2 million.
On February 28, 1997, the Company completed an equity offering of
6,250,000 shares of common stock (including 250,000 shares issued in conjunction
with the exercise of the underwriters' over-allotment option) at a price of
$33.625 per share (the "February 1997 Offering"), generating proceeds (net of
underwriters' discount and other offering costs) of $198.2 million.
Effective April 22, 1997, the Company amended its Acquisition Facility
to obtain lower borrowing rates. The Acquisition Facility's new contractual rate
on LIBOR-based borrowings is 92.5 basis points over LIBOR, which represents a
27.5 basis point reduction from the prior borrowing rate. Additionally, the
amended agreement includes a $100.0 million competitive bid facility, which
allows the banks in the Acquisition Facility's syndicate to provide financings
at their option by selectively bidding on certain borrowings at more competitive
rates.
19
<PAGE> 20
Furthermore, the 20 basis point commitment fee on the unused amount of the
Acquisition Facility has been changed to a 17.5 basis point facility fee on the
entire amount of the Acquisition Facility. The maximum loan-to-value ratio of
unsecured debt to unencumbered assets has also been increased from 54 percent to
57 percent.
On May 15, 1997, the Company sold a 148,595 square foot property located
in Malvern, Pennsylvania formerly leased to Unisys Corporation. The sale price
was approximately $5.3 million and resulted in a gain of approximately $985,000.
In May 1997, the Company formed a wholly-owned property management
subsidiary, TriNet Property Management, Inc. The subsidiary was formed to expand
the Company's capability to provide property management services on a fee basis
for tenants in regions of the country where the Company has significant
holdings. The first office was opened in July 1997 at the RiverEdge property in
Atlanta, Georgia. A second office was opened in September 1997 at the Microsoft
property in Irving, Texas.
On July 14, 1997, the Company sold $100.0 million of 7.70% Notes due
2017 (the "2017 Notes") for 99.606% of the face value resulting in net proceeds
of approximately $97.1 million. Net proceeds were used to reduce indebtedness
under the Acquisition Facility. The 2017 Notes are senior unsecured obligations
of the Company and rank equally with the Company's other senior unsecured
indebtedness. Subject to certain conditions, the 2017 Notes are redeemable at
any time, in whole or in part, at the option of the Company. Interest on the
2017 Notes will be paid semi-annually in arrears.
On September 16, 1997, the Company completed an equity offering of
567,720 shares of common stock at a price of $35.875 per share. Net proceeds
from the this offering were approximately $19.3 million, which were used to
acquire new properties.
On October 8, 1997, the Company completed a public offering of 4,000,000
shares of 8.00% Series C Cumulative Preferred Stock (the "Series C Preferred
Stock") which generated net proceeds of $96.6 million. Dividends on the Series C
Preferred Stock will be paid quarterly in arrears at the rate of 8.00% per annum
of the $25 per share liquidation preference (equivalent to a fixed annual rate
of $2.00 per share) in March, June, September, and December. The Series C
Preferred Stock is redeemable at par, in whole or in part, at the option of the
Company subsequent to October 7, 2002. The Series C Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption.
Scheduled principal amortization payments on mortgages are $389,000 for
1998. Also, the Company anticipates spending approximately $1.8 million on
capital improvements to its properties during 1998. These and other short-term
liquidity requirements of the Company, including the payment of common and
preferred dividends, will be funded primarily from current operations. Any
additional liquidity needs will be funded by short-term draws under the
Acquisition Facility. As of December 31, 1997, the available amount of credit
under the Acquisition Facility was $81.7 million.
The Company expects to meet certain long-term liquidity requirements,
such as property acquisitions and scheduled debt maturities, using long-term
unsecured and secured borrowings and the issuance of debt securities or
preferred and common stock of the Company. The Company has on file with the
Securities and Exchange Commission two Form S-3 Registration Statements. One
registration statement is a universal shelf registration statement authorizing
the issuance of debt securities, common stock, preferred stock or depository
shares representing preferred stock of the Company with a remaining availability
of $256.0 million after the January 1998 Offering, the February 1998 Drs.
offering, and the March 1998 Offering discussed below. The other registration
statement authorized the issuance of $250.0 million of debt securities and has a
remaining availability of $150.4 million. The exact amount of debt, common
stock, preferred stock, and depository shares representing preferred stock
issued will depend on acquisitions, asset sales, the Company's senior unsecured
debt and preferred stock ratings, and the general interest rate environment.
In managing the Company's long-term liquidity, consideration is given to
both the weighted average maturity of the Company's fixed term debt instruments
and to the ratio of total debt to total market capitalization. As of December
31, 1997 and 1996, the Company's weighted average fixed term debt maturity was
9.5 years and 6.0 years, respectively, and the ratio of total debt to total
market capitalization was 30.5% and 34.7%, respectively. The lengthening of the
weighted average fixed term debt maturity resulted from the issuance of the 2017
Notes and
20
<PAGE> 21
provides the Company additional financial flexibility. Similarly, the decline in
the ratio of total debt to total market capitalization represents an improved
capitalization structure which gives the Company more flexibility in the methods
by which capital is raised.
As of December 31, 1997, the Company had entered into a $43 million
contract with a third party developer to acquire a property currently under
construction. The acquisition of this property is subject to the completion of
construction, occupancy of the premises by the tenant (pursuant to a lease that
has already been executed by the party) and satisfaction of certain other
conditions. Completion of construction is expected during the second quarter of
1998. Acquisition of this property is anticipated to be funded by a draw on the
Company's Acquisition Facility.
The Company enters into off-balance sheet interest rate hedge agreements
to mitigate the effect of interest rate changes that may occur from the date
that the Company determines the need to enter into a future debt agreement and
the date that the related debt is issued. Such interest rate hedge agreements,
which are generally indexed to U.S. government treasury securities, pertain to
probable fixed rate debt issuances for which the Company has identified the
significant characteristics and expected terms. Any gains or losses realized
upon settlement of qualifying hedge transactions are amortized over the lives of
the related debt agreements. In the event that the Company decides not to issue
such debt or at the time the instrument no longer qualifies as a hedge, the
Company would recognize a gain or loss in current operations based on the
eventual settlement proceeds received or paid. As of February 24, 1998, all
outstanding interest rate hedge agreements were settled in connection with the
issuance of dealer remarketable securities, as discussed further below. The
Company enters into interest rate risk management arrangements with financial
institutions meeting certain minimum financial criteria, and the related credit
risk of non-performance by counter-parties is not deemed to be significant.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share" and SFAS No. 129, "Disclosure of Information about Capital
Structure." SFAS No. 128 establishes standards for computing and presenting
earnings per share. SFAS No. 129 consolidates the existing disclosure
requirements regarding an entity's capital structure. SFAS No. 128 and SFAS No.
129 are effective for financial statements issued for periods ending after
December 15, 1997. The provisions of SFAS No. 128 and SFAS No. 129 are included
in the Company's financial statements and prior years have been restated as
required by these provisions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS No. 131 specifies
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. SFAS No. 130 and SFAS No.
131 are effective for financial statements issued for periods beginning after
December 15, 1997. These new standards are not expected to have a material
effect on the Company's consolidated financial statements.
SUBSEQUENT EVENTS
On January 7, 1998, a new 20-year lease was executed by SGSM on the
Schwegmann property in Harvey, Louisiana.
On January 8, 1998, the Company completed a follow-on equity offering of
2,405,000 shares of common stock at a price of $37.00 per share (the "January
1998 Offering"). Net proceeds from the January 1998 Offering were approximately
$87.6 million and were used to pay down the Acquisition Facility.
On January 20, 1998, the Company acquired a built-to-suit office
property comprising 239,749 square feet located in Denver, Colorado, for a
purchase price of approximately $44.2 million. The property is 100% net leased
to ICG Holdings, Inc. pursuant to a lease which expires in December 2012. The
Company received a credit enhancement in the form of a $10.0 million security
deposit.
On January 30, 1998, the Company acquired three office buildings and two
adjacent land parcels in Concord, Massachusetts, for a total consideration of
$26.6 million. The three office buildings comprise 190,389 square feet while the
two land parcels total 12.7 acres. The properties were acquired via a merger and
as part of the
21
<PAGE> 22
merger consideration, the seller received 47,956 shares of restricted common
stock, subject to certain registration rights, and has the right to receive
additional shares based on development of the land parcels.
On February 5, 1998, Schwegmann was unable to meet its lease obligations
on the remaining two Schwegmann properties in Baton Rouge and Metairie,
Louisiana, and was in default of these lease agreements with the Company. The
Company is currently negotiating with Schwegmann regarding a resolution and does
not expect a material impact on its financial condition or results of
operations.
On February 24, 1998, the Company sold to the public $125 million of
6.75% Dealer remarketable securities due March 1, 2013, (the "Drs.") at a price
of 99.706% of the principal amount. Net proceeds (before issuance costs) from
the Drs. were approximately $124.0 million, of which $120.6 million was used to
pay down the balance on the Acquisition Facility. The Drs. are subject to a
mandatory tender on March 1, 2003, to J.P. Morgan Securities, Inc. (the
"Dealer"), and subject to certain terms and conditions, must be remarketed by
the Dealer. The Drs. are senior unsecured obligations of the Company and rank
equally with the Company's other senior unsecured indebtedness. Subject to
certain conditions, the Drs. are redeemable at any time, in whole or in part, at
the option of the Company. Interest on the Drs. will be paid semi-annually in
arrears on March 1 and September 1 of each year. In conjunction with this
issuance, the Dealer paid the Company a premium for the right to require the
mandatory tender of all outstanding Drs. at March 1, 2003. Additionally, the
Company settled its interest rate hedge agreements in conjunction with this debt
issuance. The all-in effective interest rate, including the estimated issuance
costs, the premium received from the Dealer, and the cost associated with the
settlement of the interest rate hedge agreements, resulted in an effective
interest rate of 6.86% over the initial five-year term of the Drs.
On February 25, 1998, TPP acquired two properties in metropolitan
Boston, Massachusetts, for a purchase price of approximately $13.3 million. One
property is a 108,085 square foot office/distribution building while the other
property is a 104,765 square foot warehouse/distribution facility.
On March 12, 1998, the Company via a joint venture with Whitehall Street
Real Estate Limited Partnership IX ("Whitehall"), an affiliate of Goldman, Sachs
& Co., acquired two downtown office towers, a parking facility, and a
development parcel in New Orleans, Louisiana, for a purchase price of
approximately $114.3 million. The properties consist of a 28-story, 526,041
square foot office tower; a 24-story, 422,890 square foot office tower; a 1,078
space parking garage; a 1.5 acre development parcel; and a 0.68 acre garage
expansion site. The Company has a 50% interest in the joint venture and will
manage the assets of behalf of the venture. Commencing in March 2001, subject to
acceleration under certain circumstances, Whitehall has the right to exchange
its interest in the joint venture for shares of the Company's Common Stock, with
registration rights.
On March 19, 1998, the Company completed a direct placement of 800,000
shares of common stock priced at $37.50 per share to several institutional
investors (the "March 1998 Offering"). The $30.0 million of proceeds, before
transaction costs, were used to reduce debt outstanding under the Acquisition
Facility.
22
<PAGE> 23
FUNDS FROM OPERATIONS
The definition of Funds From Operations ("FFO") was clarified in the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT") White
Paper, adopted by the NAREIT Board of Governors on March 3, 1995, as net income
(computed in accordance with generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization (in each case only real estate related assets),
less preferred stock dividends, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures will be calculated to reflect FFO on the same basis. The
Company's FFO is not comparable to FFO reported by other real estate investment
trusts ("REITs") that do not define FFO using the current NAREIT definition or
that interpret the current NAREIT definition differently than the Company. The
Company believes that to facilitate a clear understanding of the historical
operating results of the Company, FFO should be examined in conjunction with
income as presented in the Consolidated Statements of Operations. FFO should not
be considered as an alternative to net income (determined in accordance with
GAAP) as an indicator of the Company's performance, or cash flows from operating
activity (determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's cash
needs, including its ability to make distributions. The table below presents the
calculations for FFO on a quarterly basis for the years ended December 31, 1997,
1996, and 1995:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED:
-------------------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 TOTAL
----------- ------------ --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
1997
- ----
Funds From Operations:
Income before gain and extraordinary items $ 15,938 $ 13,517 $ 13,349 $ 10,445 $ 53,249
Real estate depreciation 5,679 5,166 4,676 3,826 19,347
Joint venture income (184) (183) (207) (238) (812)
Joint venture FFO 309 308 332 363 1,312
Preferred dividend requirement (3,764) (1,919) (1,920) (1,919) (9,522)
-------- -------- -------- -------- --------
$ 17,978 $ 16,889 $ 16,230 $ 12,477 $ 63,574
======== ======== ======== ======== ========
Common dividends declared $ 13,346 $ 13,131 $ 12,774 $ 12,773 $ 52,024
======== ======== ======== ======== ========
1996
- ----
Funds From Operations:
Income before gain and extraordinary items $ 2,500 $ 8,497 $ 7,148 $ 6,690 $ 24,835
Real estate depreciation 3,579 3,383 3,231 3,100 13,293
Joint venture income (217) (223) (15) -- (455)
Joint venture FFO 349 353 22 -- 724
Provision for portfolio repositioning 6,800 -- -- -- 6,800
Preferred dividend requirement (1,920) (1,570) (156) -- (3,646)
-------- -------- -------- -------- --------
$ 11,091 $ 10,440 $ 10,230 $ 9,790 $ 41,551
======== ======== ======== ======== ========
Common dividends declared $ 8,799 $ 8,610 $ 8,586 $ 8,582 $ 34,577
======== ======== ======== ======== ========
1995
- ----
Funds From Operations:
Income before extraordinary charge $ 6,040 $ 5,290 $ 4,764 $ 4,140 $ 20,234
Real estate depreciation 2,856 2,826 2,536 2,190 10,408
-------- -------- -------- -------- --------
$ 8,896 $ 8,116 $ 7,300 $ 6,330 $ 30,642
======== ======== ======== ======== ========
Common dividends declared $ 8,583 $ 6,613 $ 6,613 $ 6,613 $ 28,422
======== ======== ======== ======== ========
</TABLE>
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The Company's FFO payout ratio, which is expressed as annual dividends
paid per share divided by annual FFO per share, has decreased over the past
three years from 89.7% in 1995, to 83.1% in 1996, to 77.3% in 1997. By
continuing to lower the payout ratio, the Company is able to retain more FFO
(FFO retained), which is the least expensive form of equity capital for new
investments. FFO retained, which is FFO less dividends declared, has increased
from $2.2 million, to $7.0 million, to $11.6 million for the same three years
ending December 31, 1997.
INFLATION
The structure of the majority of the Company's leases generally reduces
the risk to the Company of the adverse effects of inflation. The Company's
leases generally provide for rent adjustments during their initial lease terms
and during any option periods. Because net leases require tenants to pay for
some or all operating expenses, property taxes, property repair and maintenance
costs and insurance, some or all of the inflationary impact of these expenses
will be borne by the tenants and not by the Company. An increase in inflation,
however, could result in an increase in the Company's borrowing costs and its
general and administrative costs.
YEAR 2000
The Company's primary uses of software systems are for corporate and
property accounting. The Company's current system is widely used by the real
estate industry and is Year 2000 compliant. The Company is replacing its current
corporate and property accounting system with one which is also designed to be
Year 2000 compliant. Therefore, the Company believes that the risk of Year 2000
compliance is not significant as it relates to its computer software systems.
At this time, no estimates can be made as to any potential adverse
impact resulting from the failure of tenants and third-party service providers
and vendors to prepare for the Year 2000. The Company is attempting to identify
those risks as well as to receive compliance certificates from all third parties
that have a material impact on the Company's operations, but the cost and timing
of third party Year 2000 compliance is not within the Company's control and no
assurances can be given with respect to the cost or timing of such efforts or
the potential effects of any failure to comply.
FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements within the
meaning of the federal securities laws. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995, and is
including this statement for purposes of complying with these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies and expectations of the Company, are
generally identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or strategies is
inherently uncertain. Factors which would have a material adverse effect on the
operations and future prospects of the Company include, but are not limited to,
changes in: economic conditions generally and the real estate market
specifically, legislative/regulatory changes (including changes to laws
governing the taxation of REITs), availability of capital, interest rates,
competition, supply and demand for office and industrial properties in the
Company's current and proposed market areas and general accounting principles,
policies and guidelines applicable to REITs. These risks and uncertainties,
together with the other risks described from time to time in the Company's
reports and documents filed with the Securities and Exchange Commission, should
be considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements.
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<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item 8 is included as a separate section of this
annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 27, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 27, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 27, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on May 27, 1998.
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Reference
---------
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
(a) (2) FINANCIAL STATEMENT SCHEDULES
Schedule III - Real Estate and Accumulated Depreciation F-21
Notes to Schedule III F-29
</TABLE>
(a) (3) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.1 Amended and Restated Articles of Incorporation. (Incorporated by
reference to Exhibit 3.1 (i) to the Registration Statement on Form S-11
of TriNet Corporate Realty Trust, Inc., Registration No. 33-59836.)
3.2 Definitive Articles Supplementary Establishing and Fixing the
Rights and Preferences of a Series of Shares of Preferred Stock (Series
A Preferred Stock). (Incorporated by reference to Exhibit 1 of Form
8-A/A of TriNet Corporate Realty Trust, Inc., dated June 26, 1996,
filed with the Securities and Exchange Commission on June 28, 1996.)
3.3 Definitive Articles Supplementary Establishing and Fixing the
Rights and Preferences of a Series of Shares of Preferred Stock (Series
B Preferred Stock). (Incorporated by reference to Exhibit 1 of Form
8-A/A of TriNet Corporate Realty Trust, Inc., dated August 9, 1996,
filed with the Securities and Exchange Commission on August 12, 1996.)
3.4 Definitive Articles Supplementary Establishing and Fixing the
Rights and Preferences of a Series of Shares of Preferred Stock
(Series C Preferred Stock). (Incorporated by reference to Exhibit 1 of
Form 8-A of TriNet Corporate Realty Trust, Inc., dated October 3, 1997,
filed with the Securities and Exchange Commission on October 14, 1997.)
3.5 Amended and Restated Bylaws. (Incorporated by reference to Exhibit
3.1 (ii) to the Registration Statement on Form S-11 of TriNet Corporate
Realty Trust, Inc., Registration No. 33-59836.)
4.1 Definitive Indenture, dated as of May 22, 1996. (Incorporated by
reference to Exhibit 4.2 to the Current Report on Form 8-K, dated June
14, 1996 of TriNet Corporate Realty Trust, Inc.)
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C>
4.2 Definitive Supplemental Indenture No. 1, dated as of May 22, 1996,
relating to the 7.30% Notes due 2001 and the 7.95% Notes due 2006.
(Incorporated by reference to Exhibit 4.1 to the Current Report on Form
8-K, dated June 14, 1996 of TriNet Corporate Realty Trust, Inc.)
4.3 Definitive Supplemental Indenture No. 2, dated as of July 14, 1997,
relating to the 7.70% Notes due 2017 and including the form of the
7.70% Notes due 2006. (Incorporated by reference to Exhibit 4.2 to the
Current Report on Form 8-K, dated July 9, 1997 of TriNet Corporate
Realty Trust, Inc.)
4.4 TriNet Corporate Realty Trust, Inc. Amended and Restated 1993 Stock
Incentive Plan. (Incorporated by reference to Exhibit 10.24 to the
Registration Statement on Form S-11, of TriNet Corporate Realty Trust,
Inc., Registration No. 33-59836.)
4.5 TriNet Corporate Realty Trust, Inc. 1995 Stock Incentive Plan.
(Incorporated by reference to Exhibit 4.1 to the Registration Statement
on Form S-8, of TriNet Corporate Realty Trust Inc., Registration No.
33-02222.)
4.6 TriNet Corporate Realty Trust, Inc. 1997 Stock Incentive Plan,
including the description of Management Stock Purchase Program of
TriNet Corporate Realty Trust, Inc. and the description of Dividend
Equivalent Rights Program of TriNet Corporate Realty Trust, Inc.
4.7 TriNet Corporate Realty Trust, Inc. 1993 - 1994 Performance Based
Management Incentive Plan. (Incorporated by reference to Exhibit 10.49
to the Registration Statement on Form S-11, of TriNet Corporate Realty
Trust, Inc., Registration No. 33-74284.)
10.1 Loan Agreement dated December 6, 1994, by and among Nomura Asset
Capital Corporation, Pacific Mutual Life Insurance Company and TriNet
Essential Facilities XII, Inc. (Incorporated by reference to Exhibit
10.1 to the Registration Statement on form S-3, of TriNet Corporate
Realty Trust, Inc., Registration No. 33-87256.)
10.2 Interest Rate Protection Agreement dated May 21, 1993, between certain
of the Company's subsidiaries and UBS Securities (Swaps), Inc.
(Incorporated by reference to Exhibit 10.32 to the Registration
Statement on Form S-11, of TriNet Corporate Realty Trust, Inc.,
Registration No. 33-74284)
10.3 Interest Rate Protection Agreement dated December 6, 1994, between
TriNet Essential Facilities XII, Inc. and Morgan Guaranty Trust Company
of New York.
10.4 Form of Noncompetition Agreement dated as of June 2, 1993, between the
Company and certain of its executive officers. (Incorporated by
reference to Exhibit 10.31 to the Registration Statement on Form S-11,
of TriNet Corporate Realty Trust, Inc., Registration No. 33-59836.)
10.5 Form of Option Agreement between the Company and its executive
officers. (Incorporated by reference to Exhibit 10.32 to the
Registration Statement on Form S-11, of TriNet Corporate Realty Trust,
Inc., Registration No. 33-59836.)
10.6 Form of Indemnification Agreement between the Company and the
Independent Directors. (Incorporated by reference to Exhibit 10 to Form
10-Q of TriNet Corporate Realty Trust, Inc., dated August 12, 1993,
Commission file No. 1-11918.)
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
10.7 Description of TriNet Corporate Realty Trust, Inc. Savings and
Retirement Plan. (Incorporated by reference to Exhibit 10.50 to the
Registration Statement on Form S-11, of TriNet Corporate Realty Trust,
Inc., Registration No. 33-74284.)
10.8 Form of Agreement Regarding Change of Control between the Company and
its executive officers dated as of December 10, 1998.
10.9 Amended and Restated Agreement of Limited Partnership between TriNet
Corporate Realty Trust, Inc. and the O'Donnell Revocable Trust, the
Donald S. Grant Revocable Trust and John W. Hopkins, dated June 26,
1996. (Incorporated by reference to Exhibit 10.1 of Form 8-K of TriNet
Corporate Realty Trust, Inc., and dated July 3, 1996, filed with the
Securities and Exchange Commission on July 17, 1996 and as amended by
Form 8-K/A of TriNet Corporate Realty Trust, Inc., dated July 3, 1996,
filed with the Securities and Exchange Commission on August 7, 1996.)
10.10 Agreement of Limited Partnership of TriNet Property Partners, L.P.
10.11 Registration Rights Agreement between TriNet Corporate Realty Trust,
Inc. and Ronald A. Davis, Joseph P. Keller, Dean M. Boylan, Stephen G.
Mack and Lewis L. Whitman dated December 31, 1997.
10.12 Amended and Restated Revolving Credit Agreement among TriNet Corporate
Realty Trust, Inc., as borrower, Morgan Guaranty Trust Company of New
York, as lead agent, and First National Bank of Boston, as managing
co-agent, dated October 9, 1996. (Incorporated by reference to Exhibit
10.2 of Form 10-Q of TriNet Corporate Realty Trust, Inc., dated
November 12, 1996, commission file No. 1-11918.)
10.13 Second Amended and Restated Revolving Credit Agreement among TriNet
Corporate Realty Trust, Inc., as borrower, Morgan Guaranty Trust
Company of New York, as lead agent, and First National Bank of Boston,
as managing co-agent, dated April 22, 1997. (Incorporated by reference
to Exhibit 10.1 of Form 10-Q of TriNet Corporate Realty Trust, Inc.,
dated May 12, 1997, commission file No. 1-11918.)
12.1 Statements regarding Computation of Ratios.
21.1 Schedule of Subsidiaries of the Company as of December 31, 1997:
TriNet Essential Facilities I, Inc.
TriNet Essential Facilities II, Inc.
TriNet Essential Facilities III, Inc.
TriNet Essential Facilities IV, Inc.
TriNet Essential Facilities V, Inc.
TriNet Essential Facilities VI, Inc.
TriNet Essential Facilities VII, Inc.
TriNet Essential Facilities VIIIR, Inc.
TriNet Essential Facilities X, Inc.
TriNet Essential Facilities XI, Inc.
TriNet Essential Facilities XII, Inc.
TriNet Essential Facilities XIV, Inc.
TriNet Essential Facilities XV, Inc.
TriNet Essential Facilities XVI, Inc.
TriNet XVII Realty Trust
TriNet Essential Facilities XVIII, Inc.
TriNet Essential Facilities XIX, Inc.
TriNet Essential Facilities XX, Inc.
TriNet Essential Facilities XXI, Inc.
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
TriNet Essential Facilities XXII, Inc.
TriNet Essential Facilities XXIII, Inc.
TriNet Essential Facilities XXIV, Inc.
TriNet Essential Facilities XXV, Inc.
TriNet Essential Facilities XXVI, Inc.
TriNet Essential Facilities XXVII, Inc.
TriNet Essential Facilities XXVIII, Inc.
TriNet Corporate Partners I, L.P.
TriNet Corporate Partners II, L.P.
TriNet Sunnyvale Partners, L.P.
TriNet Property Partners, L.P.
TriNet Realty Investors I, Inc.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
1. On October 3, 1997, the Company filed a report on Form 8-K with the
Securities and Exchange Commission to report the acquisition of six
properties during the fourth quarter of 1997.
2. On October 6, 1997, the Company filed a report on Form 8-K/A with the
Securities and Exchange Commission to report the audited historical
financial statements and pro forma financial statements relating to the
acquisition of nine additional properties and the sale of two properties
reported in the Form 8-K filed with the Securities and Exchange
Commission on October 3, 1997, 1997.
3. On October 21, 1997, the Company filed a report on Form 8-K with the
Securities and Exchange Commission to provide the underwriting agreement
for the preferred stock offering completed in October 1997.
4. On December 23, 1997, the Company filed a report on Form 8-K with the
Securities and Exchange Commission to report the acquisition of four
properties during the fourth quarter of 1997.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
TRINET CORPORATE REALTY TRUST, INC.
Date: March 30, 1998 /s/ Mark S. Whiting
------------------------------------
Mark S. Whiting, President
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 30, 1998 /s / Robert W. Holman, Jr.
------------------------------------
Robert W. Holman, Jr., Chairman
of the Board of Directors
Date: March 30, 1998 /s / Mark S. Whiting
------------------------------------
Mark S. Whiting, President
Chief Executive Officer and Director
Date: March 30, 1998 /s / Willis Andersen, Jr.
------------------------------------
Willis Andersen, Jr., Director
Date: March 30, 1998 /s/ John G. McDonald
------------------------------------
John G. McDonald, Director
Date: March 30, 1998 /s/ Robert S. Morris
------------------------------------
Robert S. Morris, Director
Date: March 30, 1998 /s/ Stephen B. Oresman
------------------------------------
Stephen B. Oresman, Director
Date: March 30, 1998 /s/ George R. Puskar
------------------------------------
George R. Puskar, Director
Date: March 30, 1998 /s/ A. William Stein
------------------------------------
A. William Stein, Executive Vice President
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)
30
<PAGE> 31
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997
and 1996 F-3
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Schedule III - Real Estate and Accumulated Depreciation F-21
Notes to Schedule III F-29
F-1
<PAGE> 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
TriNet Corporate Realty Trust, Inc.:
We have audited the consolidated balance sheets and the financial statement
schedule of TriNet Corporate Realty Trust, Inc. and its subsidiaries (the
"Company") as of December 31, 1997 and 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
years ended December 31, 1997, 1996 and 1995. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1997 and 1996, and the consolidated results of their
operations and their cash flows for the years ended December 31, 1997, 1996 and
1995, in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
San Francisco, California
January 23, 1998
F-2
<PAGE> 33
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
-----------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Real estate:
Land $ 200,393 $ 120,084
Depreciable property 945,458 577,433
----------- -----------
1,145,851 697,517
Less accumulated depreciation (52,650) (36,360)
----------- -----------
1,093,201 661,157
Investment in joint venture 6,661 6,812
Real estate held for sale, net 10,942 --
----------- -----------
Total real estate 1,110,804 667,969
Cash and cash equivalents 303 4,984
Restricted cash and investments 5,043 4,759
Deferred rent receivable 20,797 14,268
Interest rate protection agreements and loan costs, net 13,958 13,870
Other assets, net 4,999 2,388
----------- -----------
$ 1,155,904 $ 708,238
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Debt $ 434,122 $ 306,931
Dividends payable 13,346 8,799
Other liabilities 32,448 26,460
----------- -----------
Total liabilities 479,916 342,190
----------- -----------
Commitments and contingencies
Minority interest 765 --
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized:
Series A: 2,000,000 shares issued and outstanding
at December 31, 1997 and 1996
(aggregate liquidation preference $50,000) 20 20
Series B: 1,300,000 shares issued and outstanding
at December 31, 1997 and 1996
(aggregate liquidation preference $32,500) 13 13
Series C: 4,000,000 shares issued and outstanding
at December 31, 1997
(aggregate liquidation preference $100,000) 40 --
Common stock, $.01 par value, 40,000,000 shares authorized:
20,853,106 and 13,966,667 shares issued and outstanding
at December 31, 1997 and 1996, respectively 209 139
Paid-in-capital 710,798 394,852
Accumulated deficit (35,857) (28,976)
----------- -----------
Total stockholders' equity 675,223 366,048
----------- -----------
$ 1,155,904 $ 708,238
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE> 34
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
-----------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rent $ 106,862 $ 75,252 $ 56,199
Joint venture income 812 455 --
Management fees 707 244 108
Other 911 1,117 693
------------ ------------ ------------
Total revenues 109,292 77,068 57,000
Expenses:
Property operating costs 3,828 2,955 1,217
General and administrative 6,589 5,352 4,058
Interest 25,845 23,623 20,924
Depreciation and amortization 19,781 13,503 10,567
Provision for portfolio repositioning -- 6,800 --
------------ ------------ ------------
Income before gain on sale
of real estate and extraordinary items 53,249 24,835 20,234
Gain on sale of real estate 985 6,807 --
------------ ------------ ------------
Income before extraordinary items 54,234 31,642 20,234
Extraordinary gain on expropriation 98 -- --
Extraordinary gain from
casualty loss -- 3,178 --
Extraordinary charge from early
extinguishment of debt -- (2,191) (9,561)
------------ ------------ ------------
Net income 54,332 32,629 10,673
Preferred dividend requirement (9,522) (3,646) --
------------ ------------ ------------
Earnings available to common shares $ 44,810 $ 28,983 $ 10,673
============ ============ ============
Earnings available per common share:
Income available before extraordinary items $ 2.30 $ 2.02 $ 1.80
Earnings available $ 2.31 $ 2.09 $ 0.95
Earnings available per common share, assuming dilution:
Income available before extraordinary items $ 2.27 $ 2.01 $ 1.80
Earnings available $ 2.28 $ 2.08 $ 0.95
Weighted average number of common shares outstanding:
Basic 19,435,398 13,864,116 11,219,201
Diluted 19,625,788 13,955,779 11,253,948
Dividends declared per common share $ 2.53 $ 2.49 $ 2.45
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE> 35
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
-----------------
<TABLE>
<CAPTION>
Total
Preferred Stock Common Stock Paid-In Accumulated Stockholders'
---------------------- ----------------------
Issued Amount Issued Amount Capital Deficit Equity
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 -- $ -- 9,242 $ 92 $ 192,548 $ (5,953) $ 186,687
Issuance of common stock,
net of issuance costs -- -- 4,600 46 120,356 -- 120,402
Net income -- -- -- -- -- 10,673 10,673
Common stock
dividends declared -- -- -- -- -- (28,422) (28,422)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 -- -- 13,842 138 312,904 (23,702) 289,340
Issuance of preferred stock,
net of issuance costs 3,300 33 -- -- 78,733 -- 78,766
Exercise of common
stock options -- -- 125 1 3,215 -- 3,216
Net income -- -- -- -- -- 32,629 32,629
Common stock
dividends declared -- -- -- -- -- (34,577) (34,577)
Preferred stock
dividends declared -- -- -- -- -- (3,326) (3,326)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 3,300 33 13,967 139 394,852 (28,976) 366,048
Issuance of preferred stock,
net of issuance costs 4,000 40 -- -- 96,534 -- 96,574
Issuance of common stock,
net of issuance costs -- -- 6,818 68 217,348 -- 217,416
Exercise of common
stock options -- -- 34 1 881 -- 882
Issuance of stock under
management purchase plan -- -- 34 1 1,183 -- 1,184
Net income -- -- -- -- -- 54,332 54,332
Common stock
dividends declared -- -- -- -- -- (52,024) (52,024)
Preferred stock
dividends declared -- -- -- -- -- (9,189) (9,189)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 7,300 $ 73 20,853 $ 209 $ 710,798 $ (35,857) $ 675,223
========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE> 36
TRINET CORPORATE REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
-----------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 54,332 $ 32,629 $ 10,673
Noncash income and expenses included in net income:
Extraordinary gains and charges (98) (1,393) 5,845
Depreciation and amortization 19,781 13,503 10,567
Interest (amortization of interest rate protection
agreements and loan costs) 2,513 2,855 3,595
Straight-line rent adjustments (6,529) (4,824) (4,226)
Gain on sale of real estate (985) (6,807) --
Provision for portfolio repositioning -- 6,800 --
Joint venture income (812) (455) --
Cash provided by (used for) operating assets and liabilities:
Other assets (2,852) (402) (220)
Other liabilities 5,922 4,777 12,554
--------- --------- ---------
Net cash provided by operating activities 71,272 46,683 38,788
--------- --------- ---------
Cash flows from investing activities:
Real estate acquisitions (453,572) (222,412) (160,389)
Proceeds from disposal of real estate 5,156 66,751 --
Contributions to unconsolidated joint venture (176) (6,550) --
Cash distributions from unconsolidated joint venture 1,139 193 --
Other capital expenditures (712) (682) (1,085)
--------- --------- ---------
Net cash used in investing activities (448,165) (162,700) (161,474)
--------- --------- ---------
Cash flows from financing activities:
Acquisition Facility borrowings 358,435 288,511 156,800
Acquisition Facility payments (342,335) (263,311) (79,800)
Mortgage note proceeds -- -- 114,912
Mortgage note principal payments -- (112,737) (151,577)
Proceeds from issuance of common stock 219,482 3,216 120,402
Proceeds from senior unsecured debt offering 99,606 149,691 --
Proceeds from issuance of preferred stock 96,574 78,766 --
Preferred stock dividends paid (9,189) (3,326) --
Common stock dividends paid (47,477) (34,360) (25,478)
Decrease (increase) in restricted cash and investments (284) 7,483 (8,095)
Increase in interest rate protection agreements and
loan costs (2,600) (2,308) (4,413)
--------- --------- ---------
Net cash provided by financing activities 372,212 111,625 122,751
--------- --------- ---------
(Decrease) increase in cash and cash equivalents (4,681) (4,392) 65
Cash and cash equivalents, at beginning of period 4,984 9,376 9,311
--------- --------- ---------
Cash and cash equivalents, at end of period $ 303 $ 4,984 $ 9,376
========= ========= =========
Supplemental information:
Cash paid during the year for interest $ 19,889 $ 19,932 $ 17,276
========= ========= =========
Noncash investing and financing activity:
In December 1997, the Company assumed mortgage notes
totaling $11,433 in connection with a property acquisition.
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 37
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
1. COMPANY BACKGROUND:
Public Stock Offerings and Corporate Reorganization:
TriNet Corporate Realty Trust, Inc. (the "Company" or "TriNet") was
incorporated in the state of Maryland on March 4, 1993, and commenced operations
effective with the completion of the Company's initial public offering of its
common stock (the "Initial Offering") on June 3, 1993. In connection with the
Initial Offering, the Company engaged in various transactions, including the
transfer of 42 properties from the predecessor partnerships (the "Predecessor
Partnerships Properties") and the transfer of the purchase/leaseback and net
lease real estate business operations of The Shidler Group (the
"Reorganization").
During 1995 and 1994, in three separate follow-on public offerings
(the "Follow-on Offerings"), the Company issued an aggregate 7,590,000 shares of
common stock at prices ranging from $27.50 to $29.25 generating proceeds (net of
underwriters' discount and other offering costs) of $202.2 million.
On June 19, 1996, the Company completed a public offering of
2,000,000 shares of 9 3/8% Series A Preferred Stock (the "Series A Preferred
Stock") which generated proceeds of $47.7 million (net of underwriters' discount
and other offering expenses). Dividends on the Series A Preferred Stock are
payable quarterly in arrears at the rate of 9 3/8% per annum of the $25 per
share liquidation preference (equivalent to a fixed annual rate of $2.34375 per
share) in March, June, September, and December. The Series A Preferred Stock is
not redeemable prior to June 15, 2001. The Series A Preferred Stock has no
stated maturity and is not subject to any sinking fund or mandatory redemption.
On August 13, 1996, the Company completed a public offering of
1,300,000 shares of 9.20% Series B Preferred Stock (the "Series B Preferred
Stock") which generated proceeds of $31.1 million (net of underwriters' discount
and other offering expenses). Dividends on the Series B Preferred Stock are
payable quarterly in arrears at the rate of 9.20% per annum of the $25 per share
liquidation preference (equivalent to a fixed annual rate of $2.30 per share) in
March, June, September, and December. The Series B Preferred Stock is not
redeemable prior to August 15, 2001. The Series B Preferred Stock has no stated
maturity and is not subject to any sinking fund or mandatory redemption.
On February 28, 1997, the Company completed an equity offering of
6,250,000 shares of common stock (including 250,000 shares issued in conjunction
with the exercise of the underwriters' over-allotment option) at a price of
$33.625 per share (the "February 1997 Offering"), generating proceeds (net of
underwriters' discount and other offering costs) of $198.2 million.
On September 16, 1997, the Company completed an equity offering of
567,720 shares of common stock at a price of $35.875 per share (the "September
1997 Offering"), generating proceeds (net of underwriters' discount and other
offering costs) of $19.3 million.
On October 8, 1997, the Company completed a public offering of
4,000,000 shares of 8.00% Series C Preferred Stock (the "Series C Preferred
Stock") which generated proceeds of $96.6 million (net of underwriters' discount
and other offering expenses). Dividends on the Series C Preferred Stock are
payable quarterly in arrears at the rate of 8.00% per annum of the $25 per share
liquidation preference (equivalent to a fixed annual rate of $2.00 per share) in
March, June, September, and December. The Series C Preferred Stock is not
redeemable prior to October 8, 2002. The Series C Preferred Stock has no stated
maturity and is not subject to any sinking fund or mandatory redemption.
Business:
TriNet is a real estate investment trust ("REIT") which acquires,
owns and manages predominantly office and industrial properties leased to major
corporations nationwide, including corporate headquarters and strategically
important distribution facilities. As of December 31, 1997, TriNet's portfolio
consisted of 118 properties, including four properties held in the TriNet
Sunnyvale Partnership (Note 4), which are located in 25 states and are 99.5%
leased.
F-7
<PAGE> 38
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Basis of Presentation:
The accompanying consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiary corporations and
partnerships, and its majority-owned and controlled partnership. The equity
interests in the partnership not owned and controlled by the Company are
reflected as minority interest in the consolidated financial statements. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Revenue Recognition:
Rent revenue is recognized on the straight-line method of accounting
and, accordingly, contractual rent payment increases are recognized evenly over
the lease term. The difference between recognized rent revenue and actual rent
cash receipts is recorded as deferred rent receivable on the balance sheet.
Real Estate:
Real estate is recorded at cost, except for the remaining seven
Predecessor Partnerships Properties, which have been accounted for as a
reorganization of entities under common control; therefore, the remaining
Predecessor Partnerships Properties have been reported at the historical cost of
the previous owners. Depreciation is computed using the straight-line method of
cost recovery over estimated useful lives of 31.5 or 40 years for buildings and
improvements and seven years for furniture and equipment.
Investments in real estate are stated at the lower of depreciated
cost or estimated fair value. On a property-by-property basis, fair value for
financial reporting purposes is periodically evaluated by the Company using
undiscounted cash flows. If any potential impairments are identified, they are
measured by the property's fair value based on either the property's expected
net cash flow or sales comparables, less estimated carrying costs throughout the
anticipated holding period, plus the estimated sales proceeds from the ultimate
disposition. Should the carrying value of a property exceed the estimated fair
value, a provision for the decrease in net realizable value is recorded.
Estimated fair value is not necessarily an indication of the property's current
value or the amount that would be realized upon the ultimate disposition. As of
December 31, 1997, no properties had carrying values that exceeded the estimated
fair values.
Investment in Real Estate Joint Ventures:
Investments in unconsolidated real estate joint ventures than are not
majority-owned and controlled by the Company are accounted for on the equity
method.
Cash and Cash Equivalents:
Cash and cash equivalents include all cash and liquid investments
with a maturity of three months or less.
Accounting for Stock-based Compensation:
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock-based compensation plans.
Reclassification:
Certain prior year amounts have been reclassified in the consolidated
financial statements and the related notes to conform to the 1997 presentation.
F-8
<PAGE> 39
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
Income Taxes:
The Company has elected to be taxed as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). As a result, the Company
generally will not be subject to federal income taxation at the corporate level
to the extent it distributes annually at least 95% of its REIT taxable income,
as defined in the Code, to its stockholders and satisfies certain other
requirements. Accordingly, no provision has been made for federal income taxes
in the accompanying consolidated financial statements.
In connection with the Initial Offering, the tax basis of the
remaining Predecessor Partnership Properties transferred to the Company has been
recorded based upon the value of the consideration paid by the Company.
Accordingly, the tax basis of these real estate assets exceeds the book basis by
approximately $11.8 million.
Interest Rate Risk Management:
The Company has entered into various interest rate protection
agreements that, together with a swap agreement, fix the interest rate on the
Company's London Interbank Offered Rate("LIBOR")-based borrowings. The related
cost of these agreements is amortized over the lives of the underlying debt
agreements and such amortization is recorded as interest expense. In addition,
the Company enters into off-balance sheet interest rate hedge agreements to
mitigate the effect of interest rate changes that may occur from the date that
the Company determines the need to enter into a future debt agreement and the
date that the related debt is issued. Such interest rate hedge agreements, which
are generally indexed to U.S. government treasury securities, pertain to
probable fixed rate debt issuances for which the Company has identified the
significant characteristics and expected terms. Any gains or losses realized
upon settlement of qualifying hedge transactions are amortized over the lives of
the related debt agreements. In the event that the Company decides not to issue
such debt or at the time the instrument no longer qualifies as a hedge, the
Company would recognize a gain or loss in current operations based on the
eventual settlement proceeds received or paid. The Company enters into interest
rate risk management arrangements with financial institutions meeting certain
minimum financial criteria, and the related credit risk of non-performance by
counter-parties is not deemed to be significant.
Market Concentration Risk:
The Company owns and acquires properties nationally and believes that
operating a national portfolio of real estate reduces the risk of exposure to
economic downturns in any one market. Within the current national operating
strategy, TriNet believes its acquisition efforts are focused on markets with
growing employment, increasing real estate occupancy rates, and rising rents.
Concentration of Credit Risk:
Management of the Company performs ongoing credit evaluations of the
tenants and may require tenants to provide some form of credit support such as
corporate guarantees. Although the Company's properties are geographically
diverse and the tenants operate in a variety of industries, to the extent TriNet
has a significant concentration of rent revenues from any single tenant, the
inability of that tenant to make its lease payments could have an adverse effect
on the Company. As of December 31, 1997, the Company's five largest tenants
collectively accounted for approximately 21% of the Company's annualized rent
revenue. The Company's largest single tenant accounted for approximately 5% of
the Company's annualized rent revenue.
Newly Issued Accounting Standards:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. SFAS No. 131 specifies
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. SFAS No. 130 and SFAS No.
131 are effective for financial statements issued for periods beginning after
December 15, 1997. These new standards are not anticipated to have a material
effect on the Company's consolidated financial statements.
F-9
<PAGE> 40
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
3. REAL ESTATE:
In April 1996, a wholly-owned subsidiary of the Company sold a retail
property located in Denham Springs, Louisiana, for a sale price of $1.3 million,
resulting in an insignificant gain. In June 1996, a wholly-owned subsidiary of
the Company sold an office building located in Largo, Florida, for a sale price
of $11.0 million, resulting in a gain of approximately $650,000. In November
1996, a wholly-owned subsidiary of the Company sold 34 retail properties for a
sale price of $24.8 million, resulting in a gain of approximately $6.2 million.
In December 1996, a wholly-owned subsidiary of the Company received a
$30.0 million cash settlement from MacFrugal's Bargains o Close-outs Inc. as
compensation for the destruction of its New Orleans warehouse/distribution
property which was destroyed by fire in March 1996. The proceeds from this
disposal are comprised of approximately $26.2 million as casualty proceeds, $3.5
million as a lease termination fee, and approximately $300,000 as a settlement
structuring fee. In addition, the Company recognized an extraordinary gain of
approximately $3.2 million on this transaction. Approximately $20.0 million of
the proceeds were used to pay down a mortgage loan (see Note 8), resulting in a
$1.0 million extraordinary charge.
As of December 31, 1997, the Company owned three properties leased to
Schwegmann Giant Super Markets ("Schwegmann"), which represented approximately
2% of the Company's annualized rent revenues as of such date. Schwegmann's was
experiencing financial difficulties due to an increasingly competitive grocery
retailing environment and on February 14, 1997, sold its grocery operations to
SGSM Acquisition Company, L.L.C. ("SGSM"), an entity formed by Kohlberg & Co.,
L.L.C., but retained its real estate properties, the majority of which were
leased to SGSM. In consideration of the Company's focus on decreasing its retail
property holdings and in response to Schwegmann's deteriorating financial
condition, the Company recorded a provision for portfolio repositioning as of
December 31, 1996, in the amount of $6.8 million, and reduced the depreciable
basis of the retail properties and related deferred rent receivable. In January
1998, SGSM signed a new 20-year lease on one of the three properties leased to
Schwegmann, the second of the Company's Schwegmann properties on which SGSM has
signed a direct lease. The two leases with SGSM have cross-default provisions.
The other two Schwegmann properties were subleased by SGSM through February 1998
and continue to be leased by Schwegmann through June 2015.
In March 1997, a wholly-owned subsidiary of the Company sold a 5,353
square foot parcel (the "Parcel") which was part of the Lockheed Martin
Aerospace Corporation property, located in Sunnyvale, California. The Santa
Clara County Transit District expropriated the Parcel for construction of a
light rail system. The Parcel was sold for $122,000 resulting in an
extraordinary gain on expropriation of $98,000.
In May 1997, a wholly-owned subsidiary of the Company sold a 148,595 square foot
office/R&D property in Malvern, Pennsylvania, for a sale price of approximately
$5.3 million resulting in a gain of approximately $985,000.
On December 31, 1997, TriNet Property Partners, L.P. ("TPP"), a newly
formed partnership in which a wholly-owned subsidiary of the Company is the sole
general partner, purchased a nine building office/R&D portfolio from a group of
private partnerships (the "Private Partnerships"). Concurrent with the
acquisition of the properties, the limited partners exchanged their equity in
the Private Partnerships for $765,000 of TPP limited partnership units (the
"Units"). Under the terms of the limited partnership agreement, holders of the
Units have the right to require TPP to redeem their Units, subject to certain
conditions. The Company may redeem the Units with cash or may elect to deliver
an equivalent number of shares of common stock to the holders of the Units. TPP
is consolidated in the financial statements of the Company.
In January 1998, the Company entered into an agreement with a third
party to sell four properties totaling approximately 655,500 square feet,
located in Clay, New York. The Company anticipates closing the transaction in
the second quarter of 1998, subject to the buyer's due diligence process.
Accordingly, the net book value of this real estate is reflected as "Real estate
held for sale, net" on the balance sheet at December 31, 1997.
F-10
<PAGE> 41
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
4. INVESTMENT IN REAL ESTATE JOINT VENTURE:
In June 1996, the Company contributed $6.1 million in cash in
exchange for a 44.7% sole general partner interest in TriNet Sunnyvale Partners,
L.P. (the "Sunnyvale Partnership"). The Sunnyvale Partnership owns a
four-building office campus in Sunnyvale, California, subject to a $17.3 million
non-recourse first mortgage. The Company accounts for its partnership investment
under the equity method as the limited partners have certain rights which limit
the Company's control. The limited partners are entitled to a preferred return
and commencing in June 1998, the limited partners have the option to convert
their interest into cash; however, the Copmany may elect to deliver 258,894
shares of the Company's common stock in lieu of cash.
5. RESTRICTED CASH AND INVESTMENTS:
Under the terms of the 1994 Mortgage Loan (Note 8), the Company is
required to maintain restricted cash reserves for debt service and leasing cost
obligations. At December 31, 1997 and 1996, the Company had $5,043 and $4,759,
respectively, of restricted cash and investments related to these obligations.
6. INTEREST RATE PROTECTION AGREEMENTS AND LOAN COSTS:
The following table summarizes the costs and accumulated amortization
associated with interest rate protection agreements and loan costs (in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Loan origination costs $ 10,866 $ 8,285
Protection agreement costs 9,845 9,845
-------- --------
20,711 18,130
Accumulated amortization (6,753) (4,260)
-------- --------
Loan origination costs and
protection agreement costs, net $ 13,958 $ 13,870
======== ========
</TABLE>
The following table sets forth the components of interest expense for the years
ended (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest $23,332 $20,768 $17,329
Loan origination costs (non-cash) 1,528 1,870 2,063
Protection agreement costs (non-cash) 985 985 1,532
------- ------- -------
$25,845 $23,623 $20,924
======= ======= =======
</TABLE>
F-11
<PAGE> 42
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
7. OTHER ASSETS, NET:
Accumulated amortization related to other assets aggregated
approximately $864,000 and $452,000 at December 31, 1997 and 1996, respectively.
8. DEBT:
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
Balance as of December 31, Interest Rate as of Maturity
--------------------------
LOAN 1997 1996 December 31, 1997 Date
- --------------------- ---------- ---------- ------------------ -----------
<S> <C> <C> <C> <C>
Acquisition Facility $ 118,300 $ 102,200 LIBOR + 0.925% 10/08/1999
7.30% Notes due 2001 100,000 100,000 7.30% 05/15/2001
1994 Mortgage Loan 55,013 55,013 LIBOR + 1.00% 12/01/2004
7.95% Notes due 2006 50,000 50,000 7.95% 05/15/2006
7.70% Notes due 2017 100,000 -- 7.70% 07/15/2017
Other Mortgage Loans 11,433 -- 7.50% - 8.81% (1)
--------- ---------
434,746 307,213
Less debt discount (624) (282)
---------- ---------
$ 434,122 $306,931
========== =========
</TABLE>
(1) Other Mortgage Loans mature at various dates through 2009.
ACQUISITION FACILITY. In October 1995, the Company entered into a
$200.0 million acquisition facility (the "Acquisition Facility"), a revolving
credit facility to be used for real estate acquisitions and for general working
capital purposes. Once the Company received its initial investment grade ratings
in April of 1996, borrowings under the Acquisition Facility bore interest, at
the Company's discretion, at either (i) the applicable LIBOR plus 1.50% or (ii)
prime, subject to the Interest Rate Swap discussed elsewhere. On October 15,
1996, the Company amended certain terms of the Acquisition Facility. The Company
obtained a reduction of 30 basis points on its then current LIBOR borrowings
cost from LIBOR plus 1.50% to LIBOR plus 1.20%. The commitment fee was reduced
from 25 basis points to 20 basis points. In addition, the expiration date of the
facility was extended two years and will mature in October 1999. Effective April
22, 1997, the Company again amended (the "Second Amendment") the Acquisition
Facility, lowering the contractual rate on LIBOR-based borrowings to 92.5 basis
points over LIBOR. Additionally, the Second Amendment agreement includes a
$100.0 million competitive bid facility which allows the banks in the
Acquisition Facility's syndicate to provide financings, at their option, by
selectively bidding on certain borrowings at more competitive rates.
Furthermore, the commitment fee on the unused amount of the Acquisition Facility
was changed to a 17.5 basis point facility fee on the entire amount of the
Acquisition Facility. The maximum loan-to-value ratio of unsecured debt to
unleveraged assets was also increased from 54% to 57%.
All of the available commitment under the facility may be borrowed
for general corporate and working capital needs, as well as for the acquisition
of real estate. The Acquisition Facility requires monthly interest-only payments
until maturity in October 1999, at which time outstanding borrowings are due and
payable. The Acquisition Facility is subject to certain restrictive covenants
including limitations on additional borrowings based on the value of real estate
assets, minimum debt service and fixed charges coverage, minimum net worth
levels, and maximum leverage. Additionally, the Company may not pay dividends in
excess of 95% of funds from operations, as defined by the loan agreement.
F-12
<PAGE> 43
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
In 1995, borrowings under the Acquisition Facility were used to
extinguish a mortgage loan and the Company's previous acquisition facility. In
connection with the early extinguishment of these loans, the Company incurred
fees of $3.7 million and wrote-off related unamortized loan costs of $5.9
million resulting in an extraordinary charge of $9.6 million for the year ended
December 31, 1995.
2001 NOTES AND 2006 NOTES. On May 22, 1996, the Company completed a
public offering of $100.0 million of its 7.30% Notes due 2001 (the "2001 Notes")
and $50.0 million of its 7.95% Notes due 2006 (the "2006 Notes" and, together
with the 2001 Notes, the "Notes"). The 2001 Notes were sold at a price of
99.764% of the face value, and the 2006 Notes were sold at a price of 99.853% of
the face value resulting in proceeds (net of the price discount, underwriters'
discount and issuance costs) of approximately $147.8 million. The Notes are
senior unsecured obligations of the Company and rank equally with the Company's
other unsecured and unsubordinated indebtedness. Subject to certain conditions,
the Notes are redeemable at any time at the option of the Company. Interest on
the Notes is paid semi-annually in arrears. The discounts on the Notes are being
amortized using the effective interest method over the respective lives of the
Notes.
1994 MORTGAGE LOAN. In December 1994, a subsidiary of the Company
entered into a $110.0 million mortgage loan (the "1994 Mortgage Loan"). The 1994
Mortgage Loan currently bears interest at a variable rate equal to the 30-day
LIBOR plus 1.00% subject to the Interest Rate Swap discussed below. The 1994
Mortgage Loan requires monthly interest-only payments until maturity in December
2004 at which time outstanding principal is due and payable. The 1994 Mortgage
Loan was assigned to a trust intended to qualify as a real estate mortgage
investment conduit, and the trust issued commercial mortgage pass-through
certificates in the aggregate amount of $110.0 million, collateralized by
certain real estate assets.
On July 1, 1996, the Company prepaid $35.0 million of the 1994
Mortgage Loan, which reduced the interest rate from LIBOR plus 1.25% to LIBOR
plus 1.00%. Additionally, this prepayment resulted in an extraordinary charge of
approximately $1.2 million, the majority of which was non-cash. On December 13,
1996, the Company prepaid approximately $20.0 million of the 1994 Mortgage Loan
as a result of the settlement of the casualty loss that arose from the fire that
destroyed the 1.2 million square foot warehouse/distribution property located in
New Orleans, Louisiana. Additionally, this prepayment resulted in an
extraordinary charge of $1.0 million of which $627,000 was non-cash.
2017 NOTES. On July 14, 1997, the Company completed a public offering
of $100.0 million of its 7.70% Notes due 2017 (the "2017 Notes"). The 2017 Notes
were sold at a price of 99.606% of the face value resulting in proceeds (net of
the price discount, underwriters' discount and issuance costs) of approximately
$97.1 million. The 2017 Notes are senior unsecured obligations of the Company
and rank equally with the Company's other unsecured and unsubordinated
indebtedness. Subject to certain conditions, the 2017 Notes are redeemable at
any time at the option of the Company. Interest on the 2017 Notes is paid
semi-annually in arrears. The discount on the 2017 Notes is being amortized
using the effective interest method over the respective life of the 2017 Notes.
OTHER MORTGAGE LOANS. In conjunction with TPP's acquisition of a
portfolio of nine properties on December 31, 1997, TPP assumed four mortgages
(the "Other Mortgage Loans") totaling $11.4 million of debt from a group of
private partnerships. The Other Mortgage Loans require monthly principal and
interest payments and are collateralized by certain real estate assets.
INTEREST RATE SWAP. Effective October 1, 1995, the Company entered
into an interest rate swap agreement (the "Interest Rate Swap") with a financial
institution which, together with certain existing interest rate cap agreements,
effectively fixed the interest rate on $110.0 million of the Company's
LIBOR-based borrowings at 5.58% plus the applicable margin. The notional amount
of indebtedness covered by the Interest Rate Swap varies over time and was
$110.0 million through May 1996, was $160.0 million from June 1996 through
December 1997, and will be $125.0 million from January 1998 through May 1998,
and $75.0 million from June 1998 through November 2004. The actual borrowing
cost to the Company with respect to indebtedness covered by the Interest Rate
Swap will depend upon the applicable margin over LIBOR for such indebtedness,
which will be determined by the terms of the relevant debt instruments.
Currently, it is expected that the margin will range from .925% to 1.00%, which
will provide for an all-in annual interest rate range from 6.505% to 6.58%.
F-13
<PAGE> 44
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
The weighted average effective interest rate was 7.18%, 7.27% and
7.35% for the years ended December 31, 1997, 1996, and 1995, respectively. Based
on the borrowing rates currently available to the Company for borrowings with
similar terms and maturities, the carrying value of the Company's mortgage notes
payable approximates fair value.
Future maturities of outstanding debt are as follows (in thousands):
<TABLE>
<S> <C> <C>
1998 $ 389
1999 118,722
2000 4,195
2001 100,322
2002 353
Thereafter 210,765
---------
$ 434,746
=========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
From time to time the Company is subject to routine litigation
incidental to its business. The Company believes that the results of any pending
legal proceedings will not have a materially adverse effect on the Company's
financial condition.
The Company is also subject to option agreements with five existing
tenants which could require the Company to fund tenant improvements on
approximately 25,000 square feet and to construct up to 497,000 square feet of
additional adjacent space on which the Company would receive additional rent
under the terms of the option agreements.
During 1997, the Company entered into a $43.4 million contract with a
third party developer to acquire a property currently under construction. The
acquisition of this property is subject to the completion of construction,
occupancy of the premises by the tenant (pursuant to a lease that has already
been executed by the parties) and satisfaction of certain other conditions.
Completion of construction is expected during the second quarter of 1998.
10. DIVIDENDS:
As described in Note 2, the Company qualifies for federal income tax
purposes as a REIT. The following summarizes the tax components of common
dividends paid in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Per Common Share:
Ordinary income $1.82 $1.27 $1.47
Capital gain 0.01 0.10 --
Return of capital 0.06 1.12 0.98
----- ----- -----
Total $1.89(1) $2.49 $2.45
===== ===== =====
</TABLE>
(1) The fourth quarter common stock dividend of $.64, which was
payable on January 2, 1998, to shareholders of record on December 17, 1997, is
treated as a 1998 dividend distribution for federal income tax reporting
purposes and accordingly, is not included in the above table.
F-14
<PAGE> 45
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
100% of the dividends declared on the Series A Preferred Stock,
Series B Preferred Stock, and Series C Preferred Stock for the years ended
December 31, 1997 and 1996 represented ordinary income for income tax purposes.
11. STOCK OPTION PLANS AND EMPLOYEE BENEFITS:
The Company established the 1993 Stock Incentive Plan (the "1993
Stock Plan") for the purpose of encouraging and enabling the Company's officers,
employees, and directors to acquire a proprietary interest in the Company. The
1993 Stock Plan provides for administration by the Compensation Committee (the
"Committee") of the Board of Directors. A maximum of 500,000 common shares were
reserved for issuance under the 1993 Stock Plan. The 1993 Stock Plan authorized
(i) the grant of stock options that qualify as incentive stock options ("ISOs")
under Section 422 of the Code, (ii) the grant of stock options that do not so
qualify ("Non-qualified Options"), and (iii) grants of shares contingent upon
the attainment of performance goals or subject to other restrictions. Options
granted under the 1993 Stock Plan vest ratably over four years for employees and
after one year for non-employee directors.
In addition, in connection with the Initial Offering, options were
granted separately from the 1993 Stock Plan to executive officers to purchase an
aggregate of 290,000 shares at the Initial Offering price of $24.25 per share.
Options granted in connection with the Initial Offering vested ratably over
three years.
During 1995, the Company adopted the 1995 Stock Incentive Plan (the
"1995 Stock Plan"). The 1995 Stock Plan provides for the issuance of, or grant
of options to purchase, up to 1,000,000 shares of Common Stock. Options under
the 1995 Stock Plan may be ISOs or Non-qualified Options. Options granted to
date under the 1995 Stock Plan vest ratably over four years for employees and
after one year for non-employee directors.
During 1997, the Company adopted the 1997 Stock Incentive Plan (the
"1997 Stock Plan)". The 1997 Stock Plan provides for the issuance of, or grant
of options to purchase, up to 800,000 shares of Common Stock. Options under the
1997 Stock Plan may be ISOs or Non-qualified Options. No options have been
granted to date under the 1997 plan.
Also during 1997, the Company adopted the Dividend Equivalent Rights
("DER") Program as part of the Company's long-term incentive compensation plans.
DERs are issued to employees and directors in conjunction with option grants to
purchase Company stock and vest in equal annual installments over a period of
four years for employees and one year for directors. DERs expire after five
years or when the underlying stock option is exercised, forfeited or canceled.
Payments on the DER units awarded will accrue and accumulate in amounts equal to
the dividends declared and paid on the underlying options, and the actual
payments on vested DERs will be made in annual installments on the vesting
dates. DER units were issued in tandem with all options granted in 1997.
F-15
<PAGE> 46
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
Changes during 1995, 1996, and 1997 in options outstanding for the
combined plans were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES AVERAGE
-----------------------------
NON-EMPLOYEE OPTION PRICE
EMPLOYEES DIRECTORS PER SHARE
----------- ------------ ----------
<S> <C> <C> <C>
Options Outstanding, December 31, 1994 478,333 48,000 $27.06
Granted, 1995 266,000 30,000 $27.81
-------- --------
Options Outstanding, December 31, 1995 744,333 78,000 $27.33
Granted, 1996 260,000 30,000 $28.46
Exercised, 1996 (119,000) (6,000) $25.72
Canceled, 1996 (63,500) -- $28.73
-------- --------
Options Outstanding, December 31, 1996 821,833 102,000 $27.81
Granted, 1997 189,000 20,000 $32.74
Exercised, 1997 (34,024) -- $25.92
-------- --------
Options Outstanding, December 31, 1997 976,809 122,000 $28.80
======== ========
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------ ---------------------------------------
Weighted
Shares Average Weighted Number Weighted
Exercise Price Outstanding Remaining Average Exercisable Average
Range December 31, 1997 Contractual Life Exercise Price December 31, 1997 Exercise Price
- -------------------- --------------------- ------------------ ---------------- -------------------- ------------------
<S> <C> <C> <C> <C> <C>
$24.250 173,333 5.42 $24.250 173,333 $24.250
$24.630 18,000 5.50 $24.630 18,000 $24.630
$27.750 207,000 7.00 $27.750 117,000 $27.750
$28.250 246,500 7.96 $28.250 60,500 $28.250
$28.375 - $30.250 84,976 7.72 $29.567 60,976 $29.943
$30.875 160,000 6.42 $30.875 120,000 $30.875
$32.500 20,000 4.43 $32.500 - -
$32.625 184,000 4.41 $32.625 - -
$38.125 5,000 4.41 $38.125 - -
- -------------------- --------------------- ------------------ --------------- -------------------- ------------
1,098,809 6.42 $28.805 549,809 $27.525
===================== ================== =============== ==================== ============
</TABLE>
At December 31, 1997, 520,500 common shares were available for future
grant of options or awards under the 1995 Stock Plan, and 800,000 common shares
were available for future grant of options or awards under the 1997 Stock Plan.
There are no remaining common shares available for future grant of options or
awards under the 1993 Stock Plan.
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock option plans. Accordingly, no compensation expense has
been recognized for its stock-based compensation plans. Had compensation cost
for the Company's stock option plans been determined based upon the fair value
at the grant date for awards under these plans consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, the Company's net income and earnings per common
share would have been reduced by approximately $523,000, or $.03 per common
share for the year ended December 31, 1997, approximately $359,000 or $.03 per
common share for the year ended December 31, 1996, and approximately
F-16
<PAGE> 47
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
$144,000 or $.01 per common share for the year ended December 31, 1995. The fair
value of the options granted during 1997 is estimated as $3.59 per share on the
date of grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 7.24%, volatility of 20%, risk-free interest
rates of 5.75% to 6.5%, actual forfeitures, and an expected life of
approximately four years. The fair value of the options granted during 1996 is
estimated as $3.04 per share on the date of grant using the Black-Scholes option
pricing model with the following assumptions: dividend yield of 7.14%,
volatility of 21%, risk-free interest rates of 5.18% to 5.77%, actual
forfeitures, and an expected life of approximately five years. The fair value of
the options granted during 1995 is estimated as $2.85 per share on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield of 7.41%, volatility of 21%, risk-free interest
rates of 5.18% to 5.77%, actual forfeitures, and an expected life of
approximately five years.
Effective January 1, 1994, the Company implemented the TriNet
Corporate Realty Trust, Inc. Savings and Retirement Plan (the "401(k) Plan"),
which is a voluntary, defined contribution plan. All employees are eligible to
participate in the 401(k) Plan following completion of six months of continuous
service with the Company. Each participant may contribute on a pretax basis
between 2% and 10% of such participant's compensation. At the discretion of the
Board of Directors, the Company may make matching contributions on the
participant's behalf, up to 50% of the participant's annual contribution. The
Company made contributions of approximately $102,000, $67,000, and $50,000 to
the 401(k) Plan for the years ended December 31, 1997, 1996, and 1995,
respectively.
12. OPERATING LEASES:
The properties are leased to tenants under net operating leases with
initial term expiration dates ranging from 1998 to 2018. Future rentals under
non-cancelable operating leases, excluding tenant reimbursements of expenses, in
effect at December 31, 1997, are approximately as follows (in thousands):
<TABLE>
<CAPTION>
Year Amount
--------------- -----------------
<S> <C>
1998 $ 126,850
1999 127,012
2000 122,017
2001 113,037
2002 102,955
Thereafter 501,346
-----------
$ 1,093,217
===========
</TABLE>
No single tenant represented more than 10% of rent revenues received
for the year ended December 31, 1997.
F-17
<PAGE> 48
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
13. DEPRECIATION:
Depreciation expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Real estate $19,347 $13,293 $10,408
Corporate furniture and equipment 174 186 138
------- ------- -------
$19,521 $13,479 $10,546
======= ======= =======
</TABLE>
14. EARNINGS PER SHARE:
The following table presents the basic and diluted earnings per share
calculations (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NUMERATOR
Income before extraordinary items $ 54,234 $ 31,642 $ 20,234
Extraordinary items 98 987 (9,561)
------------ ------------ ------------
Net income 54,332 32,629 10,673
Preferred dividend requirement (9,522) (3,646) --
------------ ------------ ------------
Earnings available to common shares $ 44,810 $ 28,983 $ 10,673
============ ============ ============
DENOMINATOR
Basic:
Weighted average common shares outstanding 19,435,398 13,864,116 11,219,201
============ ============ ============
Diluted:
Weighted average common shares outstanding 19,435,398 13,864,116 11,219,201
Shares issuable from assumed conversion of
common stock options 190,390 91,663 34,747
------------ ------------ ------------
Weighted average common shares outstanding,
as adjusted 19,625,788 13,955,779 11,253,948
============ ============ ============
EARNINGS AVAILABLE PER COMMON SHARE - BASIC:
Income available before extraordinary items $ 2.30 $ 2.02 $ 1.80
Extraordinary items 0.01 0.07 (0.85)
------------ ------------ ------------
Earnings available $ 2.31 $ 2.09 $ 0.95
============ ============ ============
EARNINGS AVAILABLE PER COMMON SHARE - DILUTED:
Income available before extraordinary items $ 2.27 $ 2.01 $ 1.80
Extraordinary items 0.01 0.07 (0.85)
------------ ------------ ------------
Earnings available $ 2.28 $ 2.08 $ 0.95
============ ============ ============
</TABLE>
F-18
<PAGE> 49
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
Commencing in June 1998, the limited partners of the Sunnyvale
Partnership have the option to convert their interests into cash; however, the
Company may elect to deliver 258,894 shares of the Company's common stock in
lieu of cash. Similarly, under the terms of the TPP limited partnership
agreement, the Company may elect to deliver 19,784 shares of common stock should
the limited partners redeem their interests. The assumed conversion of the
Sunnyvale Partnership units and the TPP Units were not included in the
calculation of diluted earnings per share as they were antidilutive for the
periods presented.
15. SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION: (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
December 31 September 30 June 30 March 31
------------ ------------- ------------- -------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
1997
- ----
Revenues $ 31,652 $ 28,995 $ 26,118 $ 22,527
Income before extraordinary item $ 15,938 $ 13,517 $ 14,334 $ 10,445
Extraordinary gain $ -- $ -- $ -- $ 98
Net income $ 15,938 $ 13,517 $ 14,334 $ 10,543
Earnings available to common shares $ 12,174 $ 11,598 $ 12,414 $ 8,624
Earnings available per common share - Basic:
Extraordinary gain per share $ -- $ -- $ -- $ 0.01
Earnings available per common share $ 0.58 $ 0.57 $ 0.61 $ 0.53
Earnings available per common share - Diluted:
Extraordinary gain per share $ -- $ -- $ -- $ 0.01
Earnings available per common share $ 0.58 $ 0.56 $ 0.61 $ 0.53
Weighted average number of shares outstanding:
Basic 20,845,490 20,367,901 20,275,338 16,191,472
Diluted 21,092,044 20,565,370 20,413,650 16,372,114
1996
- ----
Revenues $ 21,119 $ 20,154 $ 18,953 $ 16,842
Income before extraordinary items $ 8,647 $ 9,156 $ 7,149 $ 6,690
Extraordinary gain $ 3,178 $ -- $ -- $ --
Extraordinary charges $ (1,026) $ (1,165) $ -- $ --
Net income $ 10,799 $ 7,991 $ 7,149 $ 6,690
Earnings available to common shares $ 8,879 $ 6,421 $ 6,993 $ 6,690
Earnings available per common share - Basic:
Extraordinary gain per share $ 0.23 $ -- $ -- $ --
Extraordinary charges per share $ (0.07) $ (0.08) $ -- $ --
Earnings available per common share $ 0.64 $ 0.46 $ 0.51 $ 0.48
Earnings available per common share - Diluted:
Extraordinary gain per share $ 0.23 $ -- $ -- $ --
Extraordinary charges per share $ (0.07) $ (0.08) $ -- $ --
Earnings available per common share $ 0.63 $ 0.46 $ 0.50 $ 0.48
Weighted average number of shares outstanding:
Basic 13,913,692 13,858,754 13,841,865 13,841,667
Diluted 14,068,983 13,967,893 13,905,943 13,898,089
</TABLE>
F-19
<PAGE> 50
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------------------
16. PRO FORMA FINANCIAL INFORMATION: (UNAUDITED)
The pro forma financial information set forth below is presented as if
the February 1997 Offering, the September 1997 Offering, the 2001 Notes
offering, the 2006 Notes offering, the 2017 Notes offering, the Series A
Preferred Stock offering, the Series B Preferred Stock offering, the Series C
Preferred Stock offering, the acquisitions of real estate during 1996 and 1997,
the dispositions of real estate during 1996 and 1997, and the related
refinancings of other mortgage loans had occurred on January 1, 1996.
The pro forma financial and operating data are not necessarily
indicative of what the actual results of operations or financial position of the
Company would have been nor do they purport to represent the results of
operations or financial position for future periods. In addition, the pro forma
financial and operating data do not include the effects of the gains on sale of
real estate and the extraordinary items recognized in the Company's historical
financial statements.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
(in thousands, except share data)
<S> <C> <C>
Revenues $ 131,827 $ 131,827
Income from recurring operations $ 60,943 $ 53,685 (1)
Earnings available to common shares $ 45,265 $ 38,007
Earnings available per common share - Basic $ 2.17 $ 1.82
Earnings available per common share - Diluted $ 2.15 $ 1.81
Common shares outstanding - Basic 20,853,106 20,853,106
Common shares outstanding - Diluted 21,043,496 21,043,496
</TABLE>
(1) Pro forma income from recurring operations for the year ended December
31, 1996, includes a provision for portfolio repositioning of $6.8
million.
F-20
<PAGE> 51
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost Costs
------------------------------------
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
UNISYS CORPORATION
1 2476 Swedesford Rd $ _ $ 2,825 $16,421 $ _ $ _ $ _
Paoli, PA
2 2611 Corporate W. Dr 7,664 8,232 20,015 _ 82 _
Lisle, IL
SPX CORPORATION
3 700 Terrace Point Dr. _ 570 7,891 445 _ _
Muskegon, MI
4 100 Terrace Plaza _ 465 6,441 364 _ _
Muskegon, MI
REX STORES CORPORATION
5 2875 Needmore Rd 2,496 1,184 5,407 _ _ _
Dayton, OH
UARCO INCORPORATED
6 4000 South Racine Ave _ 184 998 _ 1,930 _
Chicago, IL
RALPHS GROCERY COMPANY
7 2652 East Long Beach Ave _ 7,293 8,914 853 _ _
Los Angeles, CA
ART LINE, INC
8 600 North Kilbourn _ 268 2,353 124 391 _
Chicago, IL
UNIVERSAL TECHNICAL INSTITUTE
9 3002 North 27th Ave _ 1,621 3,226 _ 10 _
Phoenix, AZ
CATERAIR INTERNATIONAL
CORPORATION
10 50 Adrian Court _ 742 2,112 _ _ _
Burlingame, CA
11 370 Adrian Road _ 451 1,282 _ _ _
Millbrae, CA
12 3500 N.W. 24th Street _ 1,855 5,280 _ _ _
Miami, FL
13 3630 N.W. 25th Street _ 981 2,791 _ _ _
Miami, FL
14 4101 N.W. 25th Street _ 848 2,414 _ _ _
Miami, FL
15 221 West 79th St _ 245 698 _ _ _
Bloomington, MN
16 1085 Bible Way _ 151 430 _ _ _
Reno, NV
17 18850 28th Avenue, South _ 504 1,433 _ _ _
Seattle, WA
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
---------------------------------------------------------
Furniture Depreciable
and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- -------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
UNISYS CORPORATION
1 2476 Swedesford Rd $ 2,825 $16,421 $ _ $ _ $19,246 $ 5,199 1990 31.5
Paoli, PA
2 2611 Corporate W. Dr 8,250 20,059 _ 20 28,329 1,777 1994 40.0
Lisle, IL
SPX CORPORATION
3 700 Terrace Point Dr. 570 7,891 445 _ 8,906 2,530 1989 31.5
Muskegon, MI
4 100 Terrace Plaza 465 6,441 364 _ 7,270 2,066 1989 31.5
Muskegon, MI
REX STORES CORPORATION
5 2875 Needmore Rd 1,184 5,407 _ _ 6,591 513 1994 40.0
Dayton, OH
UARCO INCORPORATED
6 4000 South Racine Ave 389 2,696 _ 27 3,112 666 1989 31.5
Chicago, IL
RALPHS GROCERY COMPANY
7 2652 East Long Beach Ave 7,293 8,914 853 _ 17,060 2,958 1990 31.5
Los Angeles, CA
ART LINE, INC
8 600 North Kilbourn 283 2,680 124 49 3,136 841 1989 31.5
Chicago, IL
UNIVERSAL TECHNICAL INSTITUTE
9 3002 North 27th Ave 1,621 3,226 _ 10 4,857 910 1989 31.5
Phoenix, AZ
CATERAIR INTERNATIONAL
CORPORATION
10 50 Adrian Court 742 2,112 _ _ 2,854 240 1993 40.0
Burlingame, CA
11 370 Adrian Road 451 1,282 _ _ 1,733 145 1993 40.0
Millbrae, CA
12 3500 N.W. 24th Street 1,855 5,280 _ _ 7,135 599 1993 40.0
Miami, FL
13 3630 N.W. 25th Street 981 2,791 _ _ 3,772 317 1993 40.0
Miami, FL
14 4101 N.W. 25th Street 848 2,414 _ _ 3,262 274 1993 40.0
Miami, FL
15 221 West 79th St 245 698 _ _ 943 79 1993 40.0
Bloomington, MN
16 1085 Bible Way 151 430 _ _ 581 49 1993 40.0
Reno, NV
17 18850 28th Avenue, South 504 1,433 _ _ 1,937 163 1993 40.0
Seattle, WA
</TABLE>
F-21
<PAGE> 52
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
------------------------------------ Costs
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CATERAIR INTERNATIONAL
CORPORATION
18 2800 Collingswood Drive -- 898 2,555 -- -- --
Orlando, FL
19 45-10 19th Avenue -- 1,093 3,109 -- -- --
Astoria, NY
20 24-20 49th Street -- 546 1,555 -- -- --
Astoria, NY
21 8401 Escort Street -- 377 1,074 -- -- --
Philadelphia, PA
SEARS LOGISTICS SERVICES
22 4150 Lockbourne 3,155 424 8,051 -- 56 --
Industrial Parkway
Columbus, OH
GATX LOGISTICS, INC
23 4472 Steelway Blvd., North -- 394 6,174 -- 471 --
Clay, NY
24 4472 Steelway Blvd., North -- 84 1,326 -- 56 --
Clay, NY
25 4472 Steelway Blvd., North -- 85 1,326 -- 55 --
Clay, NY
26 4580 Steelway Blvd.., South -- 124 1,949 -- 400 --
Clay, NY
27 200 Dunn Rd 2,008 258 4,039 -- 40 --
Lyons, NY
28 2900 McLane Drive 2,008 344 5,396 -- 89 --
Lysander, NY
NORTHERN STATES POWER
COMPANY
29 3115 Centre Point Drive 1,590 1,046 4,182 -- 13 --
Roseville, MN
PNC MORTGAGE CORPORATION
OF AMERICA, INC
30 440 North Fairway Drive -- 1,130 10,167 -- 49 --
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC
31 450 Barclay Blvd 3,002 2,660 6,206 -- 44 --
Lincolnshire, IL
32 500 South Seventh Ave 3,803 3,370 7,863 -- 56 --
City of Industry, CA
33 11650 Central Parkway 2,137 1,894 4,419 -- 31 --
Jacksonville, FL
LOCKHEED MARTIN AEROSPACE
CORPORATION
34 1260 Crossman Ave 3,084 1,271 7,903 -- -- --
Sunnyvale, CA
DELUXE CORPORATION
35 1275 Red Fox Road 2,056 684 5,061 -- -- --
Arden Hills, MN
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
------------------------------------------------------------
Depreciable
Furniture and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- ------------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CATERAIR INTERNATIONAL
CORPORATION
18 2800 Collingswood Drive 898 2,555 -- -- 3,453 290 1993 40.0
Orlando, FL
19 45-10 19th Avenue 1,093 3,109 -- -- 4,202 353 1993 40.0
Astoria, NY
20 24-20 49th Street 546 1,555 -- -- 2,101 177 1993 40.0
Astoria, NY
21 8401 Escort Street 377 1,074 -- -- 1,451 122 1993 40.0
Philadelphia, PA
SEARS LOGISTICS SERVICES
22 4150 Lockbourne 424 8,051 -- 56 8,531 915 1993 40.0
Industrial Parkway
Columbus, OH
GATX LOGISTICS, INC
23 4472 Steelway Blvd., North 395 6,192 -- 452 7,039 850 1993 40.0
Clay, NY
24 4472 Steelway Blvd., North 85 1,329 -- 52 1,466 177 1993 40.0
Clay, NY
25 4472 Steelway Blvd., North 85 1,329 -- 52 1,466 177 1993 40.0
Clay, NY
26 4580 Steelway Blvd.., South 125 1,956 -- 392 2,473 298 1993 40.0
Clay, NY
27 200 Dunn Rd 259 4,050 -- 28 4,337 368 1993 40.0
Lyons, NY
28 2900 McLane Drive 345 5,412 -- 72 5,829 494 1993 40.0
Lysander, NY
NORTHERN STATES POWER
COMPANY
29 3115 Centre Point Drive 1,048 4,193 -- -- 5,241 432 1993 40.0
Roseville, MN
PNC MORTGAGE CORPORATION
OF AMERICA, INC
30 440 North Fairway Drive 1,135 10,211 -- -- 11,346 1,032 1993 40.0
Vernon Hills, IL
VOLKSWAGEN OF AMERICA, INC
31 450 Barclay Blvd 2,673 6,237 -- -- 8,910 630 1993 40.0
Lincolnshire, IL
32 500 South Seventh Ave 3,387 7,902 -- -- 11,289 798 1993 40.0
City of Industry, CA
33 11650 Central Parkway 1,903 4,441 -- -- 6,344 449 1993 40.0
Jacksonville, FL
LOCKHEED MARTIN AEROSPACE
CORPORATION
34 1260 Crossman Ave 1,271 7,903 -- -- 9,174 733 1994 40.0
Sunnyvale, CA
DELUXE CORPORATION
35 1275 Red Fox Road 684 5,061 -- -- 5,745 427 1994 40.0
Arden Hills, MN
</TABLE>
F-22
<PAGE> 53
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost
------------------------------------ Costs
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
MICROSOFT CORPORATION
36 1321 Greenway 1,647 1,473 4,620 -- 11 --
Irving, TX
AT&T CORPORATION
37 Oak Grove Plaza 2,693 2,183 5,567 -- 9 --
Jacksonville, FL
HOMESIDE LENDING, INC
38 Oak Grove Plaza 1,393 1,021 2,604 -- -- --
Jacksonville, FL
UNISON INDUSTRIES, L.P.
39 Oak Grove Plaza 4,574 2,911 7,423 -- 1 --
Jacksonville, FL
COMPAQ COMPUTER
CORPORATION
40 100 Donwick Dr. -- 1,205 3,817 -- 145 --
Conroe, TX
NIKE, INC
41 8400 Winchester Rd 7,017 1,476 23,127 -- -- --
Memphis, TN
CIRRUS LOGIC, INC
42 46702 Bayside Parkway 1,381 603 4,239 -- 1 --
Fremont, CA (#2)
43 46831 Lakeview Blvd -- 979 7,179 -- 3 --
Fremont, CA (#8)
CERTIFIED GROCERS
OF CALIFORNIA, LTD
44 5200 Sheila St 3,305 2,593 9,195 -- -- --
Commerce, CA
FIRST HEALTH STRATEGIES, INC
45 Decker Lake Lane Center -- 1,105 12,052 -- 19 --
Salt Lake City, UT
TRW, INC
46 3701 Doolittle Drive -- 2,297 8,145 -- -- --
Redondo Beach, CA
DUNHAM'S ATHLEISURE
CORPORATION
47 2201 E. Loew Rd -- 181 5,861 -- -- --
Marion, IN 46952
AT&T CORPORATION
48 Gatehall Corporate Center I -- 4,885 49,390 -- -- --
Parsippany, NJ
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
------------------------------------------------------------
Depreciable
Furniture and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- ------------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MICROSOFT CORPORATION
36 1321 Greenway 1,473 4,622 -- 9 6,104 390 1994 40.0
Irving, TX
AT&T CORPORATION
37 Oak Grove Plaza 2,183 5,567 -- 9 7,759 470 1994 40.0
Jacksonville, FL
HOMESIDE LENDING, INC
38 Oak Grove Plaza 1,021 2,604 -- -- 3,625 220 1994 40.0
Jacksonville, FL
UNISON INDUSTRIES, L.P.
39 Oak Grove Plaza 2,911 7,424 -- -- 10,335 626 1994 40.0
Jacksonville, FL
COMPAQ COMPUTER
CORPORATION
40 100 Donwick Dr. 1,207 3,821 -- 139 5,167 321 1994 40.0
Conroe, TX
NIKE, INC
41 8400 Winchester Rd 1,476 23,127 -- -- 24,603 1,903 1994 40.0
Memphis, TN
CIRRUS LOGIC, INC
42 46702 Bayside Parkway 604 4,239 -- -- 4,843 349 1994 40.0
Fremont, CA (#2)
43 46831 Lakeview Blvd 979 7,182 -- -- 8,161 561 1994 40.0
Fremont, CA (#8)
CERTIFIED GROCERS
OF CALIFORNIA, LTD
44 5200 Sheila St 2,593 9,195 -- -- 11,788 699 1994 40.0
Commerce, CA
FIRST HEALTH STRATEGIES, INC
45 Decker Lake Lane Center 1,107 12,069 -- -- 13,176 918 1994 40.0
Salt Lake City, UT
TRW, INC
46 3701 Doolittle Drive 2,297 8,145 -- -- 10,442 586 1995 40.0
Redondo Beach, CA
DUNHAM'S ATHLEISURE
CORPORATION
47 2201 E. Loew Rd 181 5,861 -- -- 6,042 409 1995 40.0
Marion, IN 46952
AT&T CORPORATION
48 Gatehall Corporate Center I 4,885 49,390 -- -- 54,275 3,344 1995 40.0
Parsippany, NJ
</TABLE>
F-23
<PAGE> 54
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost Costs
------------------------------------
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
LOUISIANA RETAIL PORTFOLIO
49 8000 Greenwell Springs Road -- 1,062 3,995 -- -- (1,517)
Baton Rouge, LA
50 2424 Manhattan Blvd -- 2,971 8,456 -- -- (1,727)
Harvey, LA
51 3900 Airline Highway -- 4,369 7,767 -- 14 (2,683)
Metairie, LA
52 4500 Tchoupitoulas Street -- 3,609 7,006 -- 26 --
New Orleans, LA
KELLEY-CLARKE, INC
53 6300 Dumbarton Circle -- 762 4,193 -- 3 --
Fremont, CA
PEPSICO, INC
54 5015 South Water Circle -- 244 3,643 -- -- --
Wichita, KS
TECH DATA CORPORATION
55 3900 William Richardson Dri -- 205 6,792 -- -- --
South Bend, IN
PRIMERICA LIFE INSURANCE
COMPANY
56 3120 Breckinridge Blvd -- 1,367 11,948 -- 8 --
Duluth, GA
ARROW ELECTRONICS, INC
57 7621 Energy Pkwy -- 612 3,979 -- 31 --
Aurora, CO
FLUID SYSTEMS CORPORATION
58 10054 Old Grove Road -- 1,332 2,665 -- 37 --
San Diego, CA
NISSAN MOTOR ACCEPTANCE
CORPORATION
59 2901 Kinwest Parkway -- 1,288 9,976 -- 101 --
Irving, TX
LEVER BROTHERS COMPANY
60 3501 E. Terra Drive -- 1,468 13,430 -- -- --
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
61 2003, 2005, 2007 Corporate -- 2,590 23,807 -- 123 --
Memphis, TN
MJD INVESTMENTS, INC
62 500 Airline Drive -- 2,437 18,207 -- -- --
Coppell, TX
FRESENIUS USA, INC
63 Walnut Creek Center -- 609 6,255 -- 2 --
Walnut Creek, CA
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
------------------------------------------------------------
Furniture Depreciable
and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- -------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOUISIANA RETAIL PORTFOLIO
49 8000 Greenwell Springs Road 1,062 2,478 -- -- 3,540 231 1995 40.0
Baton Rouge, LA
50 2424 Manhattan Blvd 2,971 6,729 -- -- 9,700 489 1995 40.0
Harvey, LA
51 3900 Airline Highway 4,374 5,093 -- -- 9,467 450 1995 40.0
Metairie, LA
52 4500 Tchoupitoulas Street 3,618 7,023 -- -- 10,641 407 1995 40.0
New Orleans, LA
KELLEY-CLARKE, INC
53 6300 Dumbarton Circle 762 4,193 -- 3 4,958 267 1995 40.0
Fremont, CA
PEPSICO, INC
54 5015 South Water Circle 244 3,643 -- -- 3,887 232 1995 40.0
Wichita, KS
TECH DATA CORPORATION
55 3900 William Richardson Dri 205 6,792 -- -- 6,997 403 1995 40.0
South Bend, IN
PRIMERICA LIFE INSURANCE
COMPANY
56 3120 Breckinridge Blvd 1,368 11,955 -- -- 13,323 660 1995 40.0
Duluth, GA
ARROW ELECTRONICS, INC
57 7621 Energy Pkwy 616 4,006 -- -- 4,622 213 1995 40.0
Aurora, CO
FLUID SYSTEMS CORPORATION
58 10054 Old Grove Road 1,344 2,690 -- -- 4,034 137 1995 40.0
San Diego, CA
NISSAN MOTOR ACCEPTANCE
CORPORATION
59 2901 Kinwest Parkway 1,292 10,010 -- 63 11,365 512 1995 40.0
Irving, TX
LEVER BROTHERS COMPANY
60 3501 E. Terra Drive 1,468 13,430 -- -- 14,898 658 1996 40.0
O'Fallon, MO
FEDERAL EXPRESS CORPORATION
61 2003, 2005, 2007 Corporate 2,590 23,807 -- 123 26,520 1,070 1996 40.0
Memphis, TN
MJD INVESTMENTS, INC
62 500 Airline Drive 2,437 18,207 -- -- 20,644 816 1996 40.0
Coppell, TX
FRESENIUS USA, INC
63 Walnut Creek Center 609 6,255 -- 2 6,866 267 1996 40.0
Walnut Creek, CA
</TABLE>
F-24
<PAGE> 55
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost Costs
------------------------------------
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
TERADYNE, INC
64 Walnut Creek Center -- 423 4,347 -- 1 --
Walnut Creek, CA
LOCKHEED MARTIN
CORPORATION
65 935 First Avenue -- 1,173 3,519 -- -- --
King of Prussia, PA
LAM RESEARCH CORPORATION
66 1210 California Circle -- 4,238 8,601 -- -- --
Milpitas, CA
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
67 401 West Michigan Street -- 1,945 14,430 -- -- --
Milwaukee, WI
NORTHERN TELECOM INC
68 2021 Lakeside Boulevard -- 1,226 5,643 -- 7 --
Richardson, TX
OLYMPUS AMERICA, INC
69 Two Corporate Center Drive -- 5,216 25,377 -- -- --
Melville, NY
ADIDAS AMERICA, INC
70 5675 North Blackstock Road -- 1,009 17,406 -- 11 --
Spartanburg, SC
FRONTIER CORPORATION
71 12110 North Pecos Street -- 293 3,356 -- 7 --
Westminster, CO
PURE ATRIA CORPORATION
72 18880 Homestead Road -- 6,067 14,447 -- 4 --
Cupertino, CA
GALILEO INTERNATIONAL
PARTNERSHIP
73 6901 S. Havana Street -- 3,101 15,688 -- -- --
Englewood, CO
LUCENT TECHNOLOGIES, INC
74 6162 S. Willow Drive -- 1,514 14,413 -- 6 --
Englewood, CO
IBM CORPORATION - DALLAS
75 13800 Diplomat Drive -- 1,316 8,709 -- 160 --
Farmers Branch, TX
RIVEREDGE SUMMIT
76 1500-1600 RiverEdge Parkway -- 6,346 54,076 -- 17 --
Atlanta, GA
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
------------------------------------------------------------
Furniture Depreciable
and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- -------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TERADYNE, INC
64 Walnut Creek Center 423 4,347 -- 1 4,771 186 1996 40.0
Walnut Creek, CA
LOCKHEED MARTIN
CORPORATION
65 935 First Avenue 1,173 3,519 -- -- 4,692 136 1996 40.0
King of Prussia, PA
LAM RESEARCH CORPORATION
66 1210 California Circle 4,238 8,601 -- -- 12,839 331 1996 40.0
Milpitas, CA
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
67 401 West Michigan Street 1,945 14,430 -- -- 16,375 556 1996 40.0
Milwaukee, WI
NORTHERN TELECOM INC
68 2021 Lakeside Boulevard 1,226 5,650 -- -- 6,876 182 1996 40.0
Richardson, TX
OLYMPUS AMERICA, INC
69 Two Corporate Center Drive 5,216 25,377 -- -- 30,593 819 1996 40.0
Melville, NY
ADIDAS AMERICA, INC
70 5675 North Blackstock Road 1,010 17,416 -- -- 18,426 526 1996 40.0
Spartanburg, SC
FRONTIER CORPORATION
71 12110 North Pecos Street 293 3,363 -- -- 3,656 88 1996 40.0
Westminster, CO
PURE ATRIA CORPORATION
72 18880 Homestead Road 6,068 14,450 -- -- 20,518 376 1996 40.0
Cupertino, CA
GALILEO INTERNATIONAL
PARTNERSHIP
73 6901 S. Havana Street 3,101 15,688 -- -- 18,789 409 1996 40.0
Englewood, CO
LUCENT TECHNOLOGIES, INC
74 6162 S. Willow Drive 1,514 14,419 -- -- 15,933 375 1996 40.0
Englewood, CO
IBM CORPORATION - DALLAS
75 13800 Diplomat Drive 1,316 8,709 -- 160 10,185 191 1997 40.0
Farmers Branch, TX
RIVEREDGE SUMMIT
76 1500-1600 RiverEdge Parkway 6,346 54,076 -- 17 60,439 1,070 1997 40.0
Atlanta, GA
</TABLE>
F-25
<PAGE> 56
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost Costs
------------------------------------
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CARDINAL COMMERCE
77 1460 North Glenville Drive -- 885 8,801 -- -- --
Richardson, TX
CANYON CORPORATE CENTER
78 5515 East La Palma Avenue -- 3,268 12,270 -- -- --
Anaheim, CA
79 5601 East La Palma Avenue -- 2,229 8,366 -- -- --
Anaheim, CA
80 5605 East La Palma Avenue -- 658 2,470 -- -- --
Anaheim, CA
RIVERPARK
81 Two Riverpark Drive -- 523 5,337 -- -- --
North Reading, MA
82 Three Riverpark Drive -- 1,334 13,598 -- -- --
North Reading, MA
83 Four Riverpark Drive -- 1,746 17,818 -- -- --
North Reading, MA
SUNBELT BEVERAGE CORP
84 7621 Energy Parkway -- 1,425 8,440 -- -- --
Baltimore, MD
FRONTIER II
85 1499 West 121st. St -- 672 7,672 -- -- --
Westminister, CO
CHARLESTON PLACE
86 1545 Charleston Road -- 5,111 11,212 -- -- --
Mountain View, CA
87 1565 Charleston Road -- 4,824 10,584 -- -- --
Mountain View, CA
88 1585 Charleston Road -- 6,551 14,373 -- -- --
Mountain View, CA
BAY STATE GAS
89 300 Friberg Parkway -- 1,419 9,246 -- -- --
Westborough, MA
WARNER CROSSING
90 1120 West Warner Road -- 701 4,342 -- -- --
Tempe, AZ
91 1130 West Warner Road -- 1,037 6,675 -- -- --
Tempe, AZ
92 1140 West Warner Road -- 1,037 6,675 -- -- --
Tempe, AZ
93 8440 South Hardy Drive -- 1,028 6,620 -- -- --
Tempe, AZ
94 8420 South Hardy Drive -- 1,440 9,268 -- -- --
Tempe, AZ
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
------------------------------------------------------------
Furniture Depreciable
and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- -------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CARDINAL COMMERCE
77 1460 North Glenville Drive 885 8,801 -- -- 9,686 174 1997 40.0
Richardson, TX
CANYON CORPORATE CENTER
78 5515 East La Palma Avenue 3,268 12,270 -- -- 15,538 243 1997 40.0
Anaheim, CA
79 5601 East La Palma Avenue 2,229 8,366 -- -- 10,595 165 1997 40.0
Anaheim, CA
80 5605 East La Palma Avenue 658 2,470 -- -- 3,128 49 1997 40.0
Anaheim, CA
RIVERPARK
81 Two Riverpark Drive 523 5,337 -- -- 5,860 105 1997 40.0
North Reading, MA
82 Three Riverpark Drive 1,334 13,598 -- -- 14,932 269 1997 40.0
North Reading, MA
83 Four Riverpark Drive 1,746 17,818 -- -- 19,564 353 1997 40.0
North Reading, MA
SUNBELT BEVERAGE CORP
84 7621 Energy Parkway 1,425 8,440 -- -- 9,865 132 1997 40.0
Baltimore, MD
FRONTIER II
85 1499 West 121st. St 672 7,672 -- -- 8,344 104 1997 40.0
Westminister, CO
CHARLESTON PLACE
86 1545 Charleston Road 5,111 11,212 -- -- 16,323 152 1997 40.0
Mountain View, CA
87 1565 Charleston Road 4,824 10,584 -- -- 15,408 143 1997 40.0
Mountain View, CA
88 1585 Charleston Road 6,551 14,373 -- -- 20,924 195 1997 40.0
Mountain View, CA
BAY STATE GAS
89 300 Friberg Parkway 1,419 9,246 -- -- 10,665 125 1997 40.0
Westborough, MA
WARNER CROSSING
90 1120 West Warner Road 701 4,342 -- -- 5,043 32 1997 40.0
Tempe, AZ
91 1130 West Warner Road 1,037 6,675 -- -- 7,712 90 1997 40.0
Tempe, AZ
92 1140 West Warner Road 1,037 6,675 -- -- 7,712 90 1997 40.0
Tempe, AZ
93 8440 South Hardy Drive 1,028 6,620 -- -- 7,648 90 1997 40.0
Tempe, AZ
94 8420 South Hardy Drive 1,440 9,268 -- -- 10,708 126 1997 40.0
Tempe, AZ
</TABLE>
F-26
<PAGE> 57
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost Costs
------------------------------------
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
GATEWAY LAKES
95 1551 102nd Avenue -- 723 3,063 -- -- --
St. Petersburg, FL
96 1501 102nd Avenue -- 694 2,943 -- -- --
St. Petersburg, FL
EDENVALE BUSINESS PARK
97 5853-5863 Rue Ferrari Drive -- 9,156 22,035 -- -- --
San Jose, CA
ELECTRONIC DATA SYSTEMS
98 105 West Bethany Drive -- 1,352 10,070 -- -- --
Allen, TX
COMPUTER SCIENCES CORP
99 7720-20 Hubble Drive -- 2,218 10,737 -- -- --
Lanham, MD
HITACHI
100 1565 Barber Lane -- 4,812 12,194 -- -- --
Milpitas, CA
ALLIANCE DATA SYSTEMS
101 17201 Waterview Parkway -- 1,921 4,638 -- -- --
Dallas, TX
HEWLETT PACKARD
102 3000 Waterview Parkway -- 2,815 29,978 -- -- --
Richardson, TX
MULTILINK
103 6 Riverside Drive -- 757 8,501 -- -- --
Andover, MA
WELLPOINT
104 2000 Corporate Center Drive -- 1,680 9,156 -- -- --
Thousand Oaks, CA
105 2050 Corporate Center Drive -- 1,751 9,543 -- -- --
Thousand Oaks, CA
TRINET PROPERTY PARTNERS, L.P.
106 1022 Hingham Street -- 1,920 11,218 -- -- --
Rockland, MA
107 65 Dan Road -- 1,010 4,294 -- -- --
Canton, MA
108 One Longwater Circle -- 1,112 1,617 -- -- --
Norwell, MA
109 100 Longwater Circle 4,215 1,112 4,345 -- -- --
Norwell, MA
110 101 Philip Drive 2,579 505 2,274 -- -- --
Norwell, MA
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
------------------------------------------------------------
Furniture Depreciable
and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- -------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GATEWAY LAKES
95 1551 102nd Avenue 723 3,063 -- -- 3,786 29 1997 40.0
St. Petersburg, FL
96 1501 102nd Avenue 694 2,943 -- -- 3,637 27 1997 40.0
St. Petersburg, FL
EDENVALE BUSINESS PARK
97 5853-5863 Rue Ferrari Drive 9,156 22,035 -- -- 31,191 161 1997 40.0
San Jose, CA
ELECTRONIC DATA SYSTEMS
98 105 West Bethany Drive 1,352 10,070 -- -- 11,422 73 1997 40.0
Allen, TX
COMPUTER SCIENCES CORP
99 7720-20 Hubble Drive 2,218 10,737 -- -- 12,955 78 1997 40.0
Lanham, MD
HITACHI
100 1565 Barber Lane 4,812 12,194 -- -- 17,006 64 1997 40.0
Milpitas, CA
ALLIANCE DATA SYSTEMS
101 17201 Waterview Parkway 1,921 4,638 -- -- 6,559 24 1997 40.0
Dallas, TX
HEWLETT PACKARD
102 3000 Waterview Parkway 2,815 29,978 -- -- 32,793 94 1997 40.0
Richardson, TX
MULTILINK
103 6 Riverside Drive 757 8,501 -- -- 9,258 9 1997 40.0
Andover, MA
WELLPOINT
104 2000 Corporate Center Drive 1,680 9,156 -- -- 10,836 9 1997 40.0
Thousand Oaks, CA
105 2050 Corporate Center Drive 1,751 9,543 -- -- 11,294 10 1997 40.0
Thousand Oaks, CA
TRINET PROPERTY PARTNERS, L.P.
106 1022 Hingham Street 1,920 11,218 -- -- 13,138 12 1997 40.0
Rockland, MA
107 65 Dan Road 1,010 4,294 -- -- 5,304 4 1997 40.0
Canton, MA
108 One Longwater Circle 1,112 1,617 -- -- 2,729 2 1997 40.0
Norwell, MA
109 100 Longwater Circle 1,112 4,345 -- -- 5,457 5 1997 40.0
Norwell, MA
110 101 Philip Drive 505 2,274 -- -- 2,779 2 1997 40.0
Norwell, MA
</TABLE>
F-27
<PAGE> 58
TRINET CORPORATE REALTY TRUST, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Initial Cost Costs
------------------------------------
Furniture Capitalized Provision for
Building and and Subsequent to Portfolio
Description Encumbrances Land Improvements Fixtures Acquisition Repositioning
----------- ------------ ---- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
TRINET PROPERTY PARTNERS, L.P.
111 30 Dan Road -- 1,405 3,875 -- -- --
Canton, MA
112 85 Dan Road -- 1,292 1,939 -- -- --
Canton, MA
113 300 Foxborough Blvd 3,451 1,217 3,750 -- -- --
Foxborough, MA
114 105 Forbes Blvd 1,188 607 1,414 -- -- --
Mansfield, MA
------- -------- -------- ------- -------- -------
TOTAL REAL ESTATE $66,446 $200,752 $957,162 $ 1,786 $ 4,520 ($5,927)
======= ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Close of Period
------------------------------------------------------------
Furniture Depreciable
and Building Accumulated Date Life
Description Land Buildings Fixtures Improvements Total Depreciation Acquired (Years)
----------- ---- --------- -------- ------------ ----- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TRINET PROPERTY PARTNERS, L.P.
111 30 Dan Road 1,405 3,875 -- -- 5,280 4 1997 40.0
Canton, MA
112 85 Dan Road 1,292 1,939 -- -- 3,231 2 1997 40.0
Canton, MA
113 300 Foxborough Blvd 1,217 3,750 -- -- 4,967 4 1997 40.0
Foxborough, MA
114 105 Forbes Blvd 607 1,414 -- -- 2,021 1 1997 40.0
Mansfield, MA
-------- -------- ------- ------- ---------- -------
TOTAL REAL ESTATE $201,083 $953,688 $ 1,786 $ 1,738 $1,158,295 $54,152
======== ======== ======= ======= ========== =======
</TABLE>
F-28
<PAGE> 59
TRINET CORPORATE REALTY TRUST, INC.
NOTES TO SCHEDULE III
DECEMBER 31, 1997
(in thousands)
1. Reconciliation of Real Estate: The following table reconciles Real
Estate from January 1, 1995 to December 31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1 ................... $ 697,517 $ 538,717 $ 377,522
Additions ............................. 466,186 222,789 161,195
Dispositions ........................... (5,408) (58,062) --
Provision for portfolio repositioning .. -- (5,927) --
----------- ----------- -----------
Balance at December 31 ................. $ 1,158,295 $ 697,517 $ 538,717
=========== =========== ===========
</TABLE>
2. Reconciliation of Accumulated Depreciation: The following table
reconciles Accumulated Depreciation from January 1, 1995 to December
31, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C> <C>
Balance at January 1 .............. $ 36,360 $ 30,260 $ 19,852
Additions ......................... 19,347 13,293 10,408
Dispositions ...................... (1,555) (7,193) --
-------- -------- --------
Balance at December 31 ............ $ 54,152 $ 36,360 $ 30,260
======== ======== ========
</TABLE>
F-29
<PAGE> 1
TRINET CORPORATE REALTY TRUST, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the TriNet Corporate Realty Trust, Inc. 1997 Stock
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the Directors, officers and other key employees of TriNet Corporate Realty
Trust, Inc. (the "Company") and its Subsidiaries upon whose judgment, initiative
and efforts the Company largely depends for the successful conduct of its
business to acquire a proprietary interest in the Company. It is anticipated
that providing such persons with a direct stake in the Company's welfare will
assure a closer identification of their interests with those of the Company,
thereby stimulating their efforts on the Company's behalf and strengthening
their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Dividend Equivalent Rights, Incentive Stock
Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted
Stock Awards and Performance Share Awards.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 14.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the Committee of the Board referred to in Section 2.
"Dividend Equivalent Rights" means Awards granted pursuant to Section 5.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 16.
"Fair Market Value" on any given date means the last reported sale price
at which Stock is traded on such date or, if no Stock is traded on such date,
the next preceding date on which Stock was traded, as reflected on the principal
stock exchange or, if applicable, any other national stock exchange on which the
Stock is traded or admitted to trading.
1
<PAGE> 2
"Incentive Stock Option" means any Stock Option designated and qualified
as an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 6.
"Performance Share Award" means Awards granted pursuant to Section 9.
"Restricted Stock Award" means Awards granted pursuant to Section 7.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 8.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
PARTICIPANTS AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by either the Board or a
committee of the Board consisting of not less than two Independent Directors (in
either case, the "Administrator"). Each member of the Committee shall be an
"outside director" within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder and a "non-employee director" within the
meaning of Rule 16b-3(b)(3)(i) promulgated under the Act, or any successor
definition under said rule.
(b) Powers of Administrator. The Administrator shall have the power and
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to time
be granted;
2
<PAGE> 3
(ii) to determine the time or times of grant, and the extent, if
any, of Dividend Equivalent Rights, Incentive Stock Options, Non-Qualified
Stock Options, Restricted Stock Awards, Unrestricted Stock Awards,
Performance Share Awards and or any combination of the foregoing, granted
to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by
any Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Award;
(vi) subject to the provisions of Section 6(a)(iii), to extend at
any time the period in which Stock Options may be exercised; and
(vii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to Awards,
including the granting thereof, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Administrator may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Administrator's delegate or delegates that
were consistent with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 800,000 shares. For purposes of
this limitation, the shares of Stock underlying any Awards which are forfeited,
cancelled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise
3
<PAGE> 4
terminated (other than by exercise) shall be added back to the shares of Stock
available for issuance under the Plan. Subject to such overall limitation,
shares of Stock may be issued up to such maximum number pursuant to any type or
types of Award. The shares available for issuance under the Plan may be
authorized but unissued shares of Stock or shares of Stock reacquired by the
Company.
(b) Recapitalizations. If, through or as a result of any merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other securities, the
Administrator shall make an appropriate or proportionate adjustment in (i) the
maximum number of shares reserved for issuance under the Plan, (ii) the number
of Stock Options that can be granted to any one individual participant, (iii)
the number and kind of shares, other securities or Dividend Equivalent Rights
subject to any then outstanding Awards under the Plan, and (iv) the price for
each share subject to any then outstanding Stock Options under the Plan, without
changing the aggregate exercise price (i.e., the exercise price multiplied by
the number of Stock Options) as to which such Stock Options remain exercisable.
The adjustment by the Administrator shall be final, binding and conclusive. No
fractional shares of Stock shall be issued under the Plan resulting from any
such adjustment, but the Administrator in its discretion may make a cash payment
in lieu of fractional shares.
(c) Mergers. Upon consummation of a consolidation or merger or sale of
all or substantially all of the assets of the Company in which outstanding
shares of Stock are exchanged for securities, cash or other property of an
unrelated corporation or business entity or in the event of a liquidation of the
Company (in each case, a "Transaction"), the Board, or the board of directors of
any corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding Stock Options:
(i) provide that such Stock Options shall be assumed or equivalent options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the optionees, provide that all
unexercised Stock Options will terminate immediately prior to the consummation
of the Transaction unless exercised by the optionee within a specified period
following the date of such notice, and/or (iii) in the event of a business
combination under the terms of which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the business combination, make or provide for a cash payment to the optionees
equal to the difference between (A) the value (as determined by the
Administrator) of the consideration payable per share of Stock pursuant to the
business combination (the "Merger Price") times the number of shares of Stock
subject to such outstanding Stock Options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price
of all such
4
<PAGE> 5
outstanding Stock Options in exchange for the termination of such Stock Options.
In the event Stock Options will terminate upon the consummation of the
Transaction, each optionee shall be permitted, within a specified period
determined by the Administrator, to exercise all non-vested Stock Options,
subject to the consummation of the Transaction.
(d) Substitute Awards. The Administrator may grant Awards under the Plan
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Administrator may direct that the
substitute awards be granted on such terms and conditions as the Administrator
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
Participants in the Plan will be such Independent Directors, full or
part-time officers and other key employees of the Company and its Subsidiaries
who are responsible for or contribute to the management, growth or profitability
of the Company and its Subsidiaries as are selected from time to time by the
Administrator in its sole discretion.
SECTION 5. DIVIDEND EQUIVALENT RIGHTS
A Dividend Equivalent Right is an Award entitling the recipient to receive
cash payments in amounts equal to cash dividends that would be paid on the
shares of Stock specified in the Dividend Equivalent Right (or other award to
which it relates) if such shares were held by the recipient. A Dividend
Equivalent Right may be granted hereunder to any participant as a component of
another Award or as a freestanding Award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend Equivalent Rights
payments will become vested and will be made to a participant at such time or
times, whether or not in installments, as shall be determined by the
Administrator at or after grant date. A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right shall
be settled upon exercise, settlement, or payment of, or lapse of restrictions
on, such other award, and that such Dividend Equivalent Right shall expire or be
forfeited or annulled under the same conditions as such other award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms
and conditions different from such other Award.
SECTION 6. STOCK OPTIONS
(a) General. Any Stock Option granted under the Plan shall be in such
form as the Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
5
<PAGE> 6
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. To the extent that any Option
does not qualify as an Incentive Stock Option, it shall be deemed a
Non-Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after February
24, 2007.
(b) Stock Options Granted to Key Employees. The Administrator in its
discretion may grant Stock Options to eligible employees of the Company or any
Subsidiary. Stock Options granted pursuant to this Section 6(a) shall be subject
to the following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the
Administrator shall deem desirable:
(i) Exercise Price. The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 6(a) shall be
determined by the Administrator at the time of grant but shall not be less
than 100% of the Fair Market Value on the date of grant. If an employee
owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any parent or subsidiary corporation
and an Incentive Stock Option is granted to such employee, the option
price of such Incentive Stock Option shall be not less than 110% of the
Fair Market Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed by
the Administrator, but no Incentive Stock Option shall be exercisable more
than ten years after the date the option is granted. If an employee owns
or is deemed to own (by reason of the attribution rules of Section 424(d)
of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the term of such
option shall be no more than five years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after the
grant date. The Administrator may at any time accelerate the
exercisability of all or any portion of any Stock Option. An optionee
shall have the rights of a stockholder only as to shares acquired upon the
exercise of a Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole or
in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods:
6
<PAGE> 7
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) In the form of shares of Stock that are not then subject
to restrictions under any Company plan and that have been
beneficially owned by the optionee for at least six months, if
permitted by the Administrator in its discretion. Such surrendered
shares shall be valued at Fair Market Value on the exercise date;
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable
and acceptable to the Company to pay the purchase price; provided
that in the event the optionee chooses to pay the purchase price as
so provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Administrator shall prescribe as a condition of
such payment procedure; or
(D) By the optionee delivering to the Company a promissory
note if the Board has authorized the loan of funds to the optionee
for the purpose of enabling or assisting the optionee to effect the
exercise of his Stock Option; provided that at least so much of the
exercise price as represents the par value of the Stock shall be
paid other than with a promissory note.
Payment instruments will be received subject to collection. The delivery
of certificates representing the shares of Stock to be purchased pursuant
to the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws.
(v) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of the
Code, the aggregate Fair Market Value (determined as of the time of grant)
of the shares of Stock with respect to which Incentive Stock Options
granted under this Plan and any other plan of the Company or any parent
corporation or Subsidiary become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000. To the extent
that any Stock Option exceeds this limit, it shall constitute a
Non-Qualified Stock Option.
(c) Reload Options. At the discretion of the Administrator, Options
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 6(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise
7
<PAGE> 8
price equal to the Fair Market Value of the Stock on the date the additional
Option is granted and with such other terms as the Administrator may provide) to
purchase that number of shares of Stock equal to the number delivered to
exercise the original Option.
(d) Stock Options Granted to Independent Directors.
(i) Automatic Grant of Options.
(A) Each Independent Director who is serving as Director of
the Company at the time of the first meeting of the Board of
Directors following each annual meeting of shareholders, beginning
with the 1997 annual meeting, shall automatically be granted on such
day a Non-Qualified Stock Option to acquire 8,000 shares of Stock,
in the case of freestanding Option Awards, or, in the case of Option
Awards granted in tandem with Dividend Equivalent Rights, a
proportionately smaller amount of shares as the Administrator
determines, from time to time in its discretion, is appropriate to
account for the increased value of Options granted in tandem with
Dividend Equivalent Rights. As of the date of approval of the Plan
by Stockholders, the Administrator has determined that Option Awards
granted in tandem with Dividend Equivalent Rights, as provided
herein, shall be in the amount of 4,000 shares of Stock.
(B) The exercise price per share for the Stock covered by a
Stock Option granted under this Section 6(c) shall be equal to the
Fair Market Value of the Stock on the date the Stock Option is
granted.
(ii) Exercise; Termination.
(A) Except as provided in Section 15, an Option granted
under Section 6(d) shall be exercisable after the first anniversary
of the grant date. An Option issued under this Section 6(d) shall
not be exercisable after the expiration of ten years from the date
of grant.
(B) Options granted under this Section 6(d) may be exercised
only by written notice to the Company specifying the number of
shares to be purchased. Payment of the full purchase price of the
shares to be purchased may be made by one or more of the methods
specified in Section 6(b)(iv). An optionee shall have the rights of
a stockholder only as to shares acquired upon the exercise of a
Stock Option and not as to unexercised Stock Options.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, the
Administrator may permit the optionee to transfer, without consideration for the
transfer, his Non-Qualified Stock Options to members of his
8
<PAGE> 9
immediate family, to trusts for the benefit of such family members, or to
partnerships in which such family members are the only partners, provided that
the transferee agrees in writing with the Company to be bound by all of the
terms and conditions of this Plan and the applicable option agreement.
SECTION 7. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
Award entitling the recipient to acquire, at a purchase price determined by the
Administrator, but in no event less than 90% of the Fair Market Value on the
date of sale, shares of Stock subject to such restrictions and conditions as the
Administrator may determine at the time of grant ("Restricted Stock").
Conditions may be based on continuing employment (or other business
relationship) and/or achievement of pre-established performance goals and
objectives.
(b) Rights as a Stockholder. Upon execution of a written instrument
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 7(d) below.
(c) Restrictions. Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the written instrument evidencing the
Restricted Stock Award. If a participant's employment (or other business
relationship) with the Company and its Subsidiaries terminates for any reason,
the Company shall have the right to repurchase Restricted Stock with respect to
which conditions have not lapsed at their purchase price, from the participant
or the participant's legal representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the
non-transferability of the Restricted Stock and the Company's right of
repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or
the attainment of such pre-established performance goals, objectives and other
conditions, the shares on which all restrictions have lapsed shall no longer be
Restricted Stock and shall be deemed "vested." The vesting period for Restricted
Stock shall be at least three years, except that, in the case of Restricted
Stock Awards based on the attainment of pre-established performance goals,
objectives and other conditions, the vesting period shall be at least one year.
Except as may otherwise be provided by the Administrator at any time, a
participant's rights in any shares of Restricted Stock that have not vested
shall automatically terminate upon the participant's termination of employment
(or other business relationship) with the Company and its Subsidiaries and such
shares shall be subject to the Company's right of repurchase as provided in
Section 7(c) above.
9
<PAGE> 10
(e) Waiver, Deferral and Reinvestment of Dividends. The written
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
SECTION 8. UNRESTRICTED STOCK AWARDS
(a) Sale of Unrestricted Stock. The Administrator may, in its sole
discretion, sell (at a purchase price determined by the Administrator, but in no
event less than 90% of the Fair Market Value on the date of sale) an
Unrestricted Stock Award to any participant pursuant to which such participant
may receive shares of Stock free of any restrictions ("Unrestricted Stock")
under the Plan. Unrestricted Stock Awards may be granted or sold as described in
the preceding sentence in respect of past services or other valid consideration,
or in lieu of any cash compensation due to such participant.
(b) Restrictions on Transfers. The right to receive shares of
Unrestricted Stock on a deferred basis may not be sold, assigned, transferred,
pledged or otherwise encumbered, other than by will or the laws of descent and
distribution.
SECTION 9. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards. A Performance Share Award is an
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Administrator in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals applicable
under each such Award, the periods during which performance is to be measured,
and all other limitations and conditions applicable to the awarded Performance
Shares; provided, however, that the Administrator may rely on the performance
goals and other standards applicable to other performance unit plans of the
Company in setting the standards for Performance Share Awards under the Plan.
(b) Rights as a Shareholder. A participant receiving a Performance Share
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Administrator).
(c) Termination. Except as may otherwise be provided by the
Administrator at any time prior to termination of employment (or other business
relationship), a participant's rights in all Performance Share Awards shall
automatically terminate upon the participant's termination of employment (or
business relationship) with the Company and its Subsidiaries for any reason.
10
<PAGE> 11
(d) Acceleration, Waiver, Etc. At any time prior to the participant's
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 13, amend any or all of the goals, restrictions or
conditions imposed under any Performance Share Award.
SECTION 10. TAX WITHHOLDING
(a) Payment by Participant. Each participant who is an employee of the
Company subject to withholding shall, no later than the date as of which the
value of an Award or of any Stock or other amounts received thereunder first
becomes includable in the gross income of the participant for Federal income tax
purposes, pay to the Company, or make arrangements satisfactory to the
Administrator regarding payment of, any Federal, state, or local taxes of any
kind required by law to be withheld with respect to such income. The Company and
its Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 11. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the
Administrator otherwise so provides in writing.
SECTION 12. AMENDMENTS AND TERMINATION
(a) Board and Administrator Action. Subject to Section 12(b) below, the
Board may, at any time, amend or discontinue the Plan and the Administrator may,
at any time, amend or cancel any outstanding Award (or provide substitute Awards
at the same
11
<PAGE> 12
exercise or purchase price in a manner not inconsistent with the terms of the
Plan, but such price, if any, must satisfy the requirements which would apply to
the substitute or amended Award if it were then initially granted under this
Plan), for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's consent.
(b) Stockholder Approval. Plan amendments authorizing any of the
following actions shall be subject to approval by the Company stockholders
entitled to vote at a meeting of stockholders, within twelve (12) months before
or after approval by the Board:
(i) any increase in the total number of shares of Stock that may
be issued under the Plan (other than adjustments pursuant to Section 3
hereof);
(ii) any modification of the provisions hereof regarding
eligibility for grants of Awards under the Plan, including Section 6,
Section 7, Section 8 or Section 9 hereof;
(iii) any modification of the provisions hereof which materially
increase the benefits granted under Awards, including Section 6, Section
7, Section 8 or Section 9 hereof; and
(iv) any Plan amendments determined by the Administrator to be
required by the Code to ensure that Incentive Stock Options granted under
the Plan are qualified under Section 422 of the Code.
SECTION 13. STATUS OF PLAN
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 14. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section 14:
(a) Each outstanding Stock Option, and each outstanding Dividend
Equivalent Right Award granted in tandem with an outstanding Stock Option, shall
automatically become fully exercisable.
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<PAGE> 13
(b) Each Restricted Stock Award and Performance Share Award shall be
subject to such terms, if any, with respect to a Change of Control as have been
provided by the Administrator in connection with such Award.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d)
of the Act (other than the Company, any of its Subsidiaries, or any
trustee, fiduciary or other person or entity holding securities under any
employee benefit plan or trust of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are defined
in Rule 12b-2 under the Act) of such person, shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 40% or more of
either (A) the combined voting power of the Company's then outstanding
securities having the right to vote in an election of the Company's Board
of Directors ("Voting Securities") or (B) the then outstanding shares of
Stock of the Company (in either such case other than as a result of an
acquisition of securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of the
Company subsequent to the Effective Date whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Plan, be considered an Incumbent
Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% or more
of the voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any),
(B) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company or (C) any
plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (i) solely as the result
of an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding, increases (x) the
proportionate number of shares of Stock beneficially owned by any person to 40%
or more of the shares of Stock then outstanding
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<PAGE> 14
or (y) the proportionate voting power represented by the Voting Securities
beneficially owned by any person to 40% or more of the combined voting power of
all then outstanding Voting Securities; provided, however, that if any person
referred to in clause (x) or (y) of this sentence shall thereafter become the
beneficial owner of any additional shares of Stock or other Voting Securities
(other than pursuant to a stock split, stock dividend, or similar transaction),
then a "Change of Control" shall be deemed to have occurred for purposes of the
foregoing clause (i).
SECTION 15. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 16. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon the affirmative vote of a majority
of votes cast with a quorum present at a meeting of stockholders, provided that
the total votes cast with respect to the approval of the Plan represent over 50%
in interest of all securities entitled to vote thereon. Subject to such approval
by the stockholders and to the requirement that no Stock may be issued hereunder
prior to such approval, Stock Options and other Awards may be granted hereunder
on and after adoption of this Plan by the Board.
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<PAGE> 15
SECTION 17. GOVERNING LAW
This Plan shall be governed by Maryland law except to the extent such law
is preempted by federal law.
DATE APPROVED BY BOARD OF DIRECTORS: February 24, 1997
DATE APPROVED BY STOCKHOLDERS: May 28, 1997
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<PAGE> 16
TRINET CORPORATE REALTY TRUST, INC.
DIVIDEND EQUIVALENT RIGHTS PROGRAM
INTRODUCTION:
- - The Board of Directors of TriNet Corporate Realty Trust, Inc. (the
"Company") has approved a Dividend Equivalent Rights ("DER") Program as
part of the Company's long-term incentive plans. The DER Program is a
component of the Company's 1997 Stock Incentive Plan which has been
adopted by the Board and approved by the Company's stockholders at the
1997 Annual Meeting. This document sets forth the terms and conditions of
the DER Program and describes how it will function.
- - DERs entitle the recipient to receive payments ("DER Payments") in cash
or, alternatively, to direct that such payments be applied to purchase
shares of the Company's Common Stock at a discount under the Company's
Management Stock Purchase Plan ("MSPP"). The amounts of DER Payments will
be equal to the dividends that would otherwise have been paid if the
recipient held specified shares of stock. The Company intends, from time
to time, to grant DERs in conjunction with grants of options to purchase
the Company's Common Stock. As a form of long-term incentive compensation,
stock options capture only the portion of total stockholder return
reflected in increased stock prices, but do not provide recipients the
opportunity to share in the dividend income generated by the Company's
stock until the option is exercised. A significant portion of the
Company's total stockholder return comes from dividends, and DERs are
designed to recognize this component of stockholder return. DERs, when
awarded in tandem with stock options, provide better alignment between
management incentives and total stockholder return by giving recipients
the opportunity to share in the value created through dividend payments as
well as stock price growth. Since DERs significantly increase the value of
the underlying options with which they are granted, it is expected that
the options granted in the future in tandem with DERs will cover smaller
amounts of shares than options which have previously been granted without
DERs.
ELIGIBILITY:
- - Presently, all directors and officers of the Company are eligible to be
granted DERs under the DER Program. At the discretion of the Board of
Directors, the DER Program may in the future be extended to other key
employees of the Company.
OBJECTIVES:
- - To align the interests of the stockholders of the Company and the
recipients of DER awards by increasing the proprietary interest of such
recipients in the growth and success of the Company and its dividend
payments, thereby creating a direct link between management compensation
and total stockholder return.
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<PAGE> 17
- - To enhance the Company's ability to attract and retain key managers by
providing incentives to management employees to continue to contribute to
the Company's success.
- - To create another vehicle for increasing management ownership of Company
shares, thereby improving long-term alignment of interests between
management and stockholders.
PROGRAM HIGHLIGHTS:
- - It is anticipated that a DER award will have a term of five years and, in
the case of recipients who are employees of the Company, will vest in
equal annual installments over a period of four years, on the first,
second, third and fourth anniversaries of the DER award. In the case of
recipients who are independent directors, a DER award will vest in one
year. The term and vesting schedule of the underlying option granted with
the DER award will be the same as the DER. The term of stock options
granted in tandem with DERs will be shorter than the term of stock options
which have previously been granted without DERs, to encourage the
recipient to exercise the underlying option, to reflect the value of DER
Payments, and to eliminate the ongoing payment obligations of the Company
in connection with DERs beyond the five year term. DERs will expire when
the underlying stock option is exercised, forfeited or canceled, when the
term of the DER expires, or upon termination of employment.
- - Upon receiving a DER award in tandem with a stock option award, the
recipient will be credited with an amount of DER units equal to the number
of shares covered by the underlying option. DER Payments on the DER units
will accrue and accumulate in amounts equal to the dividends declared and
paid on the underlying option shares.
- - DER Payments will be made in annual installments on the vesting dates, as
the DER units vest. DER Payments will be paid annually in cash, unless the
participant has elected that such DER Payments be applied by the Company
to purchase shares of the Company's Common Stock under the MSPP, which
permits purchases at a 10% discount from the then-current market price of
the shares.
- - DER Payments on unvested DER units will continue to accrue (without
interest) and will be held in reserve until the underlying DER units vest.
This "backloaded" nature of DER Payments is intended to help the Company
retain key managers. Vesting of DER units occurs on a "cliff" basis one
time each year and vesting is based on actual employment on that date. No
partial credit is earned by those who leave the Company for any reason
prior to each actual vesting date. However, upon a "Change of Control" of
the Company (as defined in the 1997 Stock Incentive Plan), each
outstanding DER award will automatically become fully vested, and each
participant will have a one-time right to elect to receive either (a) a
lump sum payment equal to the aggregate amount of DER Payments payable to
the participant during the remaining term of the DER award, based on the
assumption that the Company's then-current quarterly dividend payments
continue during the remaining term of the award, or (b) continued DER
Payments over the remaining term of the DER award.
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<PAGE> 18
TAX CONSEQUENCES:
- - The Company believes that recipients of DER awards will recognize ordinary
taxable income at the times DERs vest and DER Payments are made, and will
be taxed at ordinary income rates on the amounts of such DER Payments. The
Company will receive a compensation tax deduction equal to the amount of
ordinary income recognized by a DER recipient. DER recipients who elect to
have their DER Payments applied to purchase shares under the MSPP should
refer to the MSPP documents for information regarding the tax consequences
of such transactions.
- - Tax withholding will be applicable at the time DER Payments are made to
recipients who are employees, and cash will be withheld from DER Payments
to cover the Company's tax withholding obligations. Alternatively, at the
option of the recipient, the Company will not withhold any amounts from
DER Payments made, so long as the recipient agrees to reimburse the
Company promptly in the amount of such tax withholding obligation (with
interest). Recipients who are independent directors will not be subject to
withholding with respect to DER Payments made to them.
- - THE COMPANY DOES NOT WARRANT THE TAX TREATMENT OF DER AWARDS AND
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS.
ACCOUNTING CONSIDERATIONS:
- - The Company will recognize accounting accruals and charges for
compensation expense under the DER Program as dividends are declared on
the shares underlying the DER units. The accruals continue over the term
of the DER.
ADDITIONAL INFORMATION:
- - The DER Program is administered by the Compensation Committee of the Board
of Directors (through the Vice President, Administration). The
Compensation Committee may make such rules and regulations and establish
such procedures for the administration of the DER Program as it deems
appropriate. The Company reserves the right to amend or terminate the DER
Program at any time, by action of the Board of Directors.
- - The DER Program is not subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA) and is not guaranteed by
the Pension Benefit Guaranty Corporation (PBGC). The DER Program is not
qualified under Section 401(a) of the Internal Revenue Code. The DER
Program is not a funded plan for purposes of ERISA or the Code.
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<PAGE> 19
EXAMPLE OF PARTICIPATION IN THE DER PROGRAM:
- - The following example, based on the assumptions described below,
illustrates the economic consequences of participation in the DER Program
by an employee of the Company. This example is for illustration purposes
only.
Assumptions
(1) Participant is awarded 4,000 DER units, in tandem with a grant of
options to purchase 4,000 shares, on 6/1/97.
(2) DER award has a term of five years and vests at the rate of 1,000
DER units annually over four years.
(3) The Company pays annual dividends of $2.50 per share during the DER
term.
(4) The underlying option may be exercised at any time between 6/1/2001
and 6/1/2002.
(5) Participant exercises the underlying stock option in full on
6/1/2002.
<TABLE>
<CAPTION>
VESTING / PAYMENT DATES
------------------------------------------------------------------------------
DER 6/1/ 6/1/ 6/1/ 6/1/ 6/1/
UNITS DIVIDENDS 1998 1999 2000 2001 2002
- ------ --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1,000 $ 2.50 $2,500 2,500 2,500 2,500 2,500
1,000 $ 2.50 -- 5,000 2,500 2,500 2,500
1,000 $ 2.50 -- -- 7,500 2,500 2,500
1,000 $ 2.50 -- -- -- 10,000 2,500
TOTAL CASH DER
PAYMENTS ON VESTED
DERS: $2,500 + 7,500 + 12,500 + 17,500 + 10,000 = $50,000
</TABLE>
4
<PAGE> 20
AGREEMENT REGARDING CHANGE OF CONTROL
This Agreement Regarding Change of Control ("Agreement") is made and
entered into as of December 10, 1997 by and between TRINET CORPORATE REALTY
TRUST, INC., a Maryland corporation (the "Company") and_______________, an
individual (the "Executive").
RECITALS
A. The Executive is currently serving as _________________________
___________ of the Company and, in that capacity, is a valuable member of the
Company's management and a key participant in the Company's short-term and
long-term decision-making processes.
B. It is in the best interests of the Company and its stockholders to
encourage the Executive to continue to provide management services as an
employee of the Company.
C. The Company recognizes that circumstances may arise in which a
change of control of the Company may occur, through acquisition, merger, sale of
assets or otherwise, thereby causing uncertainty regarding the continuity of the
employment relationship, without regard to the competence or past contributions
of the Executive, and that such uncertainty may result in the loss of valuable
services of the Executive.
D. In order to induce the Executive to continue to serve the Company,
the Company wishes to provide reasonable security to the Executive against
changes in the employment relationship in the event of any such change of
control.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements hereinafter contained, the parties agree as follows:
1. Definitions. For purposes of this Agreement, the following
definitions shall apply:
"CHANGE OF CONTROL" shall mean the occurrence of any one of the following
events:
(a) any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Act") (other than the Company, any
of its subsidiaries, or any trustee, fiduciary or other person or entity holding
securities under any employee benefit plan or trust of the Company or any of its
subsidiaries), together with all "affiliates" and "associates" of such person
(as such terms are defined in Rule 12b-2 under the Act), shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 40% or more of
either (1) the combined voting power of the Company's then
<PAGE> 21
outstanding securities having the right to vote in an election of the Company's
Board of Directors ("Voting Securities") or (2) the then outstanding shares of
Stock of the Company (in either such case other than as a result of an
acquisition of securities directly from the Company); or
(b) persons who, as of the effective date of this Agreement,
constitute the Company's Board of Directors (the "Incumbent Directors") cease
for any reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a majority
of the Board; provided, however, that any person becoming a director of the
Company subsequent to the effective date of this Agreement whose election or
nomination for election was approved by a vote of at least a majority of the
Incumbent Directors shall, for purposes of this Plan, be considered an Incumbent
Director; or
(c) the stockholders of the Company shall approve (1) any
consolidation or merger of the Company or any subsidiary where the shareholders
of the Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, shares
representing in the aggregate 50% or more of the voting shares of the
corporation issuing cash or securities in the consolidation or merger (or of its
ultimate parent corporation, if any), (2) any sale, lease, exchange or other
transfer (in one transaction or a series of transactions contemplated or
arranged by any party as a single plan) of all or substantially all of the
assets of the Company or (3) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (a) solely as the result
of an acquisition of securities by the Company which, by reducing the number of
shares of Stock or other Voting Securities outstanding, increases (i) the
proportionate number of shares of Stock beneficially owned by any person to 40%
or more of the shares of Stock then outstanding or (ii) the proportionate voting
power represented by the Voting Securities beneficially owned by any person to
40% or more of the combined voting power of all then outstanding Voting
Securities; provided, however, that if any person referred to in clause (i) or
(ii) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change of Control"
shall be deemed to have occurred for purposes of the foregoing clause (a).
"CONSTRUCTIVE TERMINATION" shall mean, with respect to the Executive, the
occurrence of any one of the following events:
(a) The Executive no longer retains, is not re-elected to, or is
removed from, the Executive's current office(s) as ___________________________
of the Company, other than as a result of the Executive's election or
appointment to positions of equal or superior scope and responsibility; or
2
<PAGE> 22
(b) The Company materially diminishes the scope and responsibility
of the Executive's current office(s), so that the powers, authority and support
services normally attendant to the Executive's current office(s) are no longer
vested in the Executive, as determined by the Executive in his or her reasonable
discretion, including without limitation changes in the individuals, groups,
positions or divisions which report to the Executive or the person or position
to whom the Executive directly reports, provided, however, that if the Company
disputes the "reasonableness" of the Executive's determination or the
"materiality" of the change, the sole and exclusive method for resolving such
dispute shall be the alternative dispute resolution procedure set forth in
Section 7(a) of this Agreement; or
(c) The Executive's compensation (including, without limitation,
base salary, bonus opportunity, stock options, other incentive awards, employee
benefits coverage or retirement benefits) is reduced by more than a de minimis
amount; or
(d) The Company notifies the Executive that the Executive's
employment will be terminated or materially modified in the future or that
Constructive Termination of the Executive will occur in the future; or
(e) The Company changes the primary employment location of the
Executive to a place that is more than fifty (50) miles from the primary
employment location of the Executive as of the effective date of this Agreement;
or
(f) The Company otherwise commits a material breach of its
obligations under this Agreement.
No such event described herein shall constitute Constructive Termination unless
the Executive has given written notice to the Company specifying the event
relied upon for such termination within six (6) months after the occurrence of
such event and the Company has not remedied such within thirty (30) days of such
notice.
"COVERAGE PERIOD" shall mean the period during which the Executive shall
be entitled to receive various benefits pursuant to the terms of this Agreement,
commencing on the date a Change of Control occurs and ending at the end of the
period set forth on Exhibit A attached hereto.
"VALUATION MULTIPLE" shall mean the amount by which the Executive's annual
compensation is multiplied for purposes of calculating certain benefits paid
under this Agreement, as set forth on Exhibit A attached hereto.
2. Benefits Upon Termination of Employment Due to Change of Control.
If, upon a Change of Control or within twenty-four (24) months thereafter, the
Company terminates the Executive's employment, or a Constructive Termination of
the Executive
3
<PAGE> 23
occurs (collectively, a "Termination Event"), the Executive shall be entitled to
the following benefits:
(a) Multiple of Annual Compensation. Within five (5) business days
after the date of the Termination Event (hereafter, the "Termination Date"), the
Executive shall be paid a lump sum by the Company equal to (1) the Valuation
Multiple, multiplied by (2) the greatest amount of annual compensation
(including salary and incentive bonus) and other income, from all sources, paid
by the Company to the Executive over the preceding five (5) fiscal years, as
reported by the Company on Form W-2 and/or Form 1099, as the case may be,
furnished to the Executive;
(b) Unpaid Annual Incentive Bonus. The Executive shall be paid a
lump sum in respect of unpaid incentive bonus, calculated as follows:
1. If the Termination Date occurs prior to the date incentive bonuses
are paid by the Company to eligible employees with respect to
services performed in the preceding fiscal year, the Executive shall
be paid an amount equal to the greatest amount of the annual
incentive bonus paid to the Executive by the Company over the
preceding five (5) fiscal years, multiplied by a fraction, the
numerator of which is the number of days which have elapsed from the
first day of the preceding fiscal year to the Termination Date and
the denominator of which is three hundred sixty (360); and
2. If the Termination Date occurs after the date incentive bonuses have
been paid by the Company to eligible employees with respect to
services performed in the preceding fiscal year, then (a) if the
Company has achieved in the current fiscal year, on a prorated
basis, at least 85% of the quantifiable annual performance goals
previously established by the Company for determination of incentive
bonuses, the Executive shall be paid an amount equal to the greatest
amount of the annual incentive bonus paid to the Executive by the
Company over the preceding five (5) fiscal years, multiplied by a
fraction, the numerator of which is the number of days which have
elapsed from the first day of the current fiscal year to the
Termination Date and the denominator of which is three hundred sixty
(360), and (b) if the Company has not achieved in the current fiscal
year, on a prorated basis, at least 85% of the quantifiable annual
performance goals previously established by the Company for
determination of incentive bonuses, the Executive shall be paid an
amount equal to 75% of the average incentive bonus paid to the
Executive over the preceding three (3) fiscal years, multiplied by a
fraction, the numerator of which is the number of days which have
elapsed from the first day of the current fiscal year to the
Termination Date and the denominator of which is three hundred sixty
(360).
4
<PAGE> 24
(c) Continuation of Benefits Coverage. The Executive (and the
Executive's dependents) shall receive coverage under the Company's benefit plans
then in effect, at the Company's cost, during the Coverage Period (provided that
substantially the same or equivalent benefits are not available to the Executive
by reason of employment obtained following such termination);
(d) Immediate Vesting of Stock Incentive Awards and DERs;
Extension of Option Exercise Period. Notwithstanding any vesting schedule
otherwise applicable or any other provisions to the contrary in the Company's
stock incentive plans, any outstanding stock options and dividend equivalent
rights awards previously granted to Executive shall immediately be fully vested
and the Executive shall be entitled, for a period of eighteen (18) months
following such termination of employment, to exercise any such stock options;
(e) Future DER Payments. The Executive shall be paid, at the
Executive's election, either (i) within five (5) business days after the
Termination Date, a lump sum equal to the aggregate amount of the annual
dividend equivalent rights payments payable to the Executive during the
remaining term of any dividend equivalent rights awards previously granted to
the Executive, based on the assumption that the Company's then-current quarterly
dividend payments continue during the remaining term of such awards, or (ii)
annual payments during the remaining term of any dividend equivalent rights
awards granted to the Executive, in accordance with the terms of such awards;
(f) Future 401(k) Contributions. Within five (5) business days
after the Termination Date, the Executive shall be paid a lump sum equal to the
aggregate amount of the Company's maximum contributions that would have been
made under the Company's Savings and Retirement Plan ("401(k) Plan") during the
Coverage Period if the Executive had continued to be employed and participated
in the 401(k) Plan during the Coverage Period;
(g) Immediate 401(k) Vesting. Notwithstanding any vesting schedule
otherwise applicable, any contributions previously made by the Company for the
Executive's account under the 401(k) Plan shall immediately be fully vested;
(h) Future Retirement Benefits. Within five (5) business days
after the Termination Date, the Executive shall be paid a lump sum equal to the
aggregate amount of the benefits, if any, under any special pension benefit or
deferred compensation plans (calculated assuming the Executive will begin
receiving benefits at the earliest retirement date under such plans) which may
subsequently be adopted by the Company, which are operational on the Termination
Date and which explicitly provide for such payments to be made in the event of a
Change of Control.
3. Excess Parachute Payments. If it is determined, by the Company's
independent public accountants in consultation with the Company's independent
legal
5
<PAGE> 25
counsel, that any amount payable to the Executive by the Company under this
Agreement, or any other plan or agreement under which the Executive participates
or is a party, would constitute an "Excess Parachute Payment" within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")
and be subject to the excise tax imposed by Section 4999 of the Code, the
Company shall pay to the Executive a "grossing-up" amount equal to the amount of
such excise tax and all federal and state income or other taxes with respect to
payment of such excise tax, including all taxes with respect to such grossing-up
amount. If, at a later date, the Internal Revenue Service assesses a deficiency
against the Executive for such excise tax which is greater than that which was
determined at the time such amounts were paid, the Company shall pay to the
Executive the amount of such unreimbursed excise tax plus any interest,
penalties and professional fees or expenses incurred by the Executive as a
result of such assessment, including all such taxes with respect to such
additional amount. The highest marginal tax rate applicable to individuals at
the time of payment of such amounts shall be used for purposes of determining
the federal and state income and other taxes with respect thereto. The Company
shall withhold from any amounts paid under this Agreement the amount of any such
excise tax or other federal, state or local taxes then required to be withheld.
4. Intercompany Transfers. If the Executive is transferred voluntarily
to an affiliate or subsidiary of the Company, such transfer shall not be deemed
to terminate or modify this Agreement and the employing corporation to which the
Executive shall have been transferred shall, for all purposes of this Agreement,
be deemed to stand in the place of the Company as of the date of such transfer.
The Company shall be secondarily liable to the Executive for the obligations
hereunder in case the affiliate or subsidiary of the Company cannot or chooses
not to perform such obligations.
5. Source of Payments. All payments provided for under this Agreement
shall be paid in cash from the general funds of the Company; provided, however,
that such payments shall be reduced by the amount of any payments made by the
Executive or his or her dependents, beneficiaries or estate from any trust or
special or separate fund which may be established by the Company to assure such
payments. The Company shall not be required to establish a special or separate
fund or other segregation of assets to assure such payments and the Executive
shall have no right, title or interest whatever in or to any investments which
the Company may make to assist it in meeting its obligations hereunder, except
as may otherwise be expressly provided in a separate written instrument relating
to any such investments. Nothing contained in this Agreement, and no action
taken pursuant to its provisions, shall create or be construed to create a trust
of any kind or a fiduciary relationship between the Company and the Executive or
any other person. To the extent that any person acquires rights to receive
payments from the Company, such right shall be no greater than the right of an
unsecured creditor of the Company.
6. Confidential Information. The Executive acknowledges that, during
the course of his or her employment with the Company, the Executive may
heretofore or
6
<PAGE> 26
hereafter produce, receive or have access to various materials, records, data,
trade secrets, proprietary information and other information not generally known
or available to the public (collectively, "Confidential Information") regarding
the business, properties, services, strategic plans, business methods or
practices of the Company, its subsidiaries or affiliates. During the course of
employment and subsequent thereto, the Executive shall hold in confidence and
not directly or indirectly disclose, copy or otherwise use any Confidential
Information, except to the extent that such information is or thereafter becomes
lawfully available from public sources, or such disclosure or use is authorized
in writing by the Company, is required by law or by any competent judicial or
administrative authority, or otherwise is reasonably necessary and appropriate
in connection with the performance of the Executive's duties to the Company. All
records, files, documents, computer disks, computer programs and other
computer-generated material, as well as all other materials or copies thereof
relating to the Company and its business, shall be and remain the sole property
of the Company and shall be promptly returned to the Company upon any
termination of the Executive's employment hereunder.
7. General Provisions.
(a) Alternative Dispute Resolution. Any dispute or controversy
arising under or in connection with this Agreement, or any breach thereof, shall
be resolved and settled exclusively by arbitration, conducted by a single
arbitrator sitting in San Francisco, California, in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA")
pertaining to expedited procedures. The arbitrator shall be selected by the
parties from a list of six (6) potential arbitrators provided by the AAA,
provided that no potential arbitrator shall be related to or affiliated with
either of the parties. If the parties are unable to agree on a single arbitrator
within ten (10) days after the AAA's list of potential arbitrators has been
received by the parties, the AAA shall select from the list an arbitrator who
shall arbitrate the dispute. Each party shall be entitled, but shall not be
obligated, to submit a written arbitration statement setting forth the amount
claimed, if any, and the relief sought. The arbitration hearing shall be
conducted within forty-five (45) days following the selection of the arbitrator
and the arbitrator shall render an award within twenty (20) days from the close
of the arbitration hearing. The Company shall bear the costs of the arbitration
proceeding, including the costs of counsel, experts or other representatives
retained by the parties and the fees, costs and expenses imposed or incurred by
he arbitrator. Judgment on the award entered by the arbitrator may be entered in
any court having jurisdiction thereof.
(b) Release by Executive. Notwithstanding any provision hereof to
the contrary, the Company shall not have any obligation to pay any amount or
provide any benefit, as the case may be, under this Agreement, unless and until
the Executive executes and delivers a release of the Company, its affiliates and
related parties, in such form as the Company may reasonably require, of all
claims against the Company, its affiliates and related parties relating in any
way to the Executive's employment and termination thereof, other than claims for
amounts remaining to be paid or benefits remaining to be provided pursuant to
the terms of this Agreement.
7
<PAGE> 27
(c) Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Executive, the company and his or her and its
respective personal representatives, successors and assigns. The Company shall
require any successor to all or substantially all of the business and/or assets
of the Company, whether directly or indirectly, by purchase, merger,
consolidation, stock acquisition, or otherwise, by an agreement in form and
substance satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the Company
would be required to perform if no such succession had occurred.
(d) Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and the Company.
(e) Severability; Governing Law. If any of the provisions of this
Agreement shall be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the rights of the
parties hereto shall be determined in accordance with the laws of the State of
Maryland, without reference to the law regarding conflicts of laws.
(f) Notices. Notices given pursuant to this Agreement shall be in
writing and shall be deemed given when received and, if mailed, shall be mailed
by United States registered or certified mail, return receipt requested, postage
prepaid, sent to the following addresses ( or to such other addresses as the
party to be notified shall have given to the other party in accordance with this
provision):
If to the Company:
TriNet Corporate Realty Trust, Inc.
4 Embarcadero Center, Suite 3150
San Francisco, CA 94111
ATTN: Vice President, Administration and General Counsel
If to the Executive:
________________________________
________________________________
________________________________
8
<PAGE> 28
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE COMPANY:
TRINET CORPORATE REALTY TRUST, INC.
a Maryland corporation
By: _________________________________
Name: Geoffrey M. Dugan
Title: Vice President, Administration
and General Counsel
THE EXECUTIVE:
- --------------------------
9
<PAGE> 29
EXHIBIT A
NAME OF EXECUTIVE VALUATION MULTIPLE COVERAGE PERIOD
10
<PAGE> 1
[JP MORGAN LETTERHEAD]
60 Wall Street
New York, NY 10260
- --------------------------------------------------------------------------------
CLIENT: TriNet Essential Facilities XII, Inc
ADDRESS:
FAX #:
CONTACT: Jim Reinhart, Chief Financial Officer
SUBJECT: INTEREST RATE PROTECTION AGREEMENT (MGT REFERENCE #300115)
DATE: December 6, 1994
The purpose of this document is to confirm the terms and conditions of The Swap
Transaction entered into between TriNet Essential Facilities XII, Inc.
("Company" or Counterparty) and Morgan Guaranty Trust Company of New York
("MGT") on the Trade Date specified below (the "Swap Transaction"). This
agreement constitutes a "Confirmation" as referred to in the Interest Rate and
Currency Exchange Agreement specified below. It is our intention to have this
confirmation serve as final documentation for this transaction and accordingly,
no other confirmation will follow.
The definitions and provisions contained in the 1991 ISDA Definitions (the
"Definitions") as published by the International Swap and Derivatives
Association, Inc. ("ISDA") are incorporated into this Confirmation. In the event
of any inconsistency between those definitions and provisions and this
Confirmation, this Confirmation will govern.
The parties agree that this Rate Protection Transaction will be documented under
a master agreement to be entered into on the basis of the printed form of Master
Agreement published by the International Swap Dealers Association, Inc., (the
"Agreement") currently under negotiation with such variations and additions as
the parties may agree. Upon execution by the parties of such Agreement, this
Confirmation will supplement, form part of, and be subject to the Agreement.
The terms of the particular Rate Protection Transaction to which this
Confirmation relates are as follows:
TYPE OF TRANSACTION: Rate Cap Transaction
NOTIONAL AMOUNT: US75,000,000.00
TRADE DATE: December 6, 1994
EFFECTIVE DATE: January 1, 1995
TERMINATION DATE; December 1, 2004
FIXED AMOUNTS:
FIXED RATE PAYER (Buyer): TriNet Essential Facilities XII Inc.
<PAGE> 2
FIXED RATE PAYER PAYMENT DATE: December 8, 1994
FIXED AMOUNT (Transaction Fee): The Fixed Rate Payer shall pay to the
Floating Rate Payer a Fixed Amount
(Transaction Fee) equal to US$6,667,500.00
based on 8.8900% of the Notional Amount.
FLOATING AMOUNTS:
FLOATING RATE PAYER (Seller): MGT
Strike
CAP RATE (Protected Rate): From 1/1/95 to, but excluding, 12/1/98 7.00%
From 12/1/98 to, and including, 12/1/04 7.75%
FLOATING RATE PAYMENT DATES: Three business days prior to the first of each
month commencing January 27, 1995, up to and
including three days prior to the Termination
Date, subject to adjustment in accordance with
the Modified Following Business Day Convention.
FLOATING RATE OPTION: USD-LIBOR-BBA
Telerate Page 3750
DESIGNATED PROTECTION PERIOD: 1 Month
FLOATING RATE
DAY COUNT FRACTION: Actual/360
FLOATING RATE PERIOD END DATE: The first day of each calendar month with
no adjustments (for weekends or holidays)
FLOATING RATE CALCULATION
PERIOD: Each period from, and including, one Period
End Date to but excluding, the next applicable
Period End Date, except that the (a) the
Initial Calculation Period will commence on,
and include, the Effective Date and (b) the
final Calculation Period will end on, but
exclude, the Termination Date.
BUSINESS DAY CENTERS: New York
ROUNDING CONVENTION: The simple arithmetic mean of rates expressed
as a percentage rounded to five decimal places.
CALCULATION AGENT: MORGAN GUARANTY TRUST COMPANY, NY
Page 2 of 3
<PAGE> 3
MORGAN PAYMENT INSTRUCTIONS: Morgan Guaranty Trust Company of New York
60 Wall Street
ABA #021-000-238
Account No. 999-97-979
ATTN.: Swap Derivative Operations
REF.: Interest Rate Protection Payment
COMPANY PAYMENT INSTRUCTIONS:
Please Provide
Each party hereby agrees to make payments to the other in accordance with this
Confirmation and the Agreement. Please confirm your Agreement to be bound by the
terms of the foregoing by executing this facsimile of this Confirmation and
returning it to us. Please send to the attention of Amy Hacket. Fax
#212-648-5117 (Phone #212-648-2670). When referencing this Confirmation, please
indicate: MGT Cap #300115.
We are very pleased to have executed this Rare Protection Transaction with
TriNet Essential Facilities XII Inc.
With kind regards,
J P Morgan Securities Inc. acting as Agent for
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
/s/ Reuben Daniel
-----------------------
NAME: Reuben Daniels
TITLE: Associate
Accepted and Confirmed as of
the date first above written
/s/ JIM REINHART
--------------------------------
NAME: Jim Reinhart
TITLE: Chief Financial Officer
Page 3 of 3
<PAGE> 1
EXHIBIT 10.11
AGREEMENT OF LIMITED PARTNERSHIP
OF
TRINET PROPERTY PARTNERS, L.P.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 DEFINED TERMS.....................................................................1
ARTICLE 2 ORGANIZATIONAL MATTERS...........................................................14
Section 2.1 Formation..........................................................14
Section 2.2 Name...............................................................15
Section 2.3 Registered Office and Agent; Principal Office......................15
Section 2.4 Power of Attorney..................................................15
Section 2.5 Term...............................................................16
ARTICLE 3 PURPOSE..........................................................................17
Section 3.1 Purpose and Business...............................................17
Section 3.2 Powers.............................................................17
ARTICLE 4 CAPITAL CONTRIBUTIONS............................................................17
Section 4.1 Capital Contributions of the Partners..............................17
Section 4.2 Issuance of Additional Partnership Interests.......................18
Section 4.3 Additional Funding and Discretionary Capital Contributions.........18
Section 4.4 No Guaranteed Payment Within The Meaning of Section 707(c) of the
Internal Revenue Code..............................................19
ARTICLE 5 DISTRIBUTIONS....................................................................19
Section 5.1 Requirement and Characterization of Distributions..................19
Section 5.2 Amounts Withheld...................................................20
Section 5.3 Right to Withhold Distributions....................................20
ARTICLE 6 ALLOCATIONS OF PROFIT AND LOSS...................................................21
Section 6.1 Capital Accounts...................................................21
Section 6.2 Profits, Losses and Distributive Shares............................21
ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS............................................26
Section 7.1 Management.........................................................26
Section 7.2 Certificate of Limited Partnership.................................30
Section 7.3 Restrictions on General Partner Authority..........................30
Section 7.4 Reimbursement of the General Partner; Partnership Management Fee...31
Section 7.5 Contracts with Affiliates..........................................32
Section 7.6 Indemnification....................................................32
Section 7.7 Liability of the General Partner...................................34
Section 7.8 Other Matters Concerning the General Partner.......................35
Section 7.9 Title to Partnership Assets........................................36
Section 7.10 Reliance by Third Parties..........................................36
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 7.11 General Partner's Capital Contribution to Fund the Contributors'
Prorations and Other Expenses under Contribution Agreements........36
ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.......................................37
Section 8.1 Limitation of Liability............................................37
Section 8.2 Management of Business.............................................37
Section 8.3 Outside Activities of Limited Partners.............................37
Section 8.4 Return of Capital..................................................38
Section 8.5 Exchange Rights of Qualifying Parties..............................38
Section 8.6 The General Partner's Right to Call Limited Partner Interests......42
Section 8.7 Other Exchanges....................................................42
Section 8.8 Obligation of Limited Partners with Respect to Rights of First
Refusal............................................................42
ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS...........................................45
Section 9.1 Records and Accounting.............................................45
Section 9.2 Fiscal Year........................................................45
Section 9.3 Reports............................................................45
ARTICLE 10 TAX MATTERS......................................................................46
Section 10.1 Preparation of Tax Returns.........................................46
Section 10.2 Tax Elections......................................................46
Section 10.3 Tax Matters Partner................................................46
Section 10.4 Organizational Expenses............................................48
Section 10.5 Withholding........................................................48
ARTICLE 11 TRANSFERS AND WITHDRAWALS........................................................49
Section 11.1 Transfer...........................................................49
Section 11.2 Transfer of the General Partner Interest...........................49
Section 11.3 Limited Partners' Restrictions on Transfer.........................50
Section 11.4 Substituted Limited Partners.......................................50
Section 11.5 General Provisions.................................................50
ARTICLE 12 ADMISSION OF PARTNERS............................................................51
Section 12.1 Admission of Successor General Partner.............................51
Section 12.2 Amendment of Agreement and Certificate of Limited Partnership......51
ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION.........................................52
Section 13.1 Dissolution........................................................52
Section 13.2 Winding Up.........................................................52
Section 13.3 Rights of Partners.................................................54
Section 13.4 Notice of Dissolution..............................................54
Section 13.5 Termination of Partnership and Cancellation of Certificate of
Limited Partnership................................................54
Section 13.6 Reasonable Time for Winding-Up.....................................55
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 13.7 Waiver of Partition................................................55
ARTICLE 14 AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS.....................................55
Section 14.1 Amendments.........................................................55
Section 14.2 Meetings of the Partners...........................................56
ARTICLE 15 GENERAL PROVISIONS...............................................................56
Section 15.1 Addresses and Notice...............................................56
Section 15.2 Titles and Captions................................................57
Section 15.3 Pronouns and Plurals...............................................57
Section 15.4 Further Action.....................................................57
Section 15.5 Binding Effect.....................................................57
Section 15.6 Creditors..........................................................57
Section 15.7 Waiver.............................................................57
Section 15.8 Counterparts.......................................................57
Section 15.9 Applicable Law.....................................................58
Section 15.10 Invalidity of Provisions...........................................58
Section 15.11 Entire Agreement...................................................58
EXHIBIT A Partners' Contributions and Percentage Interests..................................61
EXHIBIT B Encumbered Properties, Pledged Units, Restricted PeriodExpiration Date, Minimum
Debt Amount and Call Date.........................................................62
EXHIBIT C FORM OF_________________NOTICE OF EXCHANGE........................................64
EXHIBIT D Form of Prospective Subscriber Questionnaire......................................68
EXHIBIT E Investment Representations and Warranties.........................................73
</TABLE>
(iii)
<PAGE> 5
AGREEMENT OF LIMITED PARTNERSHIP
OF
TRINET PROPERTY PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF TRINET PROPERTY PARTNERS, L.P.
(as it may be amended, supplemented or restated from time to time, this
"Agreement"), dated as of December 17, 1997, is entered into by TriNet Realty
Investors I, Inc., a Maryland corporation (together with its successors and
assigns, the "General Partner"), and the Persons (as defined below) whose names
are set forth on Exhibit A attached hereto (as it may be amended from time to
time, collectively, the "Initial Limited Partners").
NOW THEREFORE, in consideration of the mutual covenants herein contained,
and other valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it
may be amended from time to time, and any successor to such statute.
"Adjusted Capital Account" means, with respect to any Partner, such
Partner's Capital Account maintained in accordance with Section 6.1 hereof, as
of the end of the relevant period, after giving effect to the following
adjustments:
A. Credit to such Capital Account that portion of any deficit
Capital Account balance that such Partner is obligated to restore under the
terms of this Agreement or any other document, such Partner's share of Minimum
Gain determined in accordance with Treasury Regulations Section 1.704-2(g)(1)
and such Partner's share of Partner Nonrecourse Debt Minimum Gain determined in
accordance with Treasury Regulations Section 1.704-2(i)(5).
B. Debit to such Capital Account the items described in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of "Adjusted Capital Account" is intended to
comply with the provisions of Treasury Regulations Sections 1.704-1(b)(2) and
1.704-2 and shall be interpreted consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
deficit
<PAGE> 6
balance, if any, in that Partner's Adjusted Capital Account as of the end of the
relevant period.
"Adjustment Factor" means 1.0; provided, however, that subject to any
applicable Adjustment Limitations, in the event that:
(a) TriNet or its successor in interest (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, (A) 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 (B) the denominator of
which shall be the actual number of REIT Shares (determined by
assuming for such purposes that such dividend, distribution, split,
subdivision, reverse split or combination has not occurred as of
such time) issued and outstanding on the record date for such
dividend, distribution, split, subdivision, reverse split or
combination;
(b) a distribution is made pursuant to Section 5.1.B(3) or Section
5.1.B(4) of this Agreement, the Adjustment Factor shall be adjusted
by multiplying the Adjustment Factor previously in effect by a
fraction (i) the numerator of which shall be the aggregate Fair
Market Value of all Limited Partner Interests held by the Limited
Partners as of the date of such distribution minus the aggregate
distribution to the Limited Partners pursuant to Section 5.1.B(3)
and Section 5.1.B(4) hereof on such date and (ii) the denominator of
which shall be the aggregate Fair Market Value of all Limited
Partner Interests held by the Limited Partners as of the date of
such distribution; and
(c) prior to a Specified Exchange Date, (i) REIT Share Rights are issued
to all holders of outstanding REIT Shares without consideration,
(ii) such REIT Share Rights have not expired and (iii) such REIT
Share Rights were issued at a conversion or exercise price that was
below fair market value at the time of issuance in relation to the
REIT Shares to be acquired upon conversion or exercise of such REIT
Share Rights, then the Adjustment Factor applicable to the exercise
of an Exchange Right on a subsequent Specified Exchange Date shall
be equitably adjusted in a manner determined by the General Partner
to be consistent with "weighted average" anti-dilution provisions in
warrants and other similar instruments providing for adjustments in
the event of a below market exercise or issuance price, or, in the
General Partner's sole and absolute discretion, in lieu of
2
<PAGE> 7
such adjustment to the Adjustment Factor, the General Partner may
elect to cause to be issued to a Limited Partner who has tendered
Units equivalent REIT Share Rights in the amount that the Limited
Partner would have received with respect to the number of REIT
Shares the Limited Partner would have received had the Limited
Partner tendered the Tendered Units immediately prior to the
original record date for receiving the REIT Share Rights.
Any adjustments to the Adjustment Factor shall become effective, with respect to
any events described above, on the record date applicable to such event (or if
no record date is applicable, the effective date for such event) or, with
respect to an adjustment to the Adjustment Factor due to a distribution to the
Limited Partners pursuant to Section 5.1.B(3) or Section 5.1.B(4) hereof, the
earlier of the date of such distribution or the date on which the Limited
Partners become entitled to receive such distribution (if any).
"Adjustment Limitations" means, as to a Limited Partner, the limitations
and restrictions, if any, relating to the Adjustment Factor that are specified
as such on Exhibit A with respect to such Limited Partner. The Adjustment
Limitations need not be the same for each Limited Partner.
"Affiliate" means, with respect to any Person, (i) any Person directly or
indirectly controlling, controlled by or under common control with such Person;
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii), and (iii) above.
"Agreed Value" means (i) in the case of any Contributed Property, the fair
market value of such property at the time of contribution as set forth in the
applicable Contribution Agreement, and (ii) in the case of assets (other than
cash or any Contributed Property) contributed or deemed contributed to the
Partnership by a Partner, the value thereof listed in Exhibit A to this
Agreement (as amended by the General Partner from time to time) or as otherwise
agreed upon by the General Partner and the Person making the contribution,
reduced, in the case of each of clauses (i) and (ii), by any indebtedness either
assumed by the Partnership upon such contribution or to which the asset is
subject at the time of contribution, and in each case subject to reduction
pursuant to Section 8.8.D, and (iii) in the case of Partnership assets other
than cash or REIT Shares (which shall be valued as provided in Section 8.5
hereof) distributed to a Partner by the Partnership, the Partnership's Book
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such asset is subject at the time of distribution as determined under Code
Section 752 and the Treasury Regulations thereunder.
"Agreement" means this Agreement of Limited Partnership, as it may be
amended,
3
<PAGE> 8
supplemented or restated from time to time.
"Available Cash" means, with respect to any period for which such
calculation is being made, (a) the sum, without duplication, of all cash
revenues and funds received by the Partnership from whatever source (excluding
the proceeds of any Capital Contribution to the Partnership pursuant to Sections
4.1, 4.2, 4.3, 8.5 or 10.5 hereof and excluding the gross proceeds of any
Terminating Capital Transaction), plus the amount of any reduction (including,
without limitation, a reduction resulting because the General Partner determines
in its sole and absolute discretion such amounts are no longer necessary) in
reserves of the Partnership, which reserves are referred to in clause (b)(iv)
below; less (b) the sum, without duplication, of the following (except to the
extent made with the proceeds of any Capital Contribution and except to the
extent taken into account in determining Terminating Capital Transaction
Proceeds):
(i) all interest, principal and other payments in connection
with debt, including, without limitation, prepayment fees, premiums or
penalties, made during such period by the Partnership;
(ii) all cash expenditures (including, without limitation,
capital expenditures with respect to tangible and intangible assets) made
by the Partnership during such period and amounts deemed necessary by the
General Partner in its sole and absolute discretion to be held as
operating capital;
(iii) investments in any entity (including, without
limitation, loans made thereto) to the extent that such investments are
not otherwise described in clauses (b)(i) or (ii); and
(iv) the amount of any reserves (or increases in such
reserves) established during such period which the General Partner
determines in its sole and absolute discretion are necessary or
appropriate.
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 commencement of the dissolution and liquidation
of the Partnership.
"Book-Tax Disparity" means, with respect to any Contributed Property, as
of the date of determination, the difference between the Book Value of such
Contributed Property and the adjusted basis of such Contributed Property for
federal income tax purposes.
"Book Value" means, with respect to any of the Contributed Properties, the
Agreed Value of such property, subject to reduction as provided in Section
8.8.D, reduced (but not below zero) by all Depreciation with respect to such
property properly charged to the Capital Accounts and, with respect to any other
Partnership asset, the asset's adjusted basis for federal income tax purposes;
provided, however, (a) the Book Value of all Partnership assets may be adjusted
in the
4
<PAGE> 9
event of a revaluation of Partnership assets in accordance with Treasury
Regulations Section 1.704-1(b)(2)(iv)(f) to such fair market value as shall be
determined by the General Partner in its reasonable judgment; (b) the Book Value
of any Partnership asset other than cash distributed to any Partner shall be the
fair market value of such asset on the date of distribution as determined by the
General Partner in its reasonable judgment and (c) such Book Value of any
Partnership asset shall be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Profits and Losses.
"Built in Tax Amount" means an assumed amount of state and federal taxes
which would be payable by the Limited Partners as a consequence of the Taxable
Event in question at an assumed combined federal and state tax rate of 26.375%.
Notwithstanding the foregoing, (a) with respect to a Taxable Event that is a
non-taxable transaction with "boot" or a taxable sale of some but not all of the
Contributed Properties, or, in the case of a reduction in the principal balance
of Partnership debt below the applicable Minimum Debt Amount, "Built in Tax
Amount" means the assumed amount of state and federal taxes that would be
payable by the applicable Limited Partners on account of such Taxable Event at
an assumed combined federal and state tax rate of 26.375% and (b) the Built in
Tax Amount shall be reduced to reflect any transfer, disposition or other event
or occurrence which has caused such Limited Partners to recognize a portion of
their gain but which are not Taxable Events.
"Business Day" means any weekday that is not an official holiday in the
Commonwealth of Massachusetts.
"Call Date" means, for any Limited Partner, the call date specified on
Exhibit B with respect to such Limited Partner.
"Capital Contribution" means, with respect to any Partner, the aggregate
amount of cash and Agreed Value of any other property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Sections
4.1, 4.2, 4.3, 8.5 and 10.5 hereof, taking into account the provisions of
Section 8.8.
"Cash Amount" means the Value of a REIT Share on the Valuation Date.
"Cash Payment" has the meaning set forth in Section 8.5.A.
"Certificate" means the Certificate of Limited Partnership relating to the
Partnership to be filed in the office of the Delaware Secretary of State
simultaneously with the effectiveness of this Agreement, 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 Maryland State Department of Assessments and Taxation and the Articles
of Incorporation of TriNet, in each case as amended, supplemented or restated
from time to time.
5
<PAGE> 10
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, 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 or approval of a proposed action by a Partner
given in accordance with Article 14 hereof.
"Contributed Property" means, individually, each property contributed to
the Partnership pursuant to a Contribution Agreement or similar agreement.
"Contribution Agreement" means, collectively, the agreements to contribute
or similar agreements entered into between the General Partner and any Limited
Partners who have agreed to contribute properties or make other contributions to
the Partnership, in each case, as amended from time to time.
"Contribution Date" means for each Encumbered Property the date on which
such Encumbered Property was contributed to the Partnership.
"Control" means the ability, whether through ownership of partnership
interests, of voting securities or otherwise, to direct the policies and
management of any business entity.
"Delivery Date" has the meaning set forth in Section 8.5.C.
"Depreciation" means, for each fiscal year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period for federal
income tax purposes, except that if an asset has a Book-Tax Disparity at the
beginning of such year or other period (as a result of property contributions or
adjustments to such values), Depreciation shall be adjusted as necessary so as
to be an amount which bears the same ratio to such beginning Book Value as the
federal income tax depreciation, amortization or other cost recovery deduction
for such year or other period bears to the beginning adjusted tax basis;
provided, however, that if the federal income tax depreciation, amortization or
other cost recovery deduction for such year or other period is zero,
Depreciation for such year or other period shall be determined with reference to
such beginning Book Value using any reasonable method approved by the General
Partner.
"Diminished Value Amount" has the meaning set forth in Section 8.8.B.
"Disposition Event" has the meaning set forth in Section 8.8.A.
"Encumbered Properties" has the meaning set forth in Section 8.8.
6
<PAGE> 11
"Event Date" has the meaning set forth in Section 8.8.B.
"Exchange" means the exchange of Tendered Units for cash or REIT Shares
pursuant to Section 8.5. "Exchange Right" has the meaning set forth in Section
8.5.A.
"Exchange Shares" has the meaning set forth in Section 8.5.B.
"Exercise Date" has the meaning set forth in Section 8.8.A.
"Exercise Event" has the meaning set forth in Section 8.8.A.
"Fair Market Value" means, with respect to a Limited Partner Interest or
Interests which may be exchanged for one (1) REIT Share (taking into account any
adjustments to the Adjustment Factor which became effective prior to a
distribution under Section 5.1.B), the average of the daily market prices for a
REIT Share for the ten (10) consecutive trading days immediately preceding the
date of a distribution to Limited Partners pursuant to Section 5.1.B. The market
price for any such trading day shall be the closing price on the New York Stock
Exchange on such day.
"Final Adjustment" has the meaning set forth in Section 10.3.B(2).
"General Partner" means TriNet Realty Investors I, Inc., in its capacity
as the general partner of the Partnership.
"General Partner Interest" means a Partnership Interest held by the
General Partner, in its capacity as general partner.
"General Partner Priority Return Rate" means, for the General Partner, for
each Contributed Property, an annual return, compounded quarterly, in the amount
specified therefor on Exhibit A, as amended from time to time by the General
Partner in connection with the contribution of new properties to the Partnership
to specify a return elected by the General Partner in its sole and absolute
discretion with respect to such new Contributed Property.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended.
"Immediate Family" means, with respect to any natural Person, such
Person's spouse, the natural or adoptive parents of such Person or his or her
spouse and the descendants, nephews, nieces, brothers and sisters of such
Person.
7
<PAGE> 12
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership which is a Partner, the dissolution and commencement of
winding up of the partnership; (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the estate's entire interest in the
Partnership; (v) as to any trustee of a trust which is a Partner, the
termination of the trust (but not the substitution of a new trustee); or (vi) as
to any Partner, the bankruptcy of such Partner. For purposes of this definition,
bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner
commences a voluntary proceeding seeking liquidation, reorganization or other
relief under any bankruptcy, insolvency or other similar law now or hereafter in
effect; (b) the Partner is adjudged as bankrupt or insolvent, or a final 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 filed against the Partner seeking liquidation, reorganization or
other relief under any bankruptcy, insolvency or other similar law now or
hereafter in effect; (e) the Partner seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator for the Partner or for all or
any substantial part of the Partner's properties; (f) any proceeding seeking
liquidation, reorganization or other relief of or against such Partner 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 for the Partner or for all or a substantial
part of the Partner's assets has not been vacated or stayed within ninety (90)
days of such appointment; or (h) an appointment referred to in clause (g) which
has been stayed is not vacated within ninety (90) days after the expiration of
any such stay.
"Indemnitee" means any Person made a party to a proceeding by reason of
(i) his, or its status as the General Partner or as a shareholder, director,
officer or agent of the Partnership or the General Partner, or (ii) his or its
liabilities, pursuant to a loan guarantee or otherwise, for any indebtedness or
obligation of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness or obligation which the Partnership has
assumed or taken assets subject to) and 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 sole and absolute discretion.
"Initial Units Value" has the meaning set forth in Section 8.8.A.
"Investment Documents" has the meaning set forth in Section 11.4 hereof.
"IRS" means the Internal Revenue Service.
8
<PAGE> 13
"Issuance Date" shall be the twentieth (20th) day of a calendar month (or,
if such date is not a Business Day, the next Business Day), as long as the
Notice of Exchange is received by the General Partner at any time on or before
the first (1st) Business Day of such calendar month. If a Notice of Exchange is
received by the General Partner at any time after the first (1st) Business Day
of a calendar month, then the Issuance Date shall be the twentieth (20th) day
(or, if such day is not a Business Day, the next Business Day) of the
immediately following calendar month. For example, if a Notice of Exchange is
received by the General Partner on May 10th, the Issuance Date shall be June
20th (or, if such day is not a Business Day, the next Business Day).
"Limited Partner" shall mean each Initial Limited Partner of the
Partnership, each additional Limited Partner admitted to the Partnership after
the date hereof, and each Substituted Limited Partner, in each case in such
Person's capacity as a Limited Partner of the Partnership.
"Limited Partner Interest" means a Partnership Interest of a Limited
Partner in the Partnership representing a fractional part of the ownership
interests in the Partnership of all Partners and includes any and all benefits
to which the holder of such a Partnership Interest may be entitled, together
with all obligations of such Person to comply with the terms and provisions of
this Agreement.
"Limited Partner Priority Return Rate" means for each Limited Partner an
annual return, compounded quarterly, in the amount specified for such Limited
Partner on Exhibit A, which need not be the same for each Limited Partner.
"Liquidating Event" has the meaning set forth in Section 13.1.
"Liquidator" has the meaning set forth in Section 13.2.
"Minimum Gain" shall have the meaning of such term as set forth in
Treasury Regulations Section 1.704-2(d), and shall generally mean the amount by
which the nonrecourse liabilities secured by any assets of the Partnership
exceed the adjusted tax basis of such assets as of the date of determination. A
Partner's share of Minimum Gain (and any net decrease thereof) at any time shall
be determined in accordance with Treasury Regulations Section 1.704-2(g).
"Minimum Debt Amount" means with respect to one or more Contributed
Properties the amount of Partnership debt indicated on Exhibit B.
"Notice of Exchange" has the meaning set forth in Section 8.5.A.
"NYSE" means the New York Stock Exchange.
"Ownership Limit" means the applicable restriction on ownership of shares
of TriNet
9
<PAGE> 14
imposed under its Charter.
"Partner" means a General Partner or a Limited Partner, and "Partners"
means the General Partner and the Limited Partners collectively.
"Partner Nonrecourse Debt" has the meaning of such term set forth in
Treasury Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning of such term set
forth in Treasury Regulations Section 1.704-2(i).
"Partner Nonrecourse Deductions" has the meaning of such term set forth in
Treasury Regulations Section 1.704-2(i). Subject to the terms of the immediately
preceding sentence, Partner Nonrecourse Deductions shall consist of, with
respect to any partner nonrecourse debt (as such term is defined in Treasury
Regulations Section 1.704-2(b)(4)), the increase in Partner Nonrecourse Debt
Minimum Gain during a tax year plus any increase in Partner Nonrecourse Debt
Minimum Gain for a prior tax year which has not previously generated a Partner
Nonrecourse Deduction. The determination of which Partnership items constitute
Partner Nonrecourse Deductions shall be made in a manner consistent with the
manner in which Partnership Nonrecourse Deductions are determined.
"Partner Record Date" has the meaning set forth in Section 5.1.A.
"Partnership" means the limited partnership formed under the Act and
pursuant to this Agreement, as it may be amended or restated from time to time,
and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership
representing a fractional part of the ownership interests in the Partnership of
all Partners and includes any and all benefits to which the holder of such
Partnership Interest may be entitled, together with all obligations of such
Person to comply with the terms and provisions of this Agreement.
"Percentage Interest" with respect to a Partner means the amount
determined by dividing such Partner's Unrecovered Capital Amount by the
aggregate Unrecovered Capital Amounts of all Partners.
"Person" means an individual or a corporation, limited liability company,
partnership, trust, unincorporated organization, association or other entity.
"Priority Return" means, for each Priority Return Calculation Year, with
respect to any Limited Partner, a return on the Unrecovered Capital Amount of
such Limited Partner calculated at the applicable Limited Partner Priority
Return Rate, and, with respect to the General Partner, a return on the
Unrecovered Capital Amount of the General Partner equal to the applicable
General
10
<PAGE> 15
Partner Priority Return Rate.
"Priority Return Calculation Year" means for each Partner a one-year
period beginning on the date of admission of such Partner to the Partnership or
a yearly anniversary of such date, as applicable, and ending on the next
following yearly anniversary of such date; provided, however, that if the
General Partner Priority Return Rate is calculated differently for one (1) or
more Contributed Properties, the Priority Return Calculation Year of the General
Partner for each such Contributed Property shall mean the one-year period
beginning on the date of contribution of each such Contributed Property to the
Partnership, or a yearly anniversary of such date, as applicable, and ending on
the next following yearly anniversary of such date.
"Profits" and "Losses" means, for each fiscal year or other period, an
amount equal to the Partnership's taxable income or loss (as the case may be)
for such year or period, 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:
(1) Any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or
loss;
(2) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i), and
not otherwise taken into account in computing Profits or Losses
pursuant to this definition (including amounts paid or incurred to
organize the Partnership (unless an election is made pursuant to
Code Section 709(b) or to promote the sale of interests in the
Partnership), shall be subtracted from such taxable income or loss,
with deductions for any losses incurred in connection with the sale
or exchange of Partnership property disallowed pursuant to Section
267(a)(1) or Section 707(b) of the Code treated as expenditures
described in Section 705(a)(2)(B) of the Code);
(3) Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Book Value of the
property disposed of notwithstanding that the adjusted tax basis of
such property differs from such Book Value;
(4) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such fiscal
year or other period, computed in accordance with the definition of
"Depreciation" herein;
11
<PAGE> 16
(5) In the event that any item of income, gain, loss or deduction that
has been included in the initial computation of Profit or Loss is
subject to the special allocation rules of Section 6.2.D hereof,
Profit or Loss shall be recomputed without regard to such item; and
(6) In the event of an adjustment of the Book Value of any Partnership
asset which requires that the Capital Accounts of the Partnership be
adjusted pursuant to Treasury Regulations Section
1.704-1(b)(2)(iv)(e), (f) and (m), the amount of such adjustment
shall be taken into account as additional Profits or Losses pursuant
to Section 6.2 hereof.
"Qualifying Party" means any Limited Partner, including, without
limitation, any Substituted Limited Partner.
"Regulations" means the Income Tax Regulations promulgated under the Code,
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"REIT" means a real estate investment trust qualifying under Code Section
856.
"REIT Share" means a share of TriNet's Common Stock, par value $.01 per
share, or a share of the common stock of a successor to TriNet pursuant to a
Transaction.
"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.
"REIT Share Rights" shall mean any rights, options or warrants issued by
TriNet which entitle the holders thereof to subscribe for, purchase or otherwise
acquire REIT Shares.
"Related Party" means, with respect to any Person, any other Person whose
ownership of shares of the General Partner's or TriNet'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
856(d)(5)).
"Restricted Period Expiration Date" means, with respect to a Contributed
Property, such date as is set forth on Exhibit B attached hereto for such
Contributed Property, as amended from time to time by the General Partner to
reflect the Restricted Period Expiration Date applicable to each Contributed
Property as provided in each applicable Contribution Agreement.
"Returned Units" has the meaning set forth in Section 8.8.A.
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"Rights of First Refusal" has the meaning set forth in Section 8.8.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder. Any reference herein to
a specific section or sections of the Securities Act shall be deemed to include
a reference to any corresponding provision of future law.
"Specified Exchange Date" means the date of receipt by the General Partner
of a Notice of Exchange from a Qualifying Party pursuant to the terms and
subject to the conditions set forth in Article 8 hereof.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which a majority of the voting power of the
voting equity securities or of the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership from and after the date of this Agreement pursuant to
Section 11.4.
"Taxable Event" means an event described in items (i), (ii) or (iii) of
Section 7.3.B.
"Tendered Units" has the meaning set forth in Section 8.5.A hereof.
"Tendering Party" has the meaning set forth in Section 8.5.A hereof.
"Terminating Capital Transaction" means (i) any sale or other disposition
of any Contributed Property of the Partnership, other than pursuant to a wholly
tax-free exchange with no boot as described in Section 7.3.B., and (ii) any
condemnation (or transfer in lieu thereof) of any Contributed Property or any
casualty to any Contributed Property.
"Terminating Capital Transaction Proceeds" means the sum of (i) (A) all
cash, notes or publicly traded securities received in a Terminating Capital
Transaction, (B) all cash received by the Partnership in respect of, or from the
sale or disposition by the Partnership of, non-cash proceeds of a Terminating
Capital Transaction and (C) non-cash proceeds of a Terminating Capital
Transaction, less (ii) all costs and expenses of the Partnership relating to
such Terminating Capital Transaction, all reserves established from the proceeds
of such Terminating Capital Transaction as are elected by the General Partner in
its sole and absolute discretion and, in the case of casualty or condemnation,
all amounts expended by the Partnership in connection with the repair or
rebuilding of the Contributed Property.
"Transaction" has the meaning set forth in Section 11.2 hereof.
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"Transfer," when used with respect to all or any portion of a Partnership
Interest, means, subject to the terms of this definition below, any transaction
in which a Partner, directly or indirectly, assigns all or any portion of his or
its Partnership Interest to another Person and includes 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. When the
term "Transfer" is used in Article 11 hereof, Transfer shall not mean (i) any
Exchange of Limited Partner Interests by the Partnership or any acquisition of
Tendered Units by the General Partner pursuant to Section 8.5 hereof or (ii) any
exchange or redemption of Limited Partner Interests pursuant to Section 8.6 or
Section 8.7 hereof. The terms "Transferred" and "Transferring" have correlative
meanings.
"TriNet" means TriNet Corporate Realty Trust, Inc., a Maryland
corporation.
"Units" means, collectively, the units of Limited Partner Interests issued
to the Limited Partners for the purpose of exercising the exchange and
redemption rights pursuant to Article 8 of this Agreement, which units are set
forth on Exhibit A, as amended by the General Partner from time to time.
"Unrecovered Capital Amount" means, with respect to a Partner, the sum of
(i) the aggregate of all Capital Contributions made by the Partner plus (ii) for
each Partnership Interest transferred to such Partner, if any, (including,
without limitation, with respect to the General Partner, any Returned Units
forfeited by Limited Partners and distributed to the General Partner pursuant to
Section 8.8), the Unrecovered Capital Amount allocable to such Partnership
Interest as of the time of Transfer less the sum of (a) for each Partnership
Interest transferred by such Partner (including, without limitation, with
respect to each Limited Partner, any Returned Units forfeited by such Limited
Partner pursuant to Section 8.8), the Unrecovered Capital Amount allocable to
such Partnership Interest as of the time of Transfer, (b) the aggregate
distributions to such Partner pursuant to Section 5.1.B(3), and (c) for each
Partnership Interest tendered for redemption by such Partner, if any, the
Unrecovered Capital Amount allocable to such Partnership Interest as of the
Issuance Date for such tender.
"Valuation Date" means (a) for an Exchange, the Issuance Date or, if such
date is not a Business Day, the next 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 ten (10) consecutive trading days
immediately preceding the Valuation Date. The market price for any such trading
day shall be the closing price on the New York Stock Exchange on such day.
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ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Formation
The Partnership has been formed under and pursuant to the Act. 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 shall be TriNet Property Partners, L.P.. The
General Partner in its sole and absolute discretion may change the name of the
Partnership at any time and from time to time and shall notify the Limited
Partners of such change in its next regular communication to the Limited
Partners.
Section 2.3 Registered Office and Agent; Principal Office
The address of the registered office of the Partnership in the State of
Delaware and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
principal office of the Partnership shall be c/o TriNet Corporate Realty Trust,
Inc., Four Embarcadero Center, Suite 3150, San Francisco, California 94111, or
such other place as the General Partner may from time to time designate by
notice to the Limited Partners. The Partnership may maintain offices at such
other place or places within or outside the State of Delaware as the General
Partner deems advisable.
Section 2.4 Power of Attorney
A. Each Limited Partner hereby constitutes and appoints the General
Partner, any Liquidator, and authorized officers and attorneys-in-fact of each,
and each of those acting singly, in each case with full power of substitution,
as its true and lawful agent and attorney-in-fact, with full power and authority
in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices, (a) all certificates,
documents and other instruments (including, without
limitation, this Agreement and the Certificate and all
amendments or restatement 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
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partnership in which the limited partners have limited
liability) in the State of Delaware and in all other
jurisdictions in which the Partnership may or plans to conduct
business or own property; (b) all instruments necessary to
reflect any amendment, change, modification or restatement of
this Agreement in accordance with its terms; (c) all
conveyances and other instruments or documents the General
Partner or the Liquidator deems appropriate or necessary to
reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all instruments
relating to the admission, withdrawal, removal or substitution
of any Partner pursuant to, or other events described in,
Article 11,12 or 13 hereof or the allocation of Units or the
Capital Contribution of any Partner or any Percentage Interest
in connection therewith; and (e) all certificates, documents
and other instruments relating to the determination of the
rights, preferences and privileges of Partnership Interests;
and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and absolute
discretion of the General Partner or any Liquidator, to make,
evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by the
Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole and
absolute discretion of the General Partner or any Liquidator,
to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator 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 and the transfer of
all or any portion of such Limited Partner's Partnership Interest and shall
extend to such Limited Partner's heirs, successors, assigns and personal
representatives. Each such Limited Partner hereby agrees to be bound by any
representation made by the General Partner or any Liquidator, acting in good
faith pursuant to such power of attorney, and each such Limited Partner hereby
waives any and all defenses which may be available to contest, negate or
disaffirm the action of the General Partner or any Liquidator, taken in good
faith under such power of attorney. Each Limited Partner shall execute and
deliver to the General Partner or the Liquidator, within fifteen (15) days
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after receipt of the General Partner's or Liquidator's request therefor, such
further designations, powers of attorney and other instruments as the General
Partner or the Liquidator, as the case may be, deems necessary to effectuate
this Agreement and the purposes of the Partnership.
Section 2.5 Term
The term of the Partnership shall commence on the date hereof and shall
continue until December 31, 2047, unless the Partnership is dissolved sooner
pursuant to the provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act, (ii) to enter into any partnership,
joint venture or other similar arrangement to engage in any of the foregoing or
to own interests in any entity engaged in any of the foregoing, and (iii) to do
anything necessary or incidental to the foregoing.
Section 3.2 Powers
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership, including, without limitation,
borrowing money to finance one (1) or more of the Contributed Properties and the
conduct of the Partnership's business, provided that the Partnership shall not
take any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (a) could adversely affect the ability of TriNet to qualify
as a REIT, (b) could subject the General Partner or TriNet to any additional
taxes under Section 857 or Section 4981 of the Code, or (c) could violate any
law or regulation of any governmental body or agency having jurisdiction over
the General Partner or TriNet, or securities issued by the General Partner or
TriNet, unless such action (or inaction) shall have been specifically consented
to by the General Partner in writing. Without limiting the foregoing, in the
sole and absolute discretion of the General Partner, the Partnership may acquire
in the future additional Contributed Properties by means of Capital
Contributions by other Persons.
ARTICLE 4
CAPITAL CONTRIBUTIONS
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Section 4.1 Capital Contributions of the Partners
At the time of the execution and delivery of this Agreement, the Partners
shall make the Capital Contributions set forth in Exhibit A to this Agreement,
which shall be appropriately adjusted from time to time, including, without
limitation, to reflect adjustments pursuant to Section 8.8. The Initial Limited
Partners shall own their respective Limited Partner Interests set forth on
Exhibit A. In connection with the acquisition of Contributed Properties by the
Partnership after the date of this Agreement, the General Partner and other
Persons then being admitted into the Partnership as Limited Partners may make
additional Capital Contributions to the Partnership as determined by the General
Partner in its sole discretion.
Except as provided in Sections 4.2, 4.3, 8.5 and 10.5, the Partners shall
have no obligation to make any additional Capital Contributions, loans or other
advances of funds to the Partnership.
Section 4.2 Issuance of Additional Partnership Interests
The General Partner shall have the right to cause the Partnership to issue
additional Partnership Interests to the Partners or other Persons in connection
with the acquisition of Contributed Properties after the date of this Agreement
and/or the making of additional Capital Contributions. The issuance of
additional Partnership Interests and the admission of any additional Limited
Partners to the Partnership from time to time shall be on such terms and
conditions and for such Capital Contributions as may be established by the
General Partner in its sole discretion. No action or consent of the Limited
Partners shall be required in connection with the issuance of additional
Partnership Interests or the admission of any additional Limited Partners to the
Partnership. Persons making additional Capital Contributions to the Partnership
after the date hereof shall be admitted to the Partnership as additional Limited
Partners, with such Partnership Interests, Priority Returns, Adjustment
Limitations and other rights and limitations as may be set forth in Exhibits A
and B. To the extent that the Partnership acquires in the future any property by
the merger of any other Person into the Partnership, Persons who receive
Partnership Interests in exchange for their interests in the Person merging into
the Partnership shall become Limited Partners and shall be deemed to have made
Capital Contributions as provided in the applicable merger agreement and as set
forth in Exhibit A.
Section 4.3 Additional Funding and Discretionary Capital Contributions.
A. The General Partner may, at any time and from time to time,
determine that the Partnership requires additional funds ("Additional Funds")
for the acquisition or development of additional Properties or for such other
purposes as the General Partner may determine. Additional Funds may be raised by
the Partnership, at the election of the General Partner, in any
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manner provided in, and in accordance with, the terms of this Section 4.3 or,
alternatively, the terms of Section 4.2 hereof. No Person, including, without
limitation, any Partner or Assignee, shall have any preemptive, preferential,
participation or similar right or rights to subscribe for or acquire any
Partnership Interest.
B. The General Partner or TriNet may lend Additional Funds to the
Partnership (a "General Partner Loan") at any time. Any General Partner Loan
shall be on terms and conditions no less favorable to the Partnership than would
be available to the Partnership from any third party as reasonably determined by
the General Partner.
C. The General Partner on behalf of the Partnership may raise all or
any portion 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 (a) in the case of Partners (including the General
Partner), increasing such Partner's Partnership Interest or (b) in the case of a
third party, admitting such third party as an Additional Limited Partner as
contemplated by Section 4.2 of this Agreement. Subject to the terms of this
Section 4.3 and to the definition of "Agreed Value," the General Partner shall
determine in good faith the amount, terms and conditions of such additional
Capital Contributions.
Section 4.4 No Guaranteed Payment Within The Meaning of Section 707(c) of
the Internal Revenue Code.
The parties agree that neither the Limited Partners' Priority Return nor
the General Partner's Priority Return is intended to be a guaranteed payment
within the meaning of Section 707(c) of the Code.
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
A. The General Partner shall distribute at least quarterly (or with
respect to a particular Limited Partner, in installments upon such other
frequency as may be provided for such Limited Partner on Exhibit A) all, or such
portion as the General Partner may determine in its sole and absolute
discretion, of the Available Cash generated by the Partnership during each
calendar quarter or portion thereof during which the Partnership is in
existence. Cash distributions pursuant to this Section 5.1 for a calendar
quarter or shorter period shall be made to the Partners who are Partners of
record on the record date for the regular quarterly dividend paid by TriNet to
the holders of REIT Shares for such quarter (the "Partner Record Date") and such
distributions shall be payable to Partners on the payment date for such dividend
for such quarter. In the event that TriNet does not declare a dividend on REIT
Shares with respect to any quarter, the Partner Record Date for such quarter
shall be the last day of such quarter and the distribution
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on account of such quarter shall be paid no later than the 20th day of the next
following quarter. Distributions of Available Cash shall be made to the
applicable Partners in accordance with the following order of priority:
(1) First, to the Limited Partners in proportion to such Limited
Partners' aggregate accrued and unpaid Priority Return, until
each Limited Partner has received an amount that, when
aggregated with all previous distributions to such Limited
Partner pursuant to this Section 5.1.A(1), is equal to (but
not in excess of) such Limited Partner's aggregate accrued
Priority Return;
(2) Second, to the General Partner until the General Partner has
received an amount that, when aggregated with all previous
distributions to the General Partner pursuant to this Section
5.1.A(2), is equal to (but not in excess of) the General
Partner's aggregate accrued Priority Return; and
(3) Thereafter, 99% to the General Partner and 1% in the aggregate
to the Limited Partners in proportion to the Percentage
Interests of the Limited Partners.
B. Terminating Capital Transaction Proceeds shall be distributed within
ninety (90) days of receipt by the Partnership to those Partners who are
Partners on the date of the distribution of the Terminating Capital Transaction
Proceeds in accordance with the following order of priority:
(1) First, to the Limited Partners in proportion to the Limited
Partners' aggregate accrued and unpaid Priority Return, until
each Limited Partner has received an amount that, when
aggregated with all previous distributions to such Limited
Partner pursuant to Section 5.1.A(1) and this Section
5.1.B(1), is equal to (but not in excess of) such Limited
Partner's aggregate accrued Priority Return;
(2) Second, to the General Partner until the General Partner has
received an amount that, when aggregated with all previous
distributions to the General Partner pursuant to 5.1.A(2) and
this Section 5.1.B(2) is equal to (but not in excess of) the
General Partner's aggregate accrued Priority Return;
(3) Third, to the Partners in proportion to their Unrecovered
Capital Amounts until the Partners have received an aggregate
amount equal to their aggregate Unrecovered Capital Amounts;
and
(4) Thereafter, 1% to the Limited Partners in proportion to their
Percentage
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Interests and 99% to the General Partner.
Section 5.2 Amounts Withheld
All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and Section 10.5 hereof with respect to any allocation, payment
or distribution to the Partners shall be treated as amounts distributed to the
Partners pursuant to Section 5.1 for all purposes under this Agreement.
Section 5.3 Right to Withhold Distributions. Notwithstanding any term of
this Agreement to the contrary, the General Partner shall have the right to
withhold from any distributions that would otherwise be due to a Limited Partner
under this Agreement and apply such withheld amounts to any and all amounts that
are owed to the Partnership pursuant to the applicable Contribution Agreement,
any agreement with respect to the pledge of Units of such Limited Partner to the
General Partner or the Partnership, this Agreement, including, without
limitation, any loan described in Section 10.5, or in any other agreement
entered into in connection with or pursuant to this Agreement or the applicable
Contribution Agreement.
ARTICLE 6
ALLOCATIONS OF PROFIT AND LOSS
Section 6.1 Capital Accounts.
A. The Partnership shall establish and maintain a separate Capital
Account for each Partner in accordance with Code Section 704 and Treasury
Regulations Section 1.704-1(b)(2)(iv). Subject to the immediately preceding
sentence, the Capital Account of each Partner shall be credited with (i) the
amount of all cash Capital Contributions made or deemed made to the Partnership
by such Partner in accordance with this Agreement and the Agreed Value of any
other property contributed or deemed contributed to the Partnership by such
Partner pursuant to the terms of this Agreement, adjusted if required pursuant
to Section 8.8; plus (ii) all Profits allocated to such Partner pursuant to
Article 6 hereof (including for purposes of this Section 6.1 income and gain
exempt from tax); and shall be debited with the sum of: (x) all Losses allocated
to such Partner pursuant to Article 6 hereof, and (y) all cash and the Agreed
Value of any other property actually distributed or deemed distributed by the
Partnership to such Partner pursuant to the terms of this Agreement. Any
reference in any section or subsection of this Agreement to the Capital Account
of a Partner shall be deemed to refer to such Capital Account as the same may be
credited or debited from time to time as set forth above.
B. The foregoing provisions of this Section 6.1 are intended to comply
with Treasury Regulations Section 1.704-1(b) and shall be interpreted and
applied in a manner consistent with such Treasury Regulations. In the event the
General Partner shall determine that it is prudent to modify the manner in which
Capital Accounts are computed hereunder in order to comply with
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such Treasury Regulations, the General Partner may make such modification if
such modification will not have any effect whatsoever on the amount
distributable to any Partner under the terms of this Agreement or the amount
which any Partner may be obligated to advance to restore negative Capital
Accounts and the General Partner notifies the Limited Partners in writing of
such modification prior to making such modification.
Section 6.2 Profits, Losses and Distributive Shares.
A. Operating Profits. Subject to Section 6.2.C below, and after giving
effect to the special allocations, if any, provided in Sections 6.2.D and E
hereof, Profits in each fiscal year or other relevant period of the Partnership
shall be allocated in the following order:
(1) First, to each Partner in proportion to the cumulative Losses
allocated to such Partner under Section 6.2.B(2) and (3)
hereof (in inverse order in which they were allocated), until
the cumulative Profits allocated to such Partner under this
Section 6.2.A(1) equal the cumulative Losses allocated to such
Partner under Section 6.2.B(2) and (3) hereof;
(2) Second, to the Limited Partners proportionately based on the
amount, if any, by which the cumulative prior and concurrent
distributions of each Limited Partner's Priority Return
pursuant to Section 5.1.A(1) hereof exceeds the cumulative
amounts of Profits previously allocated to such Limited
Partner pursuant to this Section 6.2.A(2);
(3) Third, to the General Partner in the amount, if any, that the
cumulative prior and concurrent distributions of the General
Partner's Priority Return pursuant to Section 5.1.A(2) hereof
exceeds the cumulative amounts of Profits previously allocated
to the General Partner pursuant to this Section 6.2.A(3); and
(4) Thereafter, 99% to the General Partner and 1% to the Limited
Partners in the aggregate and among the Limited Partners in
proportion to their respective Percentage Interests.
B. Operating Losses. Subject to Section 6.2.C below, and after giving
effect to the special allocations, if any, provided in Section 6.2.D and E
hereof, Losses in each fiscal year or other relevant period of the Partnership
shall be allocated in the following order:
(1) First, to each Partner in proportion to the cumulative Profits
allocated to such Partner pursuant to Section 6.2.A(2), (3)
and (4) hereof (in inverse order in which they were allocated)
until the cumulative Losses allocated to such Partner under
this Section 6.2.B(1) equal the cumulative Profits allocated
to such Partner under Section 6.2.A(2), (3) and (4);
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(2) Second, to and among those Partners having positive balances
in their Capital Accounts, in proportion to and to the extent
of, such positive Capital Account balances after giving effect
to any Losses allocated to such Partners pursuant to Section
6.2.B(1); and
(3) Thereafter, 100% to the General Partner.
C. Profits and Losses From Terminating Capital Transaction.
Notwithstanding anything contained in Sections 6.2.A and B hereof, after giving
effect to the special allocations, if any, provided in Sections 6.2.D and E
hereof, all items of Partnership Profits and Losses arising from a Terminating
Capital Transaction shall be allocated among the Partners so as to insure to the
maximum extent possible that, after giving effect to the allocation of such
Profits and Losses in the Capital Accounts of the Partners, the Capital Account
balance of each Partner is positive in the amount of cash that such Partner
would be entitled to receive pursuant to Section 5.1.B if the Partnership sold
its remaining assets for their then Book Value and liquidated pursuant to the
provisions of Section 13.2.
D. Special Allocations. Except as otherwise provided in this Agreement,
the following special allocations will be made in the following order and
priority:
(1) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Article 6, if there is a net decrease in
Minimum Gain during any tax year or other period for which
allocations are made, each Partner will be specially allocated
items of Partnership income and gain for that period (and, if
necessary, subsequent periods) in an amount equal to such
Partner's share of the net decrease in Minimum Gain during
such tax year or other period determined in accordance with
Treasury Regulations Section 1.704-2(g)(2). Allocations
pursuant to the preceding sentence shall be made in proportion
to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Treasury Regulations Sections
1.704-2(f)(6) and 1.704-2(j)(2)(i). This Section 6.2.D(1) is
intended to comply with the minimum gain chargeback
requirements set forth in Treasury Regulations Section
1.704-2(f) and shall be interpreted consistently therewith,
including the exceptions to the minimum gain chargeback
requirement set forth in Treasury Regulations Sections
1.704-2(f)(2) and (3).
(2) Partner Nonrecourse Debt Minimum Gain Chargeback.
Notwithstanding any other provision of this Section 6.2 (other
than Section 6.2.D(1), which shall be applied before this
Section 6.2.D(2)), if there is a net decrease
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in Partner Nonrecourse Debt Minimum Gain during any tax year
or other period for which allocations are made, each Partner
with a share of Partner Nonrecourse Debt Minimum Gain
determined in accordance with Treasury Regulations Section
1.704-2(i)(5) shall be specially allocated items of
Partnership income and gain for that period (and, if
necessary, subsequent periods) in an amount equal to such
Partner's share of the net decrease in the Partner Nonrecourse
Debt Minimum Gain determined in accordance with Treasury
Regulation 1.704-2(i). The items to be so allocated shall be
determined in accordance with Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2)(ii). This Section 6.2.D(2) is
intended to comply with the minimum gain chargeback
requirements of Treasury Regulations Section 1.704-2(i)(4) and
shall be interpreted consistently therewith, including the
exceptions set forth in Treasury Regulations Section
1.704-(f)(2) and (3) to the extent such exceptions apply to
Treasury Regulations Section 1.704-2(i)(4).
(3) Qualified Income Offset. If a Partner unexpectedly receives
any adjustment, allocation or distribution described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or
(6), respectively, such Partner will be specially allocated
items of Partnership income and gain (consisting of a pro rata
portion of each item of Partnership income, including gross
income, and gain for the relevant tax year or other period for
which allocations are made) in an amount and manner sufficient
to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such
Partner as quickly as possible, provided that an allocation
pursuant to this Section 6.2.D(3) shall be made only to the
extent that such Partner would have an Adjusted Capital
Account Deficit after all other allocations provided for in
this Section 6.2 have been made in the first instance without
regard to this Section 6.2.D(3).
(4) Partner Nonrecourse Deductions. Notwithstanding anything to
the contrary in this Agreement, any Partner Nonrecourse
Deductions for any taxable year or other period for which
allocations are made will be allocated to the Partner who
bears the economic risk of loss with respect to the liability
to which the Partner Nonrecourse Deductions are attributable
in accordance with Treasury Regulations Section 1.704-2(i).
(5) Code Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset under Code
Section 734(b) or 743(b) is required to be taken into account
in determining Capital Accounts under Treasury Regulations
Section 1.704-1(b)(2) (iv)(m), the amount of the adjustment to
the Capital Accounts will be treated as an
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item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases the basis of the
asset), and the gain or loss will be specially allocated to
the Partners in a manner consistent with the manner in which
their Capital Accounts are required to be adjusted under
Treasury Regulations Section 1.704-1(b)(2)(iv)(m).
(6) Depreciation Recapture. In the event there is any recapture of
Depreciation or investment tax credit, the allocation thereof
shall be made among the Partners in the same proportion as the
deduction for such Depreciation or investment tax credit was
allocated.
(7) Interest In Partnership. Notwithstanding any other provision
of this Agreement, no allocation of Profit or Loss (or item of
Profit or Loss) will be made to a Partner if the allocation
would not have "economic effect" under Treasury Regulations
Section 1.704-1(b)(2)(ii) or otherwise would not be in
accordance with the Partner's interest in the Partnership
within the meaning of Treasury Regulations Section
1.704-1(b)(3) or 1.704-1(b)(4)(iv).
E. Curative Allocations. The allocations set forth in Sections 6.2.D(1)
through (5) and (7) hereof (the "Regulatory Allocations") are intended to comply
with certain requirements of Treasury Regulations Sections 1.704-1(b) and
1.704-2. The Regulatory Allocations may not be consistent with the manner in
which the Partners intend to divide Partnership distributions. Accordingly, the
General Partner is authorized to further allocate Profits, Losses, and other
items of income, gain, loss and deduction among the Partners in a reasonable
manner so as to prevent the Regulatory Allocations from distorting the manner in
which Partnership distributions would be divided among the Partners under
Section 5.1 hereof, but for application of the Regulatory Allocations. In
general, such reallocation will be accomplished by specially allocating other
Profits, Losses and items of income, gain, loss and deduction, to the extent
they exist, among the Partners so that the net amount of the Regulatory
Allocations and the special allocations to each Partner is zero. The General
Partner may accomplish this result in any reasonable manner that is consistent
with Code Section 704 and the related Treasury Regulations.
F. Tax Allocations - Code Section 704(c). Notwithstanding anything
contained in this Agreement to the contrary, taxable income, gain, loss, and
deduction with respect to any Partnership property (including, but not limited
to, the Contributed Properties) that is subject to Code Section 704(c), the
Treasury Regulations thereunder and/or Treasury Regulations Section
1.704-1(b)(2)(iv)(f) shall be determined and allocated among the Partners, and
the Capital Accounts of the Partners shall be determined, in accordance with
such Code Section and/or Treasury Regulations, as the case may be. The General
Partner hereby agrees that the Partnership shall elect the "traditional method
with curative allocations" described in Treasury Regulation Section
1.704-3(c)(3)(iii)(B) to eliminate the Book-Tax Disparity with respect to the
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Contributed Properties, and such election shall be binding on all of the
Partners.
G. Other Allocation Rules. The following rules will apply to the
calculation and allocation of Profits, Losses and other items of income, gain,
loss and deduction:
(1) Unless otherwise determined by the General Partner, for
purposes of determining the Profits, Losses or any other item
of income, gain, loss and deduction allocable to any period,
Profits, Losses and other items of income, gain, loss and
deduction will be determined on a daily basis under Code
Section 706 and the related Treasury Regulations.
(2) Except as otherwise provided in this Agreement, all items of
Partnership income, gain, loss, deduction, and other
allocations not provided for in this Agreement will be divided
among the Partners in the same proportions as they share
Profits and Losses, provided that any credits shall be
allocated in accordance with Treasury Regulations Section
1.704-1(b)(4)(ii).
H. Partner Acknowledgment. The Partners agree to be bound by the
provisions of this Section 6.2 in reporting their shares of Partnership income,
gain, loss, deduction and other allocations for income tax purposes.
I. Regulatory Compliance. The foregoing provisions of this Section 6.2
relating to the allocation of Profits, Losses and other items of income, gain,
loss and deduction for federal income tax purposes are intended to comply with
Treasury Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted
and applied in a manner consistent with such Treasury Regulations.
J. Effect of Treasury Regulations; Liquidation. In the event the
Partnership is "liquidated" within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g) but there has been no dissolution of the Partnership, then
the Partnership assets shall not be liquidated, the Partnership's liabilities
shall not be paid or discharged and the Partnership's affairs shall not be wound
up, but there shall be deemed to have been a distribution of Partnership assets
in kind to the Partners in accordance with their respective Capital Accounts
followed by a recontribution of the Partnership assets by the Partners.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
A. Except as otherwise expressly provided in this Agreement, all
management
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powers over the business and affairs of the Partnership are and shall be
exclusively vested in the General Partner. No Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to its obligations under Section
7.3.C 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 (including, without limitation,
making prepayments on loans, subject to its obligations under
Section 7.3.C), the borrowing of money, the assumption or
guarantee of, or other contracting for, indebtedness and other
liabilities, the issuance of evidence of indebtedness
(including, without limitation, the securing of the same by
deed, mortgage, deed of trust or other lien or encumbrance on
the Partnership's assets) and the incurring of any obligations
it deems necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of assets of the Partnership
(including the exercise or grant of any conversion, option,
privilege, or subscription right or other right available in
connection with any assets at any time held by the Partnership
or the merger or other combination of the Partnership with or
into another entity), subject to its obligations under Section
7.3.C;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the
terms of this Agreement and on any terms it sees fit,
including, without limitation, the financing of the conduct of
the operations of the Partnership or any of the Partnership's
Subsidiaries, the lending of funds or the issuance of
guarantees to other Persons (including, without limitation,
Subsidiaries of the Partnership) and the repayment of
obligations of the Partnership and its Subsidiaries and any
other Person in which it has an equity investment, and the
making of capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned
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by the Partnership or any subsidiary of the Partnership;
(6) the making, negotiation, execution, and performance of any
contracts, 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, without
limitation, contracting with 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;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the selection and dismissal of employees of the Partnership
(including, without limitation, employees having titles such
as "president," "vice president," "secretary" and "treasurer"
of the Partnership), and agents, outside attorneys,
accountants, consultants, property managers, brokers and
contractors of the Partnership, and the determination of their
compensation and other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any limited or general
partnerships, limited liability companies, joint ventures or
other relationships that it deems desirable
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(including, without limitation, the acquisition of interests
in and the contributions of property to, any Subsidiary and
any other Person in which it has an equity investment from
time to time);
(13) the control of any matters affecting the rights and
obligations of the Partnership, including, without limitation,
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,
arbitration 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;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any Subsidiary
or any other Person (including, without limitation, the
contribution or loan of funds by the Partnership to such
Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of
valuation as the General Partner may adopt;
(16) the enforcement of any rights against any Partner pursuant to
representations, warranties, covenants and indemnities
relating to such Partner's contribution of property or other
assets to the Partnership;
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(17) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of
attorney, of any right, including, without limitation, the
right to vote, appurtenant to any asset or investment held by
the Partnership;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person in
which the Partnership has a direct or indirect interest, or
jointly with any such Subsidiary or other Person;
(19) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which
the Partnership does not have an interest, pursuant to
contractual or other agreements with such Person;
(20) 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;
(21) the issuance of additional Partnership Interests and Units, as
appropriate in the General Partner's sole and absolute
discretion, in connection with Capital Contributions by
additional Limited Partners and Capital Contributions by
Partners pursuant to the terms of this Agreement; and
(22) an election to dissolve the Partnership pursuant to Section
13.1.C, subject to its obligations under Section 7.3.C.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the fullest extent permitted
under the Act or other applicable law, rule or regulation, subject to its
obligations under Section 7.3.C. The execution, delivery or performance by the
General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity so long as such execution, delivery or performance has been undertaken
by the General Partner in good faith.
C. At all times from and after the date hereof, the General Partner may
cause the
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Partnership to establish and maintain at any and all times working capital
accounts and other cash or similar balances in such amounts as the General
Partner, in its sole and absolute discretion, deems appropriate from time to
time.
D. In exercising its authority under this Agreement, the General
Partner may, but shall be under no obligation to, take into account the tax
consequences to any Partner of any action taken by it. The General Partner and
the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of an income tax liability incurred by such Limited
Partner as a result of an action (or inaction) by the General Partner taken
pursuant to its authority under this Agreement, subject to the General Partner's
obligations under Section 7.3.C.
Section 7.2 Certificate of Limited Partnership
The General Partner shall have filed the Certificate with the Secretary of
State of Delaware as required by the Act. The General Partner shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware, any other
state or any other jurisdiction, in which the Partnership may elect to do
business or own property. 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
of the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state and each other jurisdiction in
which the Partnership may elect to do business or own property. The General
Partner shall not be required before or after filing to deliver a copy of the
Certificate or any amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner Authority
A. The General Partner may not take any action in contravention of an
express prohibition or limitation of this Agreement without the written Consent
of Limited Partners holding a majority of the Percentage Interests of the
Limited Partners or such other percentage of the Limited Partners as may be
specifically provided for under a provision of this Agreement.
B. Except as provided in Section 7.3.C or Article 11 or 13 hereof or to
the extent that the transaction is treated as a wholly tax-free exchange with no
boot under Code Section 1031, the General Partner shall not, prior to the
Restricted Period Expiration Date with respect to a Contributed Property (i)
cause the Partnership to engage in a sale, exchange or other disposition with
respect to such Contributed Property (or any interest therein) (including by way
of taxable merger, consolidation or other combination with any other Person),
except as a result of a casualty loss, title loss or exercise of eminent domain,
(ii) cause a tax termination of the Partnership within the meaning of Section
708(b)(1)(B) of the Code; or (iii) fail to maintain
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Partnership debt at least equal to the Minimum Debt Amount. The Initial Limited
Partners agree that, simultaneously with the execution and delivery of this
Agreement, each of them will provide a bottom-dollar guaranty (each, a
"Bottom-Dollar Guaranty") with respect to indebtedness of the Partnership, which
Bottom-Dollar Guaranties shall in the aggregate be not less than the Minimum
Debt Amount and individually be of such amount as is determined by each of the
Initial Limited Partners to be necessary to avoid gain recognition by such
Initial Limited Partner. Notwithstanding anything to the contrary contained
herein, the General Partner shall have the right to refinance indebtedness of
the Partnership without restriction so long as the General Partner provides the
Limited Partners who then have Bottom-Dollar Guaranties outstanding the
opportunity to provide Bottom-Dollar Guaranties of other debt of the Partnership
in an amount equal the Minimum Debt Amount or such lesser amount as may be
sufficient for such Limited Partners to avoid gain recognition (it being
understood that such Limited Partners who elect not to provide such
Bottom-Dollar Guaranties shall be deemed to have agreed to a reduction in the
Minimum Debt Amount applicable to them by the amount of their Bottom-Dollar
Guaranties which were released in connection with such refinancing).
C. The General Partner may, in its sole discretion, elect not to comply
with Section 7.3.B with respect to any Contributed Property, and such election
shall be deemed not to constitute a breach of this Agreement or any duty of the
General Partner, if the General Partner pays to each Limited Partner who held a
beneficial interest in the applicable Contributed Property at the time of its
contribution to the Partnership an amount equal to the then present value (using
a discount rate equal to the then current yield to maturity on United States
Treasury obligations having the maturity date which most closely approximates
the period from the applicable date on which tax must be paid through the
applicable Restricted Period Expiration Date (the "Treasury Securities Rate"))
of hypothetical interest at the Treasury Securities Rate, on the Built in Tax
Amount with respect to such Contributed Property for such Limited Partner from
the date on which tax must be paid on account of such election not to comply
with Section 7.3.B to the applicable Restricted Period Expiration Date.
Notwithstanding anything to the contrary contained in this Agreement, the
payment provided for in this Section 7.3.C shall be the sole and exclusive
remedy available to the Limited Partners in the event of the General Partner's
election not to comply with Section 7.3.B.
Section 7.4 Reimbursement of the General Partner; Partnership Management
Fee
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including, without limitation, the provisions of Articles 5 and 6
regarding distributions, payments, and allocations to which it may be entitled),
the General Partner shall not be compensated for its services as general partner
of the Partnership. The General Partner shall be entitled to receive a fee for
managing the Partnership equal to one percent (1%) per annum of all revenue of
any sort of the Partnership and shall be entitled to pay itself such fee when
and as it elects.
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B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion, for all
expenses that it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership.
Section 7.5 Contracts with Affiliates
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, in each case on terms and
conditions established in the sole and absolute discretion of the General
Partner. The foregoing authority shall not create any right or benefit in favor
of any Subsidiary or any other Person.
B. The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole and
absolute discretion, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly, or
enter into any other transaction with the Partnership except pursuant to
transactions that are determined by the General Partner in good faith to be fair
and reasonable and except that the Partnership may incur indebtedness to the
General Partner or any of its Affiliates on terms that are comparable in all
material respects to those which the Partnership could obtain from a third party
lender as determined by the General Partner in good faith.
D. The General Partner and its Affiliates may perform services for the
Partnership and shall be entitled to receive compensation therefore determined
on an arms length, fair market value basis.
Section 7.6 Indemnification
A. To the fullest extent permitted by Delaware law, the Partnership
shall indemnify each Indemnitee from and against any and all joint or several
losses, claims, damages, liabilities, expenses (including, without limitation,
attorneys 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 Partnership or its business, affairs, properties or
operations, or to indebtedness or obligations of the
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Partnership for which the Indemnitee is or is alleged to be liable, in which
such Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise for any
indebtedness of the Partnership or any Subsidiary or obligations of the
Partnership (including without limitation, any indebtedness or obligations which
the Partnership has assumed or taken subject to), and the 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 7.6
in favor of any Indemnitee having or potentially having liability for any such
indebtedness or obligations. Any indemnification pursuant to this Section 7.6
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 7.6.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding, notwithstanding any limitation otherwise
imposed by the Act or other relevant laws.
C. The indemnification provided by this Section 7.6 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 a capacity which entitles it to indemnity hereunder.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance on behalf of the Indemnitees and such other Persons as the
General Partner shall determine against any liability that may be asserted
against one (1) or more Indemnitees or expenses that may be incurred by such
Indemnitees or other Persons in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify any such
Indemnitee or Person against liability under the provisions of this Agreement.
E. For purposes of this Section 7.6, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan. Excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.6, and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.6 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.
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H. The provisions of this Section 7.6 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 7.6 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this Section 7.6, as in effect immediately
prior to such amendment, modification, or repeal with respect to matters
occurring or liability undertaken, in whole or in part, prior to such amendment,
modification or repeal, regardless of when claims related thereto may arise or
be asserted.
Section 7.7 Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner and its officers and directors shall not be
liable for monetary damages to the Partnership or any Partners for losses
sustained or liabilities incurred as a result of errors in judgment or of any
act or omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner
and TriNet are acting on behalf of the Partnership and TriNet's shareholders
collectively, that neither the General Partner nor TriNet is under any
obligation to consider the separate interests of the Limited Partners,
including, without limitation, the tax consequences to any Limited Partners in
deciding whether to cause the Partnership to take (or decline to take) any
actions, and, subject to the terms of Section 7.3.C, that neither the General
Partner nor TriNet shall be liable for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such decisions, provided that the General Partner has acted in good faith.
In the event of a conflict between the interests of the General Partner's or
TriNet's shareholders on one hand and the Limited Partners on the other, the
General Partner and TriNet shall endeavor in good faith to resolve the conflict
in a manner not adverse to either such shareholders or the Limited Partners;
provided, however, that any such conflict which cannot be resolved in a manner
not adverse to either the General Partner's or TriNet's shareholders or the
Limited Partners shall be resolved in favor of the General Partner's and
TriNet's shareholders.
C. Subject to its obligations and duties as General Partner set forth
in Section 7.1.A hereof, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by the General Partner in good faith.
D. 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 General Partner's and its officers' and directors' liability
to the Partnership and the Limited Partners under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal
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with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of when
such claims may arise or be asserted.
Section 7.8 Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. 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 good faith in reliance upon the opinion
of such Persons as to matters which such General Partner reasonably believes to
be within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Subject to any agreements entered into by the General Partner or its
Affiliates (including, without limitation, TriNet) with the Partnership or any
of its Subsidiaries, the General Partner, its Affiliates (including, without
limitation, TriNet) and any officer, director, employee, agent, trustee or
shareholder of the General Partner or its Affiliates (including, without
limitation, TriNet) shall be entitled to and may have business interests and
engage in business activities in addition to those relating to the Partnership,
including, without limitation, business interests and activities that are in
direct competition with the Partnership or that are enhanced by the activities
of the Partnership. Neither the Partnership nor any of the Limited Partners or
any of their respective Affiliates shall have any rights by virtue of this
Agreement or the partnership relationship established hereby in any business
ventures of the General Partner or its Affiliates (including, without
limitation, TriNet), and none of the General Partner or its Affiliates
(including, without limitation, TriNet) shall have any obligation pursuant to
this Agreement or the partnership relationship created hereby to offer any
interest in any such business ventures to the Partnership, any Limited Partner,
or any Affiliate of any of the foregoing, even if such opportunity is of a
character which, if presented to the Partnership, any Limited Partner, or any
Affiliate of any of the foregoing, could be taken by such Person.
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E. The General Partner makes no representation that the Limited
Partners will not recognize gain or income that would be taxable as a result of
entering into this Agreement as contemplated by the Contribution Agreements. Any
costs of administering the defense of such liability is the sole responsibility
of the Limited Partners and is not subject to indemnification under this
Agreement. The General Partner shall have no liability whatsoever with respect
to the effect on any Limited Partner of actions taken in accordance with this
Agreement.
Section 7.9 Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including, without limitation, Affiliates of the General Partner. The General
Partner hereby declares and warrants that any Partnership assets for which legal
title is held in the name of the General Partner or any nominee or Affiliate of
the General Partner shall be held by the General Partner for the use and benefit
of the Partnership in accordance with the provisions of this Agreement. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
Section 7.10 Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect; (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership; and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this
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Agreement and is binding upon the Partnership.
Section 7.11 General Partner's Capital Contribution to Fund the
Contributors' Prorations and Other Expenses under
Contribution Agreements.
The General Partner's Capital Contributions made at the times of
acquisition of the Contributed Properties shall be used by the General Partner
to repay loans and certain closing costs of the General Partner and the title
holders of the Contributed Properties, in each case to the extent provided in
the Contribution Agreements, and, to the extent that any portion of a Capital
Contribution remains after application to such uses, the remaining funds may be
used by the General Partner for any other purpose in accordance with the terms
of this Agreement.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
Subject to any separate agreements entered into by the Limited Partners,
the Limited Partners shall have no liability under this Agreement, except as
expressly provided in this Agreement, including, without limitation, Section
10.5 hereof, or under the Act.
Section 8.2 Management of Business
No Limited Partner shall take part in the operation, 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 business by the General
Partner, any of its Affiliates, including, without limitation, TriNet, or any
officer, director, employee, partner, agent or trustee of the General Partner,
the Partnership or any of their Affiliates, including, without limitation,
TriNet, shall not affect, impair or eliminate the limitations on the liability
of the Limited Partners under this Agreement.
Section 8.3 Outside Activities of Limited Partners
Subject to any separate agreements entered into by a Limited Partner or
its Affiliates, such Limited Partner, its Affiliates and any officer, director,
employee, agent, trustee or shareholder of any such Limited Partner or its
Affiliates, shall be entitled to and may have business interests and engage in
business activities in addition to those relating to the Partnership, including,
without limitation, business interests and activities that are in direct
competition with the Partnership or that are enhanced by the activities of the
Partnership. Neither the Partnership nor any Partner or any of its Affiliates
shall have any rights by virtue of this Agreement or the partnership
relationship created hereby in any business ventures of any Limited Partner or
any of its Affiliates. No Limited Partner or any of its Affiliates shall have
any
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obligation pursuant to this Agreement or the partnership relationship created
hereby to offer any interest in any such business ventures to the Partnership,
the General Partner, another Limited Partner or any of their respective
Affiliates even if such opportunity is of a character which, if presented to the
Partnership, the General Partner, another Limited Partner or any of their
respective Affiliates would or could be taken by such Person.
Section 8.4 Return of Capital
No Limited Partner shall be entitled to the withdrawal or return of its
Capital Contributions, except to the extent of distributions made pursuant to
this Agreement or upon termination of the Partnership as provided herein. Except
as otherwise expressly provided in this Agreement, including, without
limitation, any amendments hereto in accordance with Section 12.2, no Limited
Partner shall have priority over any other Limited Partner, either as to the
return of Capital Contributions or as to profits, losses or distributions.
Section 8.5 Exchange Rights of Qualifying Parties
A. After the expiration of the eighteenth (18) month (or such other
period with respect to a Limited Partner as is provided in a Contribution
Agreement entered into after the date hereof) following each Closing Date (as
that term is defined in the Contribution Agreement pursuant to which such
Closing Date occurred), a Limited Partner who received a Limited Partner
Interest on such Closing Date or any Qualifying Party who has succeeded to such
Limited Partner Interest shall have the right (the "Exchange Right") (subject to
the terms and conditions set forth herein) to require (subject to the General
Partner's rights set forth in Section 8.5.B hereof) the Partnership to redeem
all or a portion of such Limited Partner Interest (such tendered Limited Partner
Interest being hereinafter called "Tendered Units") for cash equal to the Cash
Amount multiplied by the REIT Shares Amount with respect to the Tendered Units,
plus the aggregate amount of any distributions owed but unpaid in respect of the
Tendered Units pursuant to Section 5.1 hereof on the applicable Issuance Date
(the "Cash Payment"), which amount shall be due and shall be paid on the
Issuance Date following the Specified Exchange Date relating to such Tendered
Units. In such event, the General Partner shall cause to be contributed to the
Partnership such Cash Payment, and the applicable Qualifying Party's Tendered
Units shall be redeemed in exchange for such Cash Payment in the following
manner and with the following consequences: such redemption, to the extent it
does not represent distributions required to be paid pursuant to Section 5.1
which are accrued but unpaid, shall be treated as a distribution to such Limited
Partner which reduces such Limited Partner's Unrecovered Capital Amount as of
the date of the redemption by the Unrecovered Capital Amount allocated to the
Tendered Units, and the General Partner's Unrecovered Capital Amount as of the
date of the redemption shall be increased by the Unrecovered Capital Amount
allocated to the Tendered Units. Any such exchange or redemption shall be
exercised pursuant to a notice of exchange in substantially the form attached
hereto as Exhibit C (a "Notice of Exchange") delivered to TriNet, Attn: Chief
Financial Officer with a copy to TriNet's General Counsel, and Goodwin, Procter
& Hoar LLP, Attn: David W. Watson, Esq., by the applicable Qualifying Party
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when exercising its Exchange Right (the "Tendering Party").
B. Notwithstanding the provisions of Section 8.5.A hereof, upon an
exercise by a Tendering Party of its Exchange Right, the General Partner may, in
its sole and absolute discretion, elect to acquire some or all of the Tendered
Units from the Tendering Party in exchange for REIT Shares (the percentage
elected to be acquired for REIT Shares is referred to as the "Applicable
Percentage"). In the event the General Partner elects this option, (i) the
General Partner shall send notice of such election (the "General Partner
Election") to the Tendering Party at the address listed on the Notice of
Exchange not later than fifteen (15) days following the applicable Specified
Exchange Date and (ii) on or before the applicable Issuance Date, TriNet shall
cause its transfer agent to issue in exchange for the Applicable Percentage of
the Tendered Units (plus any distributions pursuant to Section 5.1 which are
accrued but unpaid) REIT Shares (the "Exchange Shares") in a number equal to (i)
the product of the REIT Shares Amount and the Applicable Percentage plus (ii)
the aggregate amount of any distributions owed but unpaid to the Qualifying
Party pursuant to Section 5.1 hereof with respect to the Tendered Units on the
applicable Issuance Date, divided by the Value of one REIT Share; provided,
however, that in lieu of any fractional REIT Share resulting from such
calculation, the Partnership may pay the Tendering Party cash equal to the Cash
Amount attributable to the fractional REIT Share if the General Partner causes
to be contributed to the Partnership the Cash Amount attributable to such
fractional REIT Share. Such Exchange shall be treated as a sale of such Tendered
Units to the General Partner for federal income tax purposes and such Exchange
shall be deemed to have the following consequences hereunder: such Exchange, to
the extent it does not represent distributions required to be paid pursuant to
Section 5.1(B) which are accrued but unpaid, shall be treated as a distribution
to such Limited Partner which reduces such Limited Partner's Unrecovered Capital
Amount as of the date of the Exchange by the amount equal to the Unrecovered
Capital Amount allocated to the Applicable Percentage of the Tendered Units, and
the General Partner's Unrecovered Capital Amount as of the date of Exchange
shall be increased by the Unrecovered Capital Amount allocable to the Applicable
Percentage of the Tendered Units for which Exchange Shares are issued. To the
extent that cash is used in lieu of fractional REIT Shares, the consequences
hereunder shall be identical to those under Section 8.5.A. In determining
whether to elect to exchange for REIT Shares or in the event that the Notice of
Exchange indicates to the General Partner, in its sole and absolute discretion,
the need to review additional documentation from such Tendering Party, the
General Partner may require that the Tendering Party submit to the General
Partner, in addition to the Notice of Exchange, (i) such information,
certifications or affidavits as the General Partner may reasonably require in
connection with the application of the Ownership Limit or the Hart-Scott-Rodino
Act, (ii) such other written representations, investment letters, legal opinions
or other instruments necessary, in the General Partner's opinion, to effect
compliance with the Securities Act or any other federal or state securities law
or to determine the accuracy of any representation or warranty set forth in a
Notice of Exchange and (iii) a Prospective Subscriber Questionnaire in the form
of Exhibit D hereto. If the General Partner so determines that it shall require
such additional documents, affidavits, instruments and other information
referred to in the immediately preceding sentence,
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the General Partner shall have the right to delay the Issuance Date with respect
to such Tendered Units for such time following receipt of such requested
additional documents, affidavits, instruments and other information as the
General Partner reasonably needs to determine (A) whether the Exchange complies
with the Ownership Limit and all applicable state and federal securities laws;
(B) whether the Exchange would violate, or could cause a filing under, the
Hart-Scott-Rodino Act or any other federal antitrust statute; or (C) whether the
representations and warranties made by the Tendering Party pursuant to the
Notice of Exchange and the Prospective Subscriber Questionnaire delivered
therewith are true and correct as of the date of the applicable Specified
Exchange Date. If the General Partner has elected to cause TriNet to issue
Exchange Shares pursuant to the terms of this Section above, but TriNet makes a
determination that TriNet cannot do so for legal or other reasons, the General
Partner shall so notify the applicable Tendering Party and its obligations under
this Agreement in connection with the applicable Notice of Exchange delivered by
such Tendering Party shall cease. Exchange Shares delivered under this Article
shall be delivered by TriNet as duly authorized, validly issued, fully paid and
nonassessable REIT Shares, free of any pledge, lien, encumbrance or restriction,
other than the Ownership Limit and other restrictions provided in the Charter
and the bylaws of the General Partner or TriNet, the terms of any pledge
agreements entered into by the recipient of the Exchange Shares, and
restrictions on transfer consistent with the Securities Act and applicable state
and federal securities laws. REIT Shares issued pursuant to this Section 8.5.B
may contain such legends regarding restrictions on transfer under the Securities
Act and applicable state and federal securities laws as TriNet in good faith
determines to be necessary or advisable in order to ensure compliance with such
laws. Upon delivery by the General Partner of the REIT Shares to the Tendering
Party, the Tendering Party shall automatically be entitled to the rights and be
subject to the obligations and conditions under any applicable Registration
Rights Agreement between TriNet and such Tendering Party with respect to such
REIT Shares (a "Registration Rights Agreement").
C. If a Partner Record Date with respect to any Tendered Unit precedes
the date on which a Tendering Party receives cash or REIT Shares pursuant to
this Article 8 (the "Delivery Date"), such Tendering Party shall be entitled to
distributions pursuant to this Agreement payable to holders of Limited Partner
Interests on such Partner Record Date with respect to the Tendered Units. If the
Partner Record Date with respect to any Tendered Unit is on or after the
applicable Delivery Date, the Tendering Partner shall not be entitled to
distributions pursuant to this Agreement payable to holders of Limited Partner
Interests on such Partner Record Date with respect to the Tendered Units
exchanged but, if the Tendering Party receives REIT Shares in connection with
such exchange, it shall be entitled to any dividends payable with respect to any
record holder of REIT Shares as of a record date for holders of REIT Shares that
is on or after such Delivery Date.
D. Notwithstanding anything herein to the contrary, with respect to any
Exchange of Tendered Units pursuant to this Article 8:
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(1) Subject to the Ownership Limit, no Tendering Party may effect
an Exchange for less than Fifteen Thousand (15,000) Units or, if such
Tendering Party holds less than Fifteen Thousand (15,000) Units, all of
the Units held by such Tendering Party.
(2) The consummation of any Exchange of Tendered Units shall be
subject to all required filings, if any, being made and the expiration or
termination of the applicable waiting period, if any, under the
Hart-Scott-Rodino Act as amended.
(3) Except as provided in Section 8.5 hereof, the Tendering Party
shall continue to own (subject, in the case of a Substituted Limited
Partner, to the provisions of Section 11.5 hereof) all Limited Partner
Interests subject to any Exchange, and shall be treated as a Limited
Partner, with respect to such Limited Partner Interests or the economic
interest therein for all purposes of this Agreement, until the Delivery
Date on which such Limited Partner Interests are either exchanged for REIT
Shares, pursuant to Section 8.5.B hereof, or redeemed for cash pursuant to
Section 8.5.A hereof. Upon the Delivery Date, all rights and obligations
of the Tendering Party with respect to the Tendered Units Exchanged
hereunder shall cease and, to the extent such Tendering Party elects to
Exchange all Limited Partner Interests held by such Tendering Party, the
Tendering Party shall no longer be a Limited Partner, as the case may be,
with respect to this Agreement. Except as provided in Section 8.5.B
hereof, until an exchange of the Tendered Units by the General Partner
pursuant to Section 8.5.B hereof and the receipt by a Qualifying Party of
REIT Shares, the Tendering Party shall have no rights as a shareholder of
TriNet with respect to the REIT Shares issuable in connection with such
Exchange.
E. In connection with an exercise of an Exchange Right pursuant to this
Article 8, each Tendering Party shall represent or covenant the following to the
General Partner and TriNet, which representations and covenants shall be
included within the Notice of Exchange:
(1) A written affidavit disclosing to the best of its knowledge
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 Tendering Party and (ii) any Related Party;
(2) A written representation that neither the Tendering Party nor
to the best of its knowledge any Related Party has any intention to
acquire any additional REIT Shares prior to delivery of cash or Exchange
Shares for the Tendered Units pursuant to Section 8.5; and
(3) A covenant, as a condition to the closing of an Exchange, that
until the delivery of the relevant Exchange Shares or cash the actual and
constructive ownership of REIT Shares by the Tendering Party and any
Related Party will remain unchanged from
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that disclosed above.
F. Notwithstanding any other provisions of this Agreement, a Qualifying
Party shall not be entitled to effect an Exchange, whether in REIT Shares or for
cash, to the extent the ownership or right to acquire the Exchange Shares that
could be issued to such Qualifying Party would cause such Qualifying Party or
any of its Related Parties to violate the Ownership Limit. To the extent any
attempted Exchange would be in violation of this Section 8.5.F, it shall be null
and void ab initio and such Qualifying Party shall not acquire any rights or
economics interests in REIT Shares otherwise issuable upon such Exchange.
Section 8.6 The General Partner's Right to Call Limited Partner Interests
A. Notwithstanding any other provision of this Agreement, on and after
the Call Date for any Limited Partner, the General Partner shall have the right,
but not the obligation, from time to time and at any time to exchange or redeem
any or all of the Units issued to such Limited Partner. Each exchange or
redemption by the General Partner pursuant to this Section 8.6 shall occur by
treating each applicable Limited Partner as a Tendering Party who has delivered
a Notice of Exchange pursuant to Section 8.5.A hereof for the amount of Units to
be exchanged or redeemed pursuant to notice to such applicable Limited Partner
that the General Partner has elected to exercise its rights under this Section
8.6. For purposes of this Section 8.6, any Limited Partner shall be treated as a
Qualifying Party that is a Tendering Party.
B. In the event that the General Partner exercises its rights pursuant
to Section 8.6.A, each applicable Limited Partner shall execute all documents
referred to in Section 8.5 hereof or requested in writing by the General
Partner.
C. In the event that the General Partner exercises its rights pursuant
to Section 8.6.A hereof but such an exchange or redemption cannot be effected or
a dispute arises with respect to such rights, (i) the General Partner shall have
a right to specific performance and (ii) the General Partner shall be entitled
to withhold distributions under Article 5 of this Agreement with respect to the
applicable Limited Partner.
Section 8.7 Other Exchanges
Notwithstanding the provisions of Sections 8.5 or 8.6 hereof, nothing in
this Agreement shall preclude the exchange, whether for REIT Shares or cash, of
Limited Partner Interests by any Qualifying Party upon such terms and conditions
as may be negotiated between the Qualifying Party holding such Limited Partner
Interests, on the one hand, and the General Partner, on the other hand, in their
sole and absolute discretion. Such an exchange may include the payment of cash
by the General Partner to the Qualifying Party, in a lump sum or in
installments, or the distribution in kind of assets of the General Partner to
such Qualifying Party (which assets may be encumbered), including assets to be
designated by the Qualifying Party and
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acquired (with or without debt financing) by the General Partner. In effecting
any such exchange by negotiated agreement, neither the General Partner nor the
Qualifying Party, shall incur any liability to any other Limited Partner or have
any duty to offer the same or similar terms for exchange of any other Qualifying
Party.
Section 8.8 Obligation of Limited Partners with Respect to Rights of First
Refusal.
A. Reference is made to the rights of certain tenants to acquire
interests in certain of the Contributed Properties (collectively, the
"Encumbered Properties"), as more particularly described in Exhibit B hereto
(collectively, the "Rights of First Refusal"). In the event that prior to the
tenth anniversary of the date on which an Encumbered Property was contributed to
the Partnership (the "Contribution Date") either (i) a Right of First Refusal
with respect to such Encumbered Property is exercised (an "Exercise Event"), or
(ii) upon the sale, exchange or other disposition of such Encumbered Property or
the exercise by the Liquidator of any rights under Article 13 with respect to
such Encumbered Property, the Right of First Refusal with respect to such
Encumbered Property has not been terminated forever without exercise thereof,
whether by expiration, waiver or agreement of the applicable parties (a
"Disposition Event"), the Limited Partners who held an interest in such
Encumbered Property prior to the Contribution Date shall immediately surrender
and deliver to the General Partner a number of Units (the "Returned Units")
equal to the quotient of (a) the Diminished Value Amount (as defined below),
divided, by (b) the value of one REIT Share as of the Contribution Date
calculated in accordance with Section 1.3 of the Contribution Agreement covering
such Encumbered Property (the "Initial Units Value"). The portion of the
aggregate number of Returned Units relating to an Encumbered Property that each
such Limited Partner shall be obligated to deliver to the General Partner shall
be in the same ratio as the value of all Units and other consideration received
by such Limited Partner with respect to such Encumbered Property bears to the
value of all of Units and other consideration received by all Limited Partners
with respect to such Encumbered Property. All Returned Units surrendered and
delivered to the General Partner pursuant to this Section 8.8 shall immediately
convert into a General Partner Interest and be distributed to the General
Partner.
B. The Diminished Value Amount for each Encumbered Property will equal
the positive difference, if any, between (i) the Agreed Value with respect to
such Encumbered Property as of the Contribution Date, minus (ii) the present
value (calculated for the period from the contribution of such Encumbered
Property to the Partnership through the date of the Exercise Event or
Disposition Event) of the sum of the net sales proceeds (after deducting,
without limitation, all mortgage prepayment penalties (but without deducting the
principal amount of any repaid mortgage indebtedness) and other transaction
costs) received by the Partnership for such Encumbered Property (or, if the
Disposition Event is an exercise of rights under Article 13, the value assigned
to such Encumbered Party for purposes of Article 13), plus all net cash flow
received by the Partnership from the lease of the Encumbered Property (after
deducting, without limitation, any property management fees paid for the
management of, the cost of any capital
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improvements made to, and interest expense on or principal amortization of any
indebtedness secured by, the Encumbered Property). For purposes of calculating
the present value of the net sales price and cash flow, the following discount
rates shall apply during the periods indicated: (a) 10.5% if the date of the
Exercise Event or Disposition Event (the "Event Date") is prior to the first
anniversary of the Contribution Date; (b) 11.0% if the Event Date is on or after
the first anniversary, but prior to the second anniversary, of the Contribution
Date; (c) 11.5% if the Event Date is on or after the second anniversary, but
prior to the third anniversary, of the Contribution Date, and; (d) 12.0% if the
Event Date is on or after the fourth anniversary of the Contribution Date.
Notwithstanding the foregoing, the aggregate Diminished Value Amount for all
Encumbered Properties (the "Maximum Diminished Value Amount") shall not exceed
the sum of $1,000,000 plus up to $750,000 of the aggregate amount by which the
total value of all Units held by the Initial Limited Partners have appreciated
in value since the Contribution Date. In addition, immediately following the
Event Date with respect to an Encumbered Property, the Maximum Diminished Value
Amount for the remaining Encumbered Properties shall be reduced by an amount
equal to the greater of (i) $250,000 and (ii) the actual Diminished Value Amount
of such Encumbered Property. The appreciation in value of the Limited Partners'
Units shall be equal to the number of Units for which the appreciation in value
is calculated multiplied by the difference between (x) the closing price of one
REIT Share (or such other number of whole or partial REIT Shares as may be
applicable after giving effect to any adjustments to the Adjustment Factor) on
the NYSE as of the Event Date or the date on which the General Partner receives
a request for a transfer of Units, as the case may be, unless such day is not a
trading day on the NYSE in which case the closing price on the immediately
preceding trading day shall apply, or, for any Units that are redeemed prior to
the Event Date, the Cash Amount applicable to such Units, minus (y) the Initial
Units Value.
C. As security for their obligations hereunder, each Limited Partner
with obligations under this Section 8.8 shall pledge and deliver to the
Partnership the number of Units set forth for such Limited Partner on Exhibit B.
In the event that any Units held by the Limited Partners are redeemed or
transferred (by a sale or otherwise) prior to the tenth anniversary of the
Contribution Date, at the time of such redemption or transfer the appreciation
in value of such Units shall be calculated and additional Units or, at the sole
and absolute discretion of the General Partner, Exchange Shares shall be pledged
to the General Partner as security for the selling or transferring Limited
Partner's obligations hereunder. The number of such pledged additional Units or
Exchange Shares shall be equal to the aggregate appreciation amount for the
redeemed or transferred Units divided by the Initial Units Value; provided,
however, that the aggregate value (based on the Initial Units Value) of the
additional pledged Units and Exchange Shares for each Limited Partner shall not
exceed such Limited Partner's pro rata share of $750,000 based on the ratio of
the value of all Units and other consideration received by such Limited Partner
with respect to the Encumbered Properties to the value of all Units and other
consideration received by all Limited Partners with respect to the Encumbered
Properties. Without limiting any other term of this Agreement, in the event of a
failure by a Limited Partner to perform any of its material obligations under
this Section 8.8, the General Partner shall be
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entitled to cancel the Units or, at the sole and absolute discretion of the
General Partner, Exchange Shares in lieu of Units that are required to be
surrendered, including, without limitation, any Units or Exchange Shares held as
security for the Limited Partners' obligations hereunder, and thereafter such
Units or Exchange Shares will be deemed to have been transferred to the General
Partner and, in the case of canceled Units, converted into a General Partner
Interest, and will not entitle the Limited Partners to receive any distributions
(including, without limitation, any accrued distributions) or other rights with
respect to the canceled Units or Exchange Shares.
D. In the event Units are forfeited by Limited Partners, converted into
a General Partner Interest and distributed to the General Partner under this
Section 8.8, such forfeiture, conversion and distribution (1) shall result in a
reduction in (a) the Agreed Value of the Contributed Property with respect to
which such Units were received by such Limited Partners, and (b) the Capital
Contributions and the Unrecovered Capital Amounts of such Limited Partners by an
aggregate amount equal to the value of the Units forfeited and converted,
calculated on the basis of the Initial Units Value, and (2) shall increase the
Unrecovered Capital Amount of the General Partner by an aggregate amount equal
to the value of the Units forfeited and converted, calculated on the basis of
the Initial Units Value. All adjustments to the Agreed Value of Contributed
Properties, Capital Contributions and Unrecovered Capital Amounts of Limited
Partners and the Unrecovered Capital Amount of the General Partner pursuant to
this Section 8.8 shall be made as reasonably determined by the General Partner.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business, including, without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Section 9.3
hereof. Any records maintained by or on behalf of the Partnership in the regular
course of its business may be kept on, or be in the form of, magnetic tape,
photographs, micrographics or any other information storage device. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or 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, unless
otherwise elected by
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the General partner in its sole and absolute discretion.
Section 9.3 Reports
A. As soon as practicable, but in no event later than one hundred
twenty (120) days after the close of each Partnership fiscal year, the General
Partner shall cause to be mailed to each Limited Partner as of the close of the
Partnership fiscal year, an annual report containing unaudited financial
statements of the Partnership, for such Partnership fiscal year, presented in
accordance with generally accepted accounting principles.
B. As soon as practicable, but in no event later than sixty (60) days
after the close of each of the first three quarters of the Partnership's fiscal
year, the General Partner shall cause to be mailed to each Limited Partner as of
the last day of the 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.
C. The General Partner may keep confidential from the Limited Partners,
for such period of time as the General Partner determines in its sole and
absolute discretion to be reasonable, any information that (i) the General
Partner reasonably believes to be in the nature of trade secrets or other
information, the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or its business or (ii) the Partnership is required by law or by an agreement
with an unaffiliated third party to keep confidential.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
The General Partner shall arrange for the preparation and timely
(including valid extensions) filing of all returns of Partnership income, gains,
deductions, losses and other items required of the Partnership for federal and
state income tax purposes and shall use all reasonable efforts to furnish,
within ninety (90) days of the close of each taxable year, the tax information
required to be furnished to the Limited Partners for federal income tax
reporting purposes.
Section 10.2 Tax Elections
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code. The General Partner shall have the right to seek to revoke
any tax election it makes (including, without limitation, any election under
Section 754 of the Code) upon the General Partner's
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determination, in its sole and absolute discretion, that such revocation is in
the best interests of the Partners.
Section 10.3 Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners; provided, however, that such
information is provided to the Partnership by the Limited Partners.
B. Except to the extent any action described below conflicts with the
General Partner's prohibition on causing a tax termination of the Partnership as
described in Section 7.3.B hereof, 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 Section 6231(a)(8) of the Code) or a member
of a "notice group" (as defined in Section 6223(b)(2) of
the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required
to be taken into account by a Partner for tax purposes
(a "final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final
adjustment, including the filing of a petition for
readjustment with the Tax Court or the filing of a
complaint for refund with the United States Claims Court
or the District Court of the United States for the
district in which the Partnership's principal place of
business is located;
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(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 and, if any part of such request is not allowed
by the IRS, to file an appropriate pleading (petition or
complaint) for judicial review with respect to such
request;
(5) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken account of 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 or
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.6 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees and
expenses) shall be borne by the Partnership. 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, so long as the compensation
paid by the Partnership for such services is reasonable.
Section 10.4 Organizational Expenses
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
Section 10.5 Withholding
Each Limited Partner hereby authorizes the Partnership to withhold from,
or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
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<PAGE> 54
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within 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 which would otherwise be made to the Limited
Partner; or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount plus the
amount of its attorneys' fees incurred in connection with making and enforcing
the terms of such loan, to such defaulting Limited Partner and shall succeed to
all rights and remedies of the Partnership as against such defaulting Limited
Partner. Without limitation, in such event the General Partner shall have the
right to receive distributions that would otherwise be distributable to such
defaulting Limited Partner until such time as such loan, together with all
interest thereon, has been paid in full, and any such distributions so received
by the General Partner shall be treated as having been distributed to the
defaulting Limited Partner and immediately paid by the defaulting Limited
Partner to the General Partner in repayment of such loan. Any amounts payable by
a Limited Partner hereunder shall bear interest at the lesser of (A) the base
rate on corporate loans at large United States money center commercial banks, as
published from time to time in the Wall Street Journal, plus four (4) percentage
points, or (B) the maximum lawful rate of interest on such obligation, such
interest to accrue from the date such amount is due 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
No Partnership Interest shall be Transferred, in whole or in part, except
in accordance with the terms and conditions of this Agreement. Any Transfer or
purported Transfer of a Partnership Interest not made in accordance with this
Article 11 shall be null and void.
Section 11.2 Transfer of the General Partner Interest
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A. The General Partner may not Transfer any of its General Partner
Interest or withdraw as General Partner, except as provided in this Section 11.2
unless the Limited Partners holding a majority by Percentage Interest of the
Limited Partner Interests consent to such transfer or withdrawal; provided,
however, that without the consent of any Limited Partner, the General Partner
may Transfer all or any portion of its General Partner Interest to one or more
wholly-owned subsidiaries of TriNet.
B. Notwithstanding anything to the contrary contained in this
Agreement, the General Partner and/or TriNet may engage in any merger,
consolidation or other combination with or into another Person regardless of
whether such other person is a REIT, or sell all or substantially all of their
assets, or effect any reclassification or recapitalization or change in the
terms of outstanding REIT Shares (each, a "Transaction"), all without the prior
approval of any Limited Partner, provided that following any such Transaction
any Qualifying Party continues to be entitled to exchange all or any portion of
the Limited Partner Interests held by such Qualifying Party for REIT Shares or
other similar securities, taking into account following such Transaction any
adjustments to the Adjustment Factor as a result of such Transaction, such other
similar securities are publicly traded on a nationally recognized securities
exchange or quotation system and such Qualifying Parties continue to be entitled
to the benefits of any applicable Registration Rights Agreement or other rights
substantially the same as those provided to them in any applicable Registration
Rights Agreement.
Section 11.3 Limited Partners' Restrictions on Transfer
No Limited Partner shall have the right to Transfer all or any portion of
its Partnership Interest, including, without limitation, all or any portion of
the economic rights appurtenant thereto, without the consent of the General
Partner, which consent may be withheld in its sole and absolute discretion.
Section 11.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a transferee
as a Limited Partner in his or its place. The General Partner shall, however,
have the right to consent to the admission of a proposed transferee of all or
any portion of the Partnership Interest of a Limited Partner pursuant to this
Section 11.4 as a "Substituted Limited Partner," which consent may be given or
withheld by the General Partner in its sole and absolute discretion. Admission
as a Substitute Limited Partner shall not be effective until such transferee
executes and delivers to the General Partner the following investment documents
(collectively, the "Investment Documents"): (i) a signed copy of this Limited
Partnership Agreement (and the Transferee agrees to be bound to all rights and
responsibilities of a Limited Partner hereof); (ii) a Prospective Subscriber
Questionnaire substantially in the form of the Prospective Subscriber
Questionnaire attached hereto as Exhibit D, and (iii) a certificate representing
and warranting to
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the General Partner the investment representations and warranties as set forth
in Exhibit E to this Agreement with respect to such transferee. The General
Partner's failure or refusal under this Section 11.4.A to permit a transferee of
any such Limited Partner Interests to become a Substituted Limited Partner shall
not give rise to any cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited Partner
in accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon the admission of a Substituted Limited Partner, the General
Partner shall amend Exhibit A and Exhibit B to reflect the admission of such
Substituted Limited Partner and the elimination or adjustment, if necessary, of
the interest of the predecessor of such Substituted Limited Partner.
Section 11.5 General Provisions
A. No Partner may withdraw from the Partnership other than as a result
of a permitted transfer of all of such Partner's Partnership Interest in
accordance with this Article 11.
B. Any Limited Partner who shall transfer all of its Partnership
Interest in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all transferees of such Partnership
Interest as Substitute Limited Partners.
C. If all or any portion of a Partnership Interest is transferred or
assigned during any quarterly segment of the Partnership's fiscal year in
compliance with the provisions of this Article 11 on any day other than the
first day of a Partnership fiscal year, then Profits, Losses, each item of
income, gain, expense or deduction and all other items attributable to such
Partnership Interest or economic interest therein for such Partnership fiscal
year shall be divided and allocated between the transferor and the transferee by
taking into account their varying interests during the Partnership fiscal year
in accordance with Section 706(d) of the Code, using the interim closing of the
books method or such other method permitted by the Code as the General Partner
considers appropriate. Solely for purposes of making such allocations, each of
such items for the calendar month in which the transfer or assignment occurs
shall be allocated to the transferee Partner; provided, however, that the
General Partner may adopt such other conventions relating to allocations in
connection with transfers, assignments or exchanges as it determines are
necessary or appropriate. All distributions of Available Cash attributable to
such Partnership Interest before the date of such transfer, assignment, or
redemption shall be made to the transferor, and in the case of a transfer or
assignment other than a redemption, all distributions of Available Cash
thereafter attributable to such Partnership Interest therein shall be made to
the transferee.
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ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
A successor to all or any portion of the General Partner's Partnership
Interest pursuant to Section 11.2 hereof shall be admitted to the Partnership as
a General Partner, effective upon such transfer. Any such transferee shall carry
on the business of the Partnership without dissolution. The successor General
Partner shall execute and deliver to the Partnership and the Limited Partners a
signed copy of this Limited Partnership Agreement and an agreement to be bound
by all rights and responsibilities of the General Partner hereof. In the case of
such admission on any day other than the first day of a Partnership fiscal year,
all items attributable to the General Partner's Partnership Interest for such
Partnership fiscal year shall be allocated between the transferring General
Partner and such successor as provided in Section 11.5.C hereof.
Section 12.2 Amendment of Agreement and Certificate of Limited Partnership
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A and Exhibit B)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or by the admission of a successor General Partner in
accordance with the terms of this Agreement. Upon the withdrawal of the General
Partner, any successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and its affairs shall be wound up,
only upon the first to occur of any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless, within ninety (90) days after such
event of withdrawal a majority by Percentage Interest of the Limited Partners
agree in writing to continue the business of the
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Partnership and to the appointment, effective as of the date of withdrawal, of a
successor General Partner;
C. subject to making the payments, if any, required by the terms of
Section 7.3.C, an election to dissolve the Partnership made by the General
Partner, which shall not require the consent of any Limited Partner;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act; or
E. subject to making the payments, if any, required by the terms of
Section 7.3.C, the sale or distribution of all or substantially all of the
assets and properties of the Partnership, in the case of a sale as long as the
proceeds of such sale are distributed to the Partners in accordance with the
terms of this Agreement.
Section 13.2 Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner or, in the event there is no remaining General Partner, any
Person elected by a majority by Percentage 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. The Partnership property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom
shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other
than the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General
Partner;
(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other
Partners; and
(4) The balance, if any, to the General Partner and Limited
Partners in accordance with Section 5.1.B.
The General Partner shall not receive any additional compensation for any
services
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performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, (i) if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to Partners as creditors) or (ii) in
lieu of liquidating the assets of the Partnership and distributing the proceeds
thereof, the Liquidator may, in its sole and absolute discretion, elect to pay
in cash to each Limited Partner such amount as such Limited Partner would have
received pursuant to the terms of Section 13.2.A had the Partnership property
been liquidated for an amount equal to its fair market value as reasonably
determined by the Liquidator. Additionally, the Liquidator may 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. The Liquidator
shall determine the fair market value of any property distributed in kind using
such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
(1) distributed to a trust established for the benefit of
the General Partner and Limited Partners for the
purposes of liquidating Partnership assets, collecting
amounts owed to the Partnership, and paying any
contingent or unforeseen liabilities or obligations of
the Partnership or the General Partner arising out of or
in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner
and the Limited Partners from time to time, in the
reasonable discretion of the Liquidator, in the same
proportions as the amount distributed to such trust by
the Partnership would otherwise have been distributed to
the General Partner and Limited Partners pursuant to
this Agreement; or
(2) 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 as soon as
practicable.
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Section 13.3 Rights of Partners
Each Partner shall look solely to the assets of the Partnership for the
return of its Capital Contributions and shall have no right or power to demand
or receive property other than cash from the Partnership. Except as otherwise
provided in this Agreement, as it may be amended, no Partner shall have priority
over any other Partner as to the return of its Capital Contributions,
distributions or allocations.
Section 13.4 Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to Section 13.1, 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.
Section 13.5 Termination of Partnership and Cancellation of Certificate of
Limited Partnership
Upon the completion of the liquidation of the Partnership's assets, as
provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
Section 13.6 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 during the period of liquidation.
Section 13.7 Waiver of Partition
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
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A. Amendments to this Agreement may be proposed only by the General
Partner. The General Partner shall submit any such proposed amendment to this
Agreement to the Limited Partners. The General Partner shall seek the written
vote of the Limited Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written vote, 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 vote which
is consistent with the General Partner's recommendation with respect to the
proposal. A proposed amendment shall be adopted and be effective as an amendment
hereto if it is approved by the General Partner and it receives the consent of
Limited Partners holding a majority in interest of the Percentage Interests of
the Limited Partners.
B. Notwithstanding the foregoing, amendments may be made to this
Agreement by the General Partner, without the consent of any Limited Partner, to
(i) add to the representations, duties or obligations of the General Partner or
surrender any right or power granted to the General Partner herein; (ii) cure
any ambiguity, correct or supplement any provision herein which may be
inconsistent with any other provision herein or make any other provisions with
respect to matters or questions arising hereunder which will not be inconsistent
with any other provision hereof; (iii) reflect the admission, substitution,
termination or withdrawal of Partners in accordance with this Agreement and
amend any terms relating to returns, distributions and allocations to such
Partners, or any other terms whatsoever, agreed to by such Partners and the
General Partner in its sole and absolute discretion, or (iv) 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. The General Partner shall reasonably promptly notify the
Limited Partners whenever it exercises its authority pursuant to this Section
14.1.B.
C. Within ten (10) days of the making of any proposal to amend this
Agreement, the General Partner shall give all Partners notice of such proposal
(along with the text of the proposed amendment and a statement of its purposes).
Section 14.2 Meetings of the Partners
A. Meetings of Partners may be called by the General Partner. The
General Partner shall give all Partners Notice of the purpose of such proposed
meeting not less than seven (7) days nor more than thirty (30) days prior to the
date of the meeting. Meetings shall be held at a reasonable time and place
selected by the General Partner. Whenever the vote or consent of Limited
Partners is permitted or required hereunder, such vote or consent shall be
requested by the General Partner and may be given by the Limited Partners in the
same manner as set forth for a vote with respect to an amendment to this
Agreement in Section 14.1.A.
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 to be taken is signed by the
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Partners owning the Percentage Interests required to vote in favor of such
action, which consent may be evidenced in one or more instruments. Consents need
not be solicited from any other Partner if the written consent of a sufficient
number of Partners has been obtained to take the action for which such
solicitation was required.
C. Each Limited Partner may authorize any Person or Persons, including
without limitation the General Partner, to act for him by proxy on all matters
on which a Limited Partner may participate. Every proxy (i) must be signed by
the Limited Partner or his attorney-in-fact, (ii) shall expire eleven (11)
months from the date thereof unless the proxy provides otherwise and (iii)
unless specifically stated otherwise, shall be revocable at the discretion of
the Limited Partner granting such proxy.
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 under this Agreement shall be in writing and shall be deemed
given or made when delivered in person or two (2) days following deposit with a
nationally recognized overnight courier service that issues a receipt upon
delivery, such as Federal Express, at the address set forth in Exhibit A or such
other address of which the Partner shall notify the General Partner in writing.
Section 15.2 Titles and Captions
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.4 Further Action
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
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Section 15.5 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 Creditors
Other than as expressly set forth herein with respect to the Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10 Invalidity of Provisions
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreements among them with respect
thereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
Limited Partnership as of the date first written above.
GENERAL PARTNER:
TRINET REALTY INVESTORS I, INC.
a Maryland corporation
--------------------------------------------
Name: Gary P. Lyon
Title: Executive Vice President
--------------------------------------------
Name: Geoffrey M. Dugan
Title:Vice President and Assistant Secretary
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LIMITED PARTNER
--------------------------------------------
Name: Charles A. Harlfinger
Title:
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LIMITED PARTNER
--------------------------------------------
Name: Stephen G. Mack
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LIMITED PARTNER
--------------------------------------------
Name: Lewis Whitman
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EXHIBIT A
Partners' Contributions and Percentage Interests
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PARTNER INITIAL NUMBER CASH CONTRIBUTED AGREED VALUE TOTAL PRIORITY
PERCENTAGE OF UNITS CONTRIBUTIONS PROPERTY OF CONTRIBUTED CONTRIBUTION* RETURN RATE
INTEREST PROPERTY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
General Partner: 25.0%
TriNet Realty Investors I, Inc. 99.00% --- $17,733,147.55 --- --- $17,733,147.55
c/o TriNet Corporate Realty
Trust, Inc.
Four Embarcadero Center,
Suite 3150
San Francisco, CA 94111
Limited Partners: 6.50%
Joseph P. Keller .39% (1) --- $296,203 $296,203 $296,203
Keller/Davis Company, LLC
101 Derby Street
Hingham, MA 02043
Ronald A. Davis .37% (1) --- $285,421 $285,421 $285,421
Keller/Davis Company, LLC
101 Derby Street
Hingham, MA 02043
Dean Boylan .01% (1) --- $ 9,000 $ 9,000 $ 9,000
Carl Harlfinger .23% (1) $173,930 $173,930 $173,930
Stephen G. Mack
Lewis L. Whitman
9 Ossage Road
Canton, MA 02021
TOTAL LIMITED PARTNERS 1.00% (1) --- $764,554 $764,554 $764,554
</TABLE>
- ------------
* This amount represents the Partner's initial Unreturned Capital Amount.
(1) Number of Units to be determined in accordance with Section 1.3 of the
Contribution Agreement.
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EXHIBIT B
Encumbered Properties, Pledged Units, Restricted Period
Expiration Date, Minimum Debt Amount and Call Date
(a) Encumbered Properties and Applicable Purchase Price:
100 Longwater Circle, Norwell, MA: $ 5,400,000
1022 Hingham Street, Rockland MA: $13,000,000
300 Foxborough Blvd., Foxborough, MA: $ 4,900,000
76 Pacella Park Drive, Randolph, MA: $ 4,700,000
(b) Pledge of Units under Section 8.8:
Mr. Keller: [Units valued at $__________, in accordance with the
provisions of Section 1.3 of the Contribution Agreement]
Mr. Davis: [Units valued at $___________, in accordance with the
provisions of Section 1.3 of the Contribution Agreement]
Mr. Harlfinger: [Units valued at $173,930, in accordance with the
provisions of Section 1.3 of the Contribution Agreement]
(c) Adjustment Limitations:
None
(d) Restricted Period Expiration Date
December 31, 1999 for 300 Foxborough Blvd., Foxborough, MA.
December 31, 2002 for 100 Longwater Circle, Norwell, MA, 101 Philip Drive,
Norwell, MA, 105 Forbes Blvd., Mansfield, MA, One Longwater Circle,
Norwell, MA, 1022 Hingham Street, Rockland, MA, 30 Dan Road, Canton, MA,
65 Dan Road, Canton, MA and 85 Dan Road, Canton, MA and 76 Pacella Park
Drive.
February 20, 1998 for 260 Kenneth Welch Drive, Lakeville, MA and 60
Columbian, Braintree, MA.
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(e) Minimum Debt Amount:
For all Contributed Properties together, the difference between (i)
$13,953,000 and (ii) the sum of (x) regularly scheduled principal payments
on such indebtedness and (y) the aggregate amount of any reduction in the
negative capital accounts of Messrs. Keller, Davis and Boylan, other than
a reduction pursuant to regularly scheduled principal payments under
clause (x) above, and (z) the reduction in Partnership indebtedness
guaranteed by such Limited Partners pursuant to Bottom Dollar Guarantees.
(f) Call Date:
For each of Messrs. Keller, Davis, Boylan and Harlfinger the earlier of
(i) December 31, 2002 or (ii) the date on which more than sixty-six
percent (66%) of the Units originally issued to such Limited Partner for
Contributed Properties other than the Contributed Property referred to as
the "Development Land" in the Contribution Agreement, dated as of the date
hereof, among the General Partner and the Initial Limited Partners have
previously been redeemed or exchanged for REIT Shares.
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EXHIBIT C
FORM OF
-----------------
NOTICE OF EXCHANGE
------------------
Reference is hereby made to that certain Agreement of Limited Partnership
of TriNet Property Partners, L.P. (the "Partnership"), dated as of ________ __,
1997 (the "Partnership Agreement"), by and among TriNet Realty Investors I, Inc.
(the "General Partner") and those limited partners listed on the signature pages
thereto (the "Limited Partners"). Pursuant to Section 8.5 of the Partnership
Agreement, the undersigned (the "Undersigned" or "Tendering Party"), hereby
notifies the General Partner of his, her or its intention to tender the number
of units of Limited Partner Interest (the "Units") in the Partnership set forth
below for cash or in the General Partner's sole discretion, shares of Common
Stock of TriNet Corporate Realty Trust, Inc. ("TriNet"), $.01 par value ("REIT
Shares"). Any capitalized terms used herein and not otherwise defined shall have
the meaning ascribed to such terms in the Partnership Agreement. PLEASE COMPLETE
THE INFORMATION BELOW AND SIGN WHERE INDICATED. FAILURE TO COMPLETE THIS NOTICE
OF EXCHANGE FULLY AND ACCURATELY MAY RESULT IN A DELAY IN YOUR EXCHANGE.
1. Name and Address:
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
2. The number of shares of Common Stock of TriNet owned by the Undersigned as
of the date of execution of this Notice of Exchange:____________
To the knowledge of the Undersigned, the number of shares of Common Stock
of TriNet owned by any Related Party(1) of the Undersigned as of the date
of execution of this Notice
- ----------
(1) "Related Party" means, with respect to any Person, any other Person
whose ownership of the capital stock of TriNet would be attributed to the first
such Person under Section 544 (as modified by Section 856(b)(1)(B)) of the
Internal Revenue Code of 1986, as amended (the "Code").
67
<PAGE> 72
of Exchange:_____________
3. Number of Units to be exchanged: _____________________ (minimum of 15,000
or, if the Tendering Party owns less than 15,000, then all of the Units
owned by the Tendering Party).
4. Does the number indicated in Paragraph No. 3 above represent all of the
Units held by the Undersigned? [ ] Yes [ ] No
5. By signing below, the Undersigned represents and warrants to TriNet that
(i) the Undersigned owns beneficially and of record, free and clear of any
claim, lien, pledge, voting agreement, option, charge, security interest,
mortgage, deed of trust, encumbrance, rights of assignment, purchase
rights or other rights of any nature whatsoever, except as provided in the
Partnership Agreement and pursuant to the securities laws (each being a
"Claim"), all of his, her or its legal and beneficial interest in the
Units which are being tendered pursuant to this Notice of Exchange, (ii)
the Undersigned has full power and authority to convey the Units free and
clear all Claims and (iii) such Units are being delivered to the General
Partner pursuant to this Notice of Exchange free and clear of all Claims.
6. By signing below, the Undersigned represents and warrants to the General
Partner and TriNet that he, she or it is a Qualifying Party, as defined in
the Partnership Agreement, and that he, she or it has the right to demand
this exchange pursuant to the terms of the Partnership Agreement.
7. By signing below, the Undersigned makes the following investment
representations and warranties to the General Partner and TriNet as to
himself, herself or itself as of the date of this Notice of Exchange:
(a) The Undersigned has had an opportunity to review all
registration statements and amendments thereto furnished to the Undersigned by
or on behalf of TriNet and all other reports and other documents filed by TriNet
with the Securities and Exchange Commission (the "SEC") (all of the foregoing
registration statements, reports and other documents collectively, the "TriNet
Documents") and understands the risks of, and other considerations relating to,
the acquisition of REIT Shares as disclosed in the TriNet Documents. The
Undersigned by reason of his, her or its business and financial experience,
together with the business and financial experience of those persons, if any,
retained by him,
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<PAGE> 73
her or it to represent or advise him, her or it with respect to his, her or its
potential investment in the REIT Shares, has such knowledge, sophistication and
experience in financial and business matters and in making investment decisions
of this type that he, she or it (A) is capable of evaluating the merits and
risks of an investment in TriNet and of making an informed investment decision,
(B) is capable of protecting his, her or its own interest or has engaged
representatives or advisors to assist him, her or it in protecting his, her or
its interests and (C) is capable of bearing the economic risk of such
investment.
(b) The Undersigned understands that an investment in TriNet
involves substantial risks. Based on the disclosure contained in the TriNet
Documents, the Undersigned has been given the opportunity to make a thorough
investigation of the current and proposed activities of TriNet.
(c) The address set forth on the first page of this Notice of
Exchange is the Undersigned's principal place of business or residence, as the
case may be, which address has not changed within one year immediately preceding
the date hereof, except as disclosed in writing to TriNet prior to the date
hereof, and the Undersigned has no present intention of becoming a resident of
any country, state or jurisdiction other than the country and state in which
such principal place of business or residence is sited.
8. By signing below, the Undersigned represents, acknowledges or covenants
the following to TriNet:
(a) To the Undersigned's knowledge, the Undersigned has disclosed
in Section 2 above its actual and constructive ownership, as determined for
purposes of Code Sections 856(a)(6) and 856(h), of REIT Shares as of the date of
execution of this Notice of Exchange by (i) the Undersigned and (ii) any Related
Party of the Undersigned;
(b) Neither the Undersigned nor to its knowledge any Related Party
has any present intention to acquire any additional REIT Shares during the
period commencing on the date that this Notice of Exchange is signed by the
Tendering Party and ending on the date on which REIT Shares and/or cash are
received by the Undersigned pursuant to this Exchange; and
(c) The Undersigned shall not be entitled to receive REIT Shares
if, as a result of the tender of Units hereunder, the actual and constructive
ownership of REIT Shares by the Undersigned and any Related Party would violate
the Ownership Limit.2
9. The Undersigned understands and acknowledges that (i) the REIT Shares for
which the Units may be exchanged are subject to the terms of the
Registration Rights Agreement, dated as of the Closing Date, by and among
TriNet and those persons listed on the signature pages thereto (the
"Registration Rights Agreement"), and (ii) unless such REIT Shares have
been registered pursuant to an Issuance Registration Statement (as defined
in the Registration Rights Agreement) which has been declared effective by
the SEC, such
- ----------
2 With limited exceptions, no person shall at any time directly or
indirectly acquire or hold beneficial ownership of shares of any class or series
of stock of TriNet with an aggregate value in excess of 9.3% of the aggregate
value of all outstanding stock of TriNet.
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<PAGE> 74
REIT Shares may be restricted securities and as restricted securities may
not be resold under the federal and state securities laws unless and until
the sale of such REIT Shares is registered under the Securities Act of
1933, as amended, pursuant to an effective Registration Statement or
unless an exemption from registration under federal and state securities
laws is available.
10. The Undersigned agrees to complete the attached PROSPECTIVE SUBSCRIBER
QUESTIONNAIRE and send it along with this Notice of Exchange to TriNet
with a copy to Goodwin, Procter & Hoar LLP, at the addresses listed below.
FAILURE TO COMPLETE THE PROSPECTIVE SUBSCRIBER QUESTIONNAIRE FULLY AND
ACCURATELY AND FAILURE TO RETURN IT WITH THIS NOTICE OF EXCHANGE MAY DELAY
THE EXCHANGE OF UNITS.
SIGNATURE: _______________________________________________________________
NAME OF ENTITY AND TITLE IF APPLICABLE: __________________________________
DATE: _____________________
Please send the Notice of Exchange along with the completed Prospective
Subscriber Questionnaire via regular, overnight or certified mail or by hand
delivery to TriNet with a copy to Goodwin, Procter & Hoar LLP, at the addresses
listed below:
TriNet Corporate Realty Trust, Inc.
Four Embarcadero Center
Suite 3150
San Francisco, CA 94111
Attn: General Counsel
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109-2881
Attn: David W. Watson, Esq.
FOR TRINET USE ONLY: Received by TriNet on ______________________________
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<PAGE> 75
EXHIBIT D
Form of Prospective Subscriber Questionnaire
Name: ________________
PROSPECTIVE SUBSCRIBER QUESTIONNAIRE
--------------------------------
TRINET CORPORATE REALTY TRUST, INC.
-------------------------------
The shares (the "Shares") of the common stock, par value $.01 per share,
of TriNet Corporate Realty Trust, Inc. (the "Company") are being offered without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and the securities laws of certain states. The Shares are being offered
in reliance on an exemption from registration under Regulation D of the
Securities Act ("Regulation D") and similar state law exemptions. To satisfy the
requirements of Regulation D and applicable state law exemptions, the Company
must determine whether a prospective shareholder meets the Regulation D and
state law definitions of "accredited investor" before selling (or, in some
states, offering) securities to such person. This Questionnaire is intended to
assist the Company in making this determination.
Please complete, execute and date this Prospective Subscriber
Questionnaire and deliver it to the address set forth above. Your answers will,
at all times, be kept confidential except as necessary to establish that the
offering and sale of the Shares will not result in a violation of the
registration provisions of the Securities Act or a violation of the securities
laws of any state.
1) To establish the basis of the Subscriber's status as an accredited
investor, please answer the questions set forth below.
a) Is the Subscriber an individual with a net worth (or net worth
with his or her spouse) in excess of $1 million:
Yes__________ No__________
b) Is the Subscriber an individual with income (without including
any income of the Subscriber's spouse) in excess of $200,000,
or joint income with the Subscriber's spouse, in excess of
$300,000, in each of the two most recent
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<PAGE> 76
years, and does the Subscriber reasonably expect to reach the
same income level in the current year?
Yes__________ No__________
c) Is the Subscriber an employee benefit plan within the meaning
of the Employee Retirement Income Security Act of 1974
(hereinafter "ERISA") whose decision to invest in the Company
is being made by a plan fiduciary which is either a bank,
savings and loan association, insurance company or registered
investment adviser or, alternatively, does the employee
benefit plan have total assets in excess of $5,000,000 or is
the employee benefit plan "self-directed" with investment
decisions made solely by person(s) who answered "Yes" to item
1(a) or 1(b) above or item 1(g) below? -- --
Yes__________ No__________
d) Is the Subscriber a retirement plan established and maintained
by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions for
the benefit of its employees with total assets in excess of
$5,000,000?
Yes__________ No__________
e) Is the Subscriber a trust (including an individual retirement
arrangement formed as a trust or a tax-qualified pension and
profit sharing plan (e.g., a Keogh Plan) formed as a trust but
not subject to ERISA) with total assets in excess of
$5,000,000 that was not formed for the specific purpose of
acquiring the Shares and whose purchase is directed by a
person with such knowledge and experience in financial and
business matters that such person is capable of evaluating the
merits and risks of the prospective investment?
Yes__________ No__________
f) Is the Subscriber a corporation, partnership, Massachusetts or
similar business trust or an organization described in Section
501(c)(3) of the Internal Revenue Code that was not formed for
the specific purpose of acquiring the Shares and whose total
assets exceed $5,000,000?
Yes__________ No__________
g) Is the Subscriber one of the following entities:
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<PAGE> 77
(i) A "bank" as defined in Section 3(a)(2) of the Securities
Act or any "savings and loan association" or other
institution as defined in Section 3(a)(5)(A) of the
Securities Act, whether acting in an individual or
fiduciary capacity;
(ii) A "broker/dealer" registered pursuant to Section 15 of
the Securities Exchange Act of 1934, as amended;
(iii) An "insurance company," as defined in Section 2(13) of
the Securities Act;
(iv) An "investment company" registered under the Investment
Company Act of 1940 or a "business development company"
as defined in Section 2(a)(48) of the Investment Company
Act of 1940;
(v) A "Small Business Investment Company" licensed by the
U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958; or
(vi) A "Private Business Development Company"as defined in
Section 202(a)(22) of the Investment Advisers Act of
1940?
Yes__________ No__________
If yes, then which entity (i.e., (g)(i) through (vi)
above)?
-----------------------------
h) Is the Subscriber an entity (other than a trust, but including
a grantor trust) in which all of the equity owners can answer
"Yes" to any one question set forth in Sections 1(a) through
1(g) immediately above?
Yes__________ No__________
2) Is the Subscriber acquiring the Shares of the Company as a principal for
the purposes of investment and not with a view to resale or distribution?
Yes__________ No__________
3) By signing this Questionnaire, the Subscriber hereby confirms the
following
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<PAGE> 78
statements:
a) The Subscriber understands and acknowledges that the Shares may be
restricted securities and as restricted securities may not be resold
under the federal and state securities laws unless and until such
Shares are registered under the Securities Act of 1933, as amended,
pursuant to an effective Registration Statement (which TriNet has
agreed to file subject to and in accordance with the terms of the
Registration Rights Agreement) or unless an exemption from
registration under federal and state securities laws is available.
b) The Subscriber shall immediately provide the Company with corrected
information in the event any information given herein was or, prior
to the issuance of Shares to the Subscriber, becomes untrue.
c) The Subscriber acknowledges that any delivery of information
relating to the Company prior to the determination by the Company of
the suitability of the Subscriber as a shareholder shall not
constitute an offer of Shares until such determination of
suitability shall be made.
d) The Subscriber acknowledges that the Company will rely on the
Subscriber's representations contained herein as a basis for
exemption from registration.
e) The Subscriber, either alone or with his or her purchaser
representative, has such knowledge and experience in financial and
business matters as to be capable of evaluating the risks and merits
of the prospective investment in the Shares.
f) The answers of the Subscriber to the foregoing questions are true
and complete to the best of the information and belief of the
undersigned.
74
<PAGE> 79
--------------------------------------------------
Signature of Subscriber (or duly authorized agent)
--------------------------------------------------
Title:
--------------------------------------------------
Print Name Signed Above
Principal Residence (if Subscriber is an
individual) or Business Address of Subscriber:
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Date
75
<PAGE> 80
EXHIBIT E
Investment Representations and Warranties
The proposed transferee ("Transferee") makes the following representations
and warranties to the Partnership, the General Partner and TriNet Corporate
Realty Trust, Inc. ("TriNet"):
Transferee acknowledges that Transferee's admission as a Substitute
Limited Partner in the Partnership ("Admission") is contingent upon the veracity
of each of the representations and warranties contained herein and the accuracy
and completeness of all responses entered in the prospective subscriber
questionnaire provided to Transferee. Transferee further acknowledges that
TriNet or the Partnership may refuse Transferee's Admission if such Admission
would be in violation of the Securities Act or any other applicable federal or
state securities laws, regulations or rules.
Transferee has had an opportunity to review all registration statements,
reports and amendments thereto filed with the Securities and Exchange Commission
on behalf of TriNet (collectively, the "TriNet Documents") and understands the
risks of, and other considerations relating to, an investment in the
Partnership. Transferee, by reason of its, his or her business and financial
experience, together with the business and financial experience of those
persons, if any, retained by it to represent or advise it with respect to its
investment in the Partnership, has such knowledge, sophistication and experience
in financial and business matters and in making investment decisions of this
type that it, he or she (A) is capable of evaluating the merits and risks of an
investment in the Partnership and of making an informed investment decision, (B)
is capable of protecting its own interest or has engaged representatives or
advisors to assist it in protecting its, his or her interests and (C) is capable
of bearing the economic risk of such investment.
Transferee understands that an investment in the Partnership involves
substantial risks. Transferee has been given the opportunity to make a thorough
investigation of the current and proposed activities of the Partnership and has
been furnished with materials relating to the Partnership and its current and
proposed activities, including, without limitation, the Limited Partnership
Agreement, the Registration Rights Agreement and the other documents and
materials distributed to Limited Partners of the Partnership pursuant to Section
9.3 of the Limited Partnership Agreement (collectively, the "Partnership
Materials"). Transferee has relied only upon, and is making its investment
decisions only upon, the Partnership Materials.
Any interest in the Partnership will be acquired by Transferee for its,
his or her own account (or if such Transferee is a trustee, for a trust account)
for investment only and not with a view to, or with any intention of, a
distribution or resale thereof, in whole or in part, or the grant of any
participation therein. Transferee has not been formed for the specific purpose
of acquiring
76
<PAGE> 81
an interest in the Partnership or TriNet.
Transferee acknowledges that (A) the limited partnership interests in the
Partnership have not been registered under the Securities Act or any state
securities laws by reason of a specific exemption or exemptions from
registration under the Securities Act and applicable state securities laws and,
if such interests are represented by certificates, such certificates will bear a
legend to such effect, (B) TriNet's and the Partnership's reliance on such
exemptions is predicated in part on the accuracy and completeness of the
representations and warranties of Transferee contained herein, (C) such
interests, therefore, cannot be resold unless registered under the Securities
Act and applicable state securities laws, or unless an exemption from
registration is available, (D) there is no public market for such interests and
(E) the Partnership has no obligation or intention to register such interests
for resale under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws. Transferee hereby acknowledges that because of the
restrictions on transfer or assignment of the interests which are set forth in
the Limited Partnership Agreement, the Transferee may have to bear the economic
risk of the investment in the Partnership for an indefinite period of time.
The address set forth under Transferee's name is the Transferee's
principal place of business or residence, as the case may be, which address has
not changed (except for relocations within the same state) within the two (2)
years immediately preceding the date hereof, except as disclosed in writing to
TriNet prior to the date hereof, and Transferee has no present intention of
becoming a resident of any country, state or jurisdiction other than the country
and state in which such Transferee's principal place of business or residence is
sited.
77
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is executed as of
December 31, 1997 by TriNet Corporate Realty Trust, Inc., a Maryland corporation
(the "Company"), and the persons listed on Appendix A. Unless otherwise defined,
all capitalized terms used herein shall have the meanings ascribed to such terms
in the Agreement of Limited Partnership of TriNet Property Partners, L.P., (the
"Limited Partnership Agreement"), dated as of December 17, 1997, by and between
the initial Holders (as defined herein) and TriNet Realty Investors, Inc., a
Maryland corporation and wholly-owned subsidiary of the Company, as general
partner.
WHEREAS, the Holders are to receive or own units of limited partnership
interests ("Units") in TriNet Property Partners, L.P., a Delaware limited
partnership (the "Partnership") which may be tendered for redemption for cash
or, at the Company's election, shares of the Company's common stock, $.01 par
value ("Common Stock"), which Units will be issued without registration under
the Securities Act of 1933 (the "Securities Act") pursuant to and in accordance
with the terms of the Limited Partnership Agreement; and
WHEREAS, it is a condition to the obligations of the Holders to consummate
the transactions pursuant to which they will receive Units that the Company
enter into this Agreement with the Holders.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein and in the Limited Partnership Agreement, and for other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and each Holder hereby agree as follows:
1. Registration.
(a) Registration Statement Covering Issuance of Common Stock.
Subject to the provisions of Section 1(b) below, the Company will file with the
Securities and Exchange Commission (the "SEC") a registration statement on Form
S-3 (the "Issuance Registration Statement") under Rule 415 under the Securities
Act, relating to the issuance to Holders of shares of Common Stock in exchange
for such Units (which shares are for all purposes hereof included in the
definition of "Registrable Shares" set forth in Section 1(b) below), such filing
to be made no later than that date (the "Filing Date") which is the later of (i)
forty-five (45) days prior to the first date on which the Units issued pursuant
to the Limited Partnership Agreement held by the Holders may be exchanged for
shares of Common Stock and (ii) the earliest such other date as may be required
under applicable provisions of the Securities Act or as may be permitted by the
SEC pursuant to its interpretation of applicable federal securities laws and the
rules and regulations promulgated thereunder, including, without limitation, any
of the so-called "roll-up" laws, rules or regulations. The Company shall use its
reasonable efforts to cause the Issuance Registration Statement to be declared
effective by the SEC for all shares of Common Stock covered thereby as soon as
practicable thereafter. In the event that the Company is unable to cause such
Issuance Registration Statement to be declared effective by the SEC, then the
rights of the Holders set forth in Section 1(b) below shall apply to Common
Stock received by such
<PAGE> 2
Holders upon the redemption of Units. Notwithstanding the availability of rights
under Section 1(b), the Company shall continue to use its reasonable efforts to
cause the Issuance Registration Statement to be declared effective by the SEC
until such time as the Holders request that the Company file a Shelf
Registration Statement in accordance with Section 1(b). The Company agrees to
use its reasonable efforts to keep the Issuance Registration Statement
continuously effective until the earlier of (i) the date on which each Holder
has tendered such Holder's Units for redemption and the redemption price
therefor (whether paid in cash or in Common Stock) has been delivered to the
Holder or (ii) the fifth anniversary of the date on which the Issuance
Registration Statement was declared effective by the SEC (the "Issuance
Registration Expiration Date").
(b) Shelf Registration. In the event that, for any reason, the
Company is unable to file an Issuance Registration Statement pursuant to Section
1(a) above or is unable to cause an Issuance Registration Statement to be
declared effective by the SEC, within thirty (30) days following the later of
(i) the first date on which the Units issued pursuant to the Limited Partnership
Agreement may be exchanged for shares of Common Stock or (ii) receipt by the
Company of a written request (the "Shelf Registration Request") by the Holders
of not less than forty percent (40%) of the Units, the Company shall file a
registration statement on Form S-3 (a "Shelf Registration Statement") under Rule
415 under the Securities Act relating to the resale by the Holders of all
Registrable Shares. The Company shall use reasonable efforts to cause such Shelf
Registration Statement to be declared effective by the SEC. The Company agrees
to use reasonable efforts to keep the Shelf Registration Statement continuously
effective until the date (the "Shelf Registration Expiration Date") which is the
earliest of (a) one (1) year following the date on which all Units have been
exchanged or redeemed pursuant to the Limited Partnership Agreement, (b) the
date which is the fifth anniversary of the date on which such Shelf Registration
Statement was declared effective by the SEC, (c) the date on which all
Registrable Shares are disposed of by the Holders, or (d) such date on which it
is no longer necessary to keep the Shelf Registration Statement effective
because all Holders may freely sell their respective Registrable Shares without
limitation on volume or manner of sale pursuant to Rule 144(k) promulgated under
the Securities Act (or any successor rule or regulation). After the Company has
filed the Shelf Registration Statement, any obligation of the Company to file an
Issuance Registration Statement pursuant to Section 1(a) above shall be
suspended for as long as the Shelf Registration Statement remains effective. The
Company shall not be required to file and have the SEC declare effective more
than one Shelf Registration Statement pursuant to this Section 1(b).
(c) As used in this Agreement, the term "Registration Statement"
means either an Issuance Registration Statement or a Shelf Registration
Statement. As used in this Agreement, the term "Registrable Shares" means shares
of Common Stock issued or issuable to the Holders in exchange for their Units
pursuant to the terms of the Limited Partnership Agreement, excluding (A) Common
Stock for which a Registration Statement relating to the sale thereof shall have
become effective under the Securities Act and which have been disposed of under
such Registration Statement and (B) Common Stock which is sold or could be sold
by the Holder without limitation on volume or manner of sale pursuant to Rule
144 under the Securities Act or
2
<PAGE> 3
any successor rule or regulation.
2. Registration Procedures.
(a) The Company shall notify each Holder of Registrable Shares of
the effectiveness of a Registration Statement and shall furnish to each such
Holder such number of copies of such Registration Statement (including any
amendments, supplements and exhibits), the prospectus contained therein, any
documents incorporated by reference in such Registration Statement and such
other documents as such Holder may reasonably request in order to facilitate its
sale of the Registrable Shares in the manner described in such Registration
Statement.
(b) The Company shall prepare and file with the SEC from time to
time such amendments and supplements to the Issuance Registration Statement or
the Shelf Registration Statement and the prospectus used in connection therewith
as may be necessary to keep the Issuance Registration Statement or the Shelf
Registration Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all the Registrable Shares
until the Issuance Registration Expiration Date or the Shelf Registration
Expiration Date, as applicable. Upon thirty (30) business days' written notice
to the Company by a Holder the Company shall file any supplement or
post-effective amendment to the Shelf Registration Statement with respect to the
Holder's interests in or plan of distribution of Registrable Shares that is
reasonably necessary to permit the sale of the Holder's Registrable Shares
pursuant to the Shelf Registration Statement.
(c) The Company shall promptly notify each Holder of, and confirm
in writing, any request by the SEC for amendments or supplements to a
Registration Statement or the prospectus related thereto or for additional
information. In addition, the Company shall promptly notify each Holder of, and
confirm in writing, the filing of a Registration Statement, any prospectus
supplement related thereto or any amendment to a Registration Statement and the
effectiveness of any post-effective amendment.
(d) The Company shall immediately notify each Holder, at any time
when a prospectus relating to a Registration Statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which a Registration Statement (including the prospectus therein), as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. In such event and subject to paragraph 9 of this
Agreement, the Company shall promptly prepare, and furnish to each Holder a
reasonable number of copies of, a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of Registrable Shares, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3. State Securities Laws. Subject to the conditions set forth in this
Agreement, the Company shall, promptly upon the filing of a Registration
Statement including Registrable
3
<PAGE> 4
Shares, file such documents as may be necessary to register or qualify the
Registrable Shares under the securities laws of the states (the "Blue Sky Laws")
that require such registration or qualification as any Holder of Registrable
Shares may reasonably request, and the Company shall use reasonable efforts to
cause such filings to become effective; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation to do business under
the laws of any such state in which it is not then qualified or to file any
general consent to service of process in any such state. The Company shall
promptly notify each Holder of, and confirm in writing, (i) the effectiveness of
any filing under any Blue Sky Laws (with the date thereof) and (ii) the receipt
by the Company of any notification with respect to the suspension of the
qualification of the Registrable Shares for sale under the Blue Sky Laws of any
jurisdiction or the initiation or threat of any proceeding for such purpose.
4. Exchange Act Filings. The Company shall, upon written request of a
Holder, provide to such Holder a copy of any filings made by it under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
such filing is incorporated by reference into a Registration Statement. The
Company shall from time to time use its reasonable efforts to make all filings
required of it under the Exchange Act.
5. Listing. The Company will take such action as may be necessary to
cause all Registrable Shares to be listed or otherwise eligible for full trading
privileges on the New York Stock Exchange the ("NYSE") or, if the Common Stock
is not listed on the NYSE, on such other securities exchange or quotation system
on which the Common Stock is traded, in each case not later than the date on
which a Registration Statement covering the Registrable Shares becomes effective
or the Registerable Shares are issued by the Company to a Holder, whichever is
later. The Company will use best efforts to continue the listing or trading
privilege for all Registrable Shares on each such exchange or quotation system.
The Company will promptly notify each Holder of, and confirm in writing, the
delisting of the Company's Common Stock by any securities exchange or the
suspension of or restriction on trading privileges with respect to the Company's
Common Stock through any quotation system.
6. Expenses. The Company shall bear all fees, costs and expenses
incurred by the Company in connection with the registration of the Registrable
Shares pursuant to Sections 1(a) or 1(b) and Sections 2 (other than the second
sentence of Section 2(b)) and 3 of this Agreement and the listing of Common
Stock as contemplated by Section 5 of this Agreement. Such expenses shall
include, without limitation, all printing, legal and accounting expenses
incurred by the Company and all registration and filing fees imposed by the SEC,
any state securities commission or the NYSE or, if the Common Stock is not then
listed on the NYSE, the principal national securities exchange or quotation
system on which the Common Stock is then traded or quoted. The Holders of
Registrable Shares shall be responsible for any brokerage or underwriting
commissions and taxes of any kind (including, without limitation, transfer
taxes) with respect to any disposition, sale or transfer of Registrable Shares
and for any legal, accounting and other expenses incurred by them. The Holder
requesting an amendment to any Registration Statement pursuant to the second
sentence of Section 2(b) above shall bear all fees, costs and expenses incurred
by the Company and by such Holder in connection therewith.
4
<PAGE> 5
7. Indemnification by the Company. The Company agrees to indemnify each
of the Holders and their respective officers, directors, agents, representatives
and affiliates (an "Indemnitee") against any and all losses, claims, damages,
actions, liabilities, costs and expenses (including without limitation
reasonable attorneys' fees, expenses and disbursements documented in writing),
joint or several, arising out of or based upon any untrue or alleged untrue
statement of material fact contained in the Registration Statement or any
prospectus contained therein or in any information incorporated by reference
therein, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as and to the extent that such statement or omission arose out of or was
based upon information regarding a Holder or its plan of distribution or
Registrable Shares which was furnished to the Company by a Holder for use
therein, provided, further that the Company shall not be liable to any
Indemnitee in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon (i) an untrue statement or alleged untrue statement or omission
or alleged omission made in such Registration Statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with information furnished to the Company for
use in connection with the Registration Statement or the prospectus contained
therein by such Indemnitee or (ii) such Indemnitee's failure to send or give a
copy of the final prospectus furnished to it by the Company at or prior to the
time such action is required by the Securities Act to the person claiming an
untrue statement or alleged untrue statement or omission or alleged omission if
such statement or omission was corrected in such final prospectus.
8. Covenants of Holders. Each of the Holders hereby agrees (a) to
cooperate with the Company and to furnish in writing to the Company all such
information required to be furnished by the Securities Act in connection with
the preparation of the Registration Statement and any filings with any state
securities commissions as the Company may reasonably request, (b) so long as the
Company has met its obligations under Section 2(a) hereof, to deliver or cause
delivery, to the extent required by all applicable federal and state securities
laws, a copy of the prospectus (as amended or supplement from time to time)
contained in the Registration Statement to any purchaser of the shares covered
by the Registration Statement from the Holder, (c) to notify the Company of any
sale of Registrable Securities by such Holder, and (d) to indemnify the Company,
its officers, directors, employees, agents, representatives and affiliates, and
each person, if any, who controls the Company within the meaning of the
Securities Act, and each other person, if any, subject to liability because of
his, her or its connection with the Company, against any and all losses, claims,
damages, actions, liabilities, costs and expenses arising out of or based upon
(i) any untrue statement or alleged untrue statement of material fact contained
in either the Registration Statement or the prospectus, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, if and to the extent that such statement
or omission arose out of or was based upon information regarding the Holder or
its plan of distribution which was furnished to the Company by the Holder
expressly for use therein, or (ii) the failure by the Holder or any underwriter,
broker,
5
<PAGE> 6
dealer or agent acting for or on behalf of such Holder to deliver or cause to be
delivered the prospectus contained in the Registration Statement (as amended or
supplemented, if applicable) furnished by the Company to the Holder to any
purchaser of the shares covered by the Registration Statement from the Holder.
9. Suspension of Registration Requirement.
(a) The Company shall promptly notify each Holder of, and confirm
in writing, the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose. The Company shall use reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of a Registration Statement
at the earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to file a Registration
Statement and cause any filings with any state securities commission to be made
and to use reasonable efforts to cause a Registration Statement or any such
state securities commission filings to become effective or to amend or
supplement a Registration Statement shall be suspended in the event and during
such period pending negotiations relating to, or consummation of, a transaction
or the occurrence of an event that would require additional disclosure of
material information by the Company in the Registration Statement or such
filing, as to which the Company has a bona fide business purpose for preserving
confidentiality or which renders the Company unable to comply with SEC
requirements (such circumstances being hereinafter referred to as a "Suspension
Event") that would make it impractical or unadvisable to cause the Registration
Statement or such filings to be made or to become effective or to amend or
supplement the Registration Statement, but such suspension shall continue only
for so long as such event or its effect is continuing but in no event will the
total number of days of suspension exceed 180 days in any twelve month period
(the period of any suspension, a "Suspension Period"). The Company shall notify
promptly each of the Holders in writing of the existence of any Suspension
Event.
(c) Each Holder whose Registrable Shares are covered by a
Registration Statement filed pursuant to Sections 1(a) or 1(b) hereof agrees, if
requested by the Company's underwriters or financial advisors (the "Advisors")
in an offering of the Company's securities pursuant to a registration statement
filed with the SEC (a "Registered Offering"), not to effect any public sale or
distribution of any shares of Common Stock of the Company received in exchange
for Units, including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act, during the 15-day period prior to, and during the 90-day period
beginning on, the date of pricing of each Registered Offering.
(d) Each Holder whose Registrable Shares are covered by a
Registration Statement filed pursuant to Sections 1(a) or 1(b) hereof agrees, if
requested by the Company in the case of an offering not made pursuant to a
registration statement filed with the SEC (a "Nonregistered Offering,"
collectively with a Registered Offering, the "Offering"), not to effect any
public sale or distribution of any of the shares of Common Stock of the Company
received in exchange for Units, including a sale pursuant to Rule 144 or Rule
144A under the Securities Act,
6
<PAGE> 7
during the 15-day period prior to, and during the 60-day period (or shorter
period as requested by the Company) beginning on, the date of pricing of such
Nonregistered Offering.
10. Black-Out Period. Following the effectiveness of any Registration
Statement and the filings with any state securities commissions, each Holder
agrees that it will not effect any sales of the Registrable Shares pursuant to
the Registration Statement or any such filings at any time after it has received
notice from the Company to suspend sales as a result of the occurrence or
existence of any Suspension Event or any Offering, or so that the Company may
correct or update the Registration Statement or such filing pursuant to Sections
2(c) or 2(d). The Holder may recommence effecting sales of the Registrable
Shares pursuant to the Registration Statement or such filings following further
notice to such effect from the Company, which notice shall be given by the
Company as soon as practicable but in no event later than five (5) business days
after the conclusion of any such Suspension Event.
11. Additional Shares. The Company, at its option, may register, under
any Registration Statement and any filings with any state securities commissions
filed pursuant to this Agreement, any number of unissued shares of Common Stock
or any shares of Common Stock owned by any other shareholder or shareholders of
the Company.
12. Contribution. If the indemnification provided for in Sections 7 and
8 is unavailable to an indemnified party with respect to any losses, claims,
damages, actions, liabilities, costs or expenses referred to therein or is
insufficient to hold the indemnified party harmless as contemplated therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, actions, liabilities, costs or expenses
in such proportion as is appropriate to reflect the relative fault of the
Company, on the one hand, and the Holder, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
actions, liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of the
Holder, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holder and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. In no event shall the obligation of any indemnifying
party to contribute under this Section 12 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Sections 5 or 6 hereof had been available
under the circumstances.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 12 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of
7
<PAGE> 8
Section 11(f) of the Securities Act) shall be entitled to contribution from any
indemnifying party who was not guilty of such fraudulent misrepresentation.
13. No Other Obligation to Register. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to the Holders
to register the Registrable Shares. The Company shall have no obligation to
register the Units under the Securities Act.
14. Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented without the prior written consent of the
Company and Holders holding in excess of seventy-five percent (75%) in interest
of the sum of the Registrable Shares and Units outstanding.
15. Notices. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by facsimile,
registered or certified mail (return receipt requested), postage prepaid or
courier or overnight delivery service to the Company at the following addresses
and to the Holder at the address set forth on Appendix A to this Agreement, with
a copy to Nutter, McClennan & Fish LLP, One International Place, Boston, MA
02110, Attn: Karl P. Fryzel, Esq., Fax: (617) 973-9748, (or at such other
address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof),
and further provided that in case of directions to amend the Registration
Statement pursuant to Section 2(b) or Section 8, such notice must be confirmed
in writing by overnight express delivery with confirmation of receipt:
If to the Company to: TriNet Corporate Realty Trust, Inc.
Four Embarcadero Center
Suite 3150
San Francisco, CA 94111
Attn: General Counsel
Fax: (415) 391-6259
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: David W. Watson, Esq.
Fax: (617) 523-1231
In addition to the manner of notice permitted above, notices given pursuant to
Sections 1, 9 and 10 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
16. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company. This
Agreement may not be assigned by any Holder and any attempted assignment hereof
by any Holder will be void and of no effect and
8
<PAGE> 9
shall terminate all obligations of the Company hereunder with respect to such
Holder, provided, however, that any assignment by a Holder to another Holder (as
defined below) shall not constitute an "assignment" pursuant to this Section 16.
17. Definition of "Holders" or a "Holder". "Holders" or a "Holder" under
this Registration Rights Agreement shall include (i) any Limited Partner who is
a party to this Agreement, and (ii) any Substituted Limited Partner with respect
to such initial Limited Partner. Appendix A to this Agreement shall list the
Holders and shall be amended from time to time by the Company in accordance with
the terms of this Agreement and the Limited Partnership Agreement to reflect any
additional Holders. Capitalized terms used, and not otherwise defined, herein
shall have the meanings given to such terms in the Limited Partnership
Agreement.
18. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and to be performed wholly within said State.
20. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
21. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and, except with respect to the Limited
Partnership Agreement, is intended to be the complete statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth in the Limited Partnership Agreement or
as set forth or referred to herein, with respect to such subject matter. Except
with respect to the Limited Partnership Agreement, this Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter. In the event there is a conflict between this Agreement and the
Limited Partnership Agreement, the provisions of the Limited Partnership
Agreement shall govern.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
IN WITNESS WHEREOF, this Registration Rights Agreement is executed as of
the date first written above.
TRINET CORPORATE REALTY TRUST, INC.
By:__________________________________________
Name:
Title:
By:__________________________________________
Name:
Title:
10
<PAGE> 11
HOLDERS:
---------------------------------------------
Ronald A. Davis
---------------------------------------------
Joseph P. Keller
---------------------------------------------
Dean M. Boylan
11
<PAGE> 12
---------------------------------------------
Stephen G. Mack
12
<PAGE> 13
---------------------------------------------
Lewis Whitman
13
<PAGE> 14
APPENDIX A
Joseph P. Keller
Keller/Davis Company, LLC
101 Derby Street
Hingham, MA 02043
Ronald A. Davis
Keller/Davis Company, LLC
101 Derby Street
Hingham, MA 02043
Dean M. Boylan
Carl Harlfinger
Stephen G. Mack
Lewis L. Whitman
9 Ossage Road
Canton, MA 02021
Fax: (781) 575-1632
14
<PAGE> 15
TRINET CORPORATE REALTY TRUST, INC.
MANAGEMENT STOCK PURCHASE PROGRAM
The Board of Directors of TriNet Corporate Realty Trust, Inc. (the "Company")
has adopted a Management Stock Purchase Program ("MSPP") as part of the
Company's long-term incentive plans. The MSPP is a component of the Company's
1997 Stock Incentive Plan.
This document sets forth the terms and conditions of the MSPP and describes how
it functions.
ELIGIBILITY:
- - Any Director of the Company and any officer holding the office of
Assistant Vice President or above is eligible to participate in the MSPP.
OBJECTIVES:
- - To encourage and assist Directors and officers in the acquisition of
shares of the Company's Common Stock by electing to purchase shares at a
discounted price. Such purchases may be made (1) by using all or a portion
of the individual's annual incentive bonus, (2) by using all or a portion
of the Dividend Equivalent Rights payments ("DER payments") which a
participant receives under the Company's Dividend Equivalent Rights
Program, and/or (3) by using other funds, provided that an individual's
purchases under the MSPP in any year cannot exceed the sum of (a) the
amount of the individual's current annualized base salary and current
annual bonus, if any, received from the Company in such year, plus (b) the
total amount of DER payments received in such year. The MSPP is intended
to complement the Stock Ownership Guidelines which have been adopted by
the Company (a copy of the Guidelines is available from the Company upon
request).
- - To align stockholder and management interests by creating a direct link
between management compensation and stockholder return.
- - To provide incentives to Directors and management employees to continue to
contribute to the Company's success.
PROGRAM HIGHLIGHTS:
- - The MSPP enables a participant to receive shares of the Company's Common
Stock, at a discounted price, using funds available from three sources. If
you are eligible for an annual bonus under the Company's Performance-Based
Management Incentive Plan, you may elect to receive all or any portion of
the annual bonus in the form of shares of the Company's Common Stock. You
may also direct that all or any portion of DER payments you are entitled
to receive be used to purchase shares. In addition, you may elect to
purchase shares at the discounted price using funds from other
<PAGE> 16
sources (subject to the limitation described below). All purchases of
shares under the MSPP are at a price equal to 90% of the fair market value
of the shares on the relevant purchase date (that is, at a 10% discount).
In any case, an individual participant's purchases in any year are subject
to a limit equal to the sum of (a) the amount of your current annualized
base salary and your current annual bonus, if any, received in the such
year, plus (b) the amount of DER payments received in that year. For
administrative convenience, the minimum number of shares you may elect to
purchase is 100 shares.
- - Purchases of shares by executive officers under the MSPP are subject to
the approval of the Compensation Committee of the Board of Directors and,
in the case of purchases by non-employee directors, are subject to the
approval of the Board of Directors as a whole.
- - Purchases may be made under the MSPP at two times during the year: (a) at
the time annual incentive bonuses are paid (typically during the first
quarter of each year), and (b) at the time annual DER payments are made
(typically during the second quarter of each year, on the anniversary date
of the original DER award). At least 5 days before the annual incentive
bonus payment date and the annual DER payment date, eligible participants
may complete and submit an Election Form (in the form attached) which
specifies the number of shares which the participant elects to purchase
(subject to the 100 share minimum purchase amount). You are not required
to make such election. TO BE EFFECTIVE, AN ELECTION TO PURCHASE SHARES
UNDER THE MSPP MUST BE RECEIVED BY THE COMPANY NO LATER THAN FIVE (5) DAYS
BEFORE THE RELEVANT PURCHASE DATE.
- - The shares issued under the MSPP will not be subject to any vesting
requirements and you will have full voting, dividend and other rights with
respect to the shares from the time of purchase. THE COMPANY ENCOURAGES
RETENTION OF SHARES PURCHASED UNDER THE MSPP IN ORDER TO SATISFY THE
COMPANY'S STOCK OWNERSHIP GUIDELINES (REFERENCED BELOW). ALL SALES OF
SHARES ARE SUBJECT TO THE COMPANY'S INSIDER TRADING POLICY AND MUST BE
APPROVED BY THE DESIGNATED COMPLIANCE OFFICER (THE VICE PRESIDENT,
ADMINISTRATION).
- - Participants who are "Section 16 insiders" under the federal securities
laws should note that purchases of shares under the MSPP are NOT subject
to reporting or "short-swing" trading restrictions. Because purchases of
shares by "Section 16 insiders" are subject to the approval of the
Compensation Committee of the Board of Directors and, in the case of
purchases by non-employee Directors, are subject to the approval of the
Board of Directors as a whole, purchases of shares under the MSPP will be
exempt from the reporting and "short-swing profit" liability provisions of
Section 16 of the Securities Exchange Act of 1934.
2
<PAGE> 17
- - Stock Ownership Guidelines: The Company believes it is important that
management retain significant portions of the Company's shares which are
acquired through its incentive compensation programs, including the MSPP.
To help achieve this goal, the Company has adopted Stock Ownership
Guidelines (a copy of which is available from the Company upon request).
TAX CONSEQUENCES:
- - The Company believes that, if you use a bonus award or DER payment to
purchase shares under the MSPP, the full fair market value of the shares
acquired under the MSPP will be included in your taxable ordinary income
at the time the shares are acquired, notwithstanding the fact that you
will be paying a discounted price for the shares. In addition, any portion
of a bonus award or DER payment which you elect to receive in cash is also
taxable income to you. Therefore, you will owe any applicable Federal,
state and FICA taxes on these amounts.
- - If you purchase shares under the MSPP using funds other than a bonus award
or DER payment, the amount of the discount will be taxable income to you
and applicable Federal, state and FICA taxes will be payable on such
amount.
- - Tax withholding will be applicable to the amount of taxable income
recognized by each participant. You may satisfy such withholding
obligation through either one of two alternatives: (1) by having the
Company withhold funds out of the bonus award or DER payment otherwise
payable to you, or (2) by separately reimbursing the Company for the
amount of such withholding. If you choose to reimburse the Company
separately for such withholding, interest will accrue on the amount of the
withholding at the annual rate of six percent (6%) from the date the
shares are purchased until the date reimbursement is made. SUCH
REIMBURSEMENT, PLUS ANY ACCRUED INTEREST, MUST BE MADE TO THE COMPANY NO
LATER THAN 15 DAYS AFTER THE SHARES ARE ISSUED. By reimbursing the Company
separately, a participant may use a larger portion of a bonus award or DER
Payment to purchase shares under the MSPP, thereby increasing the economic
benefit of the MSPP to the participant. Examples of how the MSPP will work
in connection with a bonus payment under Alternative (1) [withholding out
of the bonus award or DER payment] and Alternative (2) [withholding paid
separately by the participant] are shown on pages 5 - 6, below.
- - The tax basis of shares acquired under the MSPP will be the fair market
value of the shares on the date the purchase price for the shares is
determined (either the date annual bonus awards are announced or the
annual DER payment date, as the case may be), notwithstanding the
discounted purchase price paid by a participant.
THE COMPANY DOES NOT WARRANT THE TAX TREATMENT OF MSPP AWARDS AND YOU SHOULD
CONSULT YOUR TAX ADVISOR.
3
<PAGE> 18
ADDITIONAL INFORMATION:
- - The MSPP is administered by the Compensation Committee of the Board of
Directors (through the Vice President, Administration), in coordination
with the Company's transfer agent. The Compensation Committee may make
such rules and regulations and establish such procedures for the
administration of the MSPP as it deems appropriate.
- - The Company reserves the right to amend or terminate the MSPP at any time,
by action of the Board of Directors.
- - The MSPP is not subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA) and is not guaranteed by the Pension
Benefit Guaranty Corporation (PBGC). The MSPP is not qualified under
Section 401(a) of the Internal Revenue Code. The MSPP is not a funded plan
for purposes of ERISA or the Code.
ELECTION PROCEDURE:
- - To make an election, you must complete an Election Form (in the form
attached) and return it to Geoff Dugan, Vice President, Administration, AT
LEAST FIVE (5) DAYS PRIOR to the date the annual bonus awards are paid or
annual DER payments are made, as the case may be. In the Election Form,
you may specify how many shares you elect to purchase under the MSPP, or
you may specify a percentage of the payment due to you which you elect to
use to purchase shares. A copy of the Election Form is attached.
- - You may elect to use all or a portion of the bonus or DER payment payable
to you by completing ITEM 1 of the Election Form. You may also use other
funds to purchase shares (subject to the limitations set forth in the
MSPP) by completing ITEM 2. If you elect to use the bonus/DER payment AND
funds from other sources, you must complete ITEMS 1 AND 2.
- - In addition, you should also specify in ITEM 3 whether (1) you elect that
the Company withhold applicable taxes out of the payment due to you or (2)
you will reimburse the Company separately for such withholding (plus any
accrued interest on such amount).
- - Shares issued under the MSPP will be registered in your name on the
relevant purchase date (the bonus payment date or the DER payment date, as
the case may be). If you elect to purchase shares using funds other than a
bonus award or DER payment, full payment is due on the relevant purchase
date. Certificates evidencing the shares will be issued shortly
thereafter.
4
<PAGE> 19
EXAMPLES OF PARTICIPATION IN THE MSPP:
The MSPP enables a participant to purchase shares of the Company's Common Stock
at a 10% discount. Therefore, the greater the number of shares which a
participant elects to purchase, the greater the potential economic benefits of
participation in the MSPP. Of course, there is no guarantee that the price of
the Company's Common Stock will appreciate and there is a risk of economic loss
as well. However, the shares would have to depreciate by more than 10% before
you would incur a loss.
The following examples, based on the assumptions described below, illustrate the
economic consequences of participation in the MSPP by purchasing shares of the
Company's Common Stock having an assumed fair market value of $40.00 per share.
These examples are for illustration purposes only.
Assumptions
<TABLE>
<S> <C>
Amount of Bonus or DER Payment: $10,000.00
Fair Market Value Per Share: $ 40.00
Effective Purchase Price Per Share: $ 36.00 (10% discount)
Savings Per Share due to Discount: $ 4.00
Assumed Tax Withholding Rate: 34%
</TABLE>
EXAMPLE #1: Assumes all of the $10,000 bonus or DER payment, after withholding
of applicable taxes, is used to purchase shares. A total of 176 SHARES may be
purchased at $36/SHARE for a total purchase price of $6,336, with $3,664 in cash
remaining. After withholding $3,639 for taxes, the participant will receive net
cash of $25.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
BONUS/ CASH PORTION PURCHASE PRICE SAVINGS DUE TAXABLE INCOME WITHHELD TAX NET CASH TO <FROM>
DER PMT OF BONUS FOR 176 SHARES TO DISCOUNT [(a) + (d)] [34% OF (e)] PARTICIPANT [(b) - (f)]
------- ------------ -------------- ----------- -------------- ------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
$10,000 $3,664 $6,336 $704 $10,704 $3,639 $25
</TABLE>
5
<PAGE> 20
EXAMPLE #2: Assumes all of the $10,000 bonus or DER payment is used to purchase
shares, without any tax withholding and with the participant reimbursing the
Company separately for applicable withholding taxes. A total of 277 SHARES may
be purchased at $36/SHARE for a total purchase price of $9,972, with $28 in cash
remaining. The participant will be obligated to reimburse the Company separately
for withholding tax liability in the amount of $3,777 (plus any interest due
from the date of purchase to the date of reimbursement). Net cash of $3,749 will
be due from the participant ($28 remaining cash less the $3,777 tax liability).
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
BONUS/ CASH PORTION PURCHASE PRICE SAVINGS DUE TAXABLE INCOME TAX LIAB NET CASH TO <FROM>
DER PMT OF BONUS FOR 277 SHARES TO DISCOUNT [(a) + (d)] [34% OF (e)] PARTICIPANT [(b) - (f)]
------- ------------ -------------- ----------- -------------- ------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
$10,000 $28 $9,972 $1,108 $11,108 $3,777 <$3,749>
</TABLE>
EXAMPLE #3: Assumes 200 SHARES are purchased out of the $10,000 bonus or DER
payment at $36/SHARE for a total purchase price of $7,200, with $2,800 in cash
remaining. After applying this amount to the participant's withholding tax
liability of $3,672, the participant will be obligated to reimburse the Company
an additional amount of $872 (plus any interest due from the date of purchase to
the date of reimbursement) for the balance of the tax liability.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
BONUS/ CASH PORTION PURCHASE PRICE SAVINGS DUE TAXABLE INCOME TAX LIAB NET CASH TO <FROM>
DER PMT OF BONUS FOR 100 SHARES TO DISCOUNT [(a) + (d)] [34% OF (e)] PARTICIPANT [(b) - (f)]
------- ------------ -------------- ----------- -------------- ------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
$10,000 $2,800 $7,200 $800 $10,800 $3,672 <$872>
</TABLE>
EXAMPLE #4: Assumes the minimum 100 SHARES are purchased out of the $10,000
bonus or DER payment at $36/SHARE for a total purchase price of $3,600, with
$6,400 in cash remaining. After withholding $3,536 for taxes, the participant
will receive net cash of $2,864.
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e) (f) (g)
BONUS/ CASH PORTION PURCHASE PRICE SAVINGS DUE TAXABLE INCOME TAX LIAB NET CASH TO <FROM>
DER PMT OF BONUS FOR 100 SHARES TO DISCOUNT [(a) + (d)] [34% OF (e)] PARTICIPANT [(b) - (f)]
------- ------------ -------------- ----------- -------------- ------------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
$10,000 $6,400 $3,600 $400 $10,400 $3,536 $2,864
</TABLE>
6
<PAGE> 1
Exhibit 12.1
TRINET CORPORATE REALTY TRUST, INC.
RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
12 Months 12 Months 12 Months 12 Months 12 Months
Ended Ended Ended Ended Ended
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C> <C>
Net income before extraordinary
charges and gains on sale of $54,234 $24,835 $20,234 $15,912 $6,767
real estate
Plus: Fixed charges
Interest expenses* 25,845 20,768 17,329 6,726 2,883
Finance expenses - related party 1,326
Interest expenses - related party 433
Amortization of debt expense* 2,837 3,595 2,941 1,132
Total fixed charges $25,845 $23,605 $20,924 $ 9,667 $ 5,774
Adjusted earnings (3) $80,079 $48,440 $41,158 $25,579 $12,541
Total Fixed charges (2) $25,845 $23,605 $20,024 $ 9,667 $ 5,774
Preferred dividends (1) $ 9,552 $ 3,646
Ratio of Earnings to Fixed Charges
( 3 DIVIDED BY 2) 3.10 2.05 1.97 2.65 2.17
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends
( 3 DIVIDED BY (1+2)) 2.26 1.78 N/A N/A N/A
</TABLE>
* As of January 1, 1997, amortization of debt expense is included in interest
expense.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
TriNet Corporate Realty Trust, Inc. on Form S-3 (File No. 333-29593), Form S-3
(File No. 333-42717), Form S-8 (File No. 333-02222), and Form S-8 (File No.
333-35149) of our report dated January 23, 1998, on our audits of the
consolidated financial statements and financial statement schedule of TriNet
Corporate Realty Trust, Inc. as of December 31, 1997 and 1996 and for each of
the three years in then ended, which report is included in this Annual Report on
Form 10-K.
COOPERS & LYBRAND L.L.P.
San Francisco, California
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,346
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,145,851
<DEPRECIATION> 52,650
<TOTAL-ASSETS> 1,155,904
<CURRENT-LIABILITIES> 0
<BONDS> 434,122
0
73
<COMMON> 209
<OTHER-SE> 674,941
<TOTAL-LIABILITY-AND-EQUITY> 1,155,904
<SALES> 106,862
<TOTAL-REVENUES> 109,292
<CGS> 0
<TOTAL-COSTS> 3,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,845
<INCOME-PRETAX> 54,234
<INCOME-TAX> 0
<INCOME-CONTINUING> 54,234
<DISCONTINUED> 0
<EXTRAORDINARY> 98
<CHANGES> 0
<NET-INCOME> 54,332
<EPS-PRIMARY> 2.31
<EPS-DILUTED> 2.28
</TABLE>
