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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarterly Period Ended March 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, For the Transition Period From to
. ---------------
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Commission file number 0-24704
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PRIME RESIDENTIAL, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 36-3948161
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
77 W. Wacker Drive
Suite 4040
Chicago, Illinois 60601
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(Address of principal executive offices) (Zip Code)
(312) 917-1600
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address, or former fiscal year, if changed
since last report)
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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 13, 1996 the registrant had outstanding 8,958,525 shares
of Common Stock, $.01 par value per share.
Page 1 of
Exhibit Index: Page
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PRIME RESIDENTIAL, INC. Form 10-Q
INDEX
<TABLE>
Part I: Financial Information Page
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<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets of Prime Residential, Inc. as of
March 31, 1996 and December 31, 1995. .................................. 4
Consolidated statements of operations of Prime Residential, Inc.
for the quarter ended March 31, 1996 and 1995, respectively............. 5
Consolidated statements of cash flows of Prime Residential, Inc.
for the quarter ended March 31, 1996 and 1995, respectively............. 6
Notes to consolidated financial statements.............................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 12
Part II: Other Information
Item 1. Legal Proceedings...................................................... 20
Item 2. Changes in Securities.................................................. 20
Item 3. Defaults Upon Senior Securities........................................ 20
Item 4. Submission of Matters to a Vote of Security Holders.................... 20
Item 5. Other Information...................................................... 20
Item 6. Exhibits or Reports on Form 8-K........................................ 20
Signature....................................................................... 21
</TABLE>
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Part I
ITEM 1. FINANCIAL INFORMATION
The information furnished in the accompanying balance sheets, statements
of operations, and statements of cash flows reflects all adjustments which are,
in the opinion of management, necessary for a fair presentation of the
aforementioned financial statements for the interim period.
The aforementioned financial statements should be read in conjunction with
the notes to the financial statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations.
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PRIME RESIDENTIAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
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<S> <C> <C>
ASSETS
Rental property:
Land............................................ $ 58,169 $ 57,718
Buildings and improvements...................... 297,093 283,062
Furniture and equipment......................... 3,391 3,089
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358,653 343,869
Accumulated depreciation.......................... (22,722) (19,910)
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335,931 323,959
Cash and cash equivalents......................... 3,635 5,270
Escrow deposits................................... 13,749 12,945
Bond funds--restricted............................ 2,362 2,779
Note receivable - Officer......................... 1,000 1,000
Accounts receivable............................... 789 1,230
Investment in unconsolidated real estate limited
partnerships...................................... 571 657
Deferred financing costs, net..................... 7,730 11,530
Other............................................. 542 619
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TOTAL ASSETS...................................... $ 366,309 $ 359,989
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bonds payable..................................... $ 182,050 $ 182,050
Notes payable..................................... 41,321 47,931
Accrued interest.................................. 16 --
Real estate taxes payable......................... 2,141 4,998
Tenant security deposits.......................... 1,638 1,632
Accounts payable and other liabilities............ 1,036 2,143
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Total liabilities................................. 228,202 238,754
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Minority interest 33,439 12,062
Stockholders' equity:
Preferred Stock, $.01 par value; 20,000,000
shares authorized, none outstanding........... -- --
Common Stock, $.01 par value; 100,000,000 shares
authorized, 8,958,525 shares issued and
outstanding..................................... 90 90
Additional paid-in capital...................... 112,960 112,957
Distributions in excess of accumulated earnings. (8,382) (3,874)
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Total stockholders' equity........................ 104,668 109,173
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 366,309 $ 359,989
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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PRIME RESIDENTIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except for per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1996 MARCH 31, 1995
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<S> <C> <C>
Revenues:
Rental................................................... $ 14,452 $ 10,581
Other.................................................... 1,173 749
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Total revenue.......................................... 15,625 11,330
Expenses:
Property operating....................................... 3,510 2,842
Real estate taxes........................................ 1,477 1,096
General and administrative............................... 1,290 870
Depreciation............................................. 2,812 1,756
Advertising and marketing................................ 266 198
Repairs and maintenance.................................. 519 312
Bad debt expense......................................... 135 213
Financing fees........................................... 881 293
Interest................................................. 2,579 1,163
Amortization of deferred financing fees.................. 715 512
Losses from unconsolidated real estate
limited partnerships................................... 86 27
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Total expenses......................................... 14,270 9,282
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Income before allocation to minority interest and loss from
sale of interest rate cap.................................. 1,355 2,048
Income allocated to minority interest...................... (195) (227)
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Income before loss on sale of interest rate cap............ 1,160 1,821
Loss on sale of interest rate cap,
net of minority interest................................. (2,084) --
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Net (loss) income.......................................... $ (924) $ 1,821
============== ==============
Net loss income per share of common stock outstanding...... $ (0.10) $ 0.20
============== ==============
Common shares outstanding.................................. 8,958,525 8,958,525
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
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PRIME RESIDENTIAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, 1996 MARCH 31, 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.................................. $ (924) $ 1,821
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation..................................... 2,812 1,756
Bad debt expense................................. 135 213
Amortization of deferred financing fees.......... 715 512
Minority interest................................ 195 227
Loss from sale of interest rate cap.............. 2,084 --
Losses from unconsolidated real estate limited
partnerships................................... 86 27
Changes in operating assets and liabilities:
Accounts receivable............................ 306 174
Other assets................................... 77 (124)
Accrued interest payable....................... 16 (59)
Real estate taxes payable...................... (2,857) (1,132)
Tenant security deposits....................... 6 76
Accounts payable and other liabilities........ (1,107) (469)
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Net cash provided by operating activities...... 1,544 3,022
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INVESTING ACTIVITIES
Purchase of rental property........................ (10,905) (13,900)
Improvements to rental property.................... (3,879) (1,469)
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Cash used in investing activities............. (14,784) (15,369)
FINANCING ACTIVITIES
Net proceeds from joint venture partner............ 21,794 --
Decrease (increase) in escrowed bond
funds-restricted................................. 417 (1,378)
Proceeds from bonds payable........................ -- 11,600
Proceeds from notes payable........................ 30,205 16,889
Proceeds from sale of interest rate cap............ 1,485 --
Repayment of notes payable......................... (36,815) (10,030)
Deferred financing fees paid....................... (708) (1,460)
Distributions paid to minority interest............ (388) (387)
Partner capital contributions...................... 3 5
Contribution to unconsolidated real estate limited
partnerships...................................... -- (27)
Dividends paid to stockholders..................... (3,584) (3,583)
Escrow deposits.................................... 804 --
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Net cash provided by financing activities...... 11,605 11,629
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Net decrease in cash................................. (1,635) (718)
Cash and cash equivalents at beginning of period..... 5,270 2,424
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Cash and cash equivalents at end of period........... $ 3,635 $ 1,707
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X
and should be read in conjunction with the Financial Statements and notes
thereto included in Prime Residential, Inc. and its affiliates (the "Company")
1995 Annual Report on Form 10-K. The following notes to the consolidated
financial statements highlight significant changes to the notes included in the
1995 Annual Report on Form 10-K and present interim disclosures as required by
the SEC. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation, consisting only of recurring
accruals and sale of interest rate cap have been included. Operating results
for such interim periods are not necessarily indicative of the results that may
be expected for a full fiscal year.
Investments in joint venture partnerships which the Company does not have
a majority interest in, or control of, are accounted for on the equity method.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
Rental revenue is recognized as income in the period earned.
DEVELOPMENT COSTS
All property renovation costs, including construction, design and other
similar renovation costs, incurred during the renovation period are capitalized
to rental property.
CASH EQUIVALENTS
All highly liquid investments, with a maturity of three months or less
when purchased, are considered to be cash equivalents.
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RENTAL PROPERTY
Rental property is carried at lower of cost or fair value.
Depreciation is calculated on the straight-line basis over the estimated
useful lives of the assets which are as follows:
<TABLE>
<S> <C>
Building ................................................. 30-40 years
Building improvements .................................... 5-30 years
Furniture and equipment .................................. 3-12 years
</TABLE>
Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. Significant renovations and improvements which improve
and/or extend the useful life of the asset are capitalized and depreciated over
the estimated useful life.
2. DEBT
On February 9, 1996, the Company acquired Madera Point for $10.9 million.
Madera Point is a 256 unit apartment complex located in Mesa, Arizona. The
Company financed this acquisition by assuming $8.1 million of variable rate
tax-exempt bonds, which are collateralized by Madera Point, and the remainder
with working capital.
On August 31, 1994, the Company acquired interest rate protection for
approximately $5.6 million to protect itself from interest rate fluctuations.
On March 14, 1996, however, the Company sold its interest rate protection
contract for approximately $1.5 million. As a result of this sale, the Company
recognized a $2.1 million loss, net of minority interest. Also, on March 14,
1996, the Company entered into an interest rate swap transaction with NCSI
pursuant to which the Company will pay a fixed rate on approximately $23.6
million of its variable rate tax exempt debt. Under this swap agreement, the
Company will pay a fixed rate of 6.55% on a notional amount of approximately
$17.0 million to NCSI, which results in an effective interest rate of
approximately 4.73% on $23.6 million of variable rate tax-exempt bonds.
On March 27, 1996, the Company entered into a number of financing
transactions regarding certain properties (the "MFP Properties") owned by Prime
MFP Limited Partnership an affiliate of the Company and four additional
properties. The Company, through its affiliates, formed three new limited
partnerships: Jupiter-I, L.P., Jupiter-II, L.P. and Prime MFP VII Limited
Partnership. Jupiter-I, L.P. is a limited partnership, of which the Company
and the Operating Partnership, through their subsidiaries, are the 49.6%
general partner. Jupiter-I, L.P. holds a 99% limited partnership interest and
the Company, through its subsidiaries, holds a 1% general partnership interest
in Prime MFP Limited Partnership. The limited partner of Jupiter-I, L.P. is a
Japanese Corporation ("Investor I"). In return for a capital contribution of
approximately $17.8 million, Investor I received a 50.4% limited partnership
interest in Jupiter-I,
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2. DEBT (CONTINUED)
L.P. Investor I will receive an annual preferred return from the Prime MFP
Properties of 8.5% on their investment, plus 30% of any increases in cash flow
from the MFP Properties over the cash flow (as defined) from such properties.
At any time following the fifth anniversary of the formation of Jupiter-I,
L.P., but in no event after the seventh anniversary of the formation of
Jupiter-I, L.P., Investor I is entitled to a redemption of its partnership
interest in the form of cash and or Common Stock in the Company. The election
of the form of the redemption (cash or stock) is at the absolute discretion the
Company. Proceeds of $16.9 million, net of relevant fees, from the capital
contribution were used to repay principal outstanding on the Company's
Revolving Loan.
Prime MFP VII Limited Partnership is a Delaware limited partnership formed
to own Coral Cove, Westway Village, Summit Creek and Tatum Gardens properties
(the "MFP VII Properties"). In connection with the formation of Jupiter-II,
L.P. as described below, Nomura Asset Capital Corporation has provided a $16.1
million, seven year term loan with respect to the MFP VII Properties. The loan
requires monthly payments of principal and interest at a rate equal to
approximately 8% (based upon the interpolated 7 year Treasury Bill Rate plus
1.75% and a 30 year amortization). Net proceeds from the long term financing
were used to repay principal outstanding on the Company's Revolving Loan.
Jupiter-II, L.P. is a limited partnership, of which the Company and the
Operating Partnership, through their subsidiaries, are the 49.6% general
partner. Jupiter-II, L.P. holds a 99% limited partnership interest, and the
Company, through its subsidiaries, holds a 1% general partnership interest in
Prime MFP VII Limited Partnership. The limited partner of Jupiter-II, L.P. is
a Japanese individual ("Investor II") and the Company, through its
subsidiaries, holds a 1% general partnership interest. In return for a
capital contribution of approximately $5.2 million, Investor II received a
50.4% limited partnership interest in Jupiter-II, L.P. Investor II will
receive an annual preferred return from the Prime MFP VII Properties of 8.5% on
their investment, plus 30% of any increases in cash flow from the MFP VII
Properties over the cash flow (as defined) from such properties. At any time
following the fifth anniversary of the formation of Jupiter-II, L.P., but in no
event after the seventh anniversary of the formation of Jupiter-II, L.P.,
Investor II is entitled to a redemption of its partnership interest in the form
of cash and or Common Stock in the Company. The election of the form of the
redemption (cash or stock) is at the absolute discretion of the Company.
Proceeds of approximately $4.9 million, net of relevant fees, from the capital
contribution were used to repay principal outstanding on the Company's
Revolving Loan.
3. ESCROWED BOND FUNDS--RESTRICTED
As of March 31, 1996 the Company had in escrow $2.4 million to be used to
complete certain renovation projects associated with tax-exempt bond
requirements on certain properties.
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4. STOCK OPTION PLAN
Pursuant to the 1994 Stock Option plan as discussed in note 6 to the 1995
Annual Report on Form 10-K, directors, executive officers, certain key employees
were offered the opportunity to acquire shares of common stock through stock
options. During the quarter ended March 31, 1996, no options were exercised.
5. DECLARATION OF DISTRIBUTIONS TO STOCKHOLDERS AND LIMITED PARTNERS
On May 3, 1996, the Board of Directors of the Company declared a quarterly
dividend of $0.40 per share to the stockholders of the Company for the quarter
ended March 31, 1996. The dividends are payable on May 20, 1995 to holders of
record as of May 5, 1996.
On May 3, 1996, the Board of Directors of the Company also authorized
distribution payments of $385,593, or $0.40 per unit holder, to limited
partners of the Operating Partnership for the quarter ended March 31, 1996.
The distributions are payable on May 15, 1996.
6. SAVINGS PLAN
Effective January 1, 1996, the Company established a retirement plan with
a salary deferral retirement feature, which management believes will qualify
under section 401 of the Code (the "401(k) Plan"), for the employees of the
Company. The 401(k) Plan will permit the employees of the Company to defer a
portion of their compensation in accordance with the provisions of section
401(k) of the Code. The 401(k) Plan will allow participants to defer up to 15%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, a profit sharing feature of the 401(k) Plan provides for
a contribution by the Company to be made annually (beginning in February 1997
and in each February thereafter) on behalf of each participant in an amount, if
any, as determined by the Company based upon a to-be-determined percentage of
increases in profitability from year to year. Amounts contributed by the
Company on behalf of the participants will vest over a period of five years (20%
per year). Amounts contributed by the Company and amounts contributed by the
participants will be held in trust until distributed to the participants
pursuant to the provisions of the 401(k) Plan.
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7. SUBSEQUENT EVENTS
On April 17, 1996 and May 1, 1996 the Harris County Housing Finance
Corporation and the Travis County Housing Finance Corporation issued $4.9
million and $6.0 million in variable rate tax-exempt bonds for the benefit of
the Cypress Ridge and Broadmoor properties, respectively. The Company will use
the bond proceeds as collateral for temporary letters of credit until permanent
credit enhancement can be obtained. These bonds are currently credit enhanced
by Bank One, Arizona.
On April 18, 1996, the Company acquired the Orangewood property for $4.9
million. Orangewood is a 223 unit apartment complex located in Tucson,
Arizona. The Company financed this acquisition by borrowing under its
Revolving Loan.
8. LEGAL PROCEEDINGS
The Company is involved in certain legal proceedings arising in the
ordinary course of business. It is management's belief that, collectively, all
such proceedings are not expected to have a material impact on the Company's
financial position.
9. PRO FORMA INFORMATION - UNAUDITED
The following unaudited table of pro forma information has been prepared
as if the Company's initial public offering (the "Offering") and the
acquisitions in 1995 and 1996 had occurred as of the beginning of each quarter
presented. In management's opinion, the pro forma is not indicative of
consolidated results of operations that may have occurred had the above
transactions taken place on January 1 of each year.
Pro Forma for the quarter Ended March 31
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
1996 1995
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<S> <C> <C>
Total Revenue..................... $15,945 $14,658
Property Operating................ 7,345 6,626
Depreciation and Amortization..... 3,575 2,975
Interest.......................... 3,460 3,847
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Total expenses.................... 14,380 13,448
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Income before Minority Interest
and loss from sale of interest
rate cap.......................... $ 1,565 $ 1,210
======= =======
Income per share of Common Stock.. $ 0.16 $ 0.12
======= =======
</TABLE>
The pro forma financial information includes the following adjustments:
(i) an increase to rental revenues and property operating expenses to reflect
the acquisitions in 1995 and 1996 (ii) an increase in general and administrative
expense to reflect additional costs associated with
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increasing the size of the portfolio; (iii) an increase in interest expenses in
1995 to reflect the issuance of new bonds; (iv) an increase in amortization to
reflect deferred financing costs incurred in connection with increased deferred
financing fees; (v) an increase in depreciation to reflect the acquisitions
noted in (i) above.
Net income has not been reduced for Minority Interests and net income per
share assumes that all limited partnership interests in the Operating
Partnership have been converted to shares of Common Stock; therefore, the total
Common Stock outstanding at January 1, 1995 and January 1, 1996 would have been
9,922,508, respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The following is a discussion and analysis of the results of operations
and financial condition of Prime Residential, Inc. (together with its
affiliates, the "Company"). As of March 31, 1996, the Company owned 37
multifamily residential properties, including ownership interests in two
unconsolidated joint ventures. Historical results and percentage relationships
presented herein are not necessarily indicative of future operations.
The following discussion should be read in conjunction with the
consolidated and combined financial statements and the management discussion
and analysis contained in the Company's 1995 Annual Report on Form 10-K. The
Company believes that to facilitate a clear understanding of its operating
results, funds from operations ("FFO") should be examined in conjunction with
net income as presented in the consolidated statements as included herein.
Industry analysts generally consider FFO an appropriate measure of performance
of an equity REIT. FFO is defined by the National Association of Real Estate
Investment Trusts ("NAREIT") as net income (loss) computed in accordance with
GAAP, excluding gains (or losses) from debt restructuring or sales of property
plus depreciation and amortization, after adjustments for unconsolidated
partnerships and joint ventures. FFO should not be considered as an
alternative to net income as an indication of the Company's performance or as
an alternative to cash flows as a measure of liquidity.
The Board of Governors of NAREIT has recently approved a revision to
the method for computing FFO. The pre 1996 computation method for FFO permits
a company to "add back" to net income all depreciation and amortization in the
calculation of FFO using the Compay's method. The current method for computing
FFO will only permit a company to "add back" (i) depreciation of real estate
assets and (ii) amortization of capitalized leasing expenses and tenant
allowances or improvements. Items such as amortization of deferred financing
fees and depreciation of computer software and a company's office improvements
are specifically excluded from the computation and may not be "added back" to
FFO. The Company will continue to report funds from operations using both
definitions as it believes that both definitions are useful in analyzing its
operations in light of its use of tax exempt debt and issuance costs related
thereto.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
The following table sets forth the calculations of FFO for the Company
using the Company's and the current computation methods. The Company
has decided to adopt NAREIT's revised method for computing FFO and all
references to FFO in this Form 10-Q reflect NAREIT's revised computation method.
<TABLE>
<CAPTION>
(In 000's)
----------------------------------------
For the Quarter Ended March 31, 1996
----------------------------------------
Company's Computation Current Computation
Method Method
------------------- -------------------
<S> <C> <C>
Net income before minority interest
and loss from
sale of interest rate cap.............. $ 1,355 $ 1,355
FFO ADJUSTMENTS:
Depreciation........................... 2,812 2,782
Amortization of deferred financing fees 715 --
Adjustments to joint ventures.......... 166 163
Other non-recurring FFO adjustments.... 15 15
---------- ----------
Funds from operations.................. $ 5,063 $ 4,315
========== ==========
</TABLE>
RESULTS OF OPERATIONS
During the twelve month period from March 31, 1995 through March 31, 1996,
the Company acquired six properties containing 2,296 units from unaffiliated
third party sellers (the "Additional Properties"). In addition, three separate
issuances of variable rate tax-exempt bonds totaling $17.5 million (the "New
Bonds") were issued in March and August 1995 to reimburse acquisition costs and
renovate three properties. Of the New Bonds, $6.0 million and $5.6 million
were issued with respect to Saguaro Crest and Shadow Creek in March 1995,
respectively, and $5.9 million were issued in August 1995 with respect to
Wellington Place. In addition, on April 25, 1995, the Company sold the $6.3
million of variable rate tax-exempt bonds which it owned and which are secured
by Windridge. Furthermore, in connection with the acquisition of Franklin Oaks
and Falls of Bells Ferry, the Company assumed $17.7 million and $29.5 million,
respectively, of variable rate tax-exempt bonds. The Franklin Oaks bonds are
secured by such property and the Falls of Bells Ferry bonds are secured by such
property and a pledge of approximately $3.4 million in certificates of deposits
purchased by the Company upon the acquisition of the property. On December 15,
1995 the Company sold the Laurelwood property to an unaffiliated third party.
Laurelwood is located in Marietta, Georgia and has 207 units.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The acquisition of the Additional Properties, the New Bonds, the sale of
the Windridge bonds and the sale of the Laurelwood property included in the
consolidated financial statements of the Company accounted for the significant
changes in operating results for the three months ended March 31, 1996, when
compared to the same period in 1995.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 TO THE THREE MONTHS ENDED
MARCH 31, 1995.
For the three months ended March 31, 1996, income before allocation to
minority interest and loss from sale of interest rate cap decreased $693,000 to
$1.4 million when compared to the same period in 1995. This decrease was
primarily due to increases in total expenses, partially offset by increases in
rental and other revenues. The aforementioned increases are discussed in
greater detail below.
Total revenues increased by $4.3 million, or 37.9%, to $15.6 million, for
the three month period ended March 31, 1996 when compared with the same period
in 1995. Of this increase approximately $4.4 million is attributable to the
acquisition of the Additional Properties and approximately $102,000 was an
increase in management fees earned in connection with management agreements
with respect to the Company's two joint venture investments and two third party
management agreements the Company entered into concurrently with the Offering.
These increases were partially offset by a decrease of $347,000 as a result of
the Company's sale of the Laurelwood property.
Total expenses (exclusive of depreciation, amortization of deferred
financing fees and interest expense) increased $2.3 million, or 53.7%, to $8.2
million for the three months ended March 31, 1996 when compared with the same
period in 1995. Property operating expenses increased $668,000, primarily due
to the acquisition of the Additional Properties. Real estate taxes increased
381,000. Of this increase in real estate taxes, $313,000 related to the
Acquisition Properties partially offset by the elimination of approximately
$22,000 in real estate taxes resulting from the sale of the Laurelwood
property. General and administrative expenses increased $420,000. This
increase was due primarily to increased administrative costs incurred in
connection with the Company increasing the size of its portfolio from 8,803
units at March 31, 1995 to 10,892 units at March 31, 1996. Repairs and
maintenance increased $207,000, primarily attributable to the acquisition of
the Acquired Properties. Financing fees increased $588,000 as a result of
increased credit enhancement costs associated with the New Bonds.
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Depreciation and amortization increased $1.3 million, or 55.5%, to $3.5
million for the three month period ended March 31, 1996. This increase is
primarily related to an increase in depreciable assets associated with the
purchase of the Additional Properties and an increase in amortization
associated with the purchase of interest rate protection at the time of the
Offering, bond issuance costs relating to the New Bonds and amortization of
deferred financing costs associated with the Company's revolving credit
facility (the "Revolving Loan"), described below. These increases were
partially offset by the sale of the Laurelwood property.
Interest expense increased $1.4 million to $2.6 million for the three
month period ended March 31, 1996. This increase includes an approximately
$201,000 increase in interest costs associated with the issuance of the New
Bonds and the Company's sale of the variable rate tax-exempt bonds securing the
Windridge property, $425,000 of interest costs for Franklin Oaks and the Falls
of Bells Ferry and an increase of approximately $807,000 in interest costs
incurred in connection with the Revolving Loan.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Interest on $153.1 million (excluding the Revolving Loan) of the Company's
long-term debt fluctuates upon changes in prevailing market interest rates,
while the remaining $28.9 million is a one year adjustable rate determined by
the remarketing agent. On May 26, 1995, the Company entered into a swap
transaction with Nomura Capital Services, Inc. ("NCSI") pursuant to which the
Company will pay a fixed rate on approximately $130.0 million of its variable
rate tax-exempt bonds through May 26, 2005. Under the terms of the swap
agreement, the Company will pay, quarterly in advance, a fixed rate of 6.498%
on a notional amount of $94.0 million to NCSI which management believes results
in an effective interest rate of 4.7% on $130.0 million of the Company's
variable rate tax-exempt bonds. On March 14, 1996, the Company entered into
another interest rate swap transaction with NCSI pursuant to which the Company
will pay a fixed rate on approximately $23.6 million of its variable rate
tax-exempt debt. Under this swap agreement, the Company will pay a fixed rate
of 6.55% on a notional amount of approximately $17.0 million to NCSI, which
results in an effective interest rate of approximately 4.73% on $23.6 million
of variable rate tax-exempt bonds. The swap agreement matures on March 14,
2003. Management continues to believe that there is a reasonable correlation
between changes in the LIBOR rate (on which the fixed rate was based) and the
J.J. Kenny Index (a tax-exempt bond rate index). Management chose to execute a
LIBOR based interest rate swap as opposed to a tax-exempt rate swap because
management believes that the market for LIBOR based interest rate hedging is
more efficient than the tax-exempt hedge market, therefore a more economic
pricing can be obtained.
-15-
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
On August 31, 1994, the Company purchased, at a cost of $5.6 million,
interest rate protection for five years to hedge its exposure to increases in
interest expense for $87.0 million of its variable rate tax-exempt bonds. On
March 14, 1996, the Company sold its interest rate protection contract for
approximately $1.5 million. The Company recognized an approximately $2.1
million loss, net of minority interest, as a result of this sale.
There are no balloon maturities of the Company's tax-exempt bond issues
over the next five years. However, principal payments with respect to the $1.2
million loan issued with respect to the LaJolla property are scheduled during
this period at a rate of $10,000 per month and began on February 1, 1995. The
Revolving Loan has a maturity date of June 30, 1996; however, the Company has
an option to extend the maturity date of such loan to July 1, 1997 for an
extension fee of $750,000.
On February 9, 1996, the Company acquired Madera Point property and bonds.
Madera Point is a 256 unit apartment complex located in Mesa, Arizona. The
Company financed this acquisition by assuming $8.1 million of variable rate
tax-exempt bonds, which are collateralized by Madera Point, and the remainder
with $2.9 million of working capital.
On April 17, 1996 and May 1, 1996 the Harris County Housing Finance
Corporation and the Travis County Housing Finance Corporation issued $4.9
million and $6.0 million in variable rate tax-exempt bonds for the benefit of
the Cypress Ridge and Broadmoor properties, respectively. The Company will use
the bond proceeds as collateral for temporary letters of credit until permanent
credit enhancement can be obtained. These bonds are currently credit enhanced
by Bank One, Arizona.
On April 18, 1996, the Company acquired the Orangewood property for $4.9
million. Orangewood is a 223 unit apartment complex located in Tucson, Arizona.
The Company financed this acquisition by borrowing under its Revolving Loan.
Orangewood has received a $6.0 million inducement resolution from the Industrial
Development Authority of the County of Pima for future bond allocation.
On May 3, 1996, the Board of Directors of the Company declared a quarterly
dividend of $0.40 per share to the stockholders of the Company and $0.40 per
unit distribution to the limited partners of Prime Residential, L.P. for the
quarter ended March 31, 1996. The dividends/distributions are payable on May
20, 1996 to holders of record as of May 13, 1996.
-16-
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Effective January 1, 1996, the Company established a retirement plan with
a salary deferral retirement feature, which management believes will qualify
under section 401 of the Code (the "401(k) Plan"), for the employees of the
Company. The 401(k) Plan will permit the employees of the Company to defer a
portion of their compensation in accordance with the provisions of section
401(k) of the Code. The 401(k) Plan will allow participants to defer up to 15%
of their eligible compensation on a pre-tax basis subject to certain maximum
amounts. In addition, a profit sharing feature of the 401(k) Plan provides for
a contribution by the Company to be made annually (beginning in February 1997
and in each February thereafter) on behalf of each participant in an amount, if
any, as determined by the Company based upon a to-be-determined percentage of
increases in profitability from year to year. Amounts contributed by the
Company on behalf of the participant will vest over a period of five years (20%
per year). Amounts contributed by the Company and amounts contributed by the
participants will be held in trust until distributed to the participant
pursuant to the provisions of the 401(k) Plan.
On March 27, 1996, the Company entered into a number of financing
transactions regarding certain properties (the "MFP Properties") owned by Prime
MFP Limited Partnership an affiliate of the Company and four additional
properties. The Company, through its affiliates, formed three new limited
partnerships: Jupiter-I, L.P., Jupiter-II, L.P. and Prime MFP VII limited
Partnership. Jupiter-I, L.P. is a limited partnership, of which the Company
and the Operating Partnership, through their subsidiaries, are the 49.6%
general partner. Jupiter-I, L.P. holds a 99% limited partnership interest and
the Company, through its subsidiaries, holds a 1% general partnership interest
in Prime MFP Limited Partnership. The limited partner of Jupiter-I, L.P. is a
Japanese Corporation ("Investor-I'). In return for a capital contribution of
approximately $17.8 million, Investor I received a 50.4% limited partnership
interest in Jupiter-I, L.P. Investor I will receive an annual preferred return
from the Prime MFP Properties of 8.5% on their investment, plus 30% of an
increases in cash flow from the MFP Properties over the cash flow (as defined)
from such properties. At any time following the fifth anniversary of the
formation of Jupiter-I, L.P., but in no event after the seventh anniversary of
the formation of Jupiter-I, L.P., Investor I is entitled to a redemption of its
partnership interest in the form of cash and or Common Stock in the Company.
The election of the form of the redemption (cash or stock) is at the absolute
discretion of the Company. Proceeds of $16.9 million, net of relevant fees,
from the capital contribution were used to repay principal outstanding on the
Company's Revolving Loan.
-17-
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Prime MFP VII Limited Partnership is a Delaware limited partnership formed
to own Coral Cove, Westway Village, Summit Creek and Tatum Gardens properties
(the "MFP VII Properties"). In connection with the formation of Jupiter-II,
L.P., as described below, Nomura Asset Capital Corporation has provided a $16.1
million seven year term loan with respect to the MFP VII Properties. The loan
requires monthly payments of principal and interest at a rate equal to
approximately 8% (based upon the interpolated 7 year Treasury Bill Rate plus
1.75% and a 30 year amortization). Net proceeds from the long term financing
were used to repay principal outstanding on the Company's Revolving Loan. It
is contemplated that the loan will be included in a larger securitized loan
pool issued by Nomura Asset Capital Corporation.
Jupiter-II, L.P. is a limited partnership, of which the Company and the
Operating Partnership, through their subsidiaries, are the 49.6% general
partner. Jupiter-II, L.P. holds a 99% limited partnership interest and the
Company, through its subsidiaries, holds a 1% general partnership interest in
Prime MFP VII Limited Partnership. The limited partner of Jupiter-II, L.P. is a
Japanese individual ("Investor II").. In return for a capital contribution of
approximately $5.2 million, Investor II received a 50.4% limited partnership
interest in Jupiter-II, L.P. Investor II will receive an annual preferred
return from the Prime MFP VII Properties of 8.5% on their investment, plus 30%
of any increases in cash flow from the MFP VII Properties over the cash flow
(as defined) from such properties. At any time following the fifth anniversary
of the formation of Jupiter-II L.P., but in no event after the seventh
anniversary of the formation of Jupiter-II, L.P., Investor II is entitled to a
redemption of its partnership interest in the form of cash and or Common Stock
in the Company. The election of the form of the redemption (cash or stock) is
at the absolute discretion of the Company. Proceeds of approximately $4.9
million, net of relevant fees, from the capital contribution were used to repay
principal outstanding on the Company's Revolving Loan.
The Company expects to meet is liquidity requirements, including, for
example, scheduled debt maturities, future property acquisitions and capital
improvements, using its cash flow from operating activities or cash provided by
collateralized or uncollateralized borrowings including the Revolving Loan.
-19-
<PAGE> 19
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 TO THE THREE MONTHS ENDED
MARCH 31, 1994
The net decrease in cash increased $918,000 to $1.6 million at March 31,
1996 compared to March 31, 1995. This increase was due to a decrease in cash
provided by operating activities, partially offset by a decrease in cash used
in investing activities.
Net cash provided by operating activities decreased $1.5 million to $1.5
million for the three month period ended March 31, 1996 when compared to the
same period in 1995. The primary reason for this decrease was an increase in
the payment of real estate taxes and accounts payable during the period ended
March 31, 1996.
Net cash used in investing activities decreased $585,000 to $14.7 million
for the three month period ended March 31, 1996 when compared to the same
period in 1995. This decrease is primarily attributable to a reduction in the
number of units acquired during the first quarter of 1996 as compared to the
same period in 1995. This reduction was partially offset by an increase in
improvements to rental property.
Net cash provided by financing activities decreased $25,000 to $11.6
million for the three month period ended March 31, 1996 when compared to the
same period in 1995. This decrease is primarily attributable to an increase in
the repayment of notes payable, partially offset by an increase in proceeds
from notes payable borrowings and the receipt of proceeds of approximately
$21.8 in March 1996 with respect to the Nomura financing transaction.
-19-
<PAGE> 20
PART II
Other Information
Item 1. Legal Proceedings
No material legal proceedings
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits or Reports on Form 8-K
(a) Exhibits
10.38 Jupiter-I, L.P., Agreement of Limited Partnership
10.38(A) Jupiter-II, L.P. Agreement of Limited Partnership
10.39 Agreement and undertaking among Prime Residential, Inc.
Makoto Maki, Jupiter-II, L.P. and AJ Too Limited Partnership
10.39(A) Agreement and Undertaking among Prime Residential, Inc.,
Yugenkaisha Sankyo Sekiyu, Jupiter-I, L.P., and AJ one
Limited Partnership
27 Financial Data Schedule
(b) Reports on From 8-K
None
-20-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME RESIDENTIAL, INC.
Registrant
Date: May 13, 1996 /s/ Adam D. Peterson
------------------------ -----------------------------------------
Adam D. Peterson
Senior Vice President and Chief Financial
Officer
-21-
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document Name
- ------- -------------
<S> <C>
10.38 Jupiter-I, L.P., Agreement of Limited Partnership
10.38(A) Jupiter-II, L.P. Agreement of Limited Partnership
10.39 Agreement and undertaking among Prime Residential, Inc.
Makoto Maki, Jupiter-II, L.P. and AJ Too Limited Partnership
10.39(A) Agreement and Undertaking among Prime Residential, Inc.,
Yugenkaisha Sankyo Sekiyu, Jupiter-I, L.P., and AJ one
Limited Partnership
27. Financial Data Schedule.
</TABLE>
-22-
<PAGE> 1
EXHIBIT 10.38
--------------------------------
JUPITER-I, L.P.
(a Delaware limited partnership)
--------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
--------------------------------
Dated as of March 27, 1996
--------------------------------
<PAGE> 2
Table of Contents
ARTICLE I
DEFINED TERMS . . . . . . . . . . . . . 1
ARTICLE II
FORMATION; NAME AND PLACE OF BUSINESS; TERM; ETC. . . . . 15
2.01. Formation . . . . . . . . . . . . . . . . . . . . . . . 15
2.02. Name . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.03. Purpose . . . . . . . . . . . . . . . . . . . . . . . . 15
2.04. Place of Business . . . . . . . . . . . . . . . . . . . 15
2.05. Term . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.06. Registered Agent and Registered Office . . . . . . . . . 15
2.07. Application of the Delaware Act . . . . . . . . . . . . 15
2.08. Partnership only for Purposes Specified . . . . . . . . 16
2.09. Co-Partnership for Joint Business . . . . . . . . . . . 16
ARTICLE III
MANAGEMENT . . . . . . . . . . . . . . 17
3.01. Management and Control of the Partnership . . . . . . . 17
3.02. Authority of the General Partner . . . . . . . . . . . . 17
3.03. Restrictions on the Authority of the General Partner . . 19
3.04. Duties and Obligations of the General Partner . . . . . 22
3.05. Title to Partnership Property . . . . . . . . . . . . . 23
3.06. Liability of the Partners . . . . . . . . . . . . . . . 23
3.07. Liability to the Partners . . . . . . . . . . . . . . . 23
3.08. Indemnification . . . . . . . . . . . . . . . . . . . . 23
3.09. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 24
3.10. Permitted Temporary Investments . . . . . . . . . . . . 25
3.11. Delegation of Authority . . . . . . . . . . . . . . . . 25
3.12. Business and Assets of General Partner . . . . . . . . . 25
i
<PAGE> 3
ARTICLE IV
ADMISSION TO PARTNERSHIP; CAPITAL CONTRIBUTIONS;
CONDITIONS PRECEDENT . . . . . . . . . . . 26
4.01. Admission of Limited Partner . . . . . . . . . . . . . . 26
4.02. Capital Contributions . . . . . . . . . . . . . . . . . 26
4.03. Conditions Precedent . . . . . . . . . . . . . . . . . . 27
4.04. Withdrawal; Return of Capital . . . . . . . . . . . . . 27
ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS; CAPITAL ACCOUNTS . . . 28
5.01. Monthly Distributions. . . . . . . . . . . . . . . . . . 28
5.02. Quarterly Distributions . . . . . . . . . . . . . . . . 29
5.03. Distributions of Disposition Proceeds . . . . . . . . . 30
5.04. Allocation of Profit and Loss. . . . . . . . . . . . . . 31
5.05. Capital Accounts . . . . . . . . . . . . . . . . . . . . 33
5.06. Withholding . . . . . . . . . . . . . . . . . . . . . . 34
5.07. Allocations for Federal Income Tax Purposes . . . . . . 34
5.08. Disputed Items . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI
RECORDS; REPORTS TO THE PARTNERS; TAX MATTERS . . . . 36
6.01. Records and Accounting . . . . . . . . . . . . . . . . . 36
6.02. Audit and Report . . . . . . . . . . . . . . . . . . . . 36
6.03. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . 38
6.04. Other Reports . . . . . . . . . . . . . . . . . . . . . 38
6.05. Tax Audits . . . . . . . . . . . . . . . . . . . . . . . 38
6.06. Tax Elections . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VII
ASSIGNMENTS, SALES OR OTHER DISPOSITIONS;
WITHDRAWAL OF PARTNERS . . . . . . . . . . . 40
7.01. Assignments, Sales or Other Dispositions by Partners . . 40
7.02. Withdrawal of Partners . . . . . . . . . . . . . . . . . 42
7.03. Void Assignments . . . . . . . . . . . . . . . . . . . . 42
ii
<PAGE> 4
ARTICLE VIII
DISSOLUTION OF THE PARTNERSHIP;
DEATH, INSOLVENCY, ETC. OF PARTNER . . . . . . . 43
8.01. Dissolution . . . . . . . . . . . . . . . . . . . . . . 43
8.02. Distributions on Liquidation . . . . . . . . . . . . . . 44
8.03. Redemptions at the Option of the Limited Partner . . . . 46
8.04. Redemption Upon Certain Events . . . . . . . . . . . . . 51
8.05. HSR Delays in Registration . . . . . . . . . . . . . . . 52
8.06. Purchases of Company Shares . . . . . . . . . . . . . . 53
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . 54
9.01. Binding Agreement . . . . . . . . . . . . . . . . . . . 54
9.02. Applicable Law . . . . . . . . . . . . . . . . . . . . . 54
9.03. Gender . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.04. Notices . . . . . . . . . . . . . . . . . . . . . . . . 54
9.05. Power of Attorney . . . . . . . . . . . . . . . . . . . 54
9.06. Additional Limited Partners. . . . . . . . . . . . . . . 54
9.07. Entire Agreement; Amendments . . . . . . . . . . . . . . 56
9.08. Force Majeure . . . . . . . . . . . . . . . . . . . . . 56
9.09. Consent to Jurisdiction . . . . . . . . . . . . . . . . 56
9.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . 56
Schedule A Partners; Capital Contributions
Schedule B Properties; Capital Values of Properties
Schedule C Computation of Collateral Values and Net Equity Values
Schedule D Computation of Pro Forma Priority Distribution
Schedule E Information to Be Furnished by the Partnership
Exhibit A Company Agreement
Exhibit B Letter Agreement
iii
<PAGE> 5
JUPITER-I, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP dated as of March 27, 1996 of
JUPITER-I, L.P. among AJ One Limited Partnership, a limited partnership
organized under the laws of the State of Delaware, as general partner, and
Yugenkaisha Sankyo Sekiyu, a corporation organized under the laws of Japan, as
limited partner.
WHEREAS, the parties hereto desire to form the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
pursuant to a certificate of limited partnership dated March 27, 1996, and to
be filed with the Secretary of State of the State of Delaware (the "Certificate
of Limited Partnership"); and
WHEREAS, the parties hereto desire to provide for the governance of
the Partnership and to set forth in detail the rights and duties of the parties
relating to the Partnership,
NOW, THEREFORE, in consideration of the mutual promises and agreements
made herein, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings set forth in this Article I. All such
terms which relate to accounting matters shall be interpreted in accordance
with generally accepted accounting principles in effect from time to time
except as otherwise specifically provided herein.
"Adjusted Capital Contribution" means, for each Partner at any
specified time, such Partner's Capital Contribution reduced, in the case of the
Limited Partner, by the Limited Partner's Aliquot Share of the Limited
Partner's Capital Contribution distributed to the Limited Partner pursuant to
Section 5.03(b)(i), and, in the case of the General Partner, by the excess of
the total amount distributed to the General Partner pursuant to Section
5.03(b)(ii) over the General Partner's Aliquot Share of the General Partner's
Priority Distribution and its Aliquot Share of its Pro Forma Priority
Distribution distributable to the General Partner pursuant to Sections 5.01 and
5.02 (whether or not theretofore distributed, it being recognized that the
General Partner's Priority Distribution and Pro Forma Distribution is payable
only with respect to the calendar year in which the distribution pursuant to
Section 5.03(b)(ii) is made), to, but not including, such specified time.
1
<PAGE> 6
"Adjusted Distributable Cash From Operations" means, with respect to
the applicable period of measurement, the Distributable Cash from Operations
for such period reduced by any amounts set aside by the Property Partnership
during such period for the Reserve Fund.
"Affiliate" means, with respect to a specified person, any person that
directly or indirectly controls, is controlled by, or is under common control
with, the specified person.
"Agreement" means this Agreement of Limited Partnership, as
supplemented, amended or restated from time to time in accordance with the
terms hereof.
"Aliquot Share," in connection with the Disposition of a Property, or
any of the incidents of such Disposition, has the following meanings:
(a) when used with reference to the portion of a
Partner's Capital Contribution or Capital Account allocable to such Property,
the product of (i) such Partner's Capital Contribution or such Partner's
Capital Account at the time of reference thereto, as the case may be,
multiplied by (ii) a fraction the numerator of which is the Capital Value of
such Property and the denominator of which is the Capital Value of all of the
Existing Properties (including such Property);
(b) when used with reference to the portion of any prior
distribution of Distributable Cash From Operations attributable to such
Property, the product of (i) that portion of each prior distribution to the
Partners pursuant to Sections 5.01(a)(i) and (ii), 5.02(a)(i), (ii), (iii) and
(iv), and 5.02(b) that was not attributable to Other Distributable Proceeds
from the Properties (in each case computed on the assumption that amounts
attributable to Other Distributable Proceeds are the last amounts distributed)
multiplied by (ii) a fraction, the numerator of which is the Capital Value of
such Property and the denominator of which is the Capital Value of all of the
Existing Properties (including such Property); provided, however, that if a
Disposition occurs during any accounting period of the Partnership (rather than
at the beginning or end of a period for which determinations are customarily
made by the Partnership), the product determined as provided in this paragraph
(b) with respect to such accounting period shall, to the extent necessary, be
interpolated based on information customarily available to the Partnership
(which may be information as of the close of the prior accounting period) and
the number of days in such accounting period prior to and subsequent to such
Disposition; and
(c) when used with reference to the portion of any prior
distribution of Other Distributable Proceeds attributable to such Property, the
amount of each prior distribution to the Partners pursuant to Section 5.01
and/or Section 5.02 actually attributable to Other Distributable Proceeds with
respect to such Property, in each case computed on the assumption that amounts
attributable to Other Distributable Proceeds are the last amounts distributed.
2
<PAGE> 7
"Amendment" means the Amendment and Waiver dated as of March 26, 1996
to the Property Partnership Agreement.
"Assets" means all property of the Partnership, including, but not
limited to, the Property Partnership Interest, and cash and any securities
received from the Property Partnership.
"Average Market Price" means, as of any specified date, the average of
the Closing Prices for the Company Shares for the 20 trading days immediately
prior to such specified date.
"Bankruptcy Law" means any Federal or State bankruptcy, insolvency,
reorganization or other similar law, including the Bankruptcy Reform Act of
1978, as amended (or any corresponding provision of succeeding law).
"Capital Account" means the account of each Partner as described in
Section 5.05.
"Capital Contribution" means, for the Limited Partner, the aggregate
amount of money contributed by the Limited Partner (or the predecessor holder
of the Interest of the Limited Partner) to the Partnership, as provided in
Section 4.02(a), and, for the General Partner, the agreed value of the limited
partnership interests contributed by the General Partner, net of the related
return of capital to the General Partner (or the predecessor holder of the
Interest of the General Partner) to the Partnership, as provided in Section
4.02(b).
"Capital Value" of a Property means the fair market value of such
Property as of the Closing Date, as set forth for the Properties on Schedule B
hereto.
"Closing Date" means the date on which the Partners make their Capital
Contributions pursuant to Section 4.02(a) and (b).
"Closing Price" of the Company Shares on any day means (a) the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the New York Stock Exchange, or (b) if the
Company Shares are not then listed on the New York Stock Exchange, but are
admitted to trading on the NASDAQ National Market System, the last sale price,
or, in case no sale takes place on such day, the average of the high bid and
low asked prices, in either case as reported by the NASDAQ National Market
System, or (c) if the Company Shares are not then listed on the New York Stock
Exchange or admitted to trading on the NASDAQ National Market System, the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Company Shares are listed or admitted to trading, or (d) if the
Company Shares are not listed or admitted to trading on any national securities
exchange or the NASDAQ National
3
<PAGE> 8
Market System, the last quoted price, or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as reported by
NASDAQ or, if such system is no longer in use, the principal other automated
quotations system that may then be in use, or (e) if the Company Shares are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by such professional market maker making a market in the
Company Shares as shall be selected from time to time by the General Partner;
provided, however, that in connection with the liquidation of the Partnership
or any Redemption of the Limited Partner's Interest after the occurrence of any
event of the type referred to in Sections 8.03(d)(i)(A), (B), (C) or (D), the
Closing Prices (and, accordingly, Average Market Prices) of the Company Shares
shall be adjusted to reflect the effect of such events as if all of such events
had occurred prior to the date or dates as of which Closing Prices or Average
Market Prices are to be determined.
"Code" means the Internal Revenue Code of 1986, as amended (or any
succeeding law).
"Collateral Value" means, at the time of reference thereto, the amount
derived by dividing the Net Operating Income of the Property Partnership by
0.0812908; provided, however, that, in connection with the determination of the
Collateral Value of the remaining Properties of the Property Partnership after
the Disposition of a Property, the reference to Net Operating Income shall mean
the pro forma Net Operating Income of the Property Partnership restated to
remove the contribution of the disposed of Property.
"Company" means Prime Residential, Inc., a corporation organized under
the laws of the State of Maryland.
"Company Agreement" means the Agreement and Undertaking, in the form
attached as Exhibit A hereto and dated as of the Closing Date, among the
Company, Investor, the Partnership and the General Partner, and as from time to
time amended in accordance with the terms thereof.
"Company Shares" means the common stock, par value $0.01 per share, of
the Company.
"Covered Transaction" means the merger or consolidation of the Company
with or into any Person, other than any Related Party (whether or not the
Company is the surviving Person), or the sale, transfer (by lease, license, or
conveyance of the use of or the beneficial interest in any property),
conveyance or other disposition, in one transaction or a related series of
transactions, of all or substantially all of the assets of the Company or the
Company consensually becoming a party to a transaction or a series of related
transactions in which at least 50% of the Company Shares are acquired by any
Person or any Persons who together constitute a "group" for purposes of Section
13(d) of the Securities Exchange Act of 1934.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act (6 Del. C. Section 17-101 et seq.) as now in effect and hereafter amended.
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<PAGE> 9
"Depreciation" means an amount equal to the depreciation, amortization
or other cost recovery deduction allowable with respect to an asset for such
year or period for Federal income tax purposes; provided, however, where an
asset of the Partnership or the Property Partnership has an adjusted basis for
Federal income tax purposes that differs from its adjusted "book" basis either
because the Capital Value of a Property differs from the Partnership's or the
Property Partnership's tax basis as of the date hereof or as a result of a
revaluation pursuant to Section 5.05(c) of this Agreement or pursuant to the
Property Partnership Agreement, "Depreciation" shall be computed in accordance
with Regulation Section 1.704-(b)(2)(iv)(g)(3).
"Disposition" means any sale, condemnation, destruction or other
transfer or disposition (including by lease or license) of a Property or any
other similar event or transaction that results in the loss or conversion by
the Property Partnership of all or substantially all of the benefits and rights
of ownership of such Property; provided, however, that a Disposition shall not
include (i) any sale or other disposition of assets that are insubstantial in
amount and are, in the ordinary course of business, sold or abandoned in
connection with maintenance or repair of any Property; or (ii) the sale,
condemnation or other transfer of any insubstantial right in connection with
any property if the use and enjoyment of such Property by the Property
Partnership are not diminished or impaired as a result thereof.
"Distributable Cash From Operations" means, with respect to the
applicable period of measurement, the excess, if any, (a) of the sum of (i) the
"Net Cash Flow" (as that term is defined in the Property Partnership Agreement)
distributed to the Partnership by the Property Partnership during such period,
increased, to the extent deducted in the determination of the amount of such
Net Cash Flow, by any amounts set aside during such period for the Reserve Fund
and reduced by (A) the amount of any Reserve Fund Interest included in such Net
Cash Flow, (B) the amount of the annual facility fees paid by the Property
Partnership during such period in connection with the letters of credit that
back the long-term debt of the Property Partnership, to the extent that (x)
such letters of credit apply to the remaining term of the Partnership and (y)
such fees were not deducted in the determination of the amount of such Net Cash
Flow, and (C) the amount set aside by the Property Partnership during such
period for reserves for capital expenditures, to the extent such amounts were
not deducted in the determination of the amount of such Net Cash Flow, plus
(ii) any interest earned during such period on Partnership funds pursuant to
Section 3.10, plus (iii) any amounts no longer required as reserves pursuant to
Section 3.09(b), over (b) any amounts applied or set aside by the Partnership
during such period to pay or provide for the payment of Partnership expenses
pursuant to and in accordance with Sections 3.09 and 3.10.
"Distributable Disposition Proceeds" means the excess of the cash
receipts from the Disposition of a Property (including amounts not required as
or released from reserves created in connection with such Disposition) over the
aggregate of (a) the expenses of such Disposition (including, but not limited
to, sales commissions paid to Persons other than Affiliates of the General
Partner, legal expenses, accounting fees, appraisal and engineering fees, and
transfer taxes
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<PAGE> 10
in connection with the Disposition of such Property), (b) all debts and other
obligations of the Property Partnership discharged or required to be discharged
in connection with such Disposition, (c) in connection with any condemnation or
destruction of a Property, any cash paid or to be paid from condemnation awards
or insurance recoveries for permitted replacement or restoration of the
affected Property, (d) reasonable reserves created by the Property Partnership
or the Partnership for taxes, debt service, obligations, liabilities, repairs,
replacements and other expenses required to be paid in connection with such
Disposition or the affected Property, and (e) reasonable reserves created by
the affected Property Partnership or the Partnership with respect to
post-closing price adjustments and similar contingencies relating to the
purchase price.
"Effective Date" has the meaning given in Section 8.03(b).
"Exchange Act" means the Securities Exchange Act of 1934 (or any
succeeding law).
"Excludable Shares" means (a) Company Shares that are issuable upon
the exercise of rights, options or warrants outstanding on the date of this
Agreement to purchase Company Shares, or the conversion or exchange of
securities outstanding on the date of this Agreement that are convertible into
or exchangeable for Company Shares, or upon the satisfaction of conditions
specified in incentive compensation agreements in effect on the date of this
Agreement, at a price less than the Average Market Price at the date of the
issuance of such rights, options, warrants or convertible securities or the
grant of rights under such agreements, as the case may be, and (b) Company
Shares that are issuable upon the exercise of rights, options or warrants to
purchase Company Shares, or upon the satisfaction of conditions specified in
incentive compensation agreements, or pursuant to employee compensation and
benefit plans and arrangements (including arrangements for compensation of
directors), adopted by the Company after the date of this Agreement, at a price
less than the Average Market Price at the date of the issuance of such rights,
options or warrants, or the grant of rights under such agreements, plans or
arrangement, as the case may be; provided, however, that, while the Company
shall not be under any constraint as to the number of Company Shares issuable
or issued pursuant to such rights, options, warrants, agreements and plans, not
in excess of 1% of the total number of Company Shares outstanding as any
particular time shall be treated as Excludable Shares.
"Existing Properties" means, at any specified time, all Properties
that, to but not including such time, have not been the subject of a completed
Disposition.
"Freely Transferable Shares" means, when used with reference to
Company Shares distributable to the Limited Partner pursuant to Article VIII
upon liquidation of the Partnership or Redemption of the Limited Partner's
Interest, Company Shares that, as of the date of delivery, (a) are registered
under the Securities Act, and registered or qualified under the "blue sky" or
securities laws of the several states of the United States, in accordance with
the provisions of the Company Agreement, such that the Limited Partner will be
free immediately to resell such Company Shares in the open market, and (b) are
listed or admitted to trading on the principal national
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<PAGE> 11
securities exchange on which the Company Shares are listed or admitted to
trading or, if the Company Shares are not then listed or admitted to trading on
a national securities exchange but are admitted to trading on the NASDAQ
National Market, on the NASDAQ National Market, and (c) the delivery of which
to, and the ownership and transfer of which by, the Limited Partner is not
prohibited or restricted by the Articles of Incorporation and/or By-laws of the
Company; provided, however, that the provisions of this clause (c) shall not
affect or require the suspension of any provision of the Articles of
Incorporation and/or By-laws of the Company if and to the extent such
prohibition or restriction is a result of the direct or indirect ownership by a
member of the Investor group of Company Shares (without the prior written
consent of the Company) other than those distributed to the Limited Partner
upon liquidation of the Partnership or Redemption of the Limited Partner's
Interest; and provided further, however, that if and to the extent such
prohibition or restriction is a result of the direct or indirect ownership by
any member of the Investor Group of Company Shares (without the prior written
consent of the Company) other than those so distributed, Freely Transferable
Shares, Company Shares, and all terms of similar import shall include any
shares of Excess Common Stock (as defined in the Company's Articles of
Incorporation) delivered to the Limited Partner in place of any shares of
Company Shares in connection with any such distribution. In order for the
Company to qualify as a "real estate investment trust" under the Code, the
Company's Amended and Restated Articles of Incorporation contains certain
restrictions, applicable to all purchasers of Company Shares, on the
acquisition and ownership of Company Shares, and the certificates representing
and evidencing Company Shares bear a legend referring to such restrictions.
Neither the existence of such restrictions nor the fact that the certificates
for Company Shares bear such legend, of themselves, prevent Company Shares from
being Freely Transferable Shares.
"General Partner" means AJ One Limited Partnership, a Delaware limited
partnership the general partner of which is AJ One, Inc., and the limited
partner of which is Prime Residential, L.P., a Delaware limited partnership,
and any other Person who, at the time of reference thereto, is admitted as a
successor general partner of the Partnership in accordance with the provisions
of Article VII, in such Person's capacity as a general partner of the
Partnership.
"Indebtedness" means, at the time of reference thereto, the
outstanding principal amount of (a) any indebtedness of the Property
Partnership or secured by the Properties, or any of them; (b) obligations of
the Property Partnership as lessee under leases that are or, under generally
accepted accounting principles, should be classified as capital leases; (c)
obligations (contingent or otherwise) of the Property Partnership with respect
to bankers' acceptances or letters of credit; and (d) obligations of the
Property Partnership (contingent or otherwise) under direct or indirect
guaranties with respect to, or to purchase or otherwise acquire, or otherwise
to assure a creditor against loss with respect to, indebtedness or obligations
of others of the type referred to the foregoing clauses (a), (b) and (c). In
determining the outstanding principal amount of any Indebtedness at any time,
the then nominal outstanding principal amount shall be reduced by any amounts
then set aside in a sinking fund or reserve (including the Reserve Fund) for
the payment thereof.
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"Indemnified Person" has the meaning given in Section 3.08.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the rights and obligations of
such Partner under this Agreement and the Delaware Act. Reference to a
specified percentage, or a majority, in Interest of the Partners or a class of
Partners means Partners whose aggregate Partnership Percentages represent at
least such specified percentage, or more than 50%, as the case may be, of the
aggregate Partnership Percentages of all Partners or such class of Partners, as
the case may be.
"Internal Rate of Return" means that rate of interest at which the
present value of specified distributions to the Limited Partner (or the Aliquot
Share of such distributions), discounted annually on the basis of a 360-day
year of twelve 30-day months, from the time of the making of such distribution
to the Closing Date equals the amount of the Limited Partner's Capital
Contribution (or an Aliquot Share of the Limited Partner's Capital
Contribution).
"Investor" means Yugenkaisha Sankyo Sekiyu, in its individual capacity
and not in its capacity as a limited partner.
"Investor Group" means (i) the Investor, (ii) any corporation or other
legal entity at least 75% of the voting stock or other voting interest in which
is owned, directly or indirectly, by the Investor, (iii) any corporation or
other legal entity that, directly or indirectly, owns at least 75% of the
voting stock of the Investor, and (iv) any adult individuals who, alone or with
other members of the same family, directly or indirectly, own at least 75% of
the voting power and beneficial interest in the equity securities of the
Investor.
"Letter Agreement" means the letter undertaking, in the form of
Exhibit B hereto and dated as of the Closing Date, of the general partner of
the Property Partnership.
"Limited Partner" means each Person that is, at the time of reference
thereto, a party to this Agreement, and has been admitted to the Partnership as
a limited partner in accordance with the provisions of Article VII or the
proviso to Section 8.01, in such Person's capacity as a limited partner of the
Partnership.
"Limited Partner's Share" means, when used with reference to the Net
Equity Value of the Properties remaining after a Disposition, the amount that
would be distributable to the Limited Partner if, immediately after such
Disposition, the Interest of the Limited Partner were redeemed pursuant to
Section 8.03(c)(i).
"Loss" means, for each Partnership Tax Year or other period, an amount
equal to the Partnership's items of taxable deduction and loss for such year or
other period, determined in accordance with Section 703(a) of the Code
(including all items of loss or deduction required to be stated separately
under Section 703(a)(1) of the Code), with the following adjustments:
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<PAGE> 13
(a) Any expenditures of the Partnership or the Property
Partnership described in Section 705(a)(2)(B) of the Code or treated
as Section 705(a)(2)(B) expenditures under Regulation Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Loss, will be considered an item of Loss;
(b) Loss resulting from any disposition of an asset of
the Partnership or the Property Partnership with respect to which gain
or loss is recognized for Federal income tax purposes will be computed
by reference to the "book" basis of such asset, notwithstanding that
the adjusted tax basis of such property may differ from its "book"
basis;
(c) In lieu of depreciation, amortization and other cost
recovery deductions taken into account in computing taxable income or
loss, there will be taken into account Depreciation for the taxable
year or other period as determined in accordance with Regulation
Section 1.704-1(b)(2)(iv)(g);
(d) Any items deduction and loss specially allocated
pursuant to Section 5.07 shall not be considered in determining Loss;
and
(e) Any increase to Capital Accounts as a result of any
adjustment to the "book" basis of the Partnership or the Property
Partnership pursuant to Regulation Section 1.704-1(b)(2)(iv)(g) shall
constitute an item of Loss.
"NASD" means the National Association of Securities Dealers, Inc. or
any successor self-regulatory organization.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System, or any successor automated quotation system of the
NASD.
"Net Equity Value" means, at the time of reference thereto, the then
Collateral Value less all Indebtedness at the time. The computation of the
Collateral Value and the Net Equity Value as of the Closing Date (reflecting
all of the Properties as of the Closing Date) is set forth on Schedule C to
this Agreement.
"Net Operating Income" means net income from operations of the
Property Partnership for financial reporting purposes, determined in accordance
with generally accepted accounting principles, for the 12 calendar months next
preceding the time of determination, plus (a) interest expense actually
deducted in determining such net income for such period, (b) fees (including
the annual facility fees paid by the Property Partnership in connection with
the letters of credit that back the long-term debt of the Property Partnership)
and similar periodic charges on or with respect to Indebtedness of the Property
Partnership actually deducted in determining such net income for such period,
and (c) income taxes actually deducted in determining such net income
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<PAGE> 14
for such period minus (i) to the extent not reflected in the determination of
such net income for such period, provision in the period for a reserve for
capital expenditures in the amount of $200 per unit for the Properties other
than the Windridge Apartments Property and the Mountain View Apartments
Property and $250 per unit for the Windridge Apartments Property and the
Mountain View Apartments Property, (ii) if the vacancy factor, on a portfolio
basis, of the Properties is less than 5%, such amount as will as nearly as
practicable adjust the revenues and operating expenses of the Property
Partnership to what they would have been had the vacancy factor, on a portfolio
basis, of the Property Partnership been 5% and (iii) to the extent not
reflected in the determination of such net income for such period, a management
fee of 5% of the gross rentals of the Property Partnership for such period.
"Other Distributable Proceeds" means the excess of the cash receipts
from a Refinancing or an Other Event (including amounts not required as or
released from reserves created in connection with any Refinancing or Other
Event) over the aggregate of (a) the expenses of such Refinancing (including
fees and prepaid financing expenses in connection with such Refinancing), (b)
the refinanced indebtedness (including principal, prepayment penalties, yield
maintenance charges, and accrued interest) and all other debts and obligations
of the Property Partnership discharged or required to be discharged in
connection with such Refinancing or such Other Event, (c) in connection with
any damage or insurance recoveries or condemnation awards, cash paid or to be
paid in connection with permitted repairs or replacements of the affected
Property, (d) reasonable cash reserves created by the general partner of the
Property Partnership for taxes, debt service, obligations, liabilities and
other expenses required to be paid in connection with such Refinancing or such
Other Event.
"Other Event" means any event (such as partial condemnation of or
damage to a Property) relating to a Property or the Property Partnership's
interest therein and not in the ordinary course of business, other than a
Refinancing or Disposition of such Property.
"Partner Nonrecourse Debt Minimum Gain" means the amount defined in
Regulation Section 1.704-2(i)(2) and determined as provided in Regulation
Section 1.704-2(i)(3).
"Partners" means the General Partner and the Limited Partner.
"Partnership" means the limited partnership governed under and
pursuant to this Agreement, as said partnership may from time to time be
constituted.
"Partnership Minimum Gain" means the amount defined in Regulation
Section 1.704-2(b)(2) and computed as provided in Regulation Section
1.704-2(d).
"Partnership Percentage," when used with respect to a Partner or a
class of Partners, as the case may be, means the percentage that the Adjusted
Capital Contribution of such Partner or the aggregate Adjusted Capital
Contributions of all Partners of such class, as the case may be,
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<PAGE> 15
represents of the aggregate Adjusted Capital Contributions of all Partners at
the time of reference thereto.
"Partnership Tax Year" means the taxable year of the Partnership for
United States Federal income tax purposes as determined under Code Section 706.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof, or other entity.
"Priority Distribution" means (a) with respect to the Limited Partner
as of any particular time (the "Limited Partner's Priority Distribution"), an
amount equal to 8 1/2% per annum, cumulative but not compounded, of the
weighted average daily amount of such Partner's Adjusted Capital Contribution
from the Closing Date through and including such time; and (b) with respect to
the General Partner as of any particular time (the "General Partner's Priority
Distribution"), an amount equal to 8 1/2% per annum, cumulative but not
compounded, of the weighted average daily amount of the General Partner's
Adjusted Capital Contribution from the beginning of the calendar year (and not
from the Closing Date) with respect to which such distribution is determined
through and including such time, which distributions (both the Limited
Partner's Priority Distribution and the General Partner's Priority
Distribution) are, to the extent provided in this Agreement, made monthly in
arrears and computed on the basis of a 360-day year of twelve 30-day months.
"Pro Forma Priority Distribution" means the excess of (a) the amount,
if any, that would have constituted Adjusted Distributable Cash From Operations
for the twelve months ended January 31, 1996 if the Partnership had been in
existence and owned its Property Partnership Interest for the full twelve-month
period over (b) the sum of the amounts that would have constituted the Limited
Partner's Priority Distribution and the General Partner's Priority Distribution
for such twelve month period if the General Partner and the Limited Partner
each had been admitted to the Partnership, and the Limited Partner and the
General Partner had made the Capital Contributions provided for in Sections
4.02(a) and 4.02(b), on or prior to February 1, 1995; provided, however, that,
from and after the Disposition of any Property, the Pro Forma Priority
Distribution shall be recomputed to remove from what would have constituted
Distributable Cash From Operations for the twelve months ended January 31, 1996
the contribution thereto of such Property (as more particularly set forth on
Schedule D hereto) and to recompute what would have constituted the Priority
Distributions of the Partners to reflect the Adjusted Capital Contributions of
the Partners following the distribution of Distributable Disposition Proceeds
in connection with such Disposition. The Pro Forma Priority Distribution in
any calendar year is payable, if at all, only from distributions from the
beginning of such calendar year (rather from the Closing Date) and is not
cumulative from year to year if not paid in any year. The computation of the
Pro Forma Priority Distribution for all Properties as of the Closing Date is
set forth on Schedule D to this Agreement.
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"Profit" means, for each Partnership Tax Year or other period, an
amount equal to the Partnership's items of taxable income and gain for such
year or other period, determined in accordance with Section 703(a) of the Code
(including all items of income and gain required to be stated separately under
Section 703(a)(1) of the Code), with the following adjustments:
(a) Any income of the Partnership that is exempt from
Federal income tax and not otherwise taken into account in computing
Profit or Loss will be added to taxable income or loss;
(b) Gain resulting from any disposition of an asset of
the Partnership or the Property Partnership with respect to which gain
or loss is recognized for Federal income tax purposes will be computed
by reference to the "book" basis of such asset, notwithstanding that
the adjusted tax basis of such property may differ from its "book"
basis;
(c) Any items specially allocated pursuant to Section
5.07 shall not be considered in determining Profit; and
(d) Any increase to Capital Accounts as a result of any
adjustment to the book value of the assets of the Partnership or the
Property Partnership pursuant to Regulation Section
1.704-1(b)(2)(iv)(g) shall constitute an item of Profit.
"Properties" or "Property" means the separate multifamily rental
projects listed on Schedule B to this Agreement, or any of such projects,
including the interests in land, buildings, or other real estate, together with
off-site improvements, on-site improvements, structures, buildings and/or
related parking or other facilities included therein.
"Property Partnership" means Prime MFP Limited Partnership, a limited
partnership organized under the laws of the State of Illinois.
"Property Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership dated as of August 31, 1994 of the Property
Partnership, as supplemented, amended or restated from time to time.
"Property Partnership Interest" means the limited partner interest of
the Partnership in the Property Partnership.
"Redemption" means a redemption of the Limited Partner's Interest, as
provided in Article VIII.
"Refinancing" means any borrowing incurred or made by the Property
Partnership to refinance any Indebtedness.
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<PAGE> 17
"Regulations" means regulations promulgated by the Department of the
Treasury and from time to time in effect pursuant to the Code. References to
specific Regulations herein are as of the date of the execution of this
Agreement and are deemed to include any successor provision thereto.
"Related Party" means the General Partner, the general partner or the
limited partner of the General Partner, and the general partner of the Property
Partnership.
"Reserve Fund" means the several sinking funds, collectively, created
under (a) the separate Letter of Credit Reimbursement Agreements dated as of
June 1, 1994 between the Property Partnership and Bank One, Arizona, NA,
relating to Variable Rate Demand Multifamily Housing Revenue Bonds dated June
1, 1994 for the Bent Oaks Apartments, Privado Park Apartments, Quail Ridge
Apartments, Saguaro Crest Apartments, Shadow Creek Apartments, and Vista
Ventana Apartments Projects, (b) the Letter of Credit Reimbursement Agreement
dated as of April 1, 1995 between the Property Partnership and Bank One,
Arizona, N.A. relating to Variable Rate Demand Multifamily Revenue Refunding
Bonds dated April 1, 1995 for the Windridge Apartments Project and (c) the
Letter of Credit Reimbursement Agreement dated as of August 1, 1995 between the
Property Partnership and Bank One, Arizona, N.A. relating to Variable Rate
Demand Multifamily Revenue Bonds dated August 1, 1995 for the Wellington Place
Apartments Project.
"Reserve Fund Interest" means any amounts distributed to the
Partnership by the Property Partnership attributable to interest earned by the
Property Partnership on amounts held in the Reserve Fund.
"Section 704(c) Property" means in the case of any Property or other
asset of the Partnership in which the Partnership's share of such the adjusted
tax basis (as determined for Federal income tax purposes) of such Property or
other asset differs from such the Capital Value of the Property or any agreed
upon value for any other asset or, if such Property or other asset is revalued
pursuant to Section 5.05(c) of this Agreement, differs from such revalued
amount.
"Securities Act" means the Securities Act of 1933 (or any succeeding
law).
"Share Acquisition" means any transaction or series of related
transactions, other than a Covered Transaction, in which any Person, or any
Persons who together constitute a "group" for purposes of Section 13(d) of the
Exchange Act, acquire 50% or more of the Company Shares.
"Temporary Investments" means (i) United States government and agency
obligations with maturities not longer than one year and one day, (ii)
commercial paper with maturities not longer than six months and one day and
having a rating assigned to such commercial paper by Standard & Poor's
Corporation or Moody's Investors Service, Inc. (or, if neither such
organization shall rate such commercial paper at such time, by any nationally
recognized rating organization in the
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<PAGE> 18
United States of America) equal to one of the two highest ratings assigned by
such organization and (iii) interest-bearing deposits in United States or
Canadian banks with an unrestricted surplus of at least $250,000,000, maturing
within one year.
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<PAGE> 19
ARTICLE II
FORMATION; NAME AND PLACE OF BUSINESS; TERM; ETC.
2.01. Formation. The parties hereto hereby form the Partnership
pursuant to the provisions of the Delaware Act, and agree that the rights,
powers and liabilities of the Partners shall be as provided in the Delaware
Act, except as otherwise provided herein.
2.02. Name. The name of the limited partnership formed hereby is
Jupiter - I, L.P. The Partnership's business may be conducted under the name
of the Partnership or such other name as the General Partner may from time to
time, with the consent of the Limited Partner, determine; provided that any
such other name shall contain the words "Limited Partnership" or the
abbreviation "L.P." and may contain such other additional designation as the
General Partner shall deem appropriate in order to comply with the laws of any
jurisdiction that so requires. The General Partner shall give prompt notice of
any name change to the Limited Partner.
2.03. Purpose. The purpose and character of the business of the
Partnership is to acquire, hold and otherwise deal with the Property
Partnership Interest, to share profits and losses therefrom, to engage in such
activities as are necessary, incidental or ancillary thereto.
2.04. Place of Business. The principal place of business of the
Partnership shall be located at 77 West Wacker Drive, 40th Floor, Chicago,
Illinois, in care of the General Partner. Subject to Section 3.03, the General
Partner may, at any time and from time to time, change the location of the
Partnership's principal place of business, and may establish such additional
place or places of business of the Partnership as it may from time to time
determine; provided that such change of place of business, or such
establishment of an additional place or places of business shall be solely at
the expense of the Partnership and/or the General Partner. Written notice of
such change shall be given to the Limited Partner at least one week prior to
any such change.
2.05. Term. The Partnership shall continue until the seventh
anniversary of the Closing Date unless extended by the General Partner and the
Limited Partner, as herein provided.
2.06. Registered Agent and Registered Office. The Partnership shall
maintain a registered office in the State of Delaware. The name and address of
the registered agent for service of process on the Partnership in the State of
Delaware, and the address of the registered office of the Partnership in the
State of Delaware, is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The General
Partner shall give prompt notice to the Limited Partner of any change in the
registered office of the Partnership.
2.07. Application of the Delaware Act. The Partnership is a limited
partnership subject to the provisions of the Delaware Act and the terms and
conditions set forth in this Agreement.
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<PAGE> 20
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 Delaware Act.
2.08. Partnership only for Purposes Specified. The Partnership
shall be a partnership only for, and this Agreement shall not be deemed to
create a partnership among the Partners for or with respect to any activities
other than those within, the purposes specified in this Agreement. Except as
expressly provided in this Agreement, no Partner shall have any authority to
act for, bind, commit or assume any obligation or responsibility on behalf of
the Partnership, its properties, or any other Partner. No Partner, in its
capacity as a partner under this Agreement, shall be liable or responsible for
any indebtedness or obligation of another Partner, nor shall the Partnership be
responsible or liable for any indebtedness or obligation of any Partner
incurred either before or after the execution and delivery of this Agreement by
such Partner, except as to those responsibilities, liabilities, indebtedness or
other obligations incurred pursuant to and in conformity with and as limited by
the terms of this Agreement and the Delaware Act.
2.09. Co-Partnership for Joint Business. The Partners, through the
Partnership, shall hold the Assets and carry on business and derive the gains
therefrom, as provided in this Agreement.
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ARTICLE III
MANAGEMENT
3.01. Management and Control of the Partnership.
(a) Subject to the consent of the Limited Partner where
expressly required by this Agreement, the General Partner, within the authority
granted to it under and in accordance with the provisions of this Agreement,
shall have the full and exclusive right to manage and control the business and
affairs of the Partnership and to make all decisions regarding the business and
affairs of the Partnership and shall have all of the rights, powers and
obligations of a general partner of a limited partnership under the Delaware
Act.
(b) No Limited Partner shall participate in the
management of or have any control over the Partnership's business nor shall any
Limited Partner have the power to represent, act for, sign for or bind the
General Partner or the Partnership; provided, however, that the provisions of
this Section shall not affect the right of the Limited Partner to grant or
withhold its consent where required by this Agreement or be in derogation of
the voting rights of the Limited Partner under the Delaware Act.
3.02. Authority of the General Partner.
(a) Except to the extent otherwise provided herein, and
subject to the approval of the Limited Partner to the extent required under
this Agreement, the General Partner shall, in addition to any other rights and
powers which the General Partner may possess under this Agreement and the
Delaware Act, have all specific rights and powers required or appropriate to
its management of the Partnership business which, by way of illustration but
not by way of limitation, may include the following rights and powers:
(i) to acquire, on behalf of the Partnership, the
Property Partnership Interest on the Closing Date;
(ii) to execute any and all agreements, contracts,
documents, certifications and instruments necessary or convenient in
furtherance of any or all of the purposes of the Partnership;
(iii) to file applications, communicate and
otherwise deal with any and all governmental agencies having jurisdiction over
or in any way affecting the Partnership or its Assets or operations;
(iv) to protect and preserve the title and interest
of the Partnership with respect to the Assets at any time owned or acquired by
the Partnership;
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(v) to collect all amounts due to the Partnership,
and otherwise to enforce all rights of the Partnership;
(vi) to prosecute, defend, arbitrate, compromise or
settle any claims asserted by or against the Partnership, or affecting the
Partnership or its Assets or operations, on such terms as the General Partner
deems reasonable and proper;
(vii) to retain legal counsel, accountants and such
other persons as the General Partner shall deem necessary or appropriate in
connection with the Partnership's business, and to pay therefor such reasonable
remuneration as the General Partner deems reasonable and proper;
(viii) to establish and maintain one or more bank
accounts for the Partnership in such bank or banks as the General Partner may,
from time to time, designate as depositaries of the funds of the Partnership;
(ix) to the extent that funds of the Partnership are
available, to pay all permitted debts and obligations of the Partnership;
(x) to the extent that funds of the Partnership are
available, to make all distributions periodically to the Partners in accordance
with the provisions of this Agreement;
(xi) to perform all duties imposed on a general
partner by Section 6221 through 6232 of the Code as "tax matters partner" of
the Partnership subject to the provisions of Section 6.05 hereof; and
(xii) to perform all normal business functions, and
otherwise operate and manage the business and affairs of the Partnership, in
accordance with and as limited by this Agreement.
(b) Any Person dealing with the Partnership or the
General Partner may rely upon a certificate signed by the General Partner,
thereunto duly authorized, as to:
(i) the identity of the General Partner and the
Limited Partner;
(ii) the existence or non-existence of any fact or
facts which constitute conditions precedent to acts by the General Partner or
in any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and
deliver any instruments or document of the Partnership; or
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(iv) any act or failure to act by the Partnership or
as to any other matter whatsoever involving the Partnership or any Partner.
3.03. Restrictions on the Authority of the General Partner. Without
the consent of the Limited Partner (in its sole and absolute discretion), the
General Partner, in its capacity as such, shall not have the authority to:
(a) do any act in contravention of this Agreement;
(b) do any act which would make it impossible to carry on
the ordinary business of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess any Assets, or assign the Partnership's
rights in specific Assets, for other than a Partnership purpose;
(e) admit a Person as a General Partner, except as
provided in Article VII;
(f) admit a Person as a Limited Partner, except as
provided in Article VII;
(g) knowingly perform any act that would subject the
Limited Partner to liability as a general partner in any jurisdiction;
(h) elect to dissolve the Partnership, cause the
Partnership to dissolve, cause or permit the Partnership to merge or
consolidate with or into any other Person, or cause or permit the Partnership
to change its legal form;
(i) consent to the dissolution of the Property
Partnership or the merger or consolidation of the Property Partnership with or
into any other Person or a change of the legal form of the Property
Partnership;
(j) amend, or consent to the waiver of any of the
Partnership's rights under, or grant any consent or make any election under,
the Property Partnership Agreement or the Letter Agreement;
(k) acquire, or consent to the acquisition by the
Property Partnership of, any real property, or improvements thereto or direct
or indirect interests therein (including mortgages and partnership interests),
other than the Properties;
(l) prior to the second anniversary of the Closing Date,
sell, transfer, assign, abandon or otherwise dispose of the Property
Partnership Interest, or cause the Property
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Partnership voluntarily to sell, transfer, assign, abandon or otherwise dispose
of any of the Properties, or consent to any such action by the Property
Partnership;
(m) after the second anniversary of the Closing Date,
sell, transfer, assign, abandon, or otherwise dispose of the Property
Partnership Interest, or cause the Property Partnership voluntarily to sell,
transfer, assign, abandon or otherwise dispose of any of the Properties, or
consent to any such action by the Property Partnership, unless such transaction
is an arm's-length transaction with an unrelated third-party and, in connection
with any sale of a Property,
(i) the Distributable Disposition Proceeds
distributable to the Limited Partner from such Disposition pursuant to Section
5.03(b)(i) are sufficient, together with an Aliquot Share of all prior
distributions to the Limited Partner pursuant to Section 5.01 and Section 5.02,
to return an Aliquot Share of the Limited Partner's Capital Contribution,
together with an Internal Rate of Return thereon, from the Closing Date through
the date of distribution, of 14%, and
(ii) the Limited Partner's Share of the Net Equity
Value of the Properties remaining after the Disposition, as a whole, will be
equal to or greater than the Limited Partner's Adjusted Capital Contribution
following the distribution of Distributable Disposition Proceeds from such
Disposition;
(n) prepay, defease (other than in accordance with the
terms and conditions provided in the existing debt documents and the Reserve
Fund), or refinance, or consent to the Property Partnership prepaying,
defeasing or refinancing, any Indebtedness; provided, however, that the Limited
Partner shall not unreasonably withhold its consent to any Refinancing of such
Indebtedness if
(i) the General Partner in good faith reasonably
determines, and so certifies in writing, that such Refinancing is in the best
interest of the Partnership and the Property Partnership, and
(ii) the principal amount of the Refinancing is
not less than the sum of the principal amount of the Indebtedness being
refinanced plus the related transaction costs;
(o) except as expressly provided in the foregoing
subsection (n) or as contemplated by Section 3.09(c) hereof or subsection 1.o
of the Letter Agreement, cause the Partnership to incur or become liable with
respect to, or consent to the Property Partnership incurring or becoming liable
with respect to, any indebtedness, secured or unsecured, or subject any rights,
properties or assets of the Partnership or Property Partnership to any
indebtedness;
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(p) call for any contribution to the capital of the
Partnership or, except as contemplated by Section 3.09(c), any loans from the
Partners;
(q) make any change in the purpose and character of the
business of the Partnership;
(r) relocate the Partnership's principal place of
business, or establish an additional place of business, outside the United
States;
(s) cause the Partnership to enter into any contract for
the management of Partnership properties, real or personal, tangible or
intangible;
(t) except as contemplated by Sections 3.09(a) and (c),
cause the Partnership or the Property Partnership to enter into a contract with
any Affiliate of the General Partner for the provision of goods, services or
credit; provided, however, that the consent of the Limited Partner shall not be
required (A) with respect to any contract or arrangement in effect on the date
of this Agreement or any renewal or continuation of such contract or
arrangement on substantially similar terms or (B) if
(i) the General Partner in good faith reasonably
determines, and so certifies in writing, that such contract is in the best
interest of the Partnership;
(ii) the terms of such contract or arrangement are
not less favorable to the Partnership than those that would be entered into in
an arm's-length transaction with an unaffiliated party; and
(iii) the aggregate consideration payable under
such contract, or under any related series of contracts, does not exceed
$25,000;
(u) consent to the Property Partnership entering into any
amendment, modification or termination of the letter of credit agreements
backing the long-term debt of the Property Partnership or the "swap" contracts
fixing the interest rate payable by the Property Partnership with respect to
such long-term debt, or any modification, replacement or release of any
documentation or collateral for such long term debt if, in any case, such
amendment, modification, termination, replacement or release would have a
material adverse effect on the Properties or the Property Partnership;
(v) except for a loan by the Partnership to the Property
Partnership within the contemplation of Section 3.09 of this Agreement and
subsection 1.o of the Letter Agreement, cause or permit the Partnership to make
or provide or consent to the Property Partnership making or providing, any loan
or advance to, or any guaranty on behalf of, any other Person; or
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(w) cause the Partnership to make an assignment for the
benefit of creditors, appoint or consent to the appointment of a custodian of
all or substantially all of the assets of the Partnership, commence a voluntary
case under any Bankruptcy Law or consent to an involuntary case filed against
the Partnership under any Bankruptcy Law.
3.04. Duties and Obligations of the General Partner.
(a) The General Partner shall take all action that may be
necessary or appropriate for the continuation of the Partnership's valid
existence as a limited partnership under the Delaware Act (and the laws of each
other jurisdiction in which such existence as a limited partnership is
necessary to protect the limited liability of the Limited Partner or to enable
the Partnership to conduct the business in which it is engaged).
(b) The General Partner shall at all times conduct its
affairs and the affairs of all of its Affiliates and of the Partnership in such
a manner that (i) neither any Partner nor any Affiliate of any Partner will
have any personal liability for indebtedness of the Partnership and (ii)
neither the Partnership nor the Limited Partner nor, except for certain
Affiliates of the General Partner being guarantors of the long-term debt of the
Property Partnership, any Affiliate of any Partner will have any personal
liability with respect to any indebtedness of the Property Partnership.
(c) The General Partner shall prepare or cause to be
prepared and shall file on or before the due date (or any extension thereof)
any Federal, state or local tax returns required to be filed by the
Partnership.
(d) The General Partner shall use all reasonable efforts
to cause the Partnership to be formed, reformed, qualified to do business, or
registered under any applicable assumed or fictitious name statutes or similar
law in any state in which such formation, reformation, qualification or
registration is necessary in order to protect the limited liability of the
Limited Partner or to permit the Partnership lawfully to own its Assets or to
transact the business in which it is engaged.
(e) To the extent provided under Delaware law with
respect to general partners of limited partnerships generally, the General
Partner shall be under a fiduciary duty and obligation to conduct the affairs
of the Partnership in the best interest of the Partnership, including the
safekeeping and use of all Partnership funds and other Assets (whether or not
in the immediate possession or control of the General Partner) for the benefit
of the Partnership. The General Partner shall not commingle any funds or other
Assets of the Partnership with the funds or other assets of the General Partner
or its Affiliates; provided, however, that (i) the General Partner shall not be
under any fiduciary or other duty, hereunder or otherwise, when acting "in its
sole discretion" or "in its sole and absolute discretion" and (ii) the General
Partner shall not be under any fiduciary or other duty, hereunder or otherwise,
in making any
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determination pursuant to Article VIII whether the Partnership will distribute
cash or Company Shares or any combination thereof in connection with the
liquidation of the Partnership or the Redemption of the Limited Partner's
Interest.
3.05. Title to Partnership Property. The Partnership shall hold
title to the Assets in its own name. The beneficial interest in the Assets
shall be deemed to be held for and by the General Partner and the Limited
Partner in proportion to their Partnership Percentages.
3.06. Liability of the Partners. (a) The liability of the Limited
Partner shall be limited in accordance with the Delaware Act. If any claim
shall be asserted against the Limited Partner, solely in its capacity as such,
on account of or with respect to any actions or omissions of, or claims
against, or debts, liabilities, contracts or other obligations of, the
Partnership or the General Partner or the Property Partnership, the Partnership
and/or the General Partner shall assume the defense of the Limited Partner,
with counsel designated by the Partnership or the General Partner and at the
cost and expense of the Partnership. If neither the Partnership nor the
General Partner so assume the defense of such claim, the Limited Partner shall
be entitled to defend the claim with counsel of its choosing and shall be
reimbursed and indemnified by the Partnership for the out-of-pocket expenses
(including the fees and expenses of counsel) of such defense.
(b) No officer, director, partner, employee, stockholder
or agent of the Limited Partner shall have any personal liability under this
Agreement or with respect to claims against, or debts, liabilities, contracts
or other obligations of, the Partnership or the Property Partnership.
(c) If the Limited Partner is required under applicable
law to return to the Partnership or pay, for the benefit of creditors of the
Partnership, amounts previously distributed to such Limited Partner, and the
General Partner, as general partner of the Partnership, is required to pay such
amounts for the benefit of creditors of the Partnership, the General Partner
shall be entitled to recover such amounts from each Limited Partner who fails
to return or pay any such amount.
3.07. Liability to the Partners. None of the General Partner or any
Affiliate of the General Partner, or any of their respective officers,
directors, partners, employees, stockholders, or agents, shall be liable to any
Partner or the Partnership for any action taken or omitted to be taken by it or
him or for any action taken or omitted to be taken by any other Partner or
other person with respect to the Partnership, except in the case of its or his
own bad faith, gross negligence, willful misconduct, fraud or reckless
disregard for its or his duties to the Partnership.
3.08. Indemnification. To the fullest extent permitted by law, the
Partnership shall indemnify the General Partner and each Affiliate of the
General Partner, and each of their respective officers, directors, partners,
employees, stockholders, or agents (each an "Indemnified Person"), against all
losses, claims, damages or liabilities (including legal or other expenses
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reasonably incurred in investigating or defending against any such loss, claim,
damage or liability), joint or several, to which an Indemnified Person may
become subject by reason of any acts or omissions, or alleged acts or
omissions, arising out of any such person's activities as the General Partner,
an Affiliate of the General Partner or one of their respective officers,
directors, partners, employees, stockholders, or agents unless such loss,
claim, damage or liability results from or arises out of such Indemnified
Person's bad faith, gross negligence, willful misconduct, fraud or reckless
disregard for his or its duties to the Partnership. Any indemnification rights
provided for in this Section 3.08 shall be retained by any resigned or
withdrawn General Partner, Affiliate of the General Partner or any of their
respective officers, directors, partners, employees, stockholders, or agents.
The satisfaction of any indemnification hereunder shall be from and limited to
Partnership assets (including the total Capital Contribution of the Partners)
and any Person entitled to indemnification from the Partnership hereunder shall
first seek recovery under any insurance policies or other indemnification,
contribution or similar rights or agreements by which such Person is covered
and, if other than the General Partner, shall obtain the written consent of the
General Partner prior to entering into any compromise or settlement which would
result in an obligation of the Partnership to indemnify such Person. The
indemnification rights provided for in this Section 3.08 shall survive the
termination of the Partnership or this Agreement.
3.09. Expenses.
(a) The Partnership shall be responsible for and shall
pay all direct expenses of the Partnership's ordinary operations, including,
but not limited to, any taxes, fees or other governmental charges levied
against the Partnership or on its income or assets in connection with its
business operations, the reasonable fees and expenses of outside counsel and
accountants, and all extraordinary expenses and all costs of winding up and
liquidating the Partnership. The General Partner shall be paid an annual
administrative fee by the Partnership of $35,000 as compensation therefor, in
equal quarterly installments, and the General Partner shall bear its overhead
expenses in connection with the administration of the Partnership.
(b) The General Partner shall create reasonable reserves
from funds distributed to the Partnership by the Property Partnership to
provide for the payment of all operating expenses of the Partnership, as
contemplated by Section 3.09(a), distributions to the Partnership pursuant to
Section 5.01(a), and the repayment of advances to the Partnership, as
contemplated by Section 3.09(c).
(c) If the Partnership requires funds not available from
reserves therefor to pay operating expenses of the Partnership, as contemplated
by Section 3.09(a), or to advance funds to the Property Partnership to pay
operating expenses of the Property Partnership, the General Partner shall,
except in case of emergency, provide written notice to the Limited Partner of
the amount of funds required, the proposed application thereof and the time by
which the funds must be provided to the Partnership. The General Partner shall
use commercially reasonable efforts
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to provide the Limited Partner as much notice as practicable of any such need
for funds and, unless the circumstances do not permit, not less than 15 days'
notice. The Limited Partner shall have the right (in its sole and absolute
discretion), but not any obligation, to advance any or all of the funds being
sought by the General Partner. If the Limited Partner shall not have advanced
the full amount of such funds by the date set forth in such notice, then (and
only then) the General Partner shall have the right (in its sole and absolute
discretion), but not any obligation, to advance any or all of the funds not
advanced by the Limited Partners. Any advances by the Limited Partner or the
General Partner shall bear interest until paid in full at the lower of (i) the
actual cost of funds to the Partner making such advance and (ii) the base
lending rate from time to time announced by Citibank, N.A. in New York City
plus 1%. If the Limited Partner and the General Partner do not advance all of
the funds required by the Partnership by the date set forth in such notice, the
General Partner shall be authorized to borrow the funds not advanced by the
Partners from any commercial lender or financial institution that is not an
Affiliate of the General Partner on such terms as the General Partner, in the
exercise of its business judgment, deems reasonable. Any amounts advanced by
third-party lenders shall be repaid in accordance with tenor of the loan. Any
amounts advanced by the Partners shall be repaid, first, in the order in which
made (that is, the first advances made are the first advances repaid) and,
second, pro rata, in accordance with the principal amounts advanced.
Notwithstanding the foregoing provisions of this Section 3.09(c), the aggregate
amount of indebtedness outstanding under this Section 3.09(c) (whether advances
made by the Partners or third-party lenders) and, without duplication, by the
Property Partnership to pay operating expenses of the Property Partnership
shall not exceed $2,000,000 at any one time.
3.10. Permitted Temporary Investments. The General Partner shall
invest Partnership funds and reserves in Temporary Investments pending
distribution to Partners pursuant to Article V or Article VIII.
3.11. Delegation of Authority. The General Partner may, subject to
the provisions of Section 3.03(t), appoint, employ, contract or otherwise deal
with any Person for the transaction of the business of the Partnership, which
Person may, under the supervision of the General Partner, (a) perform such acts
or services for the Partnership as the General Partner may reasonably approve
and (b) discharge such duties and obligations of the General Partner may
determine; provided, however, that the General Partner shall remain liable
with respect to any duties or obligations of the General Partner so discharged
by any such Person.
3.12. Business and Assets of General Partner. The General Partner
has, and at all times during the term of the Partnership shall have, no assets
other than its Interest in the Partnership. The sole business and purpose of
the General Partner is, and at all times during the term of the Partnership
shall be, to act as the General Partner of the Partnership in accordance with
the terms and conditions of this Agreement and the Delaware Act and to own its
Interest in the Partnership.
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ARTICLE IV
ADMISSION TO PARTNERSHIP; CAPITAL CONTRIBUTIONS;
CONDITIONS PRECEDENT
4.01. Admission of Limited Partner. The General Partner and
Investor, by execution and delivery of this Agreement and the Certificate of
Limited Partnership, are forming the Partnership and each is hereby admitted to
the Partnership as a Partner and becomes a party to, and subject to, this
Agreement.
4.02. Capital Contributions.
(a) Effective upon the formation of the Partnership and
Investor becoming the Limited Partner, the Limited Partner shall contribute to
the capital of the Partnership, in cash, the amount set forth on Schedule A to
this Agreement. The Capital Contribution of the Limited Partner shall be the
amount so set forth on such Schedule A.
(b) Effective upon the formation of the Partnership and
the General Partner becoming a Partner, (i) the General Partner shall
contribute to Partnership the entire limited partnership interest in the
Property Partnership, and (ii) the funds contributed to the Partnership by the
Limited Partner pursuant to Section 4.02(a) shall be distributed to the General
Partner as a return of capital. The agreed value of the Property Partnership
Interest, the amount distributed to the General Partner and the agreed value of
the General Partner's net contribution to the Partnership shall be set forth on
Schedule A to this Agreement and the Capital Contribution of the General
Partner shall be the net amount so set forth on such Schedule A.
(c) If the General Partner shall, with the prior written
consent of the Limited Partner (which the Limited Partner may withhold in its
sole and absolute discretion), solicit any additional contribution to the
capital of the Partnership other than pursuant to Section 4.02(d), such
solicitation shall (i) be open to the Limited Partner on the same terms and
subject to the same conditions that are available to any other person to whom
such solicitation is directed; (ii) be on terms that permit the Limited Partner
to maintain after the making of the solicited capital contribution the same
Partnership Percentage that the Limited Partner held prior to the commencement
of the solicitation; and (iii) not result in the creation of interests in the
Partnership that could be considered publicly traded within the meaning of
Section 7704 of the Code. The Partnership shall not accept any capital from
any Person not already a Partner except pursuant to an amendment to this
Agreement executed by the General Partner, the Limited Partner and such Person.
(d) Upon the dissolution and liquidation of the
Partnership or the Redemption of the Limited Partner's Interest, the General
Partner shall contribute or cause to be contributed to the capital of the
Partnership such amount of cash and/or such number of Company Shares as
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are necessary, together with cash held by the Partnership (whether from prior
operations or from Dispositions, Refinancings, Other Events or otherwise)
and/or Company Shares owned by the Partnership and available for the purpose,
to permit the Partnership to make the distribution to the Limited Partner
provided in Section 8.02(a)(i) (subject to the provisions of Section 8.02(b)),
Section 8.03(b) and (c) (subject to the provisions of Section 8.03(e)), or
Section 8.04(a), as the case may be.
4.03. Conditions Precedent. The formation of the Partnership and
admission of the Partners pursuant to Section 4.01 and the capital
contributions pursuant to Sections 4.02(a) and (b) are conditioned upon and
subject to each of the events set forth below having occurred on or prior to
the Closing Date:
(a) The Company, Investor, the Partnership and the
General Partner shall have entered into the Company Agreement;
(b) The general partner and the limited partner of the
Property Partnership shall have entered into the Amendment;
(c) The general partner of the Property Partnership shall
have entered into its Letter Agreement; and
(d) Investor shall have received such certificates, legal
opinions, tax opinions and other documents as it shall reasonably request (in
light of the documentation of similar investments); provided, however, that the
making by the Limited Partner of its Capital Contribution pursuant to Section
4.02(a) shall, except as the Partners shall expressly agree at the time, be
deemed to constitute acknowledgement by the Limited Partner that the conditions
provided in this Section 4.03(d) have been satisfied or waived.
4.04. Withdrawal; Return of Capital. Except as expressly provided
in this Agreement, no Partner shall have any right to withdraw from the
Partnership or to demand or receive a return of its Capital Contribution. The
General Partner shall not have any personal liability with respect to the
return of any Partner's Capital Contribution.
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ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS; CAPITAL ACCOUNTS
5.01. Monthly Distributions.
(a) Adjusted Distributable Cash From Operations and Other
Distributable Proceeds for each calendar month of each calendar year,
commencing with the calendar month during which the Closing Date occurs, and,
to the extent available, Adjusted Distributable Cash From Operations and Other
Distributable Proceeds from prior periods then being held pending application
pursuant to Section 5.01(b) shall, within ten days following the close of such
month, be distributed to the Partners as follows:
(i) First, to the Limited Partner until, together
with the aggregate of all prior distributions to the Limited Partner pursuant
to this Section 5.01(a)(i), Section 5.02(a)(i), Section 5.02(a)(iv) and the
proviso to Section 5.02(b), the Limited Partner shall have received the Limited
Partner's Priority Distribution; and
(ii) Second, to the General Partner until,
together with the aggregate of all prior distributions to the General Partner
with respect to such calendar year pursuant to this Section 5.01(a)(ii),
Section 5.02(a)(ii), Section 5.02(a)(iii), Section 5.02(a)(iv) and Section
5.02(b), the General Partner shall have received the General Partner's Priority
Distribution.
(b) Adjusted Distributable Cash From Operations and Other
Distributable Proceeds not distributed in any month pursuant to Section 5.01(a)
shall be invested by the General Partner in Temporary Investments pursuant to
Section 3.10 pending application to the payment of Partnership expenses or
distribution to the Partners pursuant to Section 5.01(a) or Section 5.02.
(c) The General Partner shall determine in good faith the
necessity and reasonableness of any reserves, and the amount of Adjusted
Distributable Cash From Operations and Other Distributable Proceeds available.
(d) Notwithstanding the foregoing provisions of this
Section 5.01, Adjusted Distributable Cash From Operations and Other
Distributable Proceeds shall be distributed to the Limited Partner only to the
extent that, after taking into account all the allocations expected under
Section 5.04 for the Partnership Tax Year, such distribution would not cause
the Limited Partner to have a negative Capital Account balance in excess of the
Limited Partner's share of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain; and the Limited Partner shall return to the Partnership any
distribution erroneously paid to the Limited Partner in excess of this limit as
soon as practical (and in no event more than 30 days) after being notified by
the Partnership of such erroneous distribution.
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5.02. Quarterly Distributions.
(a) Adjusted Distributable Cash From Operations and Other
Distributable Proceeds for each fiscal quarter of each fiscal year of the
Partnership, commencing with the fiscal quarter during which the Closing Date
occurs, and, to the extent available, Adjusted Distributable Cash From
Operations and Other Distributable Proceeds from prior periods held pending
application pursuant to Section 5.01(b), shall, within thirty days following
the close of such fiscal quarter of the Partnership, be distributed to the
Partners as follows:
(i) First, to the Limited Partner until, together
with the aggregate of all prior distributions to the Limited Partner pursuant
to Section 5.01(a)(i), this Section 5.02(a)(i), Section 5.02(a)(iv) and the
proviso to Section 5.02(b), the Limited Partner shall have received the Limited
Partner's Priority Distribution;
(ii) Second, to the General Partner until,
together with the aggregate of all prior distributions to the General Partner
with respect to such fiscal year pursuant to Section 5.01(a)(ii), this Section
5.02(a)(ii), Section 5.02(a)(iii), Section 5.02(a)(iv) and Section 5.02(b), the
General Partner shall have received the General Partner's Priority
Distribution;
(iii) Third, to the General Partner until, together
will the aggregate of all prior distributions to the General Partner with
respect to such fiscal year pursuant to this Section 5.02(a)(iii), Section
5.02(a)(iv) and Section 5.02(b), the General Partner shall have received its
Pro Forma Priority Distribution for such year; and
(iv) Fourth, an amount equal to 30% of all
Distributable Cash From Operations and Other Distributable Proceeds remaining
after the foregoing distributions to the Limited Partner, and the balance of
the Adjusted Distributable Cash From Operations and Other Distributable
Proceeds to the General Partner.
(b) Reserve Fund Interest shall, within twenty days
following the close of each month, be distributed to the General Partner;
provided, however, that Reserve Fund Interest shall be paid first to the
Limited Partner if and so long as any portion of the Limited Partner's Priority
Distribution is then accrued and unpaid as a result of the Adjusted
Distributable Cash From Operations being less than Distributable Cash From
Operations.
(c) The General Partner shall determine in good faith the
necessity and reasonableness of any reserves, and the amount of Distributable
Cash From Operations, Adjusted Distributable Cash From Operations and Other
Distributable Proceeds, and the amount of the Limited Partner's Priority
Distribution accrued and unpaid as a result of Adjusted Distributable Cash From
Operations being less than Distributable Cash From Operations.
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(d) Notwithstanding the foregoing provisions of this
Section 5.02, Adjusted Distributable Cash From Operations and Other
Distributable Proceeds shall be distributed to the Limited Partner only to the
extent that, after taking into account all the allocations expected under
Section 5.04 for the Partnership Tax Year, such distribution would not cause
the Limited Partner to have a negative Capital Account balance in excess of the
Limited Partner's share of Partnership Minimum Gain and Partner Nonrecourse
Debt Minimum Gain; and the Limited Partner shall return to the Partnership any
distribution erroneously paid to such partner in excess of this limit as soon
as practical (and in no event more than 30 days) after being notified by the
Partnership of such erroneous distribution.
5.03. Distributions of Disposition Proceeds.
(a) As promptly as practicable after the realization of
Distributable Disposition Proceeds from any Disposition (other than any
Disposition in connection with a Redemption), the prior distributions pursuant
to Sections 5.01 and 5.02 shall, solely for purposes of determining the amounts
to be distributed to the Partners pursuant to Section 5.03(b) in connection
with such Disposition and the amounts thereafter to be distributed to the
Partners pursuant to Sections 5.01(a), 5.02(a)(i), (ii) and (iii), 8.02(a),
8.03(c) and(d), and 8.04(a) and the allocations thereafter of Profit and Loss
pursuant to Sections 5.04(a), (b) and (c), be recomputed as follows:
(i) The Aliquot Share of each prior distribution
to the Partners pursuant to Sections 5.01(a)(i) and (ii), Sections 5.02(a)(i),
(ii), (iii) and (iv) and Section 5.02(b) and the proviso thereto, determined as
provided in the definition thereof, shall be applied in determining the
distributions of Distributable Disposition Proceeds pursuant to Section
5.03(b); and
(ii) The portion of each prior distribution to the
Partners pursuant to Sections 5.01(a)(i) and (ii), Sections 5.02(a)(i), (ii),
(iii) and (iv) and Section 5.02(b) and the proviso thereto that does not
constitute the Aliquot Share thereof, determined pursuant to Section
5.03(a)(i), shall constitute the distributions to the Partners pursuant to such
Sections for all purposes of the determination thereafter of the amount of
"prior distributions" to the Partners under this Agreement.
(b) The Distributable Disposition Proceeds from any
Disposition (other than any Disposition in connection with a Redemption) shall,
as promptly as practicable after the applications provided for in the
determination thereof, be distributed to the Partners as follows:
(i) First, to the Limited Partner until, together
with the Aliquot Share of all prior distributions to the Limited Partner
pursuant to Section 5.01 and Section 5.02, the Limited Partner shall have
received the return of the Aliquot Share of its Capital Contribution, together
with an Internal Rate of Return thereon, from the Closing Date through the date
of distribution, of 14%; and
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(ii) Second, all remaining such Distributable
Disposition Proceeds to the General Partner.
(c) Notwithstanding the foregoing provisions of this
Section 5.03, Distributable Disposition Proceeds shall be distributed to the
Limited Partner pursuant to Section 5.03(b)(i) only to the extent that, after
taking into account all the allocations provided for in Section 5.04, such
distribution would not cause the Limited Partner to have a negative Capital
Account balance in excess of the Limited Partner's share of Partnership Minimum
Gain and Partner Nonrecourse Debt Minimum Gain; and the Limited Partner shall
return to the Partnership any distribution erroneously paid to such partner in
excess of this limit as soon as practical (and in no event more than 30 days)
after being notified by the Partnership of such erroneous distribution.
(d) The General Partner shall determine in good faith the
necessity and reasonableness of any reserves, and the amount of Distributable
Disposition Proceeds.
5.04. Allocation of Profit and Loss.
(a) Profit and Loss shall be determined with respect to
each fiscal year of the Partnership as of the end of such year and shall be
allocated to the Partners as herein provided within 60 days after the end of
such year.
(b) All Profit and Loss, other than any arising from a
Disposition, shall be allocated as follows:
(i) All Depreciation of the Properties for such
year shall be allocated to the Limited Partner and to the General Partner in
proportion to their respective Partnership Percentages; and
(ii) All other Profit and Loss (calculated
excluding Depreciation allocated pursuant to Section 5.04(b)(i)), other than
any arising from a Disposition, shall be allocated to the Limited Partner and
to the General Partner in proportion to the respective aggregate amounts of
Adjusted Distributable Cash From Operations, Other Distributable Proceeds and
Reserve Fund Interest distributed to them for such year pursuant to Sections
5.01 and 5.02.
(c) All Profit or Loss from a Disposition, and all gain
or loss from the revaluation of Partnership properties pursuant to Section
5.05(c), shall be allocated as follows:
(i) First, to the Limited Partner to such extent
as shall be necessary to cause the Limited Partner's Capital Account to equal
the amount that would be distributable to the Limited Partner upon the complete
liquidation of the Partnership at the time of determination without giving
effect to the application of Section 8.02(b); and
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(ii) Second, all remaining Profit or Loss, and all
remaining gain or loss from the revaluation of Partnership properties, as the
case may be, to the General Partner.
(d) Notwithstanding the foregoing provisions of this
Section 5.04, to the extent not otherwise allocable to the General Partner in
accordance with the applicable provisions of this Section 5.04 there shall be
allocated to the General Partner (in its capacity as such) not less than 1% of
all Profit and Loss (and of each material item of Partnership income, gain,
loss, deduction or credit).
(e) Notwithstanding the foregoing provisions of this
Section 5.04, (i) no item of loss or deduction shall be allocated to the
Limited Partner if such allocation would result in the limited Partner having a
negative Capital Account balance in excess of such Limited Partner's share of
Partnership Minimum Gain (within the meaning of Regulation Section 1.704-2(g))
and Partner Nonrecourse Debt Minimum Gain (within the meaning of Regulation
Section 1.704-2(i)(5)) and (ii) if any Partner receives any adjustments,
allocations or distributions described in clause (4), (5) or (6) of Regulation
Section 1.704-1(b)(2)(ii)(d), items of income and gain (consisting of a pro
rata portion of each item of Partnership income, including gross income and
gain for the fiscal year) shall be specially allocated to such Partner in an
amount and manner sufficient to eliminate as quickly as possible any deficit in
such Partner's Capital Account (taking into account the penultimate sentence of
Regulation Section 1.704-2(g)(1) and the penultimate sentence of Regulation
Section 1.704-2(i)(5)) created by such adjustments, allocations or
distributions. To the extent that allocations are required to be made in order
to comply with the requirements of Regulation Section 1.704-l(b) (including the
allocation described in the preceding sentence), the General Partner shall (to
the extent the General Partner determines is not inconsistent with such
Regulation) specially allocate subsequently realized items of income, gain,
loss and deduction among the Partners to the extent necessary to fully offset
such required allocations.
(f) If there is a net decrease in Partnership Minimum
Gain or Partner Nonrecourse Debt Minimum Gain during the fiscal year , there
shall be allocated to each Partner, before any other allocations of any items
of Partnership income, gain, loss or deduction for such fiscal year, items of
Partnership income and gain for such year (and, if necessary, subsequent years)
equal to such Partner's share of the net decrease in Partnership Minimum Gain
(within the meaning of Regulation Section 1.704-2(g)) and such Partner's share
of Partner Nonrecourse Debt Minimum Gain (within the meaning of Regulation
Section 1.704-2(i)(5)). "Excess nonrecourse liabilities" (within the meaning
of Regulation Section 1.752-3) shall be allocated in the manner in which it is
reasonably expected that the deductions attributable to such nonrecourse
liabilities will be allocated.
(g) All Profit and Loss shall be allocated to the Persons
shown on the records of the Partnership to have been Partners as of the last
day of the Partnership Tax Year for which such allocation is made, except that
in the event of the transfer of a Partner's Interest and the
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admission of a substituted Partner, or the Redemption of a Partner's Interest,
during such Partnership Tax Year, the Profit or Loss allocable to the
transferred or redeemed Interest shall be allocated between the transferor and
the transferee thereof (or between the Partner whose Interest has been redeemed
and the remaining Partners) by taking into account their varying interests
during the Partnership Tax Year in accordance with Section 706(d) of the Code,
using the interim closing of the books method or such other method as shall be
determined by the General Partner.
(h) Notwithstanding the allocations set forth in Sections
5.04(b) and (c), the Limited Partner shall be allocated Profit to the extent
available to prevent a distribution from being reduced by the limitation set
forth in by Sections 5.01(d), 5.02(d), 5.03(c), and 8.03(e).
5.05. Capital Accounts.
(a) The Partnership shall maintain for each Partner in
conformity with Sections 1.704-1(b)(2)(iv) and 1.704-2 of the Regulations a
capital account (referred to herein as such Partner's "Capital Account").
(b) In the event that the General Partner shall
reasonably determine that in order to comply with, or to maintain the Capital
Accounts in a manner consistent with, applicable Regulations it is prudent to
modify the manner in which Capital Accounts are maintained or amounts are
debited or credited thereto, the General Partner may make such modification,
provided that such modification does not have an adverse effect on the amounts
distributable to any Partner pursuant to Sections 5.01, 5.02 or 5.03 or
pursuant to Article VIII upon the dissolution of the Partnership.
(c) In accordance with Regulation Section
1.704-l(b)(2)(iv)(e) and (f), if, during a Partnership Tax Year, (i) there is a
contribution of money or property (other than a de minimis amount) to the
Partnership by a new or existing Partner as consideration for an Interest, (ii)
there occurs a transaction pursuant to the liquidation of the Partnership, or
(iii) there is a distribution of money or property (other than a de minimis
amount) by the Partnership to a retiring or continuing Partner as consideration
for an Interest, the Capital Accounts of all Partners and the book values of
all Partnership properties shall be adjusted upwards or downwards to the extent
that the General Partner reasonably determines to be appropriate to reflect any
unrealized gain or unrealized loss attributable to each Partnership property,
as if such unrealized gain or unrealized loss had been recognized upon an
actual sale of each such property at such time and had been allocated to the
Partners pursuant to Section 5.04. Such unrealized gain or unrealized loss
shall be determined by the General Partner using such methods of valuation as
it reasonably deems appropriate.
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5.06. Withholding.
(a) The General Partner is authorized and directed to
cause the Partnership to withhold from or pay on behalf of any Partner the
amount of Federal, state, local or foreign taxes that the General Partner
reasonably believes the Partnership is required to withhold or pay with respect
to any amount distributable or allocable to such Partner pursuant to this
Agreement, including, without limitation, any taxes required to be paid by the
Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code and any
taxes imposed by any state or other taxing jurisdiction on the Partnership as
an entity. Without limiting the foregoing, the General Partner shall cause the
Partnership to withhold (and remit to the appropriate governmental authority),
from amounts otherwise distributable to a Partner, any taxes that such Partner
notifies the General Partner in writing should be withheld, which notice shall
be given by any Partner who becomes aware of any withholding obligation to
which it is subject and shall specifically set forth inter alia the rate at
which tax should be withheld and the name and address to which any amounts
withheld should be remitted.
(b) If the Partnership is required to withhold and pay
over to taxing authorities amounts on behalf of a Partner exceeding available
amounts then remaining to be distributed to such Partner, such payment by the
Partnership shall constitute a loan to such Partner that is repayable by the
Partner on demand, together with interest at the Federal short-term rate
determined from time to time under Section 1274(d) of the Code, compounded
annually, or the maximum rate permitted under applicable law, whichever is
less, calculated upon the outstanding principal balance of such loan as of the
first day of each month. Any such loan shall be repaid to the Partnership, in
whole or in part, out of the next available distributions to such Partner or,
if such distributions are insufficient, by the Partner in cash upon demand
(such Partner bearing all of the Partnership's costs of collection, including
reasonable attorneys' fees, if payment is not remitted promptly by the Partner
after such a demand for payment).
(c) Each Partner agrees to cooperate fully with all
efforts of the Partnership to comply with its tax withholding and information
reporting obligations and agrees to provide the Partnership with such
Information as the General Partner may reasonably request from time to time in
connection with such obligations.
5.07. Allocations for Federal Income Tax Purposes. The
Partnership's ordinary income and losses, capital gains and losses and other
items as determined for Federal income tax purposes (and each item of income,
gain, loss or deduction entering into the computation thereof) shall be
allocated to the Partners in the same proportions as the corresponding "book"
items are allocated pursuant to Sections 5.04 and 5.05. Notwithstanding the
foregoing sentence, Federal income tax items relating to any Section 704(c)
Property shall be allocated among the Partners in accordance with Section
704(c) of the Code and Treasury Regulations Section 1.704-1(b)(2)(iv)(g) in
accordance with the method for making such allocations that is selected by the
Limited Partner
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from the methods permitted by Treasury Regulations Section 1.704-3. Items
described in this Section 5.07 shall not be reflected in the Partner's Capital
Accounts.
5.08. Disputed Items. If the Limited Partner disagrees with any
determination by the General Partner of the Limited Partner's share of Profit
or Loss under Section 5.04 or the balance of the Limited Partner's Capital
Account under Section 5.05, it shall inform the General Partner in writing of
its disagreement. To the extent that the parties are not able to agree within
30 days of such written notification by the Limited Partner of a disagreement,
the matter shall be referred to an independent accountant mutually agreeable to
the parties for resolution and the determination of such independent accountant
shall be final.
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ARTICLE VI
RECORDS; REPORTS TO THE PARTNERS; TAX MATTERS
6.01. Records and Accounting.
(a) Proper and complete records and books of account of
the business of the Partnership, including a list of the names, addresses and
Interests of all Partners, shall be maintained at the Partnership's principal
place of business. The Limited Partner and its duly authorized representatives
may visit and inspect any of the Properties or other Assets of the Partnership
and may examine the books of account, records, reports and other papers
relating to the Partnership and each Property Partnership, all during regular
business hours and as reasonably often as may be requested upon at least
forty-eight hours notice to the General Partner or the general partner of the
relevant Property Partnership, as the case may be.
(b) The Partnership shall maintain its books of account
and make all accounting calculations hereunder on the accrual basis in
accordance with sound business practices using such generally accepted
accounting methods, consistently applied, as the General Partner shall select.
6.02. Audit and Report.
(a) The books and records of the Partnership shall be
audited as of the end of each fiscal year by a firm of independent certified
public accountants of national recognition and standing selected by the General
Partner. As soon as practicable after the close of each fiscal year, and, in
any event, within 90 days after the close of such fiscal year, the Partnership
shall prepare and mail to each Partner (i) the audited financial statements of
the Partnership for such fiscal year, including balance sheets, income
statements and statements of cash flow, together with the report thereon of
such accountants, (ii) a report of such accountants, setting forth the amount
of such Partner's share of the Profit and Loss for such year, in sufficient
detail to enable it to prepare its Federal, state and other tax returns,
including, but not limited to, Internal Revenue Service Schedule "K-1", or any
successor thereto, and (iii) a copy of the Partnership's United States
Partnership Return of Income.
(b) Within 90 days after the date of this Agreement, and
by February 15 of each year, the Partnership will furnish the Limited Partner
the financial and tax information with respect to the prior fiscal year of the
Partnership that is provided for on Schedule D, with such reasonable changes
therein, additions thereto and deletions therefrom as the Limited Partner shall
from time to time advise the Partnership and the General Partner in writing
(which financial and tax information, prepared in conformity with Schedule E,
is intended to permit the Limited Partner to prepare its financial statements
and tax returns in accordance with Japanese tax basis accounting methods).
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(c) Within 45 days after the end of each of the first
three fiscal quarters of each fiscal year, the Partnership shall prepare and
mail to each Partner unaudited financial statements of the Partnership
comparable to, and prepared on the basis of accounting principles consistent
with those used in the preparation of, the financial statements provided
pursuant to Section 6.2(a)(i).
(d) At the time of the making of any distribution
pursuant to Section 5.01, Section 5.02, Section 5.03, Section 8.02, Section
8.03, or Section 8.04, the Partnership shall provide a report setting forth the
computation of the amounts available for distribution and distributed at that
time.
(e) Promptly upon receipt of any financial statements or
reports from the Property Partnership relating to any investment of the
Property Partnership or other Asset, the Partnership shall mail copies of such
statements or reports to each Partner.
(f) Promptly upon the occurrence of a breach by the
General Partner of any of its obligations under this Agreement, and promptly
upon becoming aware of any breach by the general partner of the Property
Partnership of any of its obligations under the Property Partnership Agreement
or the Letter Agreement or the breach by the Company of its covenants under
Section 5.1.2 or Section 5.3 of the Company Agreement, the General Partner
shall deliver to each Partner written notice of such breach and a description
of the facts thereof.
(g) Promptly upon becoming aware of any default or event
of default, or report thereof, under any Indebtedness secured by Properties,
the General Partner shall deliver to each Partner written notice of such
default or event of default and a description of such facts as are known by or
have been reported to the General Partner.
(h) Promptly upon becoming aware of any proposed Covered
Transaction or Share Acquisition, or any report thereof, the Partnership shall
give the Limited Partner notice thereof and a description of such terms and
conditions thereof as are known by or have been reported to the Partnership.
(i) Not less than 30 days prior to the consummation of
any sale, transfer, assignment, abandonment or other disposition of any
Property, the Partnership shall give the Limited Partner notice thereof, a
description of the proposed terms and conditions thereof (including a statement
as to whether the purchaser is an unaffiliated third party), and a pro forma
determination of the then anticipated amount of the Distributable Disposition
Proceeds therefrom and the amounts then anticipated to be distributable to the
Limited Partner pursuant to Section 5.03(b)(i).
(j) In case the Limited Partner is audited by the
Internal Revenue Service or the Japanese National Tax Authority, the
Partnership shall timely provide such information and
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assistance as the Limited Partner may reasonably request in connection with
such audit; provided that the rendering of assistance to the Limited Partner by
the Partnership shall be without cost or liability to the Partnership.
(k) The Partnership shall also cause to be delivered to
each Partner such other data and information that the Partnership possesses as
such Partner from time to time may reasonably request.
6.03. Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
6.04. Other Reports. The Partnership shall promptly notify each
Partner of any lawsuit commenced by or against the Partnership, any
investigation undertaken of the Partnership or any transaction requiring the
approval of the Limited Partner.
6.05. Tax Audits. The General Partner shall be designated as the
"tax matters partner" within the meaning of Section 6231(a)(7) of the Code. In
the event of an audit of the Partnership by the Internal Revenue Service, the
General Partner, at the Partnership's expense, shall have the exclusive right
and obligation to conduct all negotiations with the Internal Revenue Service on
behalf of the Partnership and the Partners, and the attorneys and accountants
selected by the General Partner to conduct such negotiations are hereby
specifically authorized by the Partners so to act; provided, however, that (a)
in exercising its authority as tax matters partner, the General Partner shall
be limited by the provisions of this Agreement affecting tax aspects of the
Partnership; (b) the General Partner shall consult in good faith with the
Limited Partner regarding the filing of an administrative adjustment request
pursuant to Section 6227(b) of the Code with respect to the Partnership or the
Property Partnership before filing such request, it being understood, however,
that the provisions hereof shall not be construed to limit the ability of
either the General Partner or the Limited Partner to file an administrative
adjustment request on its own behalf pursuant to Section 6227(a) of the Code;
(c) the General Partner shall consult in good faith with the Limited Partner
regarding the filing of a petition for judicial review of an administrative
adjustment request under Section 6228 of the Code, or a petition for judicial
review of a final partnership administrative judgment under Section 6226 of the
Code relating to the Partnership before filing such petition; (d) the General
Partner shall give prompt notice to the Limited Partner of the receipt of any
written notice that the Internal Revenue Service or any state or local taxing
authority intends to examine Partnership income tax returns for any year, the
receipt of written notice of the beginning of an administrative proceeding at
the Partnership level relating to the Partnership pursuant to Section 6223 of
the Code, the receipt of written notice of the final Partnership administrative
adjustment relating to the Partnership pursuant to Section 6223 of the Code,
and the receipt of any request from the Internal Revenue Service for waiver of
any applicable statute of limitations with respect to the filing of any tax
return by the Partnership; and (e) the General Partner shall promptly notify
the Limited Partner if the General Partner does not intend to file for judicial
review with respect to the Partnership. Each Partner hereby agrees to execute
such further authority, if any, as the Internal Revenue Service may require
therefor. The
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General Partner is hereby authorized on behalf of each of the Partners, and as
their attorney, to execute in the name and stead of each of the Partners such
authorizations as the Internal Revenue Service may require to permit the
General Partner and its selected attorneys and accountants to so represent the
Partners.
6.06. Tax Elections. The General Partner may from time to time make
and revoke such tax elections as it deems necessary or desirable in its sole
discretion to carry out the business of the Partnership or the purposes of this
Agreement.
(a) The General Partner shall elect to deduct certain
expenses incurred in organizing the Partnership ratably over a sixty-month
period as provided in Section 709 of the Code.
(b) If the Limited Partner so requests, the General
Partner shall elect pursuant to Section 754 of the Code to adjust the basis of
Assets and shall also cause the Property Partnership to make a Section 754
election.
(c) In the event that the Regulations are amended to
permit unincorporated business organizations to elect to be treated as
partnerships for Federal income tax purposes in implementation of Notice 95-14,
1995-1 C.B. 297 (or if comparable legislation is enacted or a comparable
administrative decision or ruling is issued by the Internal Revenue Service),
the General Partner shall cause the Partnership to elect to be treated as a
partnership in accordance with such Regulations (or such legislation, decision
or ruling) unless the General Partner reasonably determines, after consultation
with the Limited Partner, that such election would be detrimental to the
Partnership.
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ARTICLE VII
ASSIGNMENTS, SALES OR OTHER DISPOSITIONS;
WITHDRAWAL OF PARTNERS
7.01. Assignments, Sales or Other Dispositions by Partners.
(a) The Limited Partner may assign, sell or otherwise
dispose of its Interest, or any portion thereof, only subject to the consent of
the General Partner (which consent the General Partner may withhold in its sole
and absolute discretion), and only if the General Partner is reasonably
satisfied that the transaction does not violate any Federal or state securities
law, does not subject the Partnership, the General Partner or any of its
officers or directors to additional regulatory requirements, does not cause the
termination or dissolution of the Partnership or cause it to be classified
other than as a partnership for Federal income tax purposes and does not cause
a loss of limited liability of the Limited Partner; provided, however, that
without the consent of the General Partner the Limited Partner may assign and
transfer to any member of the Investor Group the entire Interest, but not less
than the entire Interest, of the Limited Partner; and provided further,
however, that an assignment and transfer by the Limited Partner to a member of
the Investor Group of the Limited Partner's Interest shall not be effective,
and the Partnership shall not be required to recognize any such assignment,
until the Partnership shall have received written notice of such assignment,
identifying the assignee of the Limited Partner's Interest (which notice shall
be effective at the time of the receipt thereof by the Partnership).
(b) In the event of the death, disability, incompetence,
insolvency, incapacity or bankruptcy of the Limited Partner, the heirs,
executor, guardian, conservator or trustee of the Limited Partner shall have
such rights as the Limited Partner had to receive distributions under Articles
V and VIII, to receive allocations of Profit and Loss, to exercise rights and
make elections under Article VIII, and to assign, sell or otherwise dispose of
the Interest of the Limited Partner, subject to the consent of the General
Partner, in its sole and absolute discretion, but shall not become a
substituted Limited Partner or have any right to constitute any assignee,
purchaser or transferee of such Interest a substituted Limited Partner without
the consent of the General Partner (which consent the General Partner may
withhold in its sole and absolute discretion).
(c) The assignee of an Interest pursuant to Section
7.01(a) shall become a substituted Limited Partner only with the consent of the
General Partner, in its sole and absolute discretion, and subject to (i) the
assignee having executed and become a party to and agreed to be bound by the
terms of this Agreement, and having executed such other instruments as the
General Partner may reasonably deem necessary or desirable to admit such
assignee as a substituted Limited Partner; (ii) the assignee having executed
and become a party to and agreed to be bound by the terms of each other
agreement to which the Limited Partner is a party (including the Company
Agreement); (iii) each other party to such agreements whose consent is
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required as a condition to the assignee becoming a party thereto having
consented thereto; (iv) the obligations of the Company under the Company
Agreement not being adversely affected by the assignee becoming a substituted
Limited Partner or a party to any such agreement; and (v) the assignor having
paid or caused to have been paid all of the Partnership's reasonable expenses
connected with such assignment and substitution (including, but not limited to,
the reasonable legal and accounting fees of the Partnership); provided,
however, that without the consent of the General Partner any member of the
Investor Group to which the Limited Partner has assigned and transferred its
entire Interest pursuant to the proviso to Section 7.01(a) may, upon
satisfaction of the conditions set forth in clauses (i) through (v) of this
Section 7.01(c), become a substituted Limited Partner.
(d) Any substituted Limited Partner admitted to the
Partnership pursuant to this Section 7.01 shall succeed to all the rights and
be subject to the obligations of the assigning Limited Partner as provided by
law in respect of the Interest as to which it was substituted.
(e) Except as provided in Section 7.01(d) or as the
General Partner and the Limited Partner may mutually determine (in their sole
discretions) as provided in Section 4.02(c), the General Partner may not admit
any Person as a limited partner to the Partnership.
(f) The General Partner may assign and transfer its
entire (but not less than its entire Interest) to any Person that is a directly
or indirectly wholly-owned subsidiary of the Company and/or Prime Residential,
L.P., and not under any circumstances to any other Person, and, in any event,
only subject to the consent of the Limited Partner (which consent the Limited
Partner may withhold in its sole and absolute discretion).
(g) The assignee of the General Partner's Interest
pursuant to Section 7.01(f) shall become a substituted General Partner only
with the consent of the Limited Partner, in its sole and absolute discretion,
and subject to (i) the assignee having executed and become a party to and
agreed to be bound by the terms of this Agreement; and having executed such
other instruments as the Limited Partner may reasonably deem necessary or
desirable to admit such assignee as a substituted General Partner; (ii) the
assignee having executed and become a party to and agreed to be bound by the
terms of each other agreement to which the General Partner is a party
(including the Company Agreement); (iii) each other party to such agreements
whose consent is required as a condition to the assignee becoming a party
thereto having consented thereto; (iv) the obligations of the Company under the
Company Agreement not being adversely affected by the assignee becoming a
substituted General Partner or a party to any such agreement; and (v) the
assignor having paid or caused to have been paid all of the Partnership's
reasonable expenses connected with such assignment and substitution (including,
but not limited to, the reasonable legal and accounting fees of the
Partnership).
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(h) Except as expressly provided in Sections 7.01(f) and
(g), the General Partner shall not assign, sell, transfer, encumber or
otherwise dispose of all or any part of its Interest or any rights in or
obligations under this Agreement.
(i) The Partnership and the General Partner shall be
entitled to treat the record owner of any Interest as the absolute owner
thereof in all respects, and shall incur no liability for distributions of cash
or other property made in good faith to such owner until such time as a written
assignment of such Interest has been received and consented to by the General
Partner and recorded on the books of the Partnership.
7.02. Withdrawal of Partners.
(a) The Limited Partner may not and shall not be
permitted to withdraw from the Partnership except (i) upon a substituted
Limited Partner succeeding to all the rights and obligations of the withdrawing
Limited Partner in accordance with Sections 7.01(c) and (d), (ii) upon the
Redemption of the Limited Partner's Interest or (iii) in connection with the
dissolution and liquidation of the Partnership.
(b) Except as provided in Section 8.01, the General
Partner shall not be permitted to withdraw from the Partnership except upon a
substituted General Partner succeeding to all of the rights and obligations of
the withdrawing General Partner in accordance with Section 7.01(g); and the
General Partner and the Limited Partner agree that the General Partner (or such
substituted General Partner) shall remain the sole general partner of the
Partnership during the entire term of the Partnership.
7.03. Void Assignments. Any purported sale, assignment or other
disposition by any Partner (including assignees thereof, purchasers or other
transferees therefrom or substituted partners therefor) of any Interest in the
Partnership or in this Agreement not made strictly in accordance with the
provisions of this Article VII shall be entirely null and void.
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ARTICLE VIII
DISSOLUTION OF THE PARTNERSHIP;
DEATH, INSOLVENCY, ETC. OF PARTNER
8.01. Dissolution.
(a) The Partnership shall be dissolved and its affairs
shall be wound up upon:
(i) the end of the term of the Partnership, as
provided in Section 2.05;
(ii) the sale, disposition or distribution of all
or substantially all of the property of the Partnership or the Property
Partnership;
(iii) the Redemption of the Limited Partner's
Interest;
(iv) the happening of an event or the existence of
a condition described in Section 17-402(a)(4), (5) or (8) of the Delaware Act;
or
(v) the mutual determination of the General
Partner and the Limited Partner;
provided, however, that, notwithstanding the occurrence of an event specified
in clause (iv) above, the Partnership shall not be terminated and its affairs
wound up if (A) the Limited Partner (x) elects, within 90 days after any such
occurrence, to continue the Partnership and the Partnership's business, (y)
designates a successor General Partner and (z) assigns to such successor
General Partner a portion of the Limited Partner's Interest and (B) the
conditions set forth in clauses (i), (iii) and (iv) of Section 7.01(g) are
satisfied. In the event the Limited Partner so elects to continue the
Partnership with a new General Partner, the business of the Partnership shall
be continued, as a successor limited partnership, if necessary, upon the terms
of this Agreement, except that the Interest of the former General Partner shall
be converted into a Limited Partner's Interest (but the relative priority of
the Partner's rights to allocations and distributions shall not be changed),
and the new General Partner shall succeed to all of the powers and privileges
of the General Partner hereunder.
The Partnership shall not dissolve upon the death, disability,
incompetence, insolvency, incapacity or bankruptcy of any Person which may be a
Limited Partner.
(b) When the Partnership is dissolved, the property and
business of the Partnership shall be liquidated by the General Partner or, in
the event of the unavailability of the General Partner, by such Person as shall
be approved by the Limited Partner. Each Partner, upon the request of the
General Partner or such other Person, as the case may be, shall promptly
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execute, acknowledge and deliver all such documents, certificates and other
instruments as the General Partner or such other Person, as the case may be,
shall reasonably request to effectuate the proper dissolution and termination
of the Partnership, including the winding up of the business of the
Partnership.
(c) As soon as practicable after the effective date of
dissolution of the Partnership, whether by expiration of its full term or
otherwise, but in any event by the end of the Partnership Taxable Year (or, if
later, within 90 days after such liquidation) as required under Regulation
Section 1.704-l(b)(2)(ii)(b)(2), the Assets shall be distributed in compliance
with such Regulation and in the following manner and order:
(i) the claims of all creditors of the
Partnership who are not Partners, and the expenses of dissolution and winding
up, shall be paid and discharged or reasonably reserved against;
(ii) the claims of the Partners for advances
pursuant to Section 3.09(c) shall be paid and discharged in the priority
provided in Section 3.09(c);
(iii) the other claims, if any, of the Limited
Partner as a creditor of the Partnership shall be paid and discharged; and
(iv) the other claims, if any, of the General
Partner as a creditor of the Partnership shall be paid and discharged.
The remaining Assets of the Partnership shall be available for
distribution to the Partners pursuant to Section 8.02.
8.02. Distributions on Liquidation.
(a) As promptly as practicable after the determination
pursuant to Section 8.01 of the amount of Assets of the Partnership available
for distribution to the Partners upon the liquidation of the Partnership, the
Net Equity Value as of the date of such determination shall be determined and
such Assets shall be distributed to the Partners, as follows:
(i) First, to the Limited Partner an amount
determined as follows:
(A) first, to the Limited Partner until,
together with the aggregate of all prior distributions to the Limited Partner
other than prior distributions of the Aliquot Share of its Capital
Contribution, the Limited Partner shall have received the Limited Partner's
Priority Distribution;
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(B) second, to the Limited Partner,
until the Limited Partner shall have received the return of its Adjusted
Capital Contribution; and
(C) third, to the Limited Partner 30% of
any balance in excess of the amount necessary to return to the General Partner
the General Partner's Adjusted Capital Contribution, and
(ii) Second, all remaining such Assets to the
General Partner.
(b) Notwithstanding the foregoing provisions of this
Section 8.02, Assets of the Partnership shall be distributed to the Limited
Partner pursuant to Section 8.02(a)(i) only to the extent that, after, taking
into account all the allocations provided for in Section 5.04, such
distribution would not cause the Limited Partner to have a negative Capital
Account balance and the Limited Partner shall return to the Partnership any
distribution erroneously paid to the Limited Partner in excess of this limit as
soon as practical after being notified by the Partnership of such erroneous
distribution..
(c) Distributions of Assets to the Partners pursuant to
Section 8.02(a) shall be made in the following manner:
(i) Distributions to the Limited Partner pursuant
to Section 8.02(a)(i) shall be in cash or in Company Shares or any combination
thereof, as the General Partner shall, in its sole and absolute discretion,
elect. If the General Partner shall elect to cause the Partnership to make any
part of such distribution in Company Shares, such distribution of Company
Shares to the Limited Partner shall be subject to the following conditions:
(A) Not later than the sixtieth day
after the determination pursuant to Section 8.01 of the amount of Assets of the
Partnership available for distribution to the Partners upon liquidation of the
Partnership, the General Partner shall (x) notify the Limited Partner in
writing of the portion, if any, of the distribution to the Limited Partner
pursuant to Section 8.02(a)(i) that the General Partner elects to cause the
Partnership to make in Company Shares and (y) pay in cash, in immediately
available funds, the portion of such distribution that is not to be made in
Company Shares, with interest from the date of such determination pursuant to
Section 8.01 to the date of payment, at the rate of 8 1/2% per annum;
(B) The Company Shares distributed to
the Limited Partner shall be Freely Transferable Shares on the date actually
distributed to the Limited Partner and the Partnership shall bear all costs of
issuance of such Company Shares and the distribution thereof to or on behalf of
the Limited Partner (including the Registration Expenses, as such term is
defined in the Company Agreement), other than income taxes imposed on the
Limited Partner or any stock transfer taxes that would be payable if the
Limited Partner directed that the Company Shares be registered in a name other
than the name of the Limited Partner;
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<PAGE> 50
(C) In order to permit the registration
of the Company Shares, the distribution to the Limited Partner of such Company
Shares (but not any distribution of cash, which will be made at the time of the
determination of the Net Equity Value as of the date of the determination of
the Assets of the Partnership available for distribution, as provided in
Section 8.02(a)) may occur up to 90 days after the determination pursuant to
Section 8.01 of the amount of Assets of the Partnership available for
distribution to the Partners upon the liquidation of the Partnership. If such
Freely Transferable Shares are not delivered by such time in accordance with
the terms and conditions of this Agreement then, unless the Limited Partner
shall consent in writing to delivery of such Company Shares at a later time,
the full distribution of Assets to the Limited Partner pursuant to Section
8.02(a)(i) shall be made in cash and the Limited Partner shall be entitled to
interest, from the time of such determination pursuant to Section 8.01 to the
date of payment, at the rate of 8 1/2% per annum, on the amount distributable
to the Limited Partner that was to have been delivered in Company Shares;
(D) The number of Company Shares to be
delivered to the Limited Partner will be determined based on the lower of (1)
the Closing Price of the Company Shares on the trading day prior to the
effectiveness of the registration statement for the Company Shares to be
delivered to the Limited Partner and (2) 105% of the Average Market Price of
the Company Shares as of the trading day prior to the effectiveness of such
registration statement; and
(E) The Partnership shall not deliver
any fractional Company Shares and, in lieu thereof, shall deliver cash in an
amount equal to the fractional Company Share otherwise to be distributed
pursuant to Section 8.02(c)(i) multiplied by the Closing Price of the Company
Shares on the trading day prior to the payment in lieu of such fractional
Company Share.
(ii) Distributions to the General Partner pursuant
to Section 8.2(a)(ii) shall be in cash or in kind, as the General Partner may
determine.
8.03. Redemptions at the Option of the Limited Partner.
(a) The Limited Partner may, in its sole and absolute
discretion, require that the Partnership redeem the Limited Partner's entire
Interest, but not less than the Limited Partner's entire Interest (i) at any
time from the fifth anniversary of the Closing Date through the end of the term
of the Partnership, as provided in Section 2.05, and (ii) notwithstanding the
provisions of the foregoing clause (i), at any time that there occurs (A) an
event of default (that is, the occurrence of a default or breach and the
continuance of such default or breach uncured and unwaived after the giving of
any required notice and the passage of any period provided for cure) under the
terms of any Indebtedness secured by any of the Properties, which event of
default continues uncured and unwaived to the time of the notice of election
pursuant to Section 8.03(b), or (B) a breach by the General Partner of any of
its obligations under the Partnership
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<PAGE> 51
Agreement, or a breach by the general partner of the Property Partnership of
any of its obligations under the Property Partnership Agreement or the Letter
Agreement, and the continuation of such breach for the lesser of 30 days
following notice thereof from or on behalf of the Limited Partner and 60 days
after the occurrence of such breach, or (C) a breach by the Company of its
covenants under Section 5.1.2 or Section 5.3 of the Company Agreement;
provided, however, that with the prior written consent of the General Partner,
which the General Partner may withhold in its sole and absolute discretion, the
Limited Partner may elect to require that the Partnership redeem less than the
Limited Partner's entire Interest.
(b) The option of the Limited Partner to require that the
Partnership redeem the Limited Partner's Interest shall be exercised by the
delivery of written notice of election by the Limited Partner to the
Partnership and the General Partner, which notice shall state the date on which
such election is to be effective (the "Effective Date") and shall be delivered
on a date not less than ten nor more than sixty days prior to the Effective
Date. A notice of election, once delivered, can be rescinded only with the
consent of the General Partner, which the General Partner can withhold in its
sole and absolute discretion. Upon receipt of a notice of election, the
General Partner shall, as promptly as practicable (and, in event, within 30
days after the Effective Date), determine on a pro forma basis, and advise the
Limited Partner of, the amount that would have been distributable to the
Limited Partner pursuant to Section 8.02(a) if the Partnership had been
dissolved on the Effective Date (including the Net Equity Value and the Limited
Partner's Share thereof) and the amount distributable to the Limited Partner
pursuant to Section 8.03(d).
(c) Upon Redemption, the Limited Partner shall be
entitled to receive, in the sole and absolute discretion of the Limited
Partner, either
(i) the amount that would have been distributable
to the Limited Partner pursuant to Section 8.02(a)(i) if the Partnership had
been dissolved on the Effective Date and such amount shall be distributed, in
cash or Company Shares, or any combination thereof, in the sole and absolute
discretion of the General Partner, at the time and in the manner and to the
extent that a distribution under Section 8.02 would be made under Section 8.02,
or
(ii) the amount determined as provided in Section
8.03(d), which amount shall be distributed in Company Shares, determined as
provided in Section 8.03(d)(i), or cash, determined as provided in Section
8.03(d)(ii), or any combination thereof, determined as provided in Section
8.03(d)(iii), in the sole and absolute discretion of the General Partner, at
the time and in the manner provided in Section 8.03(d)(iv).
Not later than the 15th day following receipt from the General Partner of the
determination pursuant to Section 8.03(b) on a pro forma basis of amounts
distributable to the Limited Partner, the Limited Partner shall notify the
General Partner in writing of whether the Limited Partner elects to receive the
amount determined pursuant to Section 8.03(c)(i) or the amount determined
pursuant the Section 8.03(c)(ii) and if the Limited Partner fail timely to give
such notice and the
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<PAGE> 52
General Partner shall not (in its sole and absolute discretion) have consented
to an extension of the time for the giving of such notice, the Limited Partner
shall be deemed to have elected to receive an amount determined under that
Section that, based on the amounts shown on the pro forma determination
delivered to the Limited Partner pursuant to Section 8.03(b) and the Closing
Price on the business day next preceding the 15th day following receipt by the
Limited Partner of such pro forma determination, would provide the greater
amount (recognizing that, at the time of actual distribution of such amount it
may not be the greater amount).
(d) The number of Company Shares or amount of cash that
the Limited Partner would be entitled to receive pursuant to Section
8.03(c)(ii) is determined as follows:
(i) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to deliver solely Company
Shares upon Redemption of the Limited Partner's Interest, initially the number
of Company Shares shall be determined by dividing the Limited Partner's
Adjusted Capital Contribution immediately prior to the effectiveness of the
Redemption by (x) 110% of the Average Market Price as of the Closing Date, if
the option is exercised at the time and under the circumstances contemplated by
Section 8.03(a)(i), or (y) the Closing Price on the Closing Date, if the option
is exercised at the time and under the circumstances contemplated by Section
8.03(a)(ii), in either case adjusted as provided in Sections 8.03(d)(i)(A)
through (D). The Partnership shall not deliver any fractional Company Shares
and, in lieu thereof, shall deliver cash in an amount equal to the fractional
Company Share otherwise to be distributed pursuant to this Section 8.03(d)(i)
multiplied by the Closing Price of the Company Shares on the trading day prior
to the payment in lieu of such fractional Company Share.
(A) If, after the date hereof, the
Company shall, directly or indirectly, (i) pay a dividend in Company Shares,
(ii) subdivide or combine the outstanding Company Shares into a greater or
lesser number of shares, or (iii) reclassify the Company Shares into any other
shares of capital stock, the number and type of Company Shares so deliverable
shall be adjusted so that if the option provided in Section 8.03(c)(ii) were
exercised immediately after the effective date of such event (without regard to
whether the option is then exercisable) the Limited Partner would receive the
same number of Company Shares it would have received if it had exercised the
option immediately prior to the record date for such event.
(B) If, after the date hereof, the
Company, directly or indirectly, issues rights, options or warrants to
purchase, or other securities convertible into or exchangeable for, Company
Shares, other than Excludable Shares, at a price per share less than the
Average Market Price as of the record date for the issuance of such rights,
options, warrants or other securities, the number of Company Shares so
deliverable shall, as of such record date, be multiplied by a fraction the
numerator of which is the sum of the number of Company Shares outstanding
immediately prior to such date plus the number of additional Company Shares for
which such rights, options or warrants are exercisable, or into which such
other securities are
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convertible or exchangeable, and the denominator of which is the sum of the
number of Company Shares outstanding immediately prior to such date plus the
number of Company Shares which the aggregate of the issue price, if any, of
such rights, options or warrants and the exercise price thereunder, or the
consideration or issue price of such other securities, would purchase at such
Average Market Price; provided, however, that if, prior to the time of the
delivery of Company Shares, any such rights, options, warrants or other
securities shall expire or otherwise cease to be exercisable, then the
adjustment provided in this Section 8.03(d)(i)(B) shall be recomputed to
reflect the number of Company Shares actually issued upon exercise of such
rights, options or warrants, or conversion or exchange of such other
securities, the number of Company Shares for which such rights, options
warrants or other securities remain exercisable and not expired, and the number
of rights, option, warrants or other securities that expired or otherwise
terminated unexercised.
(C) If, after the date hereof, the
Company shall have entered into a Covered Transaction or Share Acquisition in
which the holders of Company Shares are entitled to receive equity securities
of the survivor of such transaction in exchange for Company Shares, and,
pursuant to the provisions of Section 8.04(b), such Covered Transaction or
Share Acquisition does not cause the redemption of the Limited Partner's
Interest, then, effective upon the consummation of such Covered Transaction or
Exchange Share Acquisition, the number and nature of securities deliverable
pursuant to Section 8.03(c)(ii) (if and to the extent that the General Partner
shall have determined, in its sole and absolute discretion, to distribute
Company Shares, rather than cash) shall be the kind and number of shares of
stock or other securities that would have been deliverable to the Limited
Partner in connection with such transaction if the Limited Partner had elected
pursuant to Section 8.03(c)(ii) to cause the Partnership to redeem its Interest
(without regard to whether such option is then exercisable) immediately prior
to, and participated in, such transaction. Following such adjustment, the term
"Company Shares" initially shall mean such kind and number of shares of stock
or other securities, adjusted from time to time as provided in Section
8.03(d)(i)(A) through (D).
(D) Notwithstanding the foregoing
provisions of this Section 8.03(d)(i), the number of Company Shares deliverable
pursuant to Section 8.03(c)(ii) shall not exceed the number of Company Shares
determined by dividing the Limited Partner's Adjusted Capital Contribution at
the time of delivery to the Limited Partner of such Company Shares by the lower
of (i) the Closing Price of the Company Shares on the trading day prior to such
delivery to the Limited Partner and (ii) 105% of the Average Market Price of
the Company Shares as of such trading day.
(ii) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to distribute solely cash
upon Redemption of the Limited Partner's Interest, such cash shall be in an
amount equal to the product of the number of Company Shares determined pursuant
to Section 8.03(d)(i) multiplied by the Closing Price of the Company Shares on
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the trading day prior to the distribution of such cash to the Limited Partner
pursuant to Section 8.03(c)(ii).
(iii) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to distribute a
combination of Company Shares and cash upon Redemption of the Limited Partner's
Interest, the General Partner shall determine on a pro forma basis the number
of Company Shares that would be distributable by the Partnership pursuant to
Section 8.03(d)(i) if the General Partner had elected to cause the Partnership
to distribute solely Company Shares. The General Partner shall then determine,
in its sole and absolute discretion, the actual number of Company Shares that
the General Partner elects to cause the Partnership to distribute, and the cash
to be distributed shall be in an amount equal to the product of (A) the excess
of the number of Company Shares determined pursuant to Section 8.03(d)(i) over
the number of Company Shares actually to be distributed by the Partnership
multiplied by (B) the Closing Price of the Company Shares on the trading day
prior to the distribution of such cash to the Limited Partner pursuant to
Section 8.03(c)(ii).
(iv) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to distribute any cash
upon the Redemption of the Limited Partner's Interest pursuant to Section
8.03(c)(ii), such cash shall be paid in immediately available funds in U.S.
dollars not later than the 60th day after the Effective Date with interest,
from the Effective Date to the date of payment at the rate of 8 1/2% per annum.
Not later than the sixtieth day after the Effective Date, the General Partner
shall notify the Limited Partner in writing of the portion, if any, of the
distribution to the Limited Partner pursuant to Section 8.03(c)(ii) that the
General Partner elects to cause the Partnership to make in Company Shares. If
the General Partner, in its sole and absolute discretion, elects to cause the
Partnership to deliver any Company Shares upon Redemption of the Limited
Partner's Interest pursuant to Section 8.03(c)(ii), such Company Shares shall
be Freely Transferable Shares on the date actually distributed to the Limited
Partner and the Partnership shall bear all costs of issuance of such Company
Shares and the distribution thereof to or on behalf of the Limited Partner
(including the Registration Expenses, as such term is defined in the Company
Agreement), other than any income taxes or stock transfer taxes that would be
payable if the Limited Partner directed that the Company Shares be registered
in a name other than the name of the Limited Partner. In order to permit the
registration of such Company Shares, the delivery to the Limited Partner of
such Company Shares (but not distribution to the Limited Partner of such cash,
which will be made as provided in the first sentence of this Section
8.03(d)(iv)) may occur up to 90 days after the Effective Date. The Partnership
shall bear the risk, and derive the benefit, of any changes in the market price
of Company Shares to be distributed to the Limited Partner between the
Effective Date and the time of the distribution thereof. To that end, the
Partnership shall be required to distribute to the Limited Partner the number
of Company Shares that, at the time of the distribution thereof, have the same
value (based on the Closing Price of the Company Shares on the trading day
prior to such distribution) as the number of Company Shares determined pursuant
to Section 8.03(d)(i) (based on the Closing Price of the Company Shares on the
trading day next following the
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Effective Date. If such Freely Transferable Shares are not delivered in
accordance with the terms and conditions of this Agreement by such 90th day
after the Effective Date then, unless the Limited Partner shall consent in
writing to delivery of such Company Shares at a later time, the Limited
Partner's Interest shall be redeemed solely for cash in accordance with Section
8.03(d)(ii) and the Limited Partner shall be entitled to interest, from the
Effective Date to the date of payment, at the rate of 8 1/2% per annum on the
amount distributable to the Limited Partner that was to have been delivered in
Company Shares.
(e) Notwithstanding the foregoing provisions of this
Section 8.03, Company Shares and/or cash shall be distributed to the Limited
Partner pursuant to Section 8.03(c)(i) only to the extent that, after taking
into account all the allocations provided for in Section 5.04, such
distribution would not cause the Limited Partner to have a negative Capital
Account and the Limited Partner shall return to the Partnership any
distribution erroneously paid to the Limited Partner in excess of this limit as
soon as practical (and in no event more than 30 days) after being notified by
the Partnership of such erroneous distribution.
8.04. Redemption Upon Certain Events.
(a) At or prior to the consummation by the Company of any
Covered Transaction, or the consummation by any Person of any Share
Acquisition, the Partnership shall, subject to the provisions of Section
8.04(b), redeem the Limited Partner's Interest for an amount in cash, in
immediately available funds, which, together with all other distributions to
the Limited Partner under this Agreement, returns the entire Capital
Contribution of the Limited Partner, with an Internal Rate of Return thereon,
from the Closing Date through the date of Redemption pursuant to this Section
8.04(a), of 14%.
(b) Notwithstanding the provisions of Section 8.04(a), if
(i) in any Covered Transaction or Share
Acquisition in which the holders of Company Shares receive equity securities of
the survivor in exchange for Company Shares, the surviving Person in any merger
or consolidation or the acquiring Person in any sale, transfer, conveyance or
other disposition or acquisition of Company Shares (referred to in this Section
8.04(b) as the "survivor") (A) is a corporation, partnership, business trust,
limited liability company or joint stock company organized under the laws of
any state of the United States whose equity securities are registered under the
Exchange Act and are listed on a national securities exchange in the United
States or admitted to trading on the NASDAQ National Market and (B) after
giving effect to such Covered Transaction or Share Acquisition has total
capitalization (that is, total long-term debt and capitalized leases and total
equity) that is (1) in excess of $500 million and (2) not less than 166-2/3% of
total long-term debt and capitalized leases;
(ii) the survivor, in its sole and absolute
discretion, shall enter into a written agreement with and for the benefit of
the Limited Partner, the Partnership and the General
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Partner pursuant to which the survivor becomes a party to, and to assumes and
agrees to be bound by all of the provisions of the Company Agreement, with such
changes therein, additions thereto and deletions therefrom as shall be
reasonably necessary to reflect the identity, address, structure and place of
organization of the survivor, the nature and designation of the equity
securities of the survivor, and such other similar or comparable terms as are
appropriate in the circumstances; and
(iii) the Limited Partner, in its sole and absolute
discretion, shall enter into an amendment to this Agreement pursuant to Section
9.07(a) to make such changes, additions or deletions as are required to effect
the adjustments contemplated by Section 8.03(d)(i)(C), which shall evidence the
Limited Partner's willingness to accept the equity securities of the survivor
when the Limited Partner would otherwise have received Company Shares and the
Limited Partner's willingness to accept the covenants and undertakings of the
survivor rather than the covenants and undertakings of the Company, then the
Partnership shall not be required to redeem the Interest of the Limited Partner
and the Partnership shall continue its existence and operations subject to the
terms of this Agreement.
8.05. HSR Delays in Registration. In the event that (a) in
connection with the distribution of Assets to the Limited Partner pursuant to
Section 8.02 upon the liquidation of the Partnership or the Redemption of the
Limited Partner's Interest pursuant to Section 8.03, the General Partner shall,
in its sole and absolute discretion, elects to cause the Partnership to deliver
Company Shares and (b) the receipt of such Company Shares by the Limited
Partner is then subject to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as then in effect, or any succeeding law (the "HSR Act"), and is not
exempt therefrom under the rules of the Federal Trade Commission (or any
successor thereto in the administration of the HSR Act) (the "FTC") under the
HSR Act (the "HSR Rules"), then, notwithstanding the provisions of Sections
8.02(c)(ii)(B) and (C) and Section 8.03(d)(iv), the following provisions shall
be applicable.
(i) The Limited Partner shall, as soon as
practicable (and, in any event, not later than ten days) after receipt of
notification by the General Partner that the General Partner elects to cause
the Partnership to deliver Company Shares, prepare and file in accordance with
the HSR Rules a Premerger Notification and Report (an "HSR Filing") with
respect to the receipt of Company Shares by the Limited Partner and shall
prosecute such filing in good faith in a timely and diligent manner (including
responding timely and fully to all requests by the FTC or the Justice
Department for additional information).
(ii) The Partnership shall pay, as part of the
Registration Expenses as such term is defined in the Company Agreement), the
filing fee payable by the Limited Partner for the filing of the HSR Filing and
the Limited Partner shall pay all of its other costs and expenses in preparing
and filing the HSR Filing and diligently prosecuting such filing.
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(iii) The Limited Partner shall agree to sell such
number of Company Shares, under such circumstances (including an underwritten
public offering immediately upon receipt of such Company shares) and on such
terms and conditions as are necessary to obtain a termination of the waiting
period under the HSR Act after the thirtieth day (that is, other than to obtain
an early termination of the waiting period) or to resolve concerns or
objections of the FTC or the Justice Department to the Limited Partner's
receipt of such Company Shares.
(iv) If and to the extent that the delivery to the
Limited Partner of Freely Transferable Shares is precluded by the continuation
of the waiting period under the HSR Act, or the objection of the FTC or the
Justice Department to the receipt by the Limited Partner of any or all of such
Company Shares, the requirement that the Partnership deliver such Freely
Transferable Shares not later than 90 days after the determination pursuant to
Section 8.01 of the Amount of Assets of the Partnership available for
distribution to the Partners upon the liquidation of the Partnership or the
Effective Date, as the case may be, shall be suspended; provided, however, that
such suspension shall not continue past the time that the FTC or Justice
Department shall have advised the Limited Partner that the waiting period will
not be terminated and/or that their objections will not be lifted.
(v) The General Partner may, in its sole and
absolute discretion, at any time during the continuation of the waiting period
under the HSR Act to distribute cash (including cash in an amount sufficient to
cause the remaining number of Company Shares to be exempt from the operation of
the HSR Act) to the Limited Partner in lieu of Company Shares, as provided in
Section 8.02(c)(ii)(C) or Section 8.03(d)(iv), as the case may be, and, if (but
only if) the Limited Partner shall have timely prepared and filed the HSR
Filing and complied with the provisions of this Section 8.05, the Limited
Partner shall be entitled to receive interest on such cash from the date of the
determination pursuant to Section 8.01 of the amount of Assets of the
Partnership available for distribution to the Partners upon the liquidation of
the Partnership or the Effective Date, as the case may be, to the date of
payment, at 8 1/2% per annum.
8.06. Purchases of Company Shares. From and after the time of the
determination pursuant to Section 8.01 of the amount of Assets of the
Partnership available for distribution to the Partners upon liquidation of the
Partnership or the Effective Date, as the case may be, until the time of the
distribution of Assets to the Limited Partner pursuant to Section 8.02(a)(i) or
the Redemption of the Limited Partner's Interest pursuant to Section 8.03(c),
as the case may be, neither the General Partner nor any Affiliate of the
General Partner (including the Company) shall purchase any Company Shares, in
the open market or otherwise. If the General Partner or any Affiliate of the
General Partner shall purchase any Company Shares during such period, unless
the Limited Partner shall consent in writing to such purchase, the Limited
Partner's Interest shall be redeemed solely for cash based on the higher of the
Closing Price of the Company Shares on the trading day prior to the time of
determination or the giving of the notice of election, as the case may be, and
the Closing Price of the Company Shares on the trading day prior to the
distribution of such cash.
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ARTICLE IX
MISCELLANEOUS
9.01. Binding Agreement. This Agreement shall be binding upon the
heirs, successors and assigns of the Partners.
9.02. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware as applied
between residents of that State entering into contracts wholly to be performed
in that State.
9.03. Gender. As used herein, neuter pronouns shall include the
masculine and feminine, and vice versa, and singular nouns and pronouns shall
include the plural.
9.04. Notices. All notices hereunder shall be in writing and shall
be given: (a) if to the Partnership or the General Partner, at 77 West Wacker
Drive, 40th Floor, Chicago, Illinois 60601, Attention: President, or such
other address or addresses of which the Partners shall have been given notice,
with copies to Kirkland & Ellis, 200 East Randolph Drive, 54th Floor, Chicago,
Illinois 60601, Attention: Robert Osborne, Esq., or such other address or
addresses of which the Partners shall have been given notice; and (b) if to the
Limited Partner, at the address shown on the signature page of this Agreement
for the Limited Partner, or such other address or addresses of which the
Partnership shall have been given notice, with copies to Schulte Roth & Zabel,
900 Third Avenue, New York 10022, Attention: Andrew H. Levy, Esq., and Nomura
Securities International, Inc., 2 World Financial Center, Building B, New York,
NY 10281-1198, Attention: Managing Director, Structured Finance, or such other
address or addresses of which the Partnership shall have been given notice.
Any notice shall be deemed to have been given if personally delivered or sent
by United States mail or by commercial courier or delivery service or by
telegram or telex and shall be deemed received, unless earlier received, (i) if
sent by certified or registered mail, return receipt requested, ten days after
deposit in the mail, postage prepaid, (ii) if sent by United States Express
Mail or by commercial courier or delivery service, two business days after
delivery to a United States Post Office or delivery service, postage prepaid,
(iii) if sent by telegram, telex or facsimile transmission, when receipt is
acknowledged by answerback, and (iv) if delivered by hand, on the date of
receipt.
9.05. Power of Attorney. The Limited Partner hereby constitutes and
appoints the General Partner as its true and lawful representative and
attorney-in-fact, with full power and authority in its name, place and stead,
to make, execute, acknowledge, deliver, swear to, record and file with respect
to the Partnership any amendments to and restatements of the Certificate of
Limited Partnership as such an amendments and restatements are required by
applicable law.
9.06. Additional Limited Partners. It is anticipated that Investor
will remain the sole Limited Partner for the entire term of the Partnership
and, accordingly, the language of this
54
<PAGE> 59
Agreement generally refers solely to "the Limited Partner." However, if there
shall be more than one Limited Partner, then, except for the references to the
Limited Partner in Section 4.01 and 4.02(a) (which are references solely to
Investor), any reference to "the Limited Partner" shall be deemed to be a
reference to all of the Limited Partners or each Limited Partner or any Limited
Partner at the time, as the context requires, except as follows:
(a) except as otherwise specifically provided in this
Section 9.06, any consent of the Limited Partner shall be deemed to mean the
consent of a majority in Interest of the Limited Partners at the time;
(b) consent of the Limited Partner pursuant to Section
3.03, and approval of the Limited Partner referred to in Section 8.01(b) shall
be deemed to mean the consent or approval, as the case may be, of 75% in
Interest of the Limited Partners at the time;
(c) amounts distributable to the Limited Partner under
Sections 5.01, 5.02, 5.03, 8.02, 8.03, or 8.04, and amounts allocable to the
Limited Partner under Section 5.04, shall be distributed or allocated to the
several Limited Partners at the time, pro rata, in proportion to their then
Partnership Percentages;
(d) the reference in Section 8.01(a)(iii) to the
Redemption of the Limited Partner's Interest shall be deemed to mean the
redemption of the Interests of all of the then Limited Partners;
(e) the reference in Section 8.02(c)(i)(B) and Section
8.03(d)(iv) to the consent of the Limited Partner to the delivery of Company
Shares at a later time shall be deemed to mean the consent of a majority in
Interest of the Limited Partners, which consent shall bind all Limited
Partners;
(f) the notice of election provided for in Section
8.03(b) shall be given by a majority in Interest of the Limited Partners at the
time and shall bind all Limited Partners, but the election by the Limited
Partner provided in Section 8.03(c) to receive the distribution provided in
Section 8.03(c)(i) or Section 8.03(c)(ii) may be made by each Limited Partner
individually (with the result that different Limited Partners may make
different elections in connection with the same transaction); and
(g) the reference in Section 8.04(b)(iii) to the Limited
Partner entering into an amendment shall be deemed to mean the election of each
Limited Partner to enter into such an amendment (it being recognized that the
survivor referred to in Section 8.04 may decline, pursuant to Section
8.04(b)(ii) to proceed unless all or a substantial number of the Limited
Partners so elect).
55
<PAGE> 60
9.07. Entire Agreement; Amendments.
(a) This Agreement, including the Schedules and the
Exhibits hereto, set forth the entire understanding of all the parties hereto
and this Agreement shall not be amended except by an instrument in writing
executed by the Limited Partner and the General Partner. The General Partner
shall promptly furnish the Limited Partner a copy of each amendment to this
Agreement.
(b) Anything herein to the contrary notwithstanding, each
Partner hereby approves of any amendment to this Agreement and to the
Certificate of Limited Partnership necessary to (i) effect the assignment of a
Limited Partner's Interest or (ii) effect the admission of a substituted
Limited Partner.
9.08. Force Majeure. If any party hereto fails to fulfill its
obligations hereunder as a result of an act of God or other circumstances
beyond its reasonable control, including, without limitation, fire, flood,
revolution, or extraordinary actions by government, such failure shall be
excused for so long as such event of force majeure shall prevent such
performance and for such time thereafter as is reasonably necessary to enable
resumption of performance under this Agreement.
9.09. Consent to Jurisdiction. Each party hereto (a) irrevocably
submits to the non-exclusive jurisdiction of any Delaware State court or
Federal court sitting in Wilmington, Delaware in any action arising out of this
Agreement, and (b) consents to the service of process by certified mail, return
receipt requested, sent in accordance with the notice provisions of Section
9.04. Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any action
in any other court.
9.10. Counterparts. This Agreement may be executed in more than one
counterpart each of which may be executed by less than all the parties with the
same effect as if the parties executed one counterpart as of the day and year
first above written; provided, however, that each separate counterpart shall
have been executed by the General Partner and that the several counterparts, in
the aggregate, shall have been executed by all parties whose names appear on
Schedule A hereto as Limited Partners.
56
<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
General Partner:
AJ ONE LIMITED PARTNERSHIP
By: AJ ONE, INC.,
General Partner
By: /s/
----------------------------------
Name:
Title:
Limited Partner:
YUGENKAISHA SANKYO SEKIYU
By: /s/
----------------------------------
Name:
Title:
Address: c/o Yugenkaisha Ushioda
Kosan,
1-5-13 Hirakawa-cho
Chiyoda-ku
Tokyo
57
<PAGE> 1
EXHIBIT 10.38(A)
--------------------------------
JUPITER-II, L.P.
(a Delaware limited partnership)
--------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
--------------------------------
Dated as of March 27, 1996
--------------------------------
<PAGE> 2
Table of Contents
ARTICLE I
DEFINED TERMS. . . . . . . . . . . 1
ARTICLE II
FORMATION; NAME AND PLACE OF BUSINESS; TERM; ETC . . . . . . . . . . . 14
2.01. Formation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.02. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.03. Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.04. Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.05. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.06. Registered Agent and Registered Office . . . . . . . . . . . . . . . 14
2.07. Application of the Delaware Act . . . . . . . . . . . . . . . . . . 14
2.08. Partnership only for Purposes Specified . . . . . . . . . . . . . . 15
2.09. Co-Partnership for Joint Business . . . . . . . . . . . . . . . . . 15
ARTICLE III
MANAGEMENT . . . . . . . . . . . 16
3.01. Management and Control of the Partnership . . . . . . . . . . . . . 16
3.02. Authority of the General Partner . . . . . . . . . . . . . . . . . . 16
3.03. Restrictions on the Authority of the General Partner . . . . . . . . 18
3.04. Duties and Obligations of the General Partner . . . . . . . . . . . 21
3.05. Title to Partnership Property . . . . . . . . . . . . . . . . . . . 21
3.06. Liability of the Partners . . . . . . . . . . . . . . . . . . . . . 22
3.07. Liability to the Partners . . . . . . . . . . . . . . . . . . . . . 22
3.08. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.09. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.10. Permitted Temporary Investments . . . . . . . . . . . . . . . . . . 24
3.11. Delegation of Authority . . . . . . . . . . . . . . . . . . . . . . 24
3.12. Business and Assets of General Partner . . . . . . . . . . . . . . . 24
i
<PAGE> 3
ARTICLE IV
ADMISSION TO PARTNERSHIP; CAPITAL CONTRIBUTIONS;
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . 25
4.01. Admmission of Limited Partner . . . . . . . . . . . . . . . . . . . 25
4.02. Capital Contributions . . . . . . . . . . . . . . . . . . . . . . . 25
4.03. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . 26
4.04. Withdrawal; Return of Capital . . . . . . . . . . . . . . . . . . . 26
ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS; CAPITAL ACCOUNTS . . . . . 27
5.01. Monthly Distributions . . . . . . . . . . . . . . . . . . . . . . . 27
5.02. Quarterly Distributions . . . . . . . . . . . . . . . . . . . . . . 28
5.03. Distributions of Disposition Proceeds . . . . . . . . . . . . . . . 29
5.04. Allocation of Profit and Loss . . . . . . . . . . . . . . . . . . . 30
5.05. Capital Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.06. Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.07. Allocations for Federal Income Tax Purposes . . . . . . . . . . . . 33
5.08. Disputed Items . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VI
RECORDS; REPORTS TO THE PARTNERS; TAX MATTERS . . . . . 34
6.01. Records and Accounting . . . . . . . . . . . . . . . . . . . . . 34
6.02. Audit and Report . . . . . . . . . . . . . . . . . . . . . . . . 34
6.03. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.04. Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.05. Tax Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.06. Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
ASSIGNMENTS, SALES OR OTHER DISPOSITIONS;
WITHDRAWAL OF PARTNERS . . . . . . . . . . . . . . . . 38
7.01. Assignments, Sales or Other Dispositions by Partners . . . . . . 38
7.02. Withdrawal of Partners . . . . . . . . . . . . . . . . . . . . . 40
7.03. Void Assignments . . . . . . . . . . . . . . . . . . . . . . . . 40
ii
<PAGE> 4
ARTICLE VIII
DISSOLUTION OF THE PARTNERSHIP;
DEATH, INSOLVENCY, ETC. OF PARTNER . . . . . . . . 41
8.01. Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.02. Distributions on Liquidation . . . . . . . . . . . . . . . . . . . . 42
8.03. Redemptions at the Option of the Limited Partner . . . . . . . . . . 44
8.04. Redemption Upon Certain Events . . . . . . . . . . . . . . . . . . . 49
8.05. HSR Delays in Registration . . . . . . . . . . . . . . . . . . . . . 50
8.06. Purchases of Company Shares . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . 52
9.01. Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.02. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.03. Gender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.04. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.05. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.06. Additional Limited Partners. . . . . . . . . . . . . . . . . . . . . 52
9.07. Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . . 54
9.08. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.09. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . 54
9.10. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Schedule A Partners; Capital Contributions
Schedule B Properties; Capital Values of Properties
Schedule C Computation of Collateral Values and Net Equity Values
Schedule D Computation of Pro Forma Priority Distribution
Schedule E Information to Be Furnished by the Partnership
Exhibit A Company Agreement
Exhibit B Letter Agreement
iii
<PAGE> 5
JUPITER-II, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
AGREEMENT OF LIMITED PARTNERSHIP dated as of March 27, 1996 of
JUPITER-II, L.P. among AJ Two Limited Partnership, a limited partnership
organized under the laws of the State of Delaware, as general partner, and
Makoto Maki, an individual residing in Nagoya, Japan, as limited partner.
WHEREAS, the parties hereto desire to form the Partnership as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act
pursuant to a certificate of limited partnership dated March 27, 1996, and to
be filed with the Secretary of State of the State of Delaware (the "Certificate
of Limited Partnership"); and
WHEREAS, the parties hereto desire to provide for the governance of
the Partnership and to set forth in detail the rights and duties of the parties
relating to the Partnership,
NOW, THEREFORE, in consideration of the mutual promises and agreements
made herein, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings set forth in this Article I. All such
terms which relate to accounting matters shall be interpreted in accordance
with generally accepted accounting principles in effect from time to time
except as otherwise specifically provided herein.
"Adjusted Capital Contribution" means, for each Partner at any
specified time, such Partner's Capital Contribution reduced, in the case of the
Limited Partner, by the Limited Partner's Aliquot Share of the Limited
Partner's Capital Contribution distributed to the Limited Partner pursuant to
Section 5.03(b)(i), and, in the case of the General Partner, by the excess of
the total amount distributed to the General Partner pursuant to Section
5.03(b)(ii) over the General Partner's Aliquot Share of the General Partner's
Priority Distribution and its Aliquot Share of its Pro Forma Priority
Distribution distributable to the General Partner pursuant to Sections 5.01 and
5.02 (whether or not theretofore distributed, it being recognized that the
General Partner's Priority Distribution and Pro Forma Distribution is payable
only with respect to the calendar year in which the distribution pursuant to
Section 5.03(b)(ii) is made), to, but not including, such specified time.
1
<PAGE> 6
"Affiliate" means, with respect to a specified person, any person that
directly or indirectly controls, is controlled by, or is under common control
with, the specified person.
"Agreement" means this Agreement of Limited Partnership, as
supplemented, amended or restated from time to time in accordance with the
terms hereof.
"Aliquot Share," in connection with the Disposition of a Property, or
any of the incidents of such Disposition, has the following meanings:
(a) when used with reference to the portion of a
Partner's Capital Contribution or Capital Account allocable to such Property,
the product of (i) such Partner's Capital Contribution or such Partner's
Capital Account at the time of reference thereto, as the case may be,
multiplied by (ii) a fraction the numerator of which is the Capital Value of
such Property and the denominator of which is the Capital Value of all of the
Existing Properties (including such Property);
(b) when used with reference to the portion of any prior
distribution of Distributable Cash From Operations attributable to such
Property, the product of (i) that portion of each prior distribution to the
Partners pursuant to Sections 5.01(a)(i) and (ii), 5.02(a)(i), (ii), (iii) and
(iv), and 5.02(b) that was not attributable to Other Distributable Proceeds
from the Properties (in each case computed on the assumption that amounts
attributable to Other Distributable Proceeds are the last amounts distributed)
multiplied by (ii) a fraction, the numerator of which is the Capital Value of
such Property and the denominator of which is the Capital Value of all of the
Existing Properties (including such Property); provided, however, that if a
Disposition occurs during any accounting period of the Partnership (rather than
at the beginning or end of a period for which determinations are customarily
made by the Partnership), the product determined as provided in this paragraph
(b) with respect to such accounting period shall, to the extent necessary, be
interpolated based on information customarily available to the Partnership
(which may be information as of the close of the prior accounting period) and
the number of days in such accounting period prior to and subsequent to such
Disposition; and
(c) when used with reference to the portion of any prior
distribution of Other Distributable Proceeds attributable to such Property, the
amount of each prior distribution to the Partners pursuant to Section 5.01
and/or Section 5.02 actually attributable to Other Distributable Proceeds with
respect to such Property, in each case computed on the assumption that amounts
attributable to Other Distributable Proceeds are the last amounts distributed.
"Assets" means all property of the Partnership, including, but not
limited to, the Property Partnership Interest, and cash and any securities
received from the Property Partnership.
"Average Market Price" means, as of any specified date, the average of
the Closing Prices for the Company Shares for the 20 trading days immediately
prior to such specified date.
2
<PAGE> 7
"Bankruptcy Law" means any Federal or State bankruptcy, insolvency,
reorganization or other similar law, including the Bankruptcy Reform Act of
1978, as amended (or any corresponding provision of succeeding law).
"Capital Account" means the account of each Partner as described in
Section 5.05.
"Capital Contribution" means, for the Limited Partner, the aggregate
amount of money contributed by the Limited Partner (or the predecessor holder
of the Interest of the Limited Partner) to the Partnership, as provided in
Section 4.02(a), and, for the General Partner, the agreed value of the limited
partnership interests contributed by the General Partner, net of the related
return of capital to the General Partner (or the predecessor holder of the
Interest of the General Partner) to the Partnership, as provided in Section
4.02(b).
"Capital Value" of a Property means the fair market value of such
Property as of the Closing Date, as set forth for the Properties on Schedule B
hereto.
"Closing Date" means the date on which the Partners make their Capital
Contributions pursuant to Section 4.02(a) and (b).
"Closing Price" of the Company Shares on any day means (a) the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the New York Stock Exchange, or (b) if the
Company Shares are not then listed on the New York Stock Exchange, but are
admitted to trading on the NASDAQ National Market System, the last sale price,
or, in case no sale takes place on such day, the average of the high bid and
low asked prices, in either case as reported by the NASDAQ National Market
System, or (c) if the Company Shares are not then listed on the New York Stock
Exchange or admitted to trading on the NASDAQ National Market System, the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Company Shares are listed or admitted to trading, or (d) if the
Company Shares are not listed or admitted to trading on any national securities
exchange or the NASDAQ National Market System, the last quoted price, or, if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or, if such system is no longer
in use, the principal other automated quotations system that may then be in
use, or (e) if the Company Shares are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by such professional
market maker making a market in the Company Shares as shall be selected from
time to time by the General Partner; provided, however, that in connection with
the liquidation of the Partnership or any Redemption of the Limited Partner's
Interest after the occurrence of any event of the type referred to in Sections
8.03(d)(i)(A), (B), (C) or (D), the Closing Prices (and, accordingly, Average
Market Prices) of the Company Shares
3
<PAGE> 8
shall be adjusted to reflect the effect of such events as if all of such events
had occurred prior to the date or dates as of which Closing Prices or Average
Market Prices are to be determined.
"Code" means the Internal Revenue Code of 1986, as amended (or any
succeeding law).
"Collateral Value" means, at the time of reference thereto, the amount
derived by dividing the Net Operating Income of the Property Partnership by
0.0913877; provided, however, that, in connection with the determination of the
Collateral Value of the remaining Properties of the Property Partnership after
the Disposition of a Property, the reference to Net Operating Income shall mean
the pro forma Net Operating Income of the Property Partnership restated to
remove the contribution of the disposed of Property.
"Company" means Prime Residential, Inc., a corporation organized under
the laws of the State of Maryland.
"Company Agreement" means the Agreement and Undertaking, in the form
attached as Exhibit A hereto and dated as of the Closing Date, among the
Company, Investor, the Partnership and the General Partner, and as from time to
time amended in accordance with the terms thereof.
"Company Shares" means the common stock, par value $0.01 per share, of
the Company.
"Covered Transaction" means the merger or consolidation of the Company
with or into any Person, other than any Related Party (whether or not the
Company is the surviving Person), or the sale, transfer (by lease, license, or
conveyance of the use of or the beneficial interest in any property),
conveyance or other disposition, in one transaction or a related series of
transactions, of all or substantially all of the assets of the Company or the
Company consensually becoming a party to a transaction or a series of related
transactions in which at least 50% of the Company Shares are acquired by any
Person or any Persons who together constitute a "group" for purposes of Section
13(d) of the Securities Exchange Act of 1934.
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act (6 Del. C. Section 17-101 et seq.) as now in effect and hereafter amended.
"Depreciation" means an amount equal to the depreciation, amortization
or other cost recovery deduction allowable with respect to an asset for such
year or period for Federal income tax purposes; provided, however, where an
asset of the Partnership or the Property Partnership has an adjusted basis for
Federal income tax purposes that differs from its adjusted "book" basis either
because the Capital Value of a Property differs from the Partnership's or the
Property Partnership's tax basis as of the date hereof or as a result of a
revaluation pursuant to Section 5.05(c) of this Agreement or pursuant to the
Property Partnership Agreement, "Depreciation" shall be computed in accordance
with Regulation Section 1.704-(b)(2)(iv)(g)(3).
4
<PAGE> 9
"Disposition" means any sale, condemnation, destruction or other
transfer or disposition (including by lease or license) of a Property or any
other similar event or transaction that results in the loss or conversion by
the Property Partnership of all or substantially all of the benefits and rights
of ownership of such Property; provided, however, that a Disposition shall not
include (i) any sale or other disposition of assets that are insubstantial in
amount and are, in the ordinary course of business, sold or abandoned in
connection with maintenance or repair of any Property; or (ii) the sale,
condemnation or other transfer of any insubstantial right in connection with
any property if the use and enjoyment of such Property by the Property
Partnership are not diminished or impaired as a result thereof.
"Distributable Cash From Operations" means, with respect to the
applicable period of measurement, the excess, if any, (a) of the sum of (i) the
"Net Cash Flow" (as that term is defined in the Property Partnership Agreement)
distributed to the Partnership by the Property Partnership during such period,
reduced by the amount set aside by the Property Partnership during such period
for reserves for capital expenditures, to the extent such amounts were not
deducted in the determination of the amount of such Net Cash Flow, plus (ii)
any interest earned during such period on Partnership funds pursuant to Section
3.10, plus (iii) any amounts no longer required as reserves pursuant to Section
3.09(b), over (b) any amounts applied or set aside by the Partnership during
such period to pay or provide for the payment of Partnership expenses pursuant
to and in accordance with Sections 3.09 and 3.10.
"Distributable Disposition Proceeds" means the excess of the cash
receipts from the Disposition of a Property (including amounts not required as
or released from reserves created in connection with such Disposition) over the
aggregate of (a) the expenses of such Disposition (including, but not limited
to, sales commissions paid to Persons other than Affiliates of the General
Partner, legal expenses, accounting fees, appraisal and engineering fees, and
transfer taxes in connection with the Disposition of such Property), (b) all
debts and other obligations of the Property Partnership discharged or required
to be discharged in connection with such Disposition, (c) in connection with
any condemnation or destruction of a Property, any cash paid or to be paid from
condemnation awards or insurance recoveries for permitted replacement or
restoration of the affected Property, (d) reasonable reserves created by the
Property Partnership or the Partnership for taxes, debt service, obligations,
liabilities, repairs, replacements and other expenses required to be paid in
connection with such Disposition or the affected Property, and (e) reasonable
reserves created by the affected Property Partnership or the Partnership with
respect to post-closing price adjustments and similar contingencies relating to
the purchase price.
"Effective Date" has the meaning given in Section 8.03(b).
"Exchange Act" means the Securities Exchange Act of 1934 (or any
succeeding law).
"Excludable Shares" means (a) Company Shares that are issuable upon
the exercise of rights, options or warrants outstanding on the date of this
Agreement to purchase Company
5
<PAGE> 10
Shares, or the conversion or exchange of securities outstanding on the date of
this Agreement that are convertible into or exchangeable for Company Shares, or
upon the satisfaction of conditions specified in incentive compensation
agreements in effect on the date of this Agreement at a price less than the
Average Market Price at the date of the issuance of such rights, options,
warrants or convertible securities or the grant of rights under such
agreements, as the case may be, and (b) Company Shares that are issuable upon
the exercise of rights, options or warrants to purchase Company Shares, or upon
the satisfaction of conditions specified in incentive compensation agreements,
or pursuant to employee compensation and benefit plans and arrangements
(including arrangements for compensation of directors), adopted by the Company
after the date of this Agreement, at a price less than the Average Market Price
at the date of the issuance of such rights, options or warrants, or the grant
of rights under such agreements, plans or arrangement, as the case may be;
provided, however, that, while the Company shall not be under any constraint as
to the number of Company Shares issuable or issued pursuant to such rights,
options, warrants, agreements and plans, not in excess of 1% of the total
number of Company Shares outstanding as any particular time shall be treated as
Excludable Shares.
"Existing Properties" means, at any specified time, all Properties
that, to but not including such time, have not been the subject of a completed
Disposition.
"Freely Transferable Shares" means, when used with reference to
Company Shares distributable to the Limited Partner pursuant to Article VIII
upon liquidation of the Partnership or Redemption of the Limited Partner's
Interest, Company Shares that, as of the date of delivery, (a) are registered
under the Securities Act, and registered or qualified under the "blue sky" or
securities laws of the several states of the United States, in accordance with
the provisions of the Company Agreement, such that the Limited Partner will be
free immediately to resell such Company Shares in the open market, and (b) are
listed or admitted to trading on the principal national securities exchange on
which the Company Shares are listed or admitted to trading or, if the Company
Shares are not then listed or admitted to trading on a national securities
exchange but are admitted to trading on the NASDAQ National Market, and (c) the
delivery of which to, and the ownership and transfer of which by, the Limited
Partner is not prohibited or restricted by the Articles of Incorporation and/or
By-laws of the Company; provided, however, that the provisions of this clause
(c) shall not affect or require the suspension of any provision of the Articles
of Incorporation and/or By-laws of the Company if and to the extent such
prohibition or restriction is a result of the direct or indirect ownership by
the Limited Partner of Company Shares (without the prior written consent of the
Company) other than those distributed to the Limited Partner upon liquidation
of the Partnership or Redemption of the Limited Partner's Interest; and
provided further, however, that if and to the extent such prohibition or
restriction is a result of the direct or indirect ownership by the Limited
Partner of Company Shares (without the prior written consent of the Company)
other than those so distributed, Freely Transferable Shares, Company Shares,
and all terms of similar import shall include any shares of Excess Common Stock
(as defined in the Company's Articles of Incorporation) delivered to the
Limited Partner in place of any shares of Company Shares in connection with any
such distribution. In order for the
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<PAGE> 11
Company to qualify as a "real estate investment trust" under the Code, the
Company's Amended and Restated Articles of Incorporation contains certain
restrictions, applicable to all purchasers of Company Shares, on the
acquisition and ownership of Company Shares, and the certificates representing
and evidencing Company Shares bear a legend referring to such restrictions.
Neither the existence of such restrictions nor the fact that the certificates
for Company Shares bear such legend, of themselves, prevent Company Shares from
being Freely Transferable Shares.
"General Partner" means AJ Two Limited Partnership, a Delaware limited
partnership the general partner of which is AJ Two, Inc., and the limited
partner of which is Prime Residential, L.P., a Delaware limited partnership,
and any other Person who, at the time of reference thereto, is admitted as a
successor general partner of the Partnership in accordance with the provisions
of Article VII, in such Person's capacity as a general partner of the
Partnership.
"Indebtedness" means, at the time of reference thereto, the
outstanding principal amount of (a) any indebtedness of the Property
Partnership or secured by the Properties, or any of them; (b) obligations of
the Property Partnership as lessee under leases that are or, under generally
accepted accounting principles, should be classified as capital leases; (c)
obligations (contingent or otherwise) of the Property Partnership with respect
to bankers' acceptances or letters of credit; and (d) obligations of the
Property Partnership (contingent or otherwise) under direct or indirect
guaranties with respect to, or to purchase or otherwise acquire, or otherwise
to assure a creditor against loss with respect to, indebtedness or obligations
of others of the type referred to the foregoing clauses (a), (b) and (c). In
determining the outstanding principal amount of any Indebtedness at any time,
the then nominal outstanding principal amount shall be reduced by any amounts
then set aside in a sinking fund or reserve (including the Reserve Fund) for
the payment thereof.
"Indemnified Person" has the meaning given in Section 3.08.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the rights and obligations of
such Partner under this Agreement and the Delaware Act. Reference to a
specified percentage, or a majority, in Interest of the Partners or a class of
Partners means Partners whose aggregate Partnership Percentages represent at
least such specified percentage, or more than 50%, as the case may be, of the
aggregate Partnership Percentages of all Partners or such class of Partners, as
the case may be.
"Internal Rate of Return" means that rate of interest at which the
present value of specified distributions to the Limited Partner (or the Aliquot
Share of such distributions), discounted annually on the basis of a 360-day
year of twelve 30-day months, from the time of the making of such distribution
to the Closing Date equals the amount of the Limited Partner's Capital
Contribution (or an Aliquot Share of the Limited Partner's Capital
Contribution).
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"Investor" means Makoto Maki, in his individual capacity and not in his
capacity as a limited partner.
"Letter Agreement" means the letter undertaking, in the form of
Exhibit B hereto and dated as of the Closing Date, of the general partner of
the Property Partnership.
"Limited Partner" means each Person that is, at the time of reference
thereto, a party to this Agreement, and has been admitted to the Partnership as
a limited partner in accordance with the provisions of Article VII or the
proviso to Section 8.01, in such Person's capacity as a limited partner of the
Partnership.
"Limited Partner's Share" means, when used with reference to the Net
Equity Value of the Properties remaining after a Disposition, the amount that
would be distributable to the Limited Partner if, immediately after such
Disposition, the Interest of the Limited Partner were redeemed pursuant to
Section 8.03(c)(i).
"Loss" means, for each Partnership Tax Year or other period, an amount
equal to the Partnership's items of taxable deduction and loss for such year or
other period, determined in accordance with Section 703(a) of the Code
(including all items of loss or deduction required to be stated separately
under Section 703(a)(1) of the Code), with the following adjustments:
(a) Any expenditures of the Partnership or the Property
Partnership described in Section 705(a)(2)(B) of the Code or treated
as Section 705(a)(2)(B) expenditures under Regulation Section
1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing Loss, will be considered an item of Loss;
(b) Loss resulting from any disposition of an asset of
the Partnership or the Property Partnership with respect to which gain
or loss is recognized for Federal income tax purposes will be computed
by reference to the "book" basis of such asset, notwithstanding that
the adjusted tax basis of such property may differ from its "book"
basis;
(c) In lieu of depreciation, amortization and other cost
recovery deductions taken into account in computing taxable income or
loss, there will be taken into account Depreciation for the taxable
year or other period as determined in accordance with Regulation
Section 1.704-1(b)(2)(iv)(g);
(d) Any items deduction and loss specially allocated
pursuant to Section 5.07 shall not be considered in determining Loss;
and
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<PAGE> 13
(e) Any increase to Capital Accounts as a result of any
adjustment to the "book" basis of the Partnership or the Property
Partnership pursuant to Regulation Section 1.704-1(b)(2)(iv)(g) shall
constitute an item of Loss.
"NASD" means the National Association of Securities Dealers, Inc. or
any successor self-regulatory organization.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System, or any successor automated quotation system of the
NASD.
"Net Equity Value" means, at the time of reference thereto, the then
Collateral Value less all Indebtedness at the time. The computation of the
Collateral Value and the Net Equity Value as of the Closing Date (reflecting
all of the Properties as of the Closing Date) is set forth on Schedule C to
this Agreement.
"Net Operating Income" means net income from operations of the
Property Partnership for financial reporting purposes, determined in accordance
with generally accepted accounting principles, for the 12 calendar months next
preceding the time of determination, plus (a) interest expense actually
deducted in determining such net income for such period, (b) fees and similar
periodic charges on or with respect to Indebtedness of the Property Partnership
actually deducted in determining such net income for such period, and (c)
income taxes actually deducted in determining such net income for such period
minus (i) to the extent not reflected in the determination of such net income
for such period, provision in the period for a reserve for capital expenditures
in the amount of $250 per unit, (ii) if the vacancy factor, on a portfolio
basis, of the Properties is less than 5%, such amount as will as nearly as
practicable adjust the revenues and operating expenses of the Property
Partnership to what they would have been had the vacancy factor, on a portfolio
basis, of the Property Partnership been 5% and (iii) to the extent not
reflected in the determination of such net income for such period, a management
fee of 5% of the gross rentals of the Property Partnership for such period.
"Other Distributable Proceeds" means the excess of the cash receipts
from a Refinancing or an Other Event (including amounts not required as or
released from reserves created in connection with any Refinancing or Other
Event) over the aggregate of (a) the expenses of such Refinancing (including
fees and prepaid financing expenses in connection with such Refinancing), (b)
the refinanced indebtedness (including principal, prepayment penalties, yield
maintenance charges, and accrued interest) and all other debts and obligations
of the Property Partnership discharged or required to be discharged in
connection with such Refinancing or such Other Event, (c) in connection with
any damage or insurance recoveries or condemnation awards, cash paid or to be
paid in connection with permitted repairs or replacements of the affected
Property, (d) reasonable cash reserves created by the general partner of the
Property Partnership for taxes, debt service, obligations, liabilities and
other expenses required to be paid in connection with such Refinancing or such
Other Event.
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<PAGE> 14
"Other Event" means any event (such as partial condemnation of or
damage to a Property) relating to a Property or the Property Partnership's
interest therein and not in the ordinary course of business, other than a
Refinancing or Disposition of such Property.
"Partner Nonrecourse Debt Minimum Gain" means the amount defined in
Regulation Section 1.704-2(i)(2) and determined as provided in Regulation
Section 1.704-2(i)(3).
"Partners" means the General Partner and the Limited Partner.
"Partnership" means the limited partnership governed under and
pursuant to this Agreement, as said partnership may from time to time be
constituted.
"Partnership Minimum Gain" means the amount defined in Regulation
Section 1.704-2(b)(2) and computed as provided in Regulation Section
1.704-2(d).
"Partnership Percentage," when used with respect to a Partner or a
class of Partners, as the case may be, means the percentage that the Adjusted
Capital Contribution of such Partner or the aggregate Adjusted Capital
Contributions of all Partners of such class, as the case may be, represents of
the aggregate Adjusted Capital Contributions of all Partners at the time of
reference thereto.
"Partnership Tax Year" means the taxable year of the Partnership for
United States Federal income tax purposes as determined under Code Section 706.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof, or other entity.
"Priority Distribution" means (a) with respect to the Limited Partner
as of any particular time (the "Limited Partner's Priority Distribution"), an
amount equal to 8 1/2% per annum, cumulative but not compounded, of the
weighted average daily amount of such Partner's Adjusted Capital Contribution
from the Closing Date through and including such time; and (b) with respect to
the General Partner as of any particular time (the "General Partner's Priority
Distribution"), an amount equal to 8 1/2% per annum, cumulative but not
compounded, of the weighted average daily amount of the General Partner's
Adjusted Capital Contribution from the beginning of the calendar year (and not
from the Closing Date) with respect to which such distribution is determined
through and including such time, which distributions (both the Limited
Partner's Priority Distribution and the General Partner's Priority
Distribution) are, to the extent provided in this Agreement, made monthly in
arrears and computed on the basis of a 360-day year of twelve 30-day months.
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<PAGE> 15
"Pro Forma Priority Distribution" means the excess of (a) the amount,
if any, that would have constituted Adjusted Distributable Cash From Operations
for the twelve months ended January 31, 1996 if the Partnership had been in
existence and owned its Property Partnership Interest for the full twelve-month
period over (b) the sum of the amounts that would have constituted the Limited
Partner's Priority Distribution and the General Partner's Priority Distribution
for such twelve month period if the General Partner and the Limited Partner
each had been admitted to the Partnership, and the Limited Partner and the
General Partner had made the Capital Contributions provided for in Sections
4.02(a) and 4.02(b), on or prior to February 1, 1995; provided, however, that,
from and after the Disposition of any Property, the Pro Forma Priority
Distribution shall be recomputed to remove from what would have constituted
Distributable Cash From Operations for the twelve months ended January 31, 1996
the contribution thereto of such Property (as more particularly set forth on
Schedule D hereto) and to recompute what would have constituted the Priority
Distributions of the Partners to reflect the Adjusted Capital Contributions of
the Partners following the distribution of Distributable Disposition Proceeds
in connection with such Disposition. The Pro Forma Priority Distribution in
any calendar year is payable, if at all, only from distributions from the
beginning of such calendar year (rather from the Closing Date) and is not
cumulative from year to year if not paid in any year. The computation of the
Pro Forma Priority Distribution for all Properties as of the Closing Date is
set forth on Schedule D to this Agreement.
"Profit" means, for each Partnership Tax Year or other period, an
amount equal to the Partnership's items of taxable income and gain for such
year or other period, determined in accordance with Section 703(a) of the Code
(including all items of income and gain required to be stated separately under
Section 703(a)(1) of the Code), with the following adjustments:
(a) Any income of the Partnership that is exempt from
Federal income tax and not otherwise taken into account in computing
Profit or Loss will be added to taxable income or loss;
(b) Gain resulting from any disposition of an asset of
the Partnership or the Property Partnership with respect to which gain
or loss is recognized for Federal income tax purposes will be computed
by reference to the "book" basis of such asset, notwithstanding that
the adjusted tax basis of such property may differ from its "book"
basis;
(c) Any items specially allocated pursuant to Section
5.07 shall not be considered in determining Profit; and
(d) Any increase to Capital Accounts as a result of any
adjustment to the book value of the assets of the Partnership or the
Property Partnership pursuant to Regulation Section
1.704-1(b)(2)(iv)(g) shall constitute an item of Profit.
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<PAGE> 16
"Properties" or "Property" means the separate multifamily rental
projects listed on Schedule B to this Agreement, or any of such projects,
including the real property and all improvements thereto.
"Property Partnership" means Prime MFP VII Limited Partnership, a
limited partnership organized under the laws of the State of Delaware.
"Property Partnership Agreement" means the Limited Partnership
Agreement of the Property Partnership, as supplemented, amended or restated
from time to time.
"Property Partnership Interest" means the limited partner interest of
the Partnership in the Property Partnership.
"Redemption" means a redemption of the Limited Partner's Interest, as
provided in Article VIII.
"Refinancing" means any borrowing incurred or made by the Property
Partnership to refinance any Indebtedness.
"Regulations" means regulations promulgated by the Department of the
Treasury and from time to time in effect pursuant to the Code. References to
specific Regulations herein are as of the date of the execution of this
Agreement and are deemed to include any successor provision thereto.
"Related Party" means the General Partner, the general partner or the
limited partner of the General Partner, and the general partner of the Property
Partnership.
"Section 704(c) Property" means in the case of any Property or other
asset of the Partnership in which the Partnership's share of such the adjusted
tax basis (as determined for Federal income tax purposes) of such Property or
other asset differs from such the Capital Value of the Property or any agreed
upon value for any other asset or, if such Property or other asset is revalued
pursuant to Section 5.05(c) of this Agreement, differs from such revalued
amount.
"Securities Act" means the Securities Act of 1933 (or any succeeding
law).
"Share Acquisition" means any transaction or series of related
transactions, other than a Covered Transaction, in which any Person, or any
Persons who together constitute a "group" for purposes of Section 13(d) of the
Exchange Act, acquire 50% or more of the Company Shares.
"Temporary Investments" means (i) United States government and agency
obligations with maturities not longer than one year and one day, (ii)
commercial paper with maturities not longer than six months and one day and
having a rating assigned to such commercial paper by Standard
12
<PAGE> 17
& Poor's Corporation or Moody's Investors Service, Inc. (or, if neither such
organization shall rate such commercial paper at such time, by any nationally
recognized rating organization in the United States of America) equal to one of
the two highest ratings assigned by such organization and (iii)
interest-bearing deposits in United States or Canadian banks with an
unrestricted surplus of at least $250,000,000, maturing within one year.
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<PAGE> 18
ARTICLE II
FORMATION; NAME AND PLACE OF BUSINESS; TERM; ETC.
2.01. Formation. The parties hereto hereby form the Partnership
pursuant to the provisions of the Delaware Act, and agree that the rights,
powers and liabilities of the Partners shall be as provided in the Delaware
Act, except as otherwise provided herein.
2.02. Name. The name of the limited partnership formed hereby is
Jupiter - II, L.P. The Partnership's business may be conducted under the name
of the Partnership or such other name as the General Partner may from time to
time, with the consent of the Limited Partner, determine; provided that any
such other name shall contain the words "Limited Partnership" or the
abbreviation "L.P." and may contain such other additional designation as the
General Partner shall deem appropriate in order to comply with the laws of any
jurisdiction that so requires. The General Partner shall give prompt notice of
any name change to the Limited Partner.
2.03. Purpose. The purpose and character of the business of the
Partnership is to acquire, hold and otherwise deal with the Property
Partnership Interest, to share profits and losses therefrom, to engage in such
activities as are necessary, incidental or ancillary thereto.
2.04. Place of Business. The principal place of business of the
Partnership shall be located at 77 West Wacker Drive, 40th Floor, Chicago,
Illinois, in care of the General Partner. Subject to Section 3.03, the General
Partner may, at any time and from time to time, change the location of the
Partnership's principal place of business, and may establish such additional
place or places of business of the Partnership as it may from time to time
determine; provided that such change of place of business, or such
establishment of an additional place or places of business shall be solely at
the expense of the Partnership and/or the General Partner. Written notice of
such change shall be given to the Limited Partner at least one week prior to
any such change.
2.05. Term. The Partnership shall continue until the seventh
anniversary of the Closing Date unless extended by the General Partner and the
Limited Partner, as herein provided.
2.06. Registered Agent and Registered Office. The Partnership shall
maintain a registered office in the State of Delaware. The name and address of
the registered agent for service of process on the Partnership in the State of
Delaware, and the address of the registered office of the Partnership in the
State of Delaware, is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The General
Partner shall give prompt notice to the Limited Partner of any change in the
registered office of the Partnership.
2.07. Application of the Delaware Act. The Partnership is a limited
partnership subject to the provisions of the Delaware Act and the terms and
conditions set forth in this Agreement.
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<PAGE> 19
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 Delaware Act.
2.08. Partnership only for Purposes Specified. The Partnership
shall be a partnership only for, and this Agreement shall not be deemed to
create a partnership among the Partners for or with respect to any activities
other than those within, the purposes specified in this Agreement. Except as
expressly provided in this Agreement, no Partner shall have any authority to
act for, bind, commit or assume any obligation or responsibility on behalf of
the Partnership, its properties, or any other Partner. No Partner, in its
capacity as a partner under this Agreement, shall be liable or responsible for
any indebtedness or obligation of another Partner, nor shall the Partnership be
responsible or liable for any indebtedness or obligation of any Partner
incurred either before or after the execution and delivery of this Agreement by
such Partner, except as to those responsibilities, liabilities, indebtedness or
other obligations incurred pursuant to and in conformity with and as limited by
the terms of this Agreement and the Delaware Act.
2.09. Co-Partnership for Joint Business. The Partners, through the
Partnership, shall hold the Assets and carry on business and derive the gains
therefrom, as provided in this Agreement.
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<PAGE> 20
ARTICLE III
MANAGEMENT
3.01. Management and Control of the Partnership.
(a) Subject to the consent of the Limited Partner where
expressly required by this Agreement, the General Partner, within the authority
granted to it under and in accordance with the provisions of this Agreement,
shall have the full and exclusive right to manage and control the business and
affairs of the Partnership and to make all decisions regarding the business and
affairs of the Partnership and shall have all of the rights, powers and
obligations of a general partner of a limited partnership under the Delaware
Act.
(b) No Limited Partner shall participate in the
management of or have any control over the Partnership's business nor shall any
Limited Partner have the power to represent, act for, sign for or bind the
General Partner or the Partnership; provided, however, that the provisions of
this Section shall not affect the right of the Limited Partner to grant or
withhold its consent where required by this Agreement or be in derogation of
the voting rights of the Limited Partner under the Delaware Act.
3.02. Authority of the General Partner.
(a) Except to the extent otherwise provided herein, and
subject to the approval of the Limited Partner to the extent required under
this Agreement, the General Partner shall, in addition to any other rights and
powers which the General Partner may possess under this Agreement and the
Delaware Act, have all specific rights and powers required or appropriate to
its management of the Partnership business which, by way of illustration but
not by way of limitation, may include the following rights and powers:
(i) to acquire, on behalf of the Partnership, the
Property Partnership Interest on the Closing Date;
(ii) to execute any and all agreements, contracts,
documents, certifications and instruments necessary or convenient in
furtherance of any or all of the purposes of the Partnership;
(iii) to file applications, communicate and
otherwise deal with any and all governmental agencies having jurisdiction over
or in any way affecting the Partnership or its Assets or operations;
(iv) to protect and preserve the title and interest
of the Partnership with respect to the Assets at any time owned or acquired by
the Partnership;
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(v) to collect all amounts due to the Partnership,
and otherwise to enforce all rights of the Partnership;
(vi) to prosecute, defend, arbitrate, compromise or
settle any claims asserted by or against the Partnership, or affecting the
Partnership or its Assets or operations, on such terms as the General Partner
deems reasonable and proper;
(vii) to retain legal counsel, accountants and such
other persons as the General Partner shall deem necessary or appropriate in
connection with the Partnership's business, and to pay therefor such reasonable
remuneration as the General Partner deems reasonable and proper;
(viii) to establish and maintain one or more bank
accounts for the Partnership in such bank or banks as the General Partner may,
from time to time, designate as depositaries of the funds of the Partnership;
(ix) to the extent that funds of the Partnership are
available, to pay all permitted debts and obligations of the Partnership;
(x) to the extent that funds of the Partnership are
available, to make all distributions periodically to the Partners in accordance
with the provisions of this Agreement;
(xi) to perform all duties imposed on a general
partner by Section 6221 through 6232 of the Code as "tax matters partner" of
the Partnership subject to the provisions of Section 6.05 hereof; and
(xii) to perform all normal business functions, and
otherwise operate and manage the business and affairs of the Partnership, in
accordance with and as limited by this Agreement.
(b) Any Person dealing with the Partnership or the
General Partner may rely upon a certificate signed by the General Partner,
thereunto duly authorized, as to:
(i) the identity of the General Partner and the
Limited Partner;
(ii) the existence or non-existence of any fact or
facts which constitute conditions precedent to acts by the General Partner or
in any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and
deliver any instruments or document of the Partnership; or
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<PAGE> 22
(iv) any act or failure to act by the Partnership or
as to any other matter whatsoever involving the Partnership or any Partner.
3.03. Restrictions on the Authority of the General Partner. Without
the consent of the Limited Partner (in its sole and absolute discretion), the
General Partner, in its capacity as such, shall not have the authority to:
(a) do any act in contravention of this Agreement;
(b) do any act which would make it impossible to carry on
the ordinary business of the Partnership;
(c) confess a judgment against the Partnership;
(d) possess any Assets, or assign the Partnership's
rights in specific Assets, for other than a Partnership purpose;
(e) admit a Person as a General Partner, except as
provided in Article VII;
(f) admit a Person as a Limited Partner, except as
provided in Article VII;
(g) knowingly perform any act that would subject the
Limited Partner to liability as a general partner in any jurisdiction;
(h) elect to dissolve the Partnership, cause the
Partnership to dissolve, cause or permit the Partnership to merge or
consolidate with or into any other Person, or cause or permit the Partnership
to change its legal form;
(i) consent to the dissolution of the Property
Partnership or the merger or consolidation of the Property Partnership with or
into any other Person or a change of the legal form of the Property
Partnership;
(j) amend, or consent to the waiver of any of the
Partnership's rights under, or grant any consent or make any election under,
the Property Partnership Agreement or the Letter Agreement;
(k) acquire, or consent to the acquisition by the
Property Partnership of, any real property, or improvements thereto or direct
or indirect interests therein (including mortgages and partnership interests),
other than the Properties;
(l) prior to the second anniversary of the Closing Date,
sell, transfer, assign, abandon or otherwise dispose of the Property
Partnership Interest, or cause the Property
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<PAGE> 23
Partnership voluntarily to sell, transfer, assign, abandon or otherwise dispose
of any of the Properties, or consent to any such action by the Property
Partnership;
(m) after the second anniversary of the Closing Date,
sell, transfer, assign, abandon, or otherwise dispose of the Property
Partnership Interest, or cause the Property Partnership voluntarily to sell,
transfer, assign, abandon or otherwise dispose of any of the Properties, or
consent to any such action by the Property Partnership, unless such transaction
is an arm's-length transaction with an unrelated third-party and, in connection
with any sale of a Property,
(i) the Distributable Disposition Proceeds
distributable to the Limited Partner from such Disposition pursuant to Section
5.03(b)(i) are sufficient, together with an Aliquot Share of all prior
distributions to the Limited Partner pursuant to Section 5.01 and Section 5.02,
to return an Aliquot Share of the Limited Partner's Capital Contribution,
together with an Internal Rate of Return thereon, from the Closing Date through
the date of distribution, of 14%, and
(ii) the Limited Partner's Share of the Net Equity
Value of the Properties remaining after the Disposition, as a whole, will be
equal to or greater than the Limited Partner's Adjusted Capital Contribution
following the distribution of Distributable Disposition Proceeds from such
Disposition;
(n) prepay, defease (other than in accordance with the
terms and conditions provided in the Loan Agreement dated as of March 27, 1996
between the Property Partnership, as Borrower, and the Lender referred to
therein) or refinance, or consent to the Property Partnership prepaying,
defeasing or refinancing, any Indebtedness; provided, however, that the Limited
Partner shall not unreasonably withhold its consent to any Refinancing of such
Indebtedness if
(i) the General Partner in good faith reasonably
determines, and so certifies in writing, that such Refinancing is in the best
interest of the Partnership and the Property Partnership, and
(ii) the principal amount of the Refinancing is
not less than the sum of the principal amount of the Indebtedness being
refinanced plus the related transaction costs;
(o) except as expressly provided in the foregoing
subsection (n) or as contemplated by Section 3.09(c) hereof or subsection 1.o
of the Letter Agreement, cause the Partnership to incur or become liable with
respect to, or consent to the Property Partnership incurring or becoming liable
with respect to, any indebtedness, secured or unsecured, or subject any rights,
properties or assets of the Partnership or Property Partnership to any
indebtedness;
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<PAGE> 24
(p) call for any contribution to the capital of the
Partnership or, except as contemplated by Section 3.09(c), any loans from the
Partners;
(q) make any change in the purpose and character of the
business of the Partnership;
(r) relocate the Partnership's principal place of
business, or establish an additional place of business, outside the United
States;
(s) except as contemplated by Section 3.09(a), cause the
Partnership to enter into any contract for the management of Partnership
properties, real or personal, tangible or intangible;
(t) except as contemplated by Sections 3.09(a) and (c),
cause the Partnership or the Property Partnership to enter into a contract with
any Affiliate of the General Partner for the provision of goods, services or
credit; provided, however, that the consent of the Limited Partner shall not be
required (A) with respect to any contract or arrangement in effect on the date
of this Agreement or any renewal or continuation of such contract or
arrangement on substantially similar terms or (B) if
(i) the General Partner in good faith reasonably
determines, and so certifies in writing, that such contract is in the best
interest of the Partnership;
(ii) the terms of such contract or arrangement are
not less favorable to the Partnership than those that would be entered into in
an arm's-length transaction with an unaffiliated party; and
(iii) the aggregate consideration payable under
such contract, or under any related series of contracts, does not exceed
$25,000;
(u) except for a loan by the Partnership to the Property
Partnership within the contemplation of Section 3.09 of this Agreement and
subsection 1.o of the Letter Agreement, cause or permit the Partnership to make
or provide or consent to the Property Partnership making or providing, any loan
or advance to, or any guaranty on behalf of, any other Person; or
(v) cause the Partnership to make an assignment for the
benefit of creditors, appoint or consent to the appointment of a custodian of
all or substantially all of the assets of the Partnership, commence a voluntary
case under any Bankruptcy Law or consent to an involuntary case filed against
the Partnership under any Bankruptcy Law.
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3.04. Duties and Obligations of the General Partner.
(a) The General Partner shall take all action that may be
necessary or appropriate for the continuation of the Partnership's valid
existence as a limited partnership under the Delaware Act (and the laws of each
other jurisdiction in which such existence as a limited partnership is
necessary to protect the limited liability of the Limited Partner or to enable
the Partnership to conduct the business in which it is engaged).
(b) The General Partner shall at all times conduct its
affairs and the affairs of all of its Affiliates and of the Partnership in such
a manner that neither any Partner nor any Affiliate of any Partner will have
any personal liability for any Indebtedness of the Partnership or of the
Property Partnership.
(c) The General Partner shall prepare or cause to be
prepared and shall file on or before the due date (or any extension thereof)
any Federal, state or local tax returns required to be filed by the
Partnership.
(d) The General Partner shall use all reasonable efforts
to cause the Partnership to be formed, reformed, qualified to do business, or
registered under any applicable assumed or fictitious name statutes or similar
law in any state in which such formation, reformation, qualification or
registration is necessary in order to protect the limited liability of the
Limited Partner or to permit the Partnership lawfully to own its Assets or to
transact the business in which it is engaged.
(e) To the extent provided under Delaware law with
respect to general partners of limited partnerships generally, the General
Partner shall be under a fiduciary duty and obligation to conduct the affairs
of the Partnership in the best interest of the Partnership, including the
safekeeping and use of all Partnership funds and other Assets (whether or not
in the immediate possession or control of the General Partner) for the benefit
of the Partnership. The General Partner shall not commingle any funds or other
Assets of the Partnership with the funds or other assets of the General Partner
or its Affiliates; provided, however, that (i) the General Partner shall not be
under any fiduciary or other duty, hereunder or otherwise, when acting "in its
sole discretion" or "in its sole and absolute discretion" and (ii) the General
Partner shall not be under any fiduciary or other duty, hereunder or otherwise,
in making any determination pursuant to Article VIII whether the Partnership
will distribute cash or Company Shares or any combination thereof in connection
with the liquidation of the Partnership or the Redemption of the Limited
Partner's Interest.
3.05. Title to Partnership Property. The Partnership shall hold
title to the Assets in its own name. The beneficial interest in the Assets
shall be deemed to be held for and by the General Partner and the Limited
Partner in proportion to their Partnership Percentages.
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3.06. Liability of the Partners. (a) The liability of the Limited
Partner shall be limited in accordance with the Delaware Act. If any claim
shall be asserted against the Limited Partner, solely in its capacity as such,
on account of or with respect to any actions or omissions of, or claims
against, or debts, liabilities, contracts or other obligations of, the
Partnership or the General Partner or the Property Partnership, the Partnership
and/or the General Partner shall assume the defense of the Limited Partner,
with counsel designated by the Partnership or the General Partner and at the
cost and expense of the Partnership. If neither the Partnership nor the
General Partner so assume the defense of such claim, the Limited Partner shall
be entitled to defend the claim with counsel of its choosing and shall be
reimbursed and indemnified by the Partnership for the expenses (including the
fees and expenses of counsel) of such defense.
(b) No officer, director, partner, employee, stockholder
or agent of the Limited Partner shall have any personal liability under this
Agreement or with respect to claims against, or debts, liabilities, contracts
or other obligations of, the Partnership or the Property Partnership.
(c) If the Limited Partner is required under applicable
law to return to the Partnership or pay, for the benefit of creditors of the
Partnership, amounts previously distributed to such Limited Partner, and the
General Partner, as general partner of the Partnership, is required to pay such
amounts for the benefit of creditors of the Partnership, the General Partner
shall be entitled to recover such amounts from each Limited Partner who fails
to return or pay any such amount.
3.07. Liability to the Partners. None of the General Partner or any
Affiliate of the General Partner, or any of their respective officers,
directors, partners, employees, stockholders, or agents, shall be liable to any
Partner or the Partnership for any action taken or omitted to be taken by it or
him or for any action taken or omitted to be taken by any other Partner or
other person with respect to the Partnership, except in the case of its or his
own bad faith, gross negligence, willful misconduct, fraud or reckless
disregard for its or his duties to the Partnership.
3.08. Indemnification. To the fullest extent permitted by law, the
Partnership shall indemnify the General Partner and each Affiliate of the
General Partner, and each of their respective officers, directors, partners,
employees, stockholders, or agents (each an "Indemnified Person"), against all
losses, claims, damages or liabilities (including legal or other expenses
reasonably incurred in investigating or defending against any such loss, claim,
damage or liability), joint or several, to which an Indemnified Person may
become subject by reason of any acts or omissions, or alleged acts or
omissions, arising out of any such person's activities as the General Partner,
an Affiliate of the General Partner or one of their respective officers,
directors, partners, employees, stockholders, or agents unless such loss,
claim, damage or liability results from or arises out of such Indemnified
Person's bad faith, gross negligence, willful misconduct, fraud or reckless
disregard for his or its duties to the Partnership. Any indemnification rights
provided for in this Section 3.08 shall be retained by any resigned or
withdrawn General Partner, Affiliate of the General Partner or any of their
respective officers, directors, partners, employees,
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stockholders, or agents. The satisfaction of any indemnification hereunder
shall be from and limited to Partnership assets (including the total Capital
Contribution of the Partners) and any Person entitled to indemnification from
the Partnership hereunder shall first seek recovery under any insurance
policies or other indemnification, contribution or similar rights or agreements
by which such Person is covered and, if other than the General Partner, shall
obtain the written consent of the General Partner prior to entering into any
compromise or settlement which would result in an obligation of the Partnership
to indemnify such Person. The indemnification rights provided for in this
Section 3.08 shall survive the termination of the Partnership or this
Agreement.
3.09. Expenses.
(a) The Partnership shall be responsible for and shall
pay all direct expenses of the Partnership's ordinary operations, including,
but not limited to, any taxes, fees or other governmental charges levied
against the Partnership or on its income or assets in connection with its
business operations, the reasonable fees and expenses of outside counsel and
accountants, and all extraordinary expenses and all costs of winding up and
liquidating the Partnership. The General Partner shall be paid an annual
administrative fee by the Partnership of $15,000 as compensation therefor, in
equal quarterly installments, and the General Partner shall bear its overhead
expenses in connection with the administration of the Partnership; provided,
however, that payment of such administrative fee shall be subordinated to the
payment of the Limited Partner's Priority Return and the General Partner's
Priority Return and the amount of such administrative fee not paid in any year
as a result of such subordination shall be carried forward and paid in any
future year or years from funds available therefor.
(b) The General Partner shall create reasonable reserves
from funds distributed to the Partnership by the Property Partnership to
provide for the payment of all operating expenses of the Partnership, as
contemplated by Section 3.09(a), distributions to the Partnership pursuant to
Section 5.01(a), and the repayment of advances to the Partnership, as
contemplated by Section 3.09(c).
(c) If the Partnership requires funds not available from
reserves therefor to pay operating expenses of the Partnership, as contemplated
by Section 3.09(a), or to advance funds to the Property Partnership to pay
operating expenses of the Property Partnership, the General Partner shall,
except in case of emergency, provide written notice to the Limited Partner of
the amount of funds required, the proposed application thereof and the time by
which the funds must be provided to the Partnership. The General Partner shall
use commercially reasonable efforts to provide the Limited Partner as much
notice as practicable of any such need for funds and, unless the circumstances
do not permit, not less than 15 days' notice. The Limited Partner shall have
the right (in its sole and absolute discretion), but not any obligation, to
advance any or all of the funds being sought by the General Partner. If the
Limited Partner shall not have advanced the full amount of such funds by the
date set forth in such notice, then (and only then) the
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General Partner shall have the right (in its sole and absolute discretion), but
not any obligation, to advance any or all of the funds not advanced by the
Limited Partners. Any advances by the Limited Partner or the General Partner
shall bear interest until paid in full at the lower of (i) the actual cost of
funds to the Partner making such advance and (ii) the base lending rate from
time to time announced by Citibank, N.A. in New York City plus 1%. If the
Limited Partner and the General Partner do not advance all of the funds
required by the Partnership by the date set forth in such notice, the General
Partner shall be authorized to borrow the funds not advanced by the Partners
from any commercial lender or financial institution that is not an Affiliate of
the General Partner on such terms as the General Partner, in the exercise of
its business judgment, deems reasonable. Any amounts advanced by third-party
lenders shall be repaid in accordance with tenor of the loan. Any amounts
advanced by the Partners shall be repaid, first, in the order in which made
(that is, the first advances made are the first advances repaid) and, second,
pro rata, in accordance with the principal amounts advanced. Notwithstanding
the foregoing provisions of this Section 3.09(c), the aggregate amount of
indebtedness outstanding under this Section 3.09(c) (whether advances made by
the Partners or third-party lenders) and, without duplication, by the Property
Partnership to pay operating expenses of the Property Partnership shall not
exceed $2,000,000 at any one time.
3.10. Permitted Temporary Investments. The General Partner shall
invest Partnership funds and reserves in Temporary Investments pending
distribution to Partners pursuant to Article V or Article VIII.
3.11. Delegation of Authority. The General Partner may, subject to
the provisions of Section 3.03(t), appoint, employ, contract or otherwise deal
with any Person for the transaction of the business of the Partnership, which
Person may, under the supervision of the General Partner, (a) perform such acts
or services for the Partnership as the General Partner may reasonably approve
and (b) discharge such duties and obligations of the General Partner may
determine; provided, however, that the General Partner shall remain liable
with respect to any duties or obligations of the General Partner so discharged
by any such Person.
3.12. Business and Assets of General Partner. The General Partner
has, and at all times during the term of the Partnership shall have, no assets
other than its Interest in the Partnership. The sole business and purpose of
the General Partner is, and at all times during the term of the Partnership
shall be, to act as the General Partner of the Partnership in accordance with
the terms and conditions of this Agreement and the Delaware Act and to own its
Interest in the Partnership.
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ARTICLE IV
ADMISSION TO PARTNERSHIP; CAPITAL CONTRIBUTIONS;
CONDITIONS PRECEDENT
4.01. Admission of Limited Partner. The General Partner and
Investor, by execution and delivery of this Agreement and the Certificate of
Limited Partnership, are forming the Partnership and each is hereby admitted to
the Partnership as a Partner and becomes a party to, and subject to, this
Agreement.
4.02. Capital Contributions.
(a) Effective upon the formation of the Partnership and
Investor becoming the Limited Partner, the Limited Partner shall contribute to
the capital of the Partnership, in cash, the amount set forth on Schedule A to
this Agreement. The Capital Contribution of the Limited Partner shall be the
amount so set forth on such Schedule A.
(b) Effective upon the formation of the Partnership and
the General Partner becoming a Partner, (i) the General Partner shall
contribute to Partnership the entire limited partnership interest in the
Property Partnership, and (ii) the funds contributed to the Partnership by the
Limited Partner pursuant to Section 4.02(a) shall be distributed to the General
Partner as a return of capital. The agreed value of the Property Partnership
Interest, the amount distributed to the General Partner and the agreed value of
the General Partner's net contribution to the Partnership shall be set forth on
Schedule A to this Agreement and the Capital Contribution of the General
Partner shall be the net amount so set forth on such Schedule A.
(c) If the General Partner shall, with the prior written
consent of the Limited Partner (which the Limited Partner may withhold in its
sole and absolute discretion), solicit any additional contribution to the
capital of the Partnership other than pursuant to Section 4.02(d), such
solicitation shall (i) be open to the Limited Partner on the same terms and
subject to the same conditions that are available to any other person to whom
such solicitation is directed; (ii) be on terms that permit the Limited Partner
to maintain after the making of the solicited capital contribution the same
Partnership Percentage that the Limited Partner held prior to the commencement
of the solicitation; and (iii) not result in the creation of interests in the
Partnership that could be considered publicly traded within the meaning of
Section 7704 of the Code. The Partnership shall not accept any capital from
any Person not already a Partner except pursuant to an amendment to this
Agreement executed by the General Partner, the Limited Partner and such Person.
(d) Upon the dissolution and liquidation of the
Partnership or the Redemption of the Limited Partner's Interest, the General
Partner shall contribute or cause to be contributed to the capital of the
Partnership such amount of cash and/or such number of Company Shares as
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are necessary, together with cash held by the Partnership (whether from prior
operations or from Dispositions, Refinancings, Other Events or otherwise)
and/or Company Shares owned by the Partnership and available for the purpose,
to permit the Partnership to make the distribution to the Limited Partner
provided in Section 8.02(a)(i) (subject to the provisions of Section 8.02(b)),
Section 8.03(b) and (c) (subject to the provisions of Section 8.03(e)), or
Section 8.04(a), as the case may be.
4.03. Conditions Precedent. The formation of the Partnership and
admission of the Partners pursuant to Section 4.01 and the capital
contributions pursuant to Sections 4.02(a) and (b) are conditioned upon and
subject to each of the events set forth below having occurred on or prior to
the Closing Date:
(a) The Company, Investor, the Partnership and the
General Partner shall have entered into the Company Agreement;
(b) The general partner of the Property Partnership shall
have entered into its Letter Agreement; and
(c) Investor shall have received such certificates, legal
opinions, tax opinions and other documents as it shall reasonably request (in
light of the documentation of similar investments); provided, however, that the
making by the Limited Partner of its Capital Contribution pursuant to Section
4.02(a) shall, except as the Partners shall expressly agree at the time, be
deemed to constitute acknowledgement by the Limited Partner that the conditions
provided in this Section 4.03(c) have been satisfied or waived.
4.04. Withdrawal; Return of Capital. Except as expressly provided
in this Agreement, no Partner shall have any right to withdraw from the
Partnership or to demand or receive a return of its Capital Contribution. The
General Partner shall not have any personal liability with respect to the
return of any Partner's Capital Contribution.
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ARTICLE V
DISTRIBUTIONS AND ALLOCATIONS; CAPITAL ACCOUNTS
5.01. Monthly Distributions.
(a) Distributable Cash From Operations and Other
Distributable Proceeds for each calendar month of each calendar year,
commencing with the calendar month during which the Closing Date occurs, and,
to the extent available, Distributable Cash From Operations and Other
Distributable Proceeds from prior periods then being held pending application
pursuant to Section 5.01(b) shall, within ten days following the close of such
month, be distributed to the Partners as follows:
(i) First, to the Limited Partner until, together
with the aggregate of all prior distributions to the Limited Partner pursuant
to this Section 5.01(a)(i), Section 5.02(a)(i), Section 5.02(a)(iv) and the
proviso to Section 5.02(b), the Limited Partner shall have received the Limited
Partner's Priority Distribution; and
(ii) Second, to the General Partner until,
together with the aggregate of all prior distributions to the General Partner
with respect to such calendar year pursuant to this Section 5.01(a)(ii),
Section 5.02(a)(ii), Section 5.02(a)(iii), Section 5.02(a)(iv) and Section
5.02(b), the General Partner shall have received the General Partner's Priority
Distribution.
(b) Distributable Cash From Operations and Other
Distributable Proceeds not distributed in any month pursuant to Section 5.01(a)
shall be invested by the General Partner in Temporary Investments pursuant to
Section 3.10 pending application to the payment of Partnership expenses or
distribution to the Partners pursuant to Section 5.01(a) or Section 5.02.
(c) The General Partner shall determine in good faith the
necessity and reasonableness of any reserves, and the amount of Distributable
Cash From Operations and Other Distributable Proceeds available.
(d) Notwithstanding the foregoing provisions of this
Section 5.01, Distributable Cash From Operations and Other Distributable
Proceeds shall be distributed to the Limited Partner only to the extent that,
after taking into account all the allocations expected under Section 5.04 for
the Partnership Tax Year, such distribution would not cause the Limited Partner
to have a negative Capital Account balance in excess of the Limited Partner's
share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain;
and the Limited Partner shall return to the Partnership any distribution
erroneously paid to the Limited Partner in excess of this limit as soon as
practical (and in no event more than 30 days) after being notified by the
Partnership of such erroneous distribution.
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5.02. Quarterly Distributions.
(a) Distributable Cash From Operations and Other
Distributable Proceeds for each fiscal quarter of each fiscal year of the
Partnership, commencing with the fiscal quarter during which the Closing Date
occurs, and, to the extent available, Distributable Cash From Operations and
Other Distributable Proceeds from prior periods held pending application
pursuant to Section 5.01(b), shall, within thirty days following the close of
such fiscal quarter of the Partnership, be distributed to the Partners as
follows:
(i) First, to the Limited Partner until, together
with the aggregate of all prior distributions to the Limited Partner pursuant
to Section 5.01(a)(i), this Section 5.02(a)(i), Section 5.02(a)(iv) and the
proviso to Section 5.02(b), the Limited Partner shall have received the Limited
Partner's Priority Distribution;
(ii) Second, to the General Partner until,
together with the aggregate of all prior distributions to the General Partner
with respect to such fiscal year pursuant to Section 5.01(a)(ii), this Section
5.02(a)(ii), Section 5.02(a)(iii), Section 5.02(a)(iv) and Section 5.02(b), the
General Partner shall have received the General Partner's Priority
Distribution;
(iii) Third, to the General Partner until,
together will the aggregate of all prior distributions to the General Partner
with respect to such fiscal year pursuant to this Section 5.02(a)(iii), Section
5.02(a)(iv) and Section 5.02(b), the General Partner shall have received its
Pro Forma Priority Distribution for such year; and
(iv) Fourth, the balance of all Distributable Cash
From Operations and Other Distributable Proceeds remaining after the foregoing
distributions, 30% to the Limited Partner and 70% to the General Partner.
(b) The General Partner shall determine in good faith the
necessity and reasonableness of any reserves, and the amount of Distributable
Cash From Operations and Other Distributable Proceeds.
(c) Notwithstanding the foregoing provisions of this
Section 5.02, Distributable Cash From Operations and Other Distributable
Proceeds shall be distributed to the Limited Partner only to the extent that,
after taking into account all the allocations expected under Section 5.04 for
the Partnership Tax Year, such distribution would not cause the Limited Partner
to have a negative Capital Account balance in excess of the Limited Partner's
share of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain;
and the Limited Partner shall return to the Partnership any distribution
erroneously paid to such partner in excess of this limit as soon as practical
(and in no event more than 30 days) after being notified by the Partnership of
such erroneous distribution.
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5.03. Distributions of Disposition Proceeds.
(a) As promptly as practicable after the realization of
Distributable Disposition Proceeds from any Disposition (other than any
Disposition in connection with a Redemption), the prior distributions pursuant
to Sections 5.01 and 5.02 shall, solely for purposes of determining the amounts
to be distributed to the Partners pursuant to Section 5.03(b) in connection
with such Disposition and the amounts thereafter to be distributed to the
Partners pursuant to Sections 5.01(a), 5.02(a)(i), (ii) and (iii), 8.02(a),
8.03(c) and(d), and 8.04(a) and the allocations thereafter of Profit and Loss
pursuant to Sections 5.04(a), (b) and (c), be recomputed as follows:
(i) The Aliquot Share of each prior distribution
to the Partners pursuant to Sections 5.01(a)(i) and (ii), Sections 5.02(a)(i),
(ii), (iii) and (iv) and Section 5.02(b) and the proviso thereto, determined as
provided in the definition thereof, shall be applied in determining the
distributions of Distributable Disposition Proceeds pursuant to Section
5.03(b); and
(ii) The portion of each prior distribution to the
Partners pursuant to Sections 5.01(a)(i) and (ii), Sections 5.02(a)(i), (ii),
(iii) and (iv) and Section 5.02(b) and the proviso thereto that does not
constitute the Aliquot Share thereof, determined pursuant to Section
5.03(a)(i), shall constitute the distributions to the Partners pursuant to such
Sections for all purposes of the determination thereafter of the amount of
"prior distributions" to the Partners under this Agreement.
(b) The Distributable Disposition Proceeds from any
Disposition (other than any Disposition in connection with a Redemption) shall,
as promptly as practicable after the applications provided for in the
determination thereof, be distributed to the Partners as follows:
(i) First, to the Limited Partner until, together
with the Aliquot Share of all prior distributions to the Limited Partner
pursuant to Section 5.01 and Section 5.02, the Limited Partner shall have
received the return of the Aliquot Share of its Capital Contribution, together
with an Internal Rate of Return thereon, from the Closing Date through the date
of distribution, of 14%; and
(ii) Second, all remaining such Distributable
Disposition Proceeds to the General Partner.
(c) Notwithstanding the foregoing provisions of this
Section 5.03, Distributable Disposition Proceeds shall be distributed to the
Limited Partner pursuant to Section 5.03(b)(i) only to the extent that, after
taking into account all the allocations provided for in Section 5.04, such
distribution would not cause the Limited Partner to have a negative Capital
Account balance in excess of the Limited Partner's share of Partnership Minimum
Gain and Partner Nonrecourse Debt Minimum Gain; and the Limited Partner shall
return to the Partnership any distribution
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erroneously paid to such partner in excess of this limit as soon as practical
(and in no event more than 30 days) after being notified by the Partnership of
such erroneous distribution.
(d) The General Partner shall determine in good faith the
necessity and reasonableness of any reserves, and the amount of Distributable
Disposition Proceeds.
5.04. Allocation of Profit and Loss.
(a) Profit and Loss shall be determined with respect to
each fiscal year of the Partnership as of the end of such year and shall be
allocated to the Partners as herein provided within 60 days after the end of
such year.
(b) All Profit and Loss, other than any arising from a
Disposition, shall be allocated as follows:
(i) All Depreciation of the Properties for such
year shall be allocated to the Limited Partner and to the General Partner in
proportion to their respective Partnership Percentages; and
(ii) All other Profit and Loss (calculated
excluding Depreciation allocated pursuant to Section 5.04(b)(i)), other than
any arising from a Disposition, shall be allocated to the Limited Partner and
to the General Partner in proportion to the respective aggregate amounts of
Distributable Cash From Operations and Other Distributable Proceeds distributed
to them for such year pursuant to Sections 5.01 and 5.02.
(c) All Profit or Loss from a Disposition, and all gain
or loss from the revaluation of Partnership properties pursuant to Section
5.05(c), shall be allocated as follows:
(i) First, to the Limited Partner to such extent
as shall be necessary to cause the Limited Partner's Capital Account to equal
the amount that would be distributable to the Limited Partner upon the complete
liquidation of the Partnership at the time of determination without giving
effect to the application of Section 8.02(b); and
(ii) Second, all remaining Profit or Loss, and all
remaining gain or loss from the revaluation of Partnership properties, as the
case may be, to the General Partner.
(d) Notwithstanding the foregoing provisions of this
Section 5.04, to the extent not otherwise allocable to the General Partner in
accordance with the applicable provisions of this Section 5.04 there shall be
allocated to the General Partner (in its capacity as such) not less than 1% of
all Profit and Loss (and of each material item of Partnership income, gain,
loss, deduction or credit).
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(e) Notwithstanding the foregoing provisions of this
Section 5.04, (i) no item of loss or deduction shall be allocated to the
Limited Partner if such allocation would result in the limited Partner having a
negative Capital Account balance in excess of such Limited Partner's share of
Partnership Minimum Gain (within the meaning of Regulation Section 1.704-2(g))
and Partner Nonrecourse Debt Minimum Gain (within the meaning of Regulation
Section 1.704-2(i)(5)) and (ii) if any Partner receives any adjustments,
allocations or distributions described in clause (4), (5) or (6) of Regulation
Section 1.704-1(b)(2)(ii)(d), items of income and gain (consisting of a pro
rata portion of each item of Partnership income, including gross income and
gain for the fiscal year) shall be specially allocated to such Partner in an
amount and manner sufficient to eliminate as quickly as possible any deficit in
such Partner's Capital Account (taking into account the penultimate sentence of
Regulation Section 1.704-2(g)(1) and the penultimate sentence of Regulation
Section 1.704-2(i)(5)) created by such adjustments, allocations or
distributions. To the extent that allocations are required to be made in order
to comply with the requirements of Regulation Section 1.704-l(b) (including the
allocation described in the preceding sentence), the General Partner shall (to
the extent the General Partner determines is not inconsistent with such
Regulation) specially allocate subsequently realized items of income, gain,
loss and deduction among the Partners to the extent necessary to fully offset
such required allocations.
(f) If there is a net decrease in Partnership Minimum
Gain or Partner Nonrecourse Debt Minimum Gain during the fiscal year, there
shall be allocated to each Partner, before any other allocations of any items
of Partnership income, gain, loss or deduction for such fiscal year, items of
Partnership income and gain for such year (and, if necessary, subsequent years)
equal to such Partner's share of the net decrease in Partnership Minimum Gain
(within the meaning or Regulation Section 1.704.2(g)) and such Partner's share
of Partner Nonrecourse Debt Minimum Gain (within the meaning of Regulation
Section 1.704-2(i)(5)). "Excess nonrecourse liabilities" (within the meaning
of Regulation Section 1.752-3) shall be allocated in the manner in which it is
reasonably expected that the deductions attributable to such nonrecourse
liabilities will be allocated.
(g) All Profit and Loss shall be allocated to the Persons
shown on the records of the Partnership to have been Partners as of the last
day of the Partnership Tax Year for which such allocation is made, except that
in the event of the transfer of a Partner's Interest and the admission of a
substituted Partner, or the Redemption of a Partner's Interest, during such
Partnership Tax Year, the Profit or Loss allocable to the transferred or
redeemed Interest shall be allocated between the transferor and the transferee
thereof (or between the Partner whose Interest has been redeemed and the
remaining Partners) by taking into account their varying interests during the
Partnership Tax Year in accordance with Section 706(d) of the Code, using the
interim closing of the books method or such other method as shall be determined
by the General Partner.
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(h) Notwithstanding the allocations set forth in Sections
5.04(b) and (c), the Limited Partner shall be allocated Profit to the extent
available to prevent a distribution from being reduced by the limitation set
forth in by Sections 5.01(d), 5.02(d), 5.03(c), and 8.03(e).
5.05. Capital Accounts.
(a) The Partnership shall maintain for each Partner in
conformity with Sections 1.704-1(b)(2)(iv) and 1.704-2 of the Regulations a
capital account (referred to herein as such Partner's "Capital Account").
(b) In the event that the General Partner shall
reasonably determine that in order to comply with, or to maintain the Capital
Accounts in a manner consistent with, applicable Regulations it is prudent to
modify the manner in which Capital Accounts are maintained or amounts are
debited or credited thereto, the General Partner may make such modification,
provided that such modification does not have an adverse effect on the amounts
distributable to any Partner pursuant to Sections 5.01, 5.02 or 5.03 or
pursuant to Article VIII upon the dissolution of the Partnership.
(c) In accordance with Regulation Section
1.704-l(b)(2)(iv)(e) and (f), if, during a Partnership Tax Year, (i) there is a
contribution of money or property (other than a de minimis amount) to the
Partnership by a new or existing Partner as consideration for an Interest, (ii)
there occurs a transaction pursuant to the liquidation of the Partnership, or
(iii) there is a distribution of money or property (other than a de minimis
amount) by the Partnership to a retiring or continuing Partner as consideration
for an Interest, the Capital Accounts of all Partners and the book values of
all Partnership properties shall be adjusted upwards or downwards to the extent
that the General Partner reasonably determines to be appropriate to reflect any
unrealized gain or unrealized loss attributable to each Partnership property,
as if such unrealized gain or unrealized loss had been recognized upon an
actual sale of each such property at such time and had been allocated to the
Partners pursuant to Section 5.04. Such unrealized gain or unrealized loss
shall be determined by the General Partner using such methods of valuation as
it reasonably deems appropriate.
5.06. Withholding.
(a) The General Partner is authorized and directed to
cause the Partnership to withhold from or pay on behalf of any Partner the
amount of Federal, state, local or foreign taxes that the General Partner
reasonably believes the Partnership is required to withhold or pay with respect
to any amount distributable or allocable to such Partner pursuant to this
Agreement, including, without limitation, any taxes required to be paid by the
Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the Code and any
taxes imposed by any state or other taxing jurisdiction on the Partnership as
an entity. Without limiting the foregoing, the General Partner shall cause the
Partnership to withhold (and remit to the appropriate governmental
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authority), from amounts otherwise distributable to a Partner, any taxes that
such Partner notifies the General Partner in writing should be withheld, which
notice shall be given by any Partner who becomes aware of any withholding
obligation to which it is subject and shall specifically set forth inter alia
the rate at which tax should be withheld and the name and address to which any
amounts withheld should be remitted.
(b) If the Partnership is required to withhold and pay
over to taxing authorities amounts on behalf of a Partner exceeding available
amounts then remaining to be distributed to such Partner, such payment by the
Partnership shall constitute a loan to such Partner that is repayable by the
Partner on demand, together with interest at the Federal short-term rate
determined from time to time under Section 1274(d) of the Code, compounded
annually, or the maximum rate permitted under applicable law, whichever is
less, calculated upon the outstanding principal balance of such loan as of the
first day of each month. Any such loan shall be repaid to the Partnership, in
whole or in part, out of the next available distributions to such Partner or,
if such distributions are insufficient, by the Partner in cash upon demand
(such Partner bearing all of the Partnership's costs of collection, including
reasonable attorneys' fees, if payment is not remitted promptly by the Partner
after such a demand for payment).
(c) Each Partner agrees to cooperate fully with all
efforts of the Partnership to comply with its tax withholding and information
reporting obligations and agrees to provide the Partnership with such
Information as the General Partner may reasonably request from time to time in
connection with such obligations.
5.07. Allocations for Federal Income Tax Purposes. The
Partnership's ordinary income and losses, capital gains and losses and other
items as determined for Federal income tax purposes (and each item of income,
gain, loss or deduction entering into the computation thereof) shall be
allocated to the Partners in the same proportions as the corresponding "book"
items are allocated pursuant to Sections 5.04 and 5.05. Notwithstanding the
foregoing sentence, Federal income tax items relating to any Section 704(c)
Property shall be allocated among the Partners in accordance with Section
704(c) of the Code and Treasury Regulations Section 1.704-1(b)(2)(iv)(g) in
accordance with the method for making such allocations that is selected by the
Limited Partner from the methods permitted by Treasury Regulations Section
1.704-3. Items described in this Section 5.07 shall not be reflected in the
Partner's Capital Accounts.
5.08. Disputed Items. If the Limited Partner disagrees with any
determination by the General Partner of the Limited Partner's share of Profit
or Loss under Section 5.04 or the balance of the Limited Partner's Capital
Account under Section 5.05, it shall inform the General Partner in writing of
its disagreement. To the extent that the parties are not able to agree within
30 days of such written notification by the Limited Partner of a disagreement,
the matter shall be referred to an independent accountant mutually agreeable to
the parties for resolution and the determination of such independent accountant
shall be final.
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ARTICLE VI
RECORDS; REPORTS TO THE PARTNERS; TAX MATTERS
6.01. Records and Accounting.
(a) Proper and complete records and books of account of
the business of the Partnership, including a list of the names, addresses and
Interests of all Partners, shall be maintained at the Partnership's principal
place of business. The Limited Partner and its duly authorized representatives
may visit and inspect any of the Properties or other Assets of the Partnership
and may examine the books of account, records, reports and other papers
relating to the Partnership and each Property Partnership, all during regular
business hours and as reasonably often as may be requested upon at least
forty-eight hours notice to the General Partner or the general partner of the
relevant Property Partnership, as the case may be.
(b) The Partnership shall maintain its books of account
and make all accounting calculations hereunder on the accrual basis in
accordance with sound business practices using such generally accepted
accounting methods, consistently applied, as the General Partner shall select.
6.02. Audit and Report.
(a) The books and records of the Partnership shall be
audited as of the end of each fiscal year by a firm of independent certified
public accountants of national recognition and standing selected by the General
Partner. As soon as practicable after the close of each fiscal year, and, in
any event, within 90 days after the close of such fiscal year, the Partnership
shall prepare and mail to each Partner (i) the audited financial statements of
the Partnership for such fiscal year, including balance sheets, income
statements and statements of cash flow, together with the report thereon of
such accountants, (ii) a report of such accountants, setting forth the amount
of such Partner's share of the Profit and Loss for such year, in sufficient
detail to enable it to prepare its Federal, state and other tax returns,
including, but not limited to, Internal Revenue Service Schedule "K-1", or any
successor thereto, and (iii) a copy of the Partnership's United States
Partnership Return of Income.
(b) Within 90 days after the date of this Agreement, and
by February 15 of each year, the Partnership will furnish the Limited Partner
the financial and tax information with respect to the prior fiscal year of the
Partnership that is provided for on Schedule D, with such reasonable changes
therein, additions thereto and deletions therefrom as the Limited Partner shall
from time to time advise the Partnership and the General Partner in writing
(which financial and tax information, prepared in conformity with Schedule D,
is intended to permit the Limited Partner to prepare its financial statements
and tax returns in accordance with Japanese tax basis accounting methods).
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(c) Within 45 days after the end of each of the first
three fiscal quarters of each fiscal year, the Partnership shall prepare and
mail to each Partner unaudited financial statements of the Partnership
comparable to, and prepared on the basis of accounting principles consistent
with those used in the preparation of, the financial statements provided
pursuant to Section 6.2(a)(i).
(d) At the time of the making of any distribution
pursuant to Section 5.01, Section 5.02, Section 5.03, Section 8.02, Section
8.03, or Section 8.04, the Partnership shall provide a report setting forth the
computation of the amounts available for distribution and distributed at that
time.
(e) Promptly upon receipt of any financial statements or
reports from the Property Partnership relating to any investment of the
Property Partnership or other Asset, the Partnership shall mail copies of such
statements or reports to each Partner.
(f) Promptly upon the occurrence of a breach by the
General Partner of any of its obligations under this Agreement, and promptly
upon becoming aware of any breach by the general partner of the Property
Partnership of any of its obligations under the Property Partnership Agreement
or the Letter Agreement or the breach by the Company of its covenants under
Section 5.1.2 or Section 5.3 of the Company Agreement, the General Partner
shall deliver to each Partner written notice of such breach and a description
of the facts thereof.
(g) Promptly upon becoming aware of any default or event
of default, or report thereof, under any Indebtedness secured by Properties,
the General Partner shall deliver to each Partner written notice of such
default or event of default and a description of such facts as are known by or
have been reported to the General Partner.
(h) Promptly upon becoming aware of any proposed Covered
Transaction or Share Acquisition, or any report thereof, the Partnership shall
give the Limited Partner notice thereof and a description of such terms and
conditions thereof as are known by or have been reported to the Partnership.
(i) Not less than 30 days prior to the consummation of
any sale, transfer, assignment, abandonment or other disposition of any
Property, the Partnership shall give the Limited Partner notice thereof, a
description of the proposed terms and conditions thereof (including a statement
as to whether the purchaser is an unaffiliated third party), and a pro forma
determination of the then anticipated amount of the Distributable Disposition
Proceeds therefrom and the amounts then anticipated to be distributable to the
Limited Partner pursuant to Section 5.03(b)(i).
(j) In case the Limited Partner is audited by the
Internal Revenue Service or the Japanese National Tax Authority, the
Partnership shall timely provide such information and
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assistance as the Limited Partner may reasonably request in connection with
such audit; provided that the rendering of assistance to the Limited Partner by
the Partnership shall be without cost or liability to the Partnership.
(k) The Partnership shall also cause to be delivered to
each Partner such other data and information that the Partnership possesses as
such Partner from time to time may reasonably request.
6.03. Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
6.04. Other Reports. The Partnership shall promptly notify each
Partner of any lawsuit commenced by or against the Partnership, any
investigation undertaken of the Partnership or any transaction requiring the
approval of the Limited Partner.
6.05. Tax Audits. The General Partner shall be designated as the
"tax matters partner" within the meaning of Section 6231(a)(7) of the Code. In
the event of an audit of the Partnership by the Internal Revenue Service, the
General Partner, at the Partnership's expense, shall have the exclusive right
and obligation to conduct all negotiations with the Internal Revenue Service on
behalf of the Partnership and the Partners, and the attorneys and accountants
selected by the General Partner to conduct such negotiations are hereby
specifically authorized by the Partners so to act; provided, however, that (a)
in exercising its authority as tax matters partner, the General Partner shall
be limited by the provisions of this Agreement affecting tax aspects of the
Partnership; (b) the General Partner shall consult in good faith with the
Limited Partner regarding the filing of an administrative adjustment request
pursuant to Section 6227(b) of the Code with respect to the Partnership or the
Property Partnership before filing such request, it being understood, however,
that the provisions hereof shall not be construed to limit the ability of
either the General Partner or the Limited Partner to file an administrative
adjustment request on its own behalf pursuant to Section 6227(a) of the Code;
(c) the General Partner shall consult in good faith with the Limited Partner
regarding the filing of a petition for judicial review of an administrative
adjustment request under Section 6228 of the Code, or a petition for judicial
review of a final partnership administrative judgment under Section 6226 of the
Code relating to the Partnership before filing such petition; (d) the General
Partner shall give prompt notice to the Limited Partner of the receipt of any
written notice that the Internal Revenue Service or any state or local taxing
authority intends to examine Partnership income tax returns for any year, the
receipt of written notice of the beginning of an administrative proceeding at
the Partnership level relating to the Partnership pursuant to Section 6223 of
the Code, the receipt of written notice of the final Partnership administrative
adjustment relating to the Partnership pursuant to Section 6223 of the Code,
and the receipt of any request from the Internal Revenue Service for waiver of
any applicable statute of limitations with respect to the filing of any tax
return by the Partnership; and (e) the General Partner shall promptly notify
the Limited Partner if the General Partner does not intend to file for judicial
review with respect to the Partnership. Each Partner hereby agrees to execute
such further authority, if any, as the Internal Revenue Service may require
therefor. The
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General Partner is hereby authorized on behalf of each of the Partners, and as
their attorney, to execute in the name and stead of each of the Partners such
authorizations as the Internal Revenue Service may require to permit the
General Partner and its selected attorneys and accountants to so represent the
Partners.
6.06. Tax Elections. The General Partner may from time to time make
and revoke such tax elections as it deems necessary or desirable in its sole
discretion to carry out the business of the Partnership or the purposes of this
Agreement.
(a) The General Partner shall elect to deduct certain
expenses incurred in organizing the Partnership ratably over a sixty-month
period as provided in Section 709 of the Code.
(b) If the Limited Partner so requests, the General
Partner shall elect pursuant to Section 754 of the Code to adjust the basis of
Assets and shall also cause the Property Partnership to make a Section 754
election.
(c) In the event that the Regulations are amended to
permit unincorporated business organizations to elect to be treated as
partnerships for Federal income tax purposes in implementation of Notice 95-14,
1995-1 C.B. 297 (or if comparable legislation is enacted or a comparable
administrative decision or ruling is issued by the Internal Revenue Service),
the General Partner shall cause the Partnership to elect to be treated as a
partnership in accordance with such Regulations (or such legislation, decision
or ruling) unless the General Partner reasonably determines, after consultation
with the Limited Partner, that such election would be detrimental to the
Partnership.
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ARTICLE VII
ASSIGNMENTS, SALES OR OTHER DISPOSITIONS;
WITHDRAWAL OF PARTNERS
7.01. Assignments, Sales or Other Dispositions by Partners.
(a) The Limited Partner may assign, sell or otherwise
dispose of its Interest, or any portion thereof, only subject to the consent of
the General Partner (which consent the General Partner may withhold in its sole
and absolute discretion), and only if the General Partner is reasonably
satisfied that the transaction does not violate any Federal or state securities
law, does not subject the Partnership, the General Partner or any of its
officers or directors to additional regulatory requirements, does not cause the
termination or dissolution of the Partnership or cause it to be classified
other than as a partnership for Federal income tax purposes and does not cause
a loss of limited liability of the Limited Partner.
(b) In the event of the death, disability, incompetence,
insolvency, incapacity or bankruptcy of the Limited Partner, the heirs,
executor, guardian, conservator or trustee of the Limited Partner shall have
such rights as the Limited Partner had to receive distributions under Articles
V and VIII, to receive allocations of Profit and Loss, to exercise rights and
make elections under Article VIII, and to assign, sell or otherwise dispose of
the Interest of the Limited Partner, subject to the consent of the General
Partner, in its sole and absolute discretion, but shall not become a
substituted Limited Partner or have any right to constitute any assignee,
purchaser or transferee of such Interest a substituted Limited Partner without
the consent of the General Partner (which consent the General Partner may
withhold in its sole and absolute discretion).
(c) The assignee of an Interest pursuant to Section
7.01(a) shall become a substituted Limited Partner only with the consent of the
General Partner, in its sole and absolute discretion, and subject to (i) the
assignee having executed and become a party to and agreed to be bound by the
terms of this Agreement, and having executed such other instruments as the
General Partner may reasonably deem necessary or desirable to admit such
assignee as a substituted Limited Partner; (ii) the assignee having executed
and become a party to and agreed to be bound by the terms of each other
agreement to which the Limited Partner is a party (including the Company
Agreement); (iii) each other party to such agreements whose consent is required
as a condition to the assignee becoming a party thereto having consented
thereto; (iv) the obligations of the Company under the Company Agreement not
being adversely affected by the assignee becoming a substituted Limited Partner
or a party to any such agreement; and (v) the assignor having paid or caused to
have been paid all of the Partnership's reasonable expenses connected with such
assignment and substitution (including, but not limited to, the reasonable
legal and accounting fees of the Partnership).
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(d) Any substituted Limited Partner admitted to the
Partnership pursuant to this Section 7.01 shall succeed to all the rights and
be subject to the obligations of the assigning Limited Partner as provided by
law in respect of the Interest as to which it was substituted.
(e) Except as provided in Section 7.01(d) or as the
General Partner and the Limited Partner may mutually determine (in their sole
discretions) as provided in Section 4.02(c), the General Partner may not admit
any Person as a limited partner to the Partnership.
(f) The General Partner may assign and transfer its
entire (but not less than its entire Interest) to any Person that is a directly
or indirectly wholly-owned subsidiary of the Company and/or Prime Residential,
L.P., and not under any circumstances to any other Person, and, in any event,
only subject to the consent of the Limited Partner (which consent the Limited
Partner may withhold in its sole and absolute discretion).
(g) The assignee of the General Partner's Interest
pursuant to Section 7.01(f) shall become a substituted General Partner only
with the consent of the Limited Partner, in its sole and absolute discretion,
and subject to (i) the assignee having executed and become a party to and
agreed to be bound by the terms of this Agreement; and having executed such
other instruments as the Limited Partner may reasonably deem necessary or
desirable to admit such assignee as a substituted General Partner; (ii) the
assignee having executed and become a party to and agreed to be bound by the
terms of each other agreement to which the General Partner is a party
(including the Company Agreement); (iii) each other party to such agreements
whose consent is required as a condition to the assignee becoming a party
thereto having consented thereto; (iv) the obligations of the Company under the
Company Agreement not being adversely affected by the assignee becoming a
substituted General Partner or a party to any such agreement; and (v) the
assignor having paid or caused to have been paid all of the Partnership's
reasonable expenses connected with such assignment and substitution (including,
but not limited to, the reasonable legal and accounting fees of the
Partnership).
(h) Except as expressly provided in Sections 7.01(f) and
(g), the General Partner shall not assign, sell, transfer, encumber or
otherwise dispose of all or any part of its Interest or any rights in or
obligations under this Agreement.
(i) The Partnership and the General Partner shall be
entitled to treat the record owner of any Interest as the absolute owner
thereof in all respects, and shall incur no liability for distributions of cash
or other property made in good faith to such owner until such time as a written
assignment of such Interest has been received and consented to by the General
Partner and recorded on the books of the Partnership.
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7.02. Withdrawal of Partners.
(a) The Limited Partner may not and shall not be
permitted to withdraw from the Partnership except (i) upon a substituted
Limited Partner succeeding to all the rights and obligations of the withdrawing
Limited Partner in accordance with Sections 7.01(c) and (d), (ii) upon the
Redemption of the Limited Partner's Interest or (iii) in connection with the
dissolution and liquidation of the Partnership.
(b) Except as provided in Section 8.01, the General
Partner shall not be permitted to withdraw from the Partnership except upon a
substituted General Partner succeeding to all of the rights and obligations of
the withdrawing General Partner in accordance with Section 7.01(g); and the
General Partner and the Limited Partner agree that the General Partner (or such
substituted General Partner) shall remain the sole general partner of the
Partnership during the entire term of the Partnership.
7.03. Void Assignments. Any purported sale, assignment or other
disposition by any Partner (including assignees thereof, purchasers or other
transferees therefrom or substituted partners therefor) of any Interest in the
Partnership or in this Agreement not made strictly in accordance with the
provisions of this Article VII shall be entirely null and void.
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ARTICLE VIII
DISSOLUTION OF THE PARTNERSHIP;
DEATH, INSOLVENCY, ETC. OF PARTNER
8.01. Dissolution.
(a) The Partnership shall be dissolved and its affairs
shall be wound up upon:
(i) the end of the term of the Partnership, as
provided in Section 2.05;
(ii) the sale, disposition or distribution of all
or substantially all of the property of the Partnership or the Property
Partnership;
(iii) the Redemption of the Limited Partner's
Interest;
(iv) the happening of an event or the existence of
a condition described in Section 17-402(a)(4), (5) or (8) of the Delaware Act;
or
(v) the mutual determination of the General
Partner and the Limited Partner;
provided, however, that, notwithstanding the occurrence of an event specified
in clause (iv) above, the Partnership shall not be terminated and its affairs
wound up if (A) the Limited Partner (x) elects, within 90 days after any such
occurrence, to continue the Partnership and the Partnership's business, (y)
designates a successor General Partner and (z) assigns to such successor
General Partner a portion of the Limited Partner's Interest and (B) the
conditions set forth in clauses (i), (iii) and (iv) of Section 7.01(g) are
satisfied. In the event the Limited Partner so elects to continue the
Partnership with a new General Partner, the business of the Partnership shall
be continued, as a successor limited partnership, if necessary, upon the terms
of this Agreement, except that the Interest of the former General Partner shall
be converted into a Limited Partner's Interest (but the relative priority of
the Partner's rights to allocations and distributions shall not be changed),
and the new General Partner shall succeed to all of the powers and privileges
of the General Partner hereunder.
The Partnership shall not dissolve upon the death, disability,
incompetence, insolvency, incapacity or bankruptcy of any Person which may be a
Limited Partner.
(b) When the Partnership is dissolved, the property and
business of the Partnership shall be liquidated by the General Partner or, in
the event of the unavailability of the General Partner, by such Person as shall
be approved by the Limited Partner. Each Partner, upon the request of the
General Partner or such other Person, as the case may be, shall promptly
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execute, acknowledge and deliver all such documents, certificates and other
instruments as the General Partner or such other Person, as the case may be,
shall reasonably request to effectuate the proper dissolution and termination
of the Partnership, including the winding up of the business of the
Partnership.
(c) As soon as practicable after the effective date of
dissolution of the Partnership, whether by expiration of its full term or
otherwise, but in any event by the end of the Partnership Taxable Year (or, if
later, within 90 days after such liquidation) as required under Regulation
Section 1.704-l(b)(2)(ii)(b)(2), the Assets shall be distributed in compliance
with such Regulation and in the following manner and order:
(i) the claims of all creditors of the
Partnership who are not Partners, and the expenses of dissolution and winding
up, shall be paid and discharged or reasonably reserved against;
(ii) the claims of the Partners for advances
pursuant to Section 3.09(c) shall be paid and discharged in the priority
provided in Section 3.09(c);
(iii) the other claims, if any, of the Limited
Partner as a creditor of the Partnership shall be paid and discharged; and
(iv) the other claims, if any, of the General
Partner as a creditor of the Partnership shall be paid and discharged.
The remaining Assets of the Partnership shall be available for
distribution to the Partners pursuant to Section 8.02.
8.02. Distributions on Liquidation.
(a) As promptly as practicable after the determination
pursuant to Section 8.01 of the amount of Assets of the Partnership available
for distribution to the Partners upon the liquidation of the Partnership, the
Net Equity Value as of the date of such determination shall be determined and
such Assets shall be distributed to the Partners, as follows:
(i) First, to the Limited Partner an amount
determined as follows:
(A) first, to the Limited Partner until,
together with the aggregate of all prior distributions to the Limited Partner
other than prior distributions of the Aliquot Share of its Capital
Contribution, the Limited Partner shall have received the Limited Partner's
Priority Distribution;
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(B) second, to the Limited Partner,
until the Limited Partner shall have received the return of its Adjusted
Capital Contribution; and
(C) third, to the Limited Partner 30% of
any balance in excess of the amount necessary to return to the General Partner
the General Partner's Adjusted Capital Contribution, and
(ii) Second, all remaining such Assets to the
General Partner.
(b) Notwithstanding the foregoing provisions of this
Section 8.02, Assets of the Partnership shall be distributed to the Limited
Partner pursuant to Section 8.02(a)(i) only to the extent that, after, taking
into account all the allocations provided for in Section 5.04, such
distribution would not cause the Limited Partner to have a negative Capital
Account balance and the Limited Partner shall return to the Partnership any
distribution erroneously paid to the Limited Partner in excess of this limit as
soon as practical after being notified by the Partnership of such erroneous
distribution.
(c) Distributions of Assets to the Partners pursuant to
Section 8.02(a) shall be made in the following manner:
(i) Distributions to the Limited Partner pursuant
to Section 8.02(a)(i) shall be in cash or in Company Shares or any combination
thereof, as the General Partner shall, in its sole and absolute discretion,
elect. If the General Partner shall elect to cause the Partnership to make any
part of such distribution in Company Shares, such distribution of Company
Shares to the Limited Partner shall be subject to the following conditions:
(A) Not later than the sixtieth day
after the determination pursuant to Section 8.01 of the amount of Assets of the
Partnership available for distribution to the Partners upon liquidation of the
Partnership, the General Partner shall (x) notify the Limited Partner in
writing of the portion, if any, of the distribution to the Limited Partner
pursuant to Section 8.02(a)(i) that the General Partner elects to cause the
Partnership to make in Company Shares and (y) pay in cash, in immediately
available funds, the portion of such distribution that is not to be made in
Company Shares, with interest from the date of such determination pursuant to
Section 8.01 to the date of payment, at the rate of 8 1/2% per annum;
(B) The Company Shares distributed to
the Limited Partner shall be Freely Transferable Shares on the date actually
distributed to the Limited Partner and the Partnership shall bear all costs of
issuance of such Company Shares and the distribution thereof to or on behalf of
the Limited Partner (including the Registration Expenses, as such term is
defined in the Company Agreement), other than income taxes imposed on the
Limited Partners or any stock transfer taxes that would be payable if the
Limited Partner directed that the Company Shares be registered in a name other
than the name of the Limited Partner;
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(C) In order to permit the registration
of the Company Shares, the distribution to the Limited Partner of such Company
Shares (but not any distribution of cash, which will be made at the time of the
determination of the Net Equity Value as of the date of the determination of
the Assets of the Partnership available for distribution, as provided in
Section 8.02(a)) may occur up to 90 days after the determination pursuant to
Section 8.01 of the amount of Assets of the Partnership available for
distribution to the Partners upon the liquidation of the Partnership. If such
Freely Transferable Shares are not delivered by such time in accordance with
the terms and conditions of this Agreement then, unless the Limited Partner
shall consent in writing to delivery of such Company Shares at a later time,
the full distribution of Assets to the Limited Partner pursuant to Section
8.02(a)(i) shall be made in cash and the Limited Partner shall be entitled to
interest, from the time of such determination pursuant to Section 8.01 to the
date of payment, at the rate of 8 1/2% per annum, on the amount distributable
to the Limited Partner that was to have been delivered in Company Shares;
(D) The number of Company Shares to be
delivered to the Limited Partner will be determined based on the lower of (1)
the Closing Price of the Company Shares on the trading day prior to the
effectiveness of the registration statement for the Company Shares to be
delivered to the Limited Partner and (2) 105% of the Average Market Price of
the Company Shares as of the trading day prior to the effectiveness of such
registration statement; and
(E) The Partnership shall not deliver
any fractional Company Shares and, in lieu thereof, shall deliver cash in an
amount equal to the fractional Company Share otherwise to be distributed
pursuant to Section 8.02(c)(i) multiplied by the Closing Price of the Company
Shares on the trading day prior to the payment in lieu of such fractional
Company Share.
(ii) Distributions to the General Partner pursuant
to Section 8.2(a)(ii) shall be in cash or in kind, as the General Partner may
determine.
8.03. Redemptions at the Option of the Limited Partner.
(a) The Limited Partner may, in its sole and absolute
discretion, require that the Partnership redeem the Limited Partner's entire
Interest, but not less than the Limited Partner's entire Interest (i) at any
time from the fifth anniversary of the Closing Date through the end of the term
of the Partnership, as provided in Section 2.05, and (ii) notwithstanding the
provisions of the foregoing clause (i), at any time that there occurs (A) an
event of default (that is, the occurrence of a default or breach and the
continuance of such default or breach uncured and unwaived after the giving of
any required notice and the passage of any period provided for cure) under the
terms of any Indebtedness secured by any of the Properties, which event of
default continues uncured and unwaived to the time of the notice of election
pursuant to Section 8.03(b), or (B) a breach by the General Partner of any of
its obligations under the Partnership
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Agreement, or a breach by the general partner of the Property Partnership of
any of its obligations under the Property Partnership Agreement or the Letter
Agreement, and the continuation of such breach for the lesser of 30 days
following notice thereof from or on behalf of the Limited Partner and 60 days
after the occurrence of such breach, or (C) a breach by the Company of its
covenants under Section 5.1.2 or Section 5.3 of the Company Agreement;
provided, however, that with the prior written consent of the General Partner,
which the General Partner may withhold in its sole and absolute discretion, the
Limited Partner may elect to require that the Partnership redeem less than the
Limited Partner's entire Interest.
(b) The option of the Limited Partner to require that the
Partnership redeem the Limited Partner's Interest shall be exercised by the
delivery of written notice of election by the Limited Partner to the
Partnership and the General Partner, which notice shall state the date on which
such election is to be effective (the "Effective Date") and shall be delivered
on a date not less than ten nor more than sixty days prior to the Effective
Date. A notice of election, once delivered, can be rescinded only with the
consent of the General Partner, which the General Partner can withhold in its
sole and absolute discretion. Upon receipt of a notice of election, the
General Partner shall, as promptly as practicable (and, in event, within 30
days after the Effective Date), determine on a pro forma basis, and advise the
Limited Partner of, the amount that would have been distributable to the
Limited Partner pursuant to Section 8.02(a) if the Partnership had been
dissolved on the Effective Date (including the Net Equity Value and the Limited
Partner's Share thereof) and the amount distributable to the Limited Partner
pursuant to Section 8.03(d).
(c) Upon Redemption, the Limited Partner shall be
entitled to receive, in the sole and absolute discretion of the Limited
Partner, either
(i) the amount that would have been distributable
to the Limited Partner pursuant to Section 8.02(a)(i) if the Partnership had
been dissolved on the Effective Date and such amount shall be distributed, in
cash or Company Shares, or any combination thereof, in the sole and absolute
discretion of the General Partner, at the time and in the manner and to the
extent that a distribution under Section 8.02 would be made under Section 8.02,
or
(ii) the amount determined as provided in Section
8.03(d), which amount shall be distributed in Company Shares, determined as
provided in Section 8.03(d)(i), or cash, determined as provided in Section
8.03(d)(ii), or any combination thereof, determined as provided in Section
8.03(d)(iii), in the sole and absolute discretion of the General Partner, at
the time and in the manner provided in Section 8.03(d)(iv).
Not later than the 15th day following receipt from the General Partner of the
determination pursuant to Section 8.03(b) on a pro forma basis of amounts
distributable to the Limited Partner, the Limited Partner shall notify the
General Partner in writing of whether the Limited Partner elects to receive the
amount determined pursuant to Section 8.03(c)(i) or the amount determined
pursuant the Section 8.03(c)(ii) and if the Limited Partner fail timely to give
such notice and the
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<PAGE> 50
General Partner shall not (in its sole and absolute discretion) have consented
to an extension of the time for the giving of such notice, the Limited Partner
shall be deemed to have elected to receive an amount determined under that
Section that, based on the amounts shown on the pro forma determination
delivered to the Limited Partner pursuant to Section 8.03(b) and the Closing
Price on the business day next preceding the 15th day following receipt by the
Limited Partner of such pro forma determination, would provide the greater
amount (recognizing that, at the time of actual distribution of such amount it
may not be the greater amount).
(d) The number of Company Shares or amount of cash that
the Limited Partner would be entitled to receive pursuant to Section
8.03(c)(ii) is determined as follows:
(i) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to deliver solely Company
Shares upon Redemption of the Limited Partner's Interest, initially the number
of Company Shares shall be determined by dividing the Limited Partner's
Adjusted Capital Contribution immediately prior to the effectiveness of the
Redemption by (x) 110% of the Average Market Price as of the Closing Date, if
the option is exercised at the time and under the circumstances contemplated by
Section 8.03(a)(i), or (y) the Closing Price on the Closing Date, if the option
is exercised at the time and under the circumstances contemplated by Section
8.03(a)(ii), in either case adjusted as provided in Sections 8.03(d)(i)(A)
through (D). The Partnership shall not deliver any fractional Company Shares
and, in lieu thereof, shall deliver cash in an amount equal to the fractional
Company Share otherwise to be distributed pursuant to this Section 8.03(d)(i)
multiplied by the Closing Price of the Company Shares on the trading day prior
to the payment in lieu of such fractional Company Share.
(A) If, after the date hereof, the
Company shall, directly or indirectly, (i) pay a dividend in Company Shares,
(ii) subdivide or combine the outstanding Company Shares into a greater or
lesser number of shares, or (iii) reclassify the Company Shares into any other
shares of capital stock, the number and type of Company Shares so deliverable
shall be adjusted so that if the option provided in Section 8.03(c)(ii) were
exercised immediately after the effective date of such event (without regard to
whether the option is then exercisable) the Limited Partner would receive the
same number of Company Shares it would have received if it had exercised the
option immediately prior to the record date for such event.
(B) If, after the date hereof, the
Company, directly or indirectly, issues rights, options or warrants to
purchase, or other securities convertible into or exchangeable for, Company
Shares, other than Excludable Shares, at a price per share less than the
Average Market Price as of the record date for the issuance of such rights,
options, warrants or other securities, the number of Company Shares so
deliverable shall, as of such record date, be multiplied by a fraction the
numerator of which is the sum of the number of Company Shares outstanding
immediately prior to such date plus the number of additional Company Shares for
which such rights, options or warrants are exercisable, or into which such
other securities are
46
<PAGE> 51
convertible or exchangeable, and the denominator of which is the sum of the
number of Company Shares outstanding immediately prior to such date plus the
number of Company Shares which the aggregate of the issue price, if any, of
such rights, options or warrants and the exercise price thereunder, or the
consideration or issue price of such other securities, would purchase at such
Average Market Price; provided, however, that if, prior to the time of the
delivery of Company Shares, any such rights, options, warrants or other
securities shall expire or otherwise cease to be exercisable, then the
adjustment provided in this Section 8.03(d)(i)(B) shall be recomputed to
reflect the number of Company Shares actually issued upon exercise of such
rights, options or warrants, or conversion or exchange of such other
securities, the number of Company Shares for which such rights, options
warrants or other securities remain exercisable and not expired, and the number
of rights, option, warrants or other securities that expired or otherwise
terminated unexercised.
(C) If, after the date hereof, the
Company shall have entered into a Covered Transaction or Share Acquisition in
which the holders of Company Shares are entitled to receive equity securities
of the survivor of such transaction in exchange for Company Shares, and,
pursuant to the provisions of Section 8.04(b), such Covered Transaction or
Share Acquisition does not cause the redemption of the Limited Partner's
Interest, then, effective upon the consummation of such Covered Transaction or
Exchange Share Acquisition, the number and nature of securities deliverable
pursuant to Section 8.03(c)(ii) (if and to the extent that the General Partner
shall have determined, in its sole and absolute discretion, to distribute
Company Shares, rather than cash) shall be the kind and number of shares of
stock or other securities that would have been deliverable to the Limited
Partner in connection with such transaction if the Limited Partner had elected
pursuant to Section 8.03(c)(ii) to cause the Partnership to redeem its Interest
(without regard to whether such option is then exercisable) immediately prior
to, and participated in, such transaction. Following such adjustment, the term
"Company Shares" initially shall mean such kind and number of shares of stock
or other securities, adjusted from time to time as provided in Section
8.03(d)(i)(A) through (D).
(D) Notwithstanding the foregoing
provisions of this Section 8.03(d)(i), the number of Company Shares deliverable
pursuant to Section 8.03(c)(ii) shall not exceed the number of Company Shares
determined by dividing the Limited Partner's Adjusted Capital Contribution at
the time of delivery to the Limited Partner of such Company Shares by the lower
of (i) the Closing Price of the Company Shares on the trading day prior to such
delivery to the Limited Partner and (ii) 105% of the Average Market Price of
the Company Shares as of such trading day.
(ii) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to distribute solely cash
upon Redemption of the Limited Partner's Interest, such cash shall be in an
amount equal to the product of the number of Company Shares determined pursuant
to Section 8.03(d)(i) multiplied by the Closing Price of the Company Shares on
47
<PAGE> 52
the trading day prior to the distribution of such cash to the Limited Partner
pursuant to Section 8.03(c)(ii).
(iii) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to distribute a
combination of Company Shares and cash upon Redemption of the Limited Partner's
Interest, the General Partner shall determine on a pro forma basis the number
of Company Shares that would be distributable by the Partnership pursuant to
Section 8.03(d)(i) if the General Partner had elected to cause the Partnership
to distribute solely Company Shares. The General Partner shall then determine,
in its sole and absolute discretion, the actual number of Company Shares that
the General Partner elects to cause the Partnership to distribute, and the cash
to be distributed shall be in an amount equal to the product of (A) the excess
of the number of Company Shares determined pursuant to Section 8.03(d)(i) over
the number of Company Shares actually to be distributed by the Partnership
multiplied by (B) the Closing Price of the Company Shares on the trading day
prior to the distribution of such cash to the Limited Partner pursuant to
Section 8.03(c)(ii).
(iv) If the General Partner, in its sole and
absolute discretion, elects to cause the Partnership to distribute any cash
upon the Redemption of the Limited Partner's Interest pursuant to Section
8.03(c)(ii), such cash shall be paid in immediately available funds in U.S.
dollars not later than the 60th day after the Effective Date with interest,
from the Effective Date to the date of payment at the rate of 8 1/2% per annum.
Not later than the sixtieth day after the Effective Date, the General Partner
shall notify the Limited Partner in writing of the portion, if any, of the
distribution to the Limited Partner pursuant to Section 8.03(c)(ii) that the
General Partner elects to cause the Partnership to make in Company Shares. If
the General Partner, in its sole and absolute discretion, elects to cause the
Partnership to deliver any Company Shares upon Redemption of the Limited
Partner's Interest pursuant to Section 8.03(c)(ii), such Company Shares shall
be Freely Transferable Shares on the date actually distributed to the Limited
Partner and the Partnership shall bear all costs of issuance of such Company
Shares and the distribution thereof to or on behalf of the Limited Partner
(including the Registration Expenses, as such term is defined in the Company
Agreement), other than any income taxes or stock transfer taxes that would be
payable if the Limited Partner directed that the Company Shares be registered
in a name other than the name of the Limited Partner. In order to permit the
registration of such Company Shares, the delivery to the Limited Partner of
such Company Shares (but not distribution to the Limited Partner of such cash,
which will be made as provided in the first sentence of this Section
8.03(d)(iv)) may occur up to 90 days after the Effective Date. The Partnership
shall bear the risk, and derive the benefit, of any changes in the market price
of Company Shares to be distributed to the Limited Partner between the
Effective Date and the time of the distribution thereof. To that end, the
Partnership shall be required to distribute to the Limited Partner the number
of Company Shares that, at the time of the distribution thereof, have the same
value (based on the Closing Price of the Company Shares on the trading day
prior to such distribution) as the number of Company Shares determined pursuant
to Section 8.03(d)(i) (based on the Closing Price of the Company Shares on the
trading day next following the
48
<PAGE> 53
Effective Date. If such Freely Transferable Shares are not delivered in
accordance with the terms and conditions of this Agreement by such 90th day
after the Effective Date then, unless the Limited Partner shall consent in
writing to delivery of such Company Shares at a later time, the Limited
Partner's Interest shall be redeemed solely for cash in accordance with Section
8.03(d)(ii) and the Limited Partner shall be entitled to interest, from the
Effective Date to the date of payment, at the rate of 8 1/2% per annum on the
amount distributable to the Limited Partner that was to have been delivered in
Company Shares.
(e) Notwithstanding the foregoing provisions of this
Section 8.03, Company Shares and/or cash shall be distributed to the Limited
Partner pursuant to Section 8.03(c)(i) only to the extent that, after taking
into account all the allocations provided for in Section 5.04, such
distribution would not cause the Limited Partner to have a negative Capital
Account and the Limited Partner shall return to the Partnership any
distribution erroneously paid to the Limited Partner in excess of this limit as
soon as practical (and in no event more than 30 days) after being notified by
the Partnership of such erroneous distribution.
8.04. Redemption Upon Certain Events.
(a) At or prior to the consummation by the Company of any
Covered Transaction, or the consummation by any Person of any Share
Acquisition, the Partnership shall, subject to the provisions of Section
8.04(b), redeem the Limited Partner's Interest for an amount in cash, in
immediately available funds, which, together with all other distributions to
the Limited Partner under this Agreement, returns the entire Capital
Contribution of the Limited Partner, with an Internal Rate of Return thereon,
from the Closing Date through the date of Redemption pursuant to this Section
8.04(a), of 14%.
(b) Notwithstanding the provisions of Section 8.04(a), if
(i) in any Covered Transaction or Share
Acquisition in which the holders of Company Shares receive equity securities of
the survivor in exchange for Company Shares, the surviving Person in any merger
or consolidation or the acquiring Person in any sale, transfer, conveyance or
other disposition or acquisition of Company Shares (referred to in this Section
8.04(b) as the "survivor") (A) is a corporation, partnership, business trust,
limited liability company or joint stock company organized under the laws of
any state of the United States whose equity securities are registered under the
Exchange Act and are listed on a national securities exchange in the United
States or admitted to trading on the NASDAQ National Market and (B) after
giving effect to such Covered Transaction or Share Acquisition has total
capitalization (that is, total long-term debt and capitalized leases and total
equity) that is (1) in excess of $500 million and (2) not less than 166-2/3% of
total long-term debt and capitalized leases;
(ii) the survivor, in its sole and absolute
discretion, shall enter into a written agreement with and for the benefit of
the Limited Partner, the Partnership and the General
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<PAGE> 54
Partner pursuant to which the survivor becomes a party to, and to assumes and
agrees to be bound by all of the provisions of the Company Agreement, with such
changes therein, additions thereto and deletions therefrom as shall be
reasonably necessary to reflect the identity, address, structure and place of
organization of the survivor, the nature and designation of the equity
securities of the survivor, and such other similar or comparable terms as are
appropriate in the circumstances; and
(iii) the Limited Partner, in its sole and
absolute discretion, shall enter into an amendment to this Agreement pursuant
to Section 9.07(a) to make such changes, additions or deletions as are required
to effect the adjustments contemplated by Section 8.03(d)(i)(C), which shall
evidence the Limited Partner's willingness to accept the equity securities of
the survivor when the Limited Partner would otherwise have received Company
Shares and the Limited Partner's willingness to accept the covenants and
undertakings of the survivor rather than the covenants and undertakings of the
Company, then the Partnership shall not be required to redeem the Interest of
the Limited Partner and the Partnership shall continue its existence and
operations subject to the terms of this Agreement.
8.05. HSR Delays in Registration. In the event that (a) in
connection with the distribution of Assets to the Limited Partner pursuant to
Section 8.02 upon the liquidation of the Partnership or the Redemption of the
Limited Partner's Interest pursuant to Section 8.03, the General Partner shall,
in its sole and absolute discretion, elects to cause the Partnership to deliver
Company Shares and (b) the receipt of such Company Shares by the Limited
Partner is then subject to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as then in effect, or any succeeding law (the "HSR Act"), and is not
exempt therefrom under the rules of the Federal Trade Commission (or any
successor thereto in the administration of the HSR Act) (the "FTC") under the
HSR Act (the "HSR Rules"), then, notwithstanding the provisions of Sections
8.02(c)(ii)(B) and (C) and Section 8.03(d)(iv), the following provisions shall
be applicable.
(i) The Limited Partner shall, as soon as
practicable (and, in any event, not later than ten days) after receipt of
notification by the General Partner that the General Partner elects to cause
the Partnership to deliver Company Shares, prepare and file in accordance with
the HSR Rules a Premerger Notification and Report (an "HSR Filing") with
respect to the receipt of Company Shares by the Limited Partner and shall
prosecute such filing in good faith in a timely and diligent manner (including
responding timely and fully to all requests by the FTC or the Justice
Department for additional information).
(ii) The Partnership shall pay, as part of the
Registration Expenses as such term is defined in the Company Agreement), the
filing fee payable by the Limited Partner for the filing of the HSR Filing and
the Limited Partner shall pay all of its other costs and expenses in preparing
and filing the HSR Filing and diligently prosecuting such filing.
50
<PAGE> 55
(iii) The Limited Partner shall agree to sell such
number of Company Shares, under such circumstances (including an underwritten
public offering immediately upon receipt of such Company shares) and on such
terms and conditions as are necessary to obtain a termination of the waiting
period under the HSR Act after the thirtieth day (that is, other than to obtain
an early termination of the waiting period) or to resolve concerns or
objections of the FTC or the Justice Department to the Limited Partner's
receipt of such Company Shares.
(iv) If and to the extent that the delivery to the
Limited Partner of Freely Transferable Shares is precluded by the continuation
of the waiting period under the HSR Act, or the objection of the FTC or the
Justice Department to the receipt by the Limited Partner of any or all of such
Company Shares, the requirement that the Partnership deliver such Freely
Transferable Shares not later than 90 days after the determination pursuant to
Section 8.01 of the Amount of Assets of the Partnership available for
distribution to the Partners upon the liquidation of the Partnership or the
Effective Date, as the case may be, shall be suspended; provided, however, that
such suspension shall not continue past the time that the FTC or Justice
Department shall have advised the Limited Partner that the waiting period will
not be terminated and/or that their objections will not be lifted.
(v) The General Partner may, in its sole and
absolute discretion, at any time during the continuation of the waiting period
under the HSR Act to distribute cash (including cash in an amount sufficient to
cause the remaining number of Company Shares to be exempt from the operation of
the HSR Act) to the Limited Partner in lieu of Company Shares, as provided in
Section 8.02(c)(ii)(C) or Section 8.03(d)(iv), as the case may be, and, if (but
only if) the Limited Partner shall have timely prepared and filed the HSR
Filing and complied with the provisions of this Section 8.05, the Limited
Partner shall be entitled to receive interest on such cash from the date of the
determination pursuant to Section 8.01 of the amount of Assets of the
Partnership available for distribution to the Partners upon the liquidation of
the Partnership or the Effective Date, as the case may be, to the date of
payment, at 8 1/2% per annum.
8.06. Purchases of Company Shares. From and after the time of the
determination pursuant to Section 8.01 of the amount of Assets of the
Partnership available for distribution to the Partners upon liquidation of the
Partnership or the Effective Date, as the case may be, until the time of the
distribution of Assets to the Limited Partner pursuant to Section 8.02(a)(i) or
the Redemption of the Limited Partner's Interest pursuant to Section 8.03(c),
as the case may be, neither the General Partner nor any Affiliate of the
General Partner (including the Company) shall purchase any Company Shares, in
the open market or otherwise. If the General Partner or any Affiliate of the
General Partner shall purchase any Company Shares during such period, unless
the Limited Partner shall consent in writing to such purchase, the Limited
Partner's Interest shall be redeemed solely for cash based on the higher of the
Closing Price of the Company Shares on the trading day prior to the time of
determination or the giving of the notice of election, as the case may be, and
the Closing Price of the Company Shares on the trading day prior to the
distribution of such cash.
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ARTICLE IX
MISCELLANEOUS
9.01. Binding Agreement. This Agreement shall be binding upon the
heirs, successors and assigns of the Partners.
9.02. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware as applied
between residents of that State entering into contracts wholly to be performed
in that State.
9.03. Gender. As used herein, neuter pronouns shall include the
masculine and feminine, and vice versa, and singular nouns and pronouns shall
include the plural.
9.04. Notices. All notices hereunder shall be in writing and shall
be given: (a) if to the Partnership or the General Partner, at 77 West Wacker
Drive, 40th Floor, Chicago, Illinois 60601, Attention: President, or such
other address or addresses of which the Partners shall have been given notice,
with copies to Kirkland & Ellis, 200 East Randolph Drive, 54th Floor, Chicago,
Illinois 60601, Attention: Robert Osborne, Esq., or such other address or
addresses of which the Partners shall have been given notice; and (b) if to the
Limited Partner, at the address shown on the signature page of this Agreement
for the Limited Partner, or such other address or addresses of which the
Partnership shall have been given notice, with copies to Brown & Wood, One
World Trade Center, New York, NY 10048-0557, Attention: Michael G. Wolfson,
Esq., and Nomura Securities International, Inc., 2 World Financial Center,
Building B, New York, NY 10281-1198, Attention: Managing Director, Structured
Finance, or such other address or addresses of which the Partnership shall have
been given notice. Any notice shall be deemed to have been given if personally
delivered or sent by United States mail or by commercial courier or delivery
service or by telegram or telex and shall be deemed received, unless earlier
received, (i) if sent by certified or registered mail, return receipt
requested, ten days after deposit in the mail, postage prepaid, (ii) if sent by
United States Express Mail or by commercial courier or delivery service, two
business days after delivery to a United States Post Office or delivery
service, postage prepaid, (iii) if sent by telegram, telex or facsimile
transmission, when receipt is acknowledged by answerback, and (iv) if delivered
by hand, on the date of receipt.
9.05. Power of Attorney. The Limited Partner hereby constitutes and
appoints the General Partner as its true and lawful representative and
attorney-in-fact, with full power and authority in its name, place and stead,
to make, execute, acknowledge, deliver, swear to, record and file with respect
to the Partnership any amendments to and restatements of the Certificate of
Limited Partnership as such an amendments and restatements are required by
applicable law.
9.06. Additional Limited Partners. It is anticipated that Investor
will remain the sole Limited Partner for the entire term of the Partnership
and, accordingly, the language of this
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<PAGE> 57
Agreement generally refers solely to "the Limited Partner." However, if there
shall be more than one Limited Partner, then, except for the references to the
Limited Partner in Section 4.01 and 4.02(a) (which are references solely to
Investor), any reference to "the Limited Partner" shall be deemed to be a
reference to all of the Limited Partners or each Limited Partner or any Limited
Partner at the time, as the context requires, except as follows:
(a) except as otherwise specifically provided in this
Section 9.06, any consent of the Limited Partner shall be deemed to mean the
consent of a majority in Interest of the Limited Partners at the time;
(b) consent of the Limited Partner pursuant to Section
3.03, and approval of the Limited Partner referred to in Section 8.01(b) shall
be deemed to mean the consent or approval, as the case may be, of 75% in
Interest of the Limited Partners at the time;
(c) amounts distributable to the Limited Partner under
Sections 5.01, 5.02, 5.03, 8.02, 8.03, or 8.04, and amounts allocable to the
Limited Partner under Section 5.04, shall be distributed or allocated to the
several Limited Partners at the time, pro rata, in proportion to their then
Partnership Percentages;
(d) the reference in Section 8.01(a)(iii) to the
Redemption of the Limited Partner's Interest shall be deemed to mean the
redemption of the Interests of all of the then Limited Partners;
(e) the reference in Section 8.02(c)(i)(B) and Section
8.03(d)(iv) to the consent of the Limited Partner to the delivery of Company
Shares at a later time shall be deemed to mean the consent of a majority in
Interest of the Limited Partners, which consent shall bind all Limited
Partners;
(f) the notice of election provided for in Section
8.03(b) shall be given by a majority in Interest of the Limited Partners at the
time and shall bind all Limited Partners, but the election by the Limited
Partner provided in Section 8.03(c) to receive the distribution provided in
Section 8.03(c)(i) or Section 8.03(c)(ii) may be made by each Limited Partner
individually (with the result that different Limited Partners may make
different elections in connection with the same transaction); and
(g) the reference in Section 8.04(b)(iii) to the Limited
Partner entering into an amendment shall be deemed to mean the election of each
Limited Partner to enter into such an amendment (it being recognized that the
survivor referred to in Section 8.04 may decline, pursuant to Section
8.04(b)(ii) to proceed unless all or a substantial number of the Limited
Partners so elect).
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9.07. Entire Agreement; Amendments.
(a) This Agreement, including the Schedules and the
Exhibits hereto, set forth the entire understanding of all the parties hereto
and this Agreement shall not be amended except by an instrument in writing
executed by the Limited Partner and the General Partner. The General Partner
shall promptly furnish the Limited Partner a copy of each amendment to this
Agreement.
(b) Anything herein to the contrary notwithstanding, each
Partner hereby approves of any amendment to this Agreement and to the
Certificate of Limited Partnership necessary to (i) effect the assignment of a
Limited Partner's Interest or (ii) effect the admission of a substituted
Limited Partner.
9.08. Force Majeure. If any party hereto fails to fulfill its
obligations hereunder as a result of an act of God or other circumstances
beyond its reasonable control, including, without limitation, fire, flood,
revolution, or extraordinary actions by government, such failure shall be
excused for so long as such event of force majeure shall prevent such
performance and for such time thereafter as is reasonably necessary to enable
resumption of performance under this Agreement.
9.09. Consent to Jurisdiction. Each party hereto (a) irrevocably
submits to the non-exclusive jurisdiction of any Delaware State court or
Federal court sitting in Wilmington, Delaware in any action arising out of this
Agreement, and (b) consents to the service of process by certified mail, return
receipt requested, sent in accordance with the notice provisions of Section
9.04. Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any action
in any other court.
9.10. Counterparts. This Agreement may be executed in more than one
counterpart each of which may be executed by less than all the parties with the
same effect as if the parties executed one counterpart as of the day and year
first above written; provided, however, that each separate counterpart shall
have been executed by the General Partner and that the several counterparts, in
the aggregate, shall have been executed by all parties whose names appear on
Schedule A hereto as Limited Partners.
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<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals as of the day and year first above written.
General Partner:
AJ TWO LIMITED PARTNERSHIP
By: AJ TWO, INC.,
General Partner
By: /s/
--------------------------------
Name:
Title:
Limited Partner:
Makoto Maki
/s/ By Michael G. Wolfson
----------------------------------------
Makoto Maki
(By Michael G. Wolfson,
Attorney-in-Fact)
Address: 4-chome, 1704-banchi
Shimada, Tenpaku-ku, Nagoya-shi
Aichi-ken, Japan
55
<PAGE> 1
EXHIBIT 10.39
AGREEMENT AND UNDERTAKING
among
Prime Residential, Inc.,
Makoto Maki,
Jupiter-II, L.P.,
and
AJ Two Limited Partnership
____________________________
Dated as of March 27, 1996
____________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article 1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Terms Defined Herein . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Incorporated Terms . . . . . . . . . . . . . . . . . . . . . . . . 2
Article 2 Representations and Warranties of the
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1 Due Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Valid Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 No Required Consents . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6 Reservation of Company Shares . . . . . . . . . . . . . . . . . . . 5
Section 2.7 Validity of Company Shares . . . . . . . . . . . . . . . . . . . . 5
Section 2.8 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.9 Property and Other Representations . . . . . . . . . . . . . . . . 6
Article 3 Representations and Warranties of the
Partnership and the General Partner . . . . . . . . . . . . . . . . . 6
Section 3.1 Due Formation of the Partnership . . . . . . . . . . . . . . . . . 6
Section 3.2 Due Formation of the General Partner . . . . . . . . . . . . . . . 7
Section 3.3 Valid Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.4 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.5 No Required Consents . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.6 Admission of the Limited Partners . . . . . . . . . . . . . . . . . 8
Section 3.7 Certain Financial Matters . . . . . . . . . . . . . . . . . . . . . 8
Article 4 Representations and Warranties of the
Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.1 Citizenship and Residence . . . . . . . . . . . . . . . . . . . . . 8
Section 4.2 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.3 Valid Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.4 Consultation and Reliance . . . . . . . . . . . . . . . . . . . . . 9
Section 4.5 Opportunity for Inquiry . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.6 Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.7 Review of Materials . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.8 Knowledge and Experience . . . . . . . . . . . . . . . . . . . . . 9
Article 5 Covenants and Undertakings of the Company . . . . . . . . . . . . . . . 10
Section 5.1 Preservation of Existence and REIT
Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.2 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.3 Maintenance of Listing of Company
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Section 5.4 Contribution of Cash or Company Shares . . . . . . . . . . . . . . . . . . . . . . . 10
Section 5.5 Registration of Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.6 Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.7 Additional Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.8 Performance by General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.9 Ownership of General Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.10 General Partners Not to Declare
Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.11 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Article 6 Covenants and Undertakings of General
Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.1 Performance by Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.2 Enforcement of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Article 7 Covenant and Undertaking of the Investor . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.1 Limitation on Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 7.2 Ownership of Company Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Article 8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.1 Indemnification by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8.2 Indemnification by Limited Partner . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.3 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8.4 Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.5 Indemnification Under Other Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.6 Advancement of Limited Partner's
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.7 Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8.8 No Inconsistent Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 8.9 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Article 9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.1 Assignability of Limited Partner's
Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.2 Assignability of the Company's
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.3 Additional Limited Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.4 Binding Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Article 10 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 10.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 10.2 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 10.4 Entire Agreement; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 10.5 Gender and Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 10.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
ii
<PAGE> 4
AGREEMENT AND UNDERTAKING
AGREEMENT AND UNDERTAKING dated as of March 27, 1996 among Prime
Residential, Inc., a corporation organized under the laws of the State of
Maryland; Makoto Maki, an individual residing in Nagoya, Japan, ("Investor");
Jupiter-II L.P., a Delaware limited partnership; and AJ Two Limited
Partnership, a Delaware limited partnership.
The Company, in order to induce Investor to become a party to the
Partnership Agreement and acquire an Interest in the Partnership, and the
parties, in consideration of the mutual promises and agreements made herein and
intending to be legally bound, hereby agree as follows:
Article 1 Defined Terms.
Section 1.1 Terms Defined Herein. The following terms shall, unless the
context otherwise requires, have the meanings set forth in this Section 1.1.
"Agreement" means this Agreement and Undertaking, as originally executed
and as hereafter from time to time supplemented, amended and restated.
"Indemnified Party" has the meaning given in Section 6.1, 6.2 or 6.3, as
the case may be.
"Material Adverse Effect," when used with reference to specified acts,
failures or omissions to act, or conduct of a specified Person, means that such
acts, failures or omissions to act, or conduct would have a material adverse
effect on (i) the condition (financial or otherwise), earnings, business
affairs or business prospects of such Person and its consolidated subsidiaries,
considered as one enterprise, or (ii) the ability of such Person to perform its
obligations under this Agreement.
"Partnership Agreement" means the Agreement of Limited Partnership of the
Partnership dated as of the Closing Date, as originally executed and as from
time to time supplemented, amended or restated.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement, including, without limitation, (a) the fees, disbursements and
expenses of the Company's counsel, accountants (including the costs of any
special audits or "cold comfort" letters) and experts in connection with the
registration of Company Shares pursuant to this Agreement; (b) all
<PAGE> 5
expenses in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus and any final prospectus,
and any amendments or supplements to any thereof, relating to the Registration
Shares, and the mailing and delivery of copies thereof, as required by the
Securities Act and the rules and regulations of the SEC and the NASD; (c) all
SEC filing fees in connection with the registration under the Securities Act of
Registration Shares for issuance and delivery to the Limited Partner; (d) the
filing fees, if any, incident to review by the NASD of the terms of the
issuance and delivery of the Registration Shares; (e) all expenses in
connection with the registration or qualification for offering and sale under
state securities or "blue sky" laws of the states designated pursuant to
Section 5.5.4 of the Registration Shares, including filing or registration fees
with state securities or "blue sky" authorities in connection with issuance and
delivery of Registration Shares to the Limited Partner, and the fees and
expenses of counsel in connection with such registration or qualification; (f)
the cost (including the fees and expenses of counsel approved by the Company)
of preparing and printing any "blue sky" survey in connection with the offering
or delivery of Registration Shares; (g) fees and expenses in connection with
listing the Registration Shares on each securities exchange or quotation system
on which the Company Shares are then listed or admitted to trading; provided,
however, that Registration Expenses does not include (i) any underwriting
discounts or brokerage or other commissions, (ii) any transfer taxes payable
because the Limited Partner has directed that Registration Shares deliverable
to the Limited Partner be registered in the books and records of the Company in
any name other than the name in which the Limited Partner's Interest is
registered, or (iii) any expenses of the Limited Partner (including, without
limitation, fees and expenses of its counsel).
"Registration Shares" means, at the time of reference thereto, the Company
Shares then to be registered pursuant to this Agreement.
"REIT" means a real estate investment trust described in Code Section 856.
"SEC" means the Securities and Exchange Commission or any successor
regulatory authority.
Section 1.2 Incorporated Terms. The following terms, when used in this
Agreement, shall, unless the context otherwise requires, have the meanings set
forth in the Partnership Agreement (as the definitions of such terms in the
Partnership Agreement are from time to time amended):
"Affiliate"
2
<PAGE> 6
"Amendment"
"Capital Value"
"Closing Date"
"Code"
"Collateral Value"
"Company"
"Company Shares"
"Delaware Act"
"Dispositions"
"Exchange Act"
"General Partner"
"Interest"
"Investor"
"Investor Group"
"Letter Agreement"
"Limited Partner"
"NASD"
"Net Equity Value"
"Other Events"
"Partnership"
"Person"
"Pro Forma Priority Distribution"
"Properties" and "Property"
"Property Partnership"
"Property Partnership Agreement"
3
<PAGE> 7
"Redemption"
"Refinancing"
"Securities Act"
Article 2 Representations and Warranties of the Company.
The Company hereby represents and warrants to, and covenants with, the
Investor as follows:
Section 2.1 Due Incorporation and Status.
Section 2.1.1 Due Incorporation. The Company has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Maryland and is duly qualified or licensed, and in good standing, as a
foreign corporation authorized to do business in each other jurisdiction in
which its ownership of properties or its conduct of business requires such
qualification or licensing, except where the failure to be so qualified or
licensed, or in good standing, as a foreign corporation would not have a
Material Adverse Effect.
Section 2.1.2 REIT Status. As of the date hereof the Company
qualifies as a REIT under the Code.
Section 2.2 Authority. The Company has corporate power and authority to
own, lease and operate its properties, directly or through subsidiaries, and to
conduct its business as presently conducted.
Section 2.3 Valid Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and represents the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
Section 2.4 No Default. The execution and delivery of this Agreement by
the Company, the contribution by Prime Residential, L.P. of its limited
partnership interest in the Property Partnership to the General Partner,
admission of the Investor to the Partnership as the Limited Partner, the
execution and delivery of the Partnership Agreement by the General Partner and
the Limited Partner, the execution and delivery by the general partner of the
Property Partnership of the Letter Agreement, the making of the Amendment, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the general
partner of the Property Partnership of its obligations under the Letter
Agreement, the performance by the General Partner of its obligations under the
Partnership Agreement and the performance by the Company of its
4
<PAGE> 8
obligations hereunder do not (a) violate the Articles of Incorporation or
By-Laws of the Company; or (b) violate or constitute a breach of or default
under the Property Partnership Agreement or any mortgage, indenture, loan
agreement, promissory note or similar agreement to which the Company or any of
its Affiliates is a party, or by which any of them is bound, or to which any
property of the Company or any of its Affiliates is subject, except where such
violations, breaches or defaults would not, singly or in the aggregate, have a
Material Adverse Effect; or (c) conflict with or violate any law or any
regulation, rule, order or decree of any governmental body, court or
administrative agency having jurisdiction over the Company or its Affiliates or
the properties of any of them, except where such conflicts or violations would
not, singly or in the aggregate, have a Material Adverse Effect.
Section 2.5 No Required Consents. The execution and delivery of this
Agreement by the Company and the performance by the Company of its obligations
hereunder, the contribution by Prime Residential, L.P. of its limited
partnership interest in the Property Partnership to the General Partner,
admission of the Investor to the Partnership as the Limited Partner, the
execution and delivery of the Partnership Agreement by the General Partner and
the Limited Partner, the execution and delivery by the general partner of the
Property Partnership of the Letter Agreement, the making of the Amendment, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the general
partner of the Property Partnership of its obligations under the Letter
Agreement, the performance by the General Partner of its obligations under the
Partnership Agreement and the performance by the Company of its obligations
hereunder do not require any filing or registration with, or the receipt of any
consent by, any governmental or regulatory authority or other person by the
Company or any of its Affiliates other than any which have already been
obtained or waived and those provided for in Article 5.
Section 2.6 Reservation of Company Shares. The Company has duly
reserved solely for purposes of issuance pursuant to this Agreement 270,227
Company Shares.
Section 2.7 Validity of Company Shares. The Company has duly authorized
the issuance and delivery of Company Shares pursuant to this Agreement and,
upon delivery, such Company Shares will be duly authorized, validly issued,
fully paid and non-assessable.
Section 2.8 Disclosure. The Company has heretofore delivered to the
Investor the form of the Annual Report on Form
5
<PAGE> 9
10-K to be filed by the Company under the Exchange Act for the year ended
December 31, 1995.
Section 2.8.1 No Misstatement or Omission. At the time of filing,
such Annual Report complied in all material respect with the requirements of
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
Section 2.8.2 Financial Statements. The financial statements,
including the notes thereto, and supporting schedules included in such Annual
Report have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis and present fairly the financial
position of the Company and its subsidiaries as of the dates indicated and the
results of their operations for the periods shown.
Section 2.8.3 Outstanding Company Shares. The authorized, issued and
outstanding Company Shares are as set forth in such Annual Report (except for
subsequent issuances, if any, pursuant to reservations, agreements, stock
options, employee benefit plans or the exercise of convertible securities
referred to in such Annual Report).
Section 2.8.4 Subsequent Events. Since the respective dates as of
which information is given in such Annual Report, except as otherwise stated
therein, there has not been any material adverse change in the condition
(financial or otherwise) or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business.
Section 2.9 Property and Other Representations. The representations and
warranties of the Borrower set forth in Article IV of the Loan Agreement dated
as of March 27, 1996 between Nomura Asset Capital Corporation, as Lender, and
the Property Partnership, as Borrower, are, subject to the exceptions therein
referred to, true and correct on the date hereof as if set forth herein.
Article 3 Representations and Warranties of the Partnership and the
General Partner.
The Company, the Partnership and the General Partner hereby represent,
warrant to, and covenant with, the Investor as follows:
Section 3.1 Due Formation of the Partnership. The Partnership has been
duly organized and is validly existing and in good standing as a limited
partnership under the laws of Delaware and is
6
<PAGE> 10
duly qualified or licensed, and in good standing, as a foreign limited
partnership authorized to do business in each other jurisdiction in which its
ownership of its assets or its conduct of business requires such qualification
or licensing, except where the failure to be so qualified or licensed, or in
good standing, as a foreign limited partnership would not have a Material
Adverse Effect.
Section 3.2 Due Formation of the General Partner. The General Partner
has been duly organized and is validly existing and in good standing as a
limited partnership under the laws of Delaware and is duly qualified or
licensed, and in good standing, as a foreign limited partnership authorized to
do business in each other jurisdiction in which its ownership of its assets or
its conduct of business requires such qualification or licensing, except where
the failure to be so qualified or licensed, or in good standing, as a foreign
limited partnership would not have a Material Adverse Effect.
Section 3.3 Valid Agreement. This Agreement has been duly authorized,
executed and delivered by each of the Partnership and the General Partner and
represents the valid and binding obligation of each of them, enforceable
against each of them in accordance with its terms.
Section 3.4 No Default. The execution and delivery of this Agreement by
the Partnership and the General Partner and the performance by the Partnership
and the General Partner of their respective obligations hereunder, the
contribution by Prime Residential, L.P. of its limited partnership interest in
the Property Partnership to the General Partner, admission of the Investor to
the Partnership as the Limited Partner, the execution and delivery of the
Partnership Agreement by the General Partner and the Limited Partner, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the General
Partner of its obligations under the Partnership Agreement do not (a) violate
the Partnership Agreement or the agreement of limited partnership of the
General Partner; or (b) violate or constitute a breach of or default under any
mortgage, indenture, loan agreement, promissory note or similar agreement to
which the Partnership or the General Partner is a party, or by which either of
them is bound, or to which any property of the Partnership or the General
Partner is subject, except where such violations, breaches or defaults would
not, singly or in the aggregate, have a Material Adverse Effect; or (c)
conflict with or violate any law or any regulation, rule, order or decree of
any governmental body, court or administrative agency having jurisdiction over
the Partnership or the General Partner or the properties of either of them,
except where such conflicts or
7
<PAGE> 11
violations would not, singly or in the aggregate, have a Material Effect.
Section 3.5 No Required Consents. The execution and delivery of this
Agreement by the Partnership and the General Partner and the performance by the
Partnership and the General Partner of their obligations hereunder, the
contribution by Prime Residential, L.P. of its limited partnership interest in
the Property Partnership to the General Partner, admission of the investor to
the Partnership as the Limited Partner, the execution and delivery of the
Partnership Agreement by the General Partner and the Limited Partner, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the General
Partner of its obligations under the Partnership Agreement do not require any
filing or registration with, or the receipt of any consent, approval or permit
by, any governmental or regulatory authority or other person by the Partnership
and the General Partner other than any which have already been obtained or
waived and those that might be required in conjunction with the actions of the
Company provided for in Article 5 hereof or Section 8.05 of the Partnership
Agreement.
Section 3.6 Admission of the Limited Partners. All action required to
be taken by the General Partner for the admission of the Investor to the
Partnership as the Limited Partner has been taken and, upon payment of the
capital contributions as provided in the Partnership Agreement, the Investor
will be a Limited Partner, entitled to the benefits of the Partnership
Agreement and the Delaware Act.
Section 3.7 Certain Financial Matters. The computation of (a) the
Capital Value of the Properties set forth in Schedule B to the Partnership
Agreement, (b) the Collateral Value and Net Equity Value of the Properties set
forth in Schedule C to the Partnership Agreement and (c) the Pro Forma Priority
Distribution set forth in Schedule D to the Partnership Agreement, and the
financial information set forth in such Schedules on which such computations
are based, are true and correct.
Article 4 Representations and Warranties of the Investor.
In order to induce the Company, the Partnership and the General Partner to
enter into this Agreement and to consummate the transactions contemplated
hereby, the Investor hereby represents and warrants to, and covenants with, the
Company, the Partnership and the General Partner as follows:
Section 4.1 Citizenship and Residence. The Investor is a citizen and
resident of Japan, and is not a citizen of, or a
8
<PAGE> 12
resident of, the United States of America or any state or other subdivision
thereof. In addition, the Investor is not a "U.S. person," as that term is
defined under Rule 902(o) of Regulation S promulgated under the Securities Act.
Section 4.2 Accredited Investor. The Investor is an "accredited
investor," as such term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
Section 4.3 Valid Agreement. The Investor has all right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Investor, by its attorney-in-fact thereunto duly authorized, and
constitutes a legal, valid and binding obligation of the Investor, enforceable
against the Investor in accordance with its terms.
Section 4.4 Consultation and Reliance. The Investor has consulted with
and relied upon the advice of the Investor's own advisors with respect to the
execution and delivery by the Investor of this Agreement, the Partnership
Agreement and the other related agreements, documents and instruments, and in
connection with the consummation of the transactions contemplated thereby.
Section 4.5 Opportunity for Inquiry. The Investor has had a reasonable
opportunity to ask questions of and receive answers from representatives of the
Company and the Partnership regarding the business, management and financial
affairs of the Company and the Partnership, including, without limitation,
matters relating to the Properties, and all financial and business matters
related thereto.
Section 4.6 Evaluation. The Investor has evaluated the merits and
risks of executing and delivering this Agreement and the Partnership Agreement
and the other documents, instruments and agreements related thereto, and has
evaluated the merits and risks of consummating the transactions contemplated
thereby.
Section 4.7 Review of Materials. There have been made available to the
Investor, and the Investor has had the opportunity to review, all such
documents, agreements, records, and books pertaining to the Company and the
Partnership and their respective businesses and financial affairs as the
Investor has deemed necessary or appropriate under the circumstances.
Section 4.8 Knowledge and Experience. The Investor has such knowledge
and experience in financial and business matters that the Investor is capable
of evaluating the merits and risks involved in connection with the transactions
contemplated hereby.
9
<PAGE> 13
Article 5 Covenants and Undertakings of the Company.
Section 5.1 Preservation of Existence and REIT Status.
Section 5.1.1 Corporate Existence. Except with respect to a
transaction permitted under the Partnership Agreement, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence and rights as a corporation under the laws of the State of
Maryland.
Section 5.1.2 REIT Status. The Company will do or cause to be
done all things necessary to meet the requirements to continue to qualify as a
REIT under the Code.
Section 5.2 Reservation of Shares. The Company will continue to
maintain as reserved those Company Shares reserved in accordance with Section
2.6 and will, within 30 days after the end of each calendar year, in good faith
compute the maximum number of Company Shares that the Company reasonably
determines would be deliverable upon the exercise by the Limited Partner at the
end of such year of its option to cause the Partnership to redeem its Interest
pursuant to Section 8.03(c) of the Partnership Agreement (without regard to
whether such option is then exercisable) and, upon the making of such
computation, will reserve and keep available out of the authorized Company
Shares such additional Company Shares as may be necessary to maintain as
reserved the number of Company Shares so computed and shall take all such
action as may be required from time to time in order that it may validly and
legally issue fully paid and non-assessable Company Shares in accordance
herewith and therewith.
Section 5.3 Maintenance of Listing of Company Shares. The Company shall
use its best efforts to keep the Company Shares listed on the New York Stock
Exchange. If, notwithstanding its exercise of its best efforts, the Company
Shares are not listed on the New York Stock Exchange, the Company shall, at its
own expense, cause the Company Shares to be listed or admitted to trading on
another national securities exchange or the NASDAQ National Market System.
Section 5.4 Contribution of Cash or Company Shares. Upon the
dissolution and liquidation of the Partnership or the Redemption of the Limited
Partner's Interest, the Company shall, or shall cause one or more of its
Affiliates to, contribute or lend to one or more of its Affiliates (including
the General Partner)for contribution to the Partnership or the General Partner
such amount of cash and/or such number of Company Shares as are necessary,
together with cash held by the Partnership (whether from prior operations or
from Dispositions, Refinancings, Other Events or otherwise) and Company Shares
owned by the Partnership and
10
<PAGE> 14
available for the purpose, to permit the Partnership timely to make the
distribution to the Limited Partner provided in Section 8.02(a)(i), 8.03(b) or
(c) or 8.04(a), as the case may be, of the Partnership Agreement in accordance
with the terms thereof.
Section 5.5 Registration of Company Shares. If, upon the dissolution
and liquidation of the Partnership or the Redemption of the Limited Partner's
Interest, the General Partner shall determine, in its sole and absolute
discretion, to distribute any Company Shares to the Limited Partner, the
Company shall either (a) register under the Securities Act and register or
qualify under any applicable state securities or "blue sky" laws of the states
as determined pursuant to Section 5.5.4 any Company Shares to be so distributed
to the Limited Partner if such Company Shares would then be permitted to be
resold by the Limited Partner without registration under the Securities Act (as
determined by counsel of the Company) or (b) if the registration provided in
the foregoing clause (a) would not permit resale of such Company Shares by the
Limited Partner without registration under the Securities Act, register under
the Securities Act and register or qualify under any applicable state
securities or "blue sky" laws of the states as determined pursuant to Section
5.5.4 for resale by the Limited Partners any Company Shares or distributed to
the Limited Partner. Upon the election of the General Partner to distribute
Company Shares pursuant to the Partnership Agreement, the obligations of the
Company to register Company Shares under this Agreement shall include, but not
be limited to, the following:
Section 5.5.1 Registration Statement. The Company shall, as promptly
as practicable, prepare and file and use its best efforts to cause to become
effective under the Securities Act a registration statement covering the
Registration Shares and shall timely prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of the Registration Shares by the Limited
Partner until (a) if, pursuant to Section 5.5(a), the Company has registered
Company Shares for distribution to the Limited Partner, the completion of such
distribution and (b) if, pursuant to Section 5.5(b), the Company has registered
Company Shares for resale by the Limited Partner, the earliest of (i) the
disposition of all of the Registration Shares by the Limited Partner, (ii) the
time when the Limited Partner can, in conformity with the Securities Act, sell
the Registration Shares without such Company Shares being registered under the
Securities Act and without delivery of a prospectus and (iii) two years from
the effectiveness of the registration statement. The Company may require the
Limited Partner to furnish the Company for inclusion in the registration
statement for Registration Shares such information
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<PAGE> 15
regarding the Limited Partner and the distribution of the Registration Shares
as the Company may from time to time reasonably request in writing and as shall
be required by law or by the SEC in connection with the registration of such
Registration Shares.
Section 5.5.2 Reasonable Investigation. In connection with the
preparation and filing under the Securities Act of the registration statement
covering Registration Shares, the Company will give the Limited Partner and the
underwriter, if any, of the Registration Shares, and their respective counsel
and accountants, drafts of such registration statement for their review and
comment prior to filing and shall afford them such reasonable and customary
access to the books and records of the Company, and such opportunities to
discuss the business of the Company with its officers, counsel and advisors,
and the independent public accountants who certified the Company's financial
statements, as shall, in the opinion the Limited Partner and such underwriter
and their respective counsel, be necessary to conduct a reasonable
investigation (as that term is used in the Securities Act).
Section 5.5.3 Copies of Registration Statement and Prospectus. The
Company shall furnish the Limited Partner and any underwriter of Registration
Shares such number of conformed copies of the registration statement and of
each amendment and supplement thereto (in each case including all exhibits),
and such number of copies of the prospectus included in such registration
statement (including each preliminary prospectus), in conformity with the
requirements of the Securities Act, and such documents incorporated by
reference in such registration statement and such other documents as the
Limited Partner or such underwriter may reasonably request.
Section 5.5.4 Blue Sky. The Company shall use its best efforts to
register or qualify all Registration Shares under the securities or "blue sky"
laws of such jurisdictions as the Limited Partner or any underwriter of the
Registration Shares shall reasonably request, and to do any and all other acts
and things which may be reasonably requested by the Limited Partner or such
underwriter to consummate the disposition of the Registration Shares in such
jurisdictions, and to maintain such registration or qualification in each such
jurisdiction until (a) if, pursuant to Section 5.5(a), the Company has
registered Company Shares for distribution to the Limited Partner, the
completion of such distribution and (b) if, pursuant to Section 5.5(b), the
Company has registered Company Shares for resale by the Limited Partner, the
earliest of (i) the disposition of all of the Registration Shares by the
Limited Partner, (ii) the time when the Limited Partner can, in conformity with
the securities or blue sky laws of such jurisdiction, sell the Registration
Shares in such jurisdiction without such registration or qualification and (ii)
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<PAGE> 16
two years from the effectiveness of the registration statement under the
Securities Act, except that the Company shall not be required to qualify
generally to do business as a foreign corporation in any jurisdiction in which
it is not at the time so qualified, or to subject itself to taxation in any
jurisdiction in which it is not then subject to taxation, or to consent to
general service of process in any jurisdiction in which it is not then subject
to service of process.
Section 5.5.5 NASD Review. The Company shall assist the Limited
Partner or any underwriter of Registration Shares in connection with any
required review by the NASD of the terms of the issuance of the Registration
Shares to the Limited Partner and the terms of any resale of the Registration
Shares by the Limited Partner.
Section 5.5.6 Listing of Registration Shares. The Company shall use
its best efforts to cause the Registration Shares to be listed or admitted to
trading on each national securities exchange and quotation system on which the
Company Shares are then listed or admitted to trading.
Section 5.5.7 Underwriting Agreement. In the event that the Company
has, pursuant to Section 5.5(b), registered Company Shares for resale by the
Limited Partner and the Limited Partner proposes to enter into an underwritten
distribution of such Company Shares, the Company will join in the agreement
between the Limited Partner and the underwriters of such Company Shares for the
purpose of making such representations, warranties and covenants as are
customarily made by an issuer of securities in underwriting agreements for the
registered public offering of such securities in secondary distributions,
provided, that in such agreement the Limited Partner and such underwriters make
such representations, warranties and covenants, and provide such
indemnifications, as are customarily made and provided by the sellers and
underwriters of such securities in such distributions.
Section 5.5.8 Delivery of Opinions. The Company shall (a) furnish
to the Limited Partner an opinion of counsel to the Company, addressed to the
Limited Partner and dated the date of the distribution of the Registration
Shares to the Limited Partner, and (b) use its best efforts to furnish to the
Limited Partner a "comfort letter" signed by the independent public accountants
who certified the Company's financial statements included in the registration
statement, it being understood and agreed that such opinion and "comfort
letter" shall cover substantially the same matters with respect to the
registration statement (and the prospectus included therein) as are customarily
covered in opinions of issuer's counsel and accountants' comfort letters
delivered to underwriters in underwritten public offerings of securities and
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<PAGE> 17
such other matters as the Limited Partner shall reasonably request and shall
not be inconsistent with customary third-party opinion practice or the
accounting literature at the time, as the case may be.
Section 5.5.9 Exchange Act Filings. The Company shall timely file
all reports, proxy or information statements, and other documents required to
be filed by the Company pursuant to Section 13(a), Section 13(c), Section 14 or
Section 15(d) of the Exchange Act.
Section 5.5.10 Subsequent Events. (a) So long as the Company is
required to maintain the effectiveness of a registration statement pursuant to
Section 5.5 in connection with resales of Registration Shares, the Company
shall notify the Limited Partner promptly of (i) the issuance by the SEC or any
state securities authority of any stop order or other action suspending the
effectiveness of the registration or the qualification for sale in any
jurisdiction of the Registration Shares or the initiation of any formal
proceedings for that purpose or (ii) the happening of any event as a result of
which a prospectus included in the registration statement covering such
Registration Shares 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, in the light of the circumstances under which they were
made, not misleading.
(b) Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 5.5.10(a), the Limited Partner shall
forthwith discontinue disposition of Registration Shares pursuant to the
registration statement and the prospectus contained therein until the
withdrawal of any order suspending the effectiveness of the registration
statement of the qualification for sale or the Limited Partner's receipt of
copies of a supplemented or amended prospectus contemplated by Section
5.5.10(c) below, as the case may be, and, if so directed by the Company, the
Limited Partner will deliver to the Company (at its expense) all copies in its
possession, other than permanent file copies then in the Limited Partner's
possession, of the prospectus covering such Registration Shares current at the
time of receipt of such notice.
(c) The Company shall, upon the occurrence of any event contemplated
by Section 5.5.10(a), prepare and furnish to the Limited Partner without
unreasonable delay a supplement or post-effective amendment to the registration
statement or the related prospectus or any document incorporated therein by
reference or file any other required document so that such prospectus will not
contain any untrue statement of a material fact or omit to state a
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<PAGE> 18
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 5.6 Registration Expenses. In connection with any registration
of Company Shares under this Agreement, the Company will pay or provide for the
payment of all Registration Expenses (including any amounts payable by the
Partnership pursuant to Section 8.05 of the Partnership Agreement) regardless
of whether the registration statement is declared effective or the length of
time that the registration statement is required to remain effective. The
Limited Partner shall pay (a) any underwriting discounts or brokerage or other
commissions, or transfer taxes, in connection with any resale of Company Shares
by the Limited Partner, (b) any transfer taxes payable because the Limited
Partner has directed that Registration Shares deliverable to the Limited
Partner be registered in the books and records of the Company in any name other
than the name in which the Limited Partner's Interest is registered, and (c)
any expenses of the Limited Partner (including, without limitation, fees and
expenses of its counsel).
Section 5.7 Additional Registration Rights. Nothing contained in this
Agreement shall prevent the Company from granting to any Persons the right to
request the Company to register any equity securities of the Company under the
Securities Act, or any securities convertible or exchangeable into or
exercisable for such equity securities, and nothing contained in this Agreement
shall obligate the Company to permit the Limited Partner to participate in any
such registration.
Section 5.8 Performance by General Partners. The Company shall cause the
General Partner timely and diligently to discharge its obligations under the
Partnership Agreement and under this Agreement and shall cause the general
partner of the Property Partnership timely and diligently to discharge its
obligations under the Property Partnership Agreement and the Letter Agreement.
Section 5.9 Ownership of General Partners. The Company shall take or
cause to be taken all actions necessary to assure that at all times during the
term of this Agreement all of the legal and beneficial interest in the General
Partner and the general partner of the Property Partnership are owned by the
Company and/or Prime Residential, L.P.
Section 5.10 General Partners Not to Declare Bankruptcy. Neither the
General Partner nor the Company shall cause or consent to, and neither shall
cause Prime Residential, L.P. to cause or consent to, the General Partner or
the general partner of the Property Partnership (a) making an assignment for
the benefit of creditors, (b) appointing or consenting to the appointment of a
custodian of all or substantially all of the assets of the General
15
<PAGE> 19
Partner or the general partner of the Property Partnership, (c) commencing a
voluntary case under any Federal or state bankruptcy, insolvency,
reorganization or other similar law (including the Bankruptcy Reform Act of
1978, as amended, or any succeeding law) (a "Bankruptcy Law"), or (d) consent
to an involuntary case under any Bankruptcy Law filed against the General
Partner or the general partner of the Property Partnership.
Section 5.11 Notice of Certain Events. The Company shall, as promptly as
reasonably practicable after the consummation of any event referred to in
Sections 8.03(d)(i)(A), (B) and (C) of the Partnership Agreement, give the
Partnership and the Limited Partner written notice of the occurrence of such
event, setting forth the circumstances of such event and a pro forma
computation of the operation of such Sections.
Article 6 Covenants and Undertakings of General Partner.
Section 6.1 Performance by Partnership. The General Partner shall cause
the Partnership timely and diligently to observe all of its covenants and
responsibilities under the Partnership Agreement.
Section 6.2 Enforcement of Obligations. The General Partner shall
enforce, and cause the Partnership to enforce, its rights under the Letter
Agreement and under this Agreement.
Article 7 Covenant and Undertaking of the Investor.
Section 7.1 Limitation on Dispositions. Notwithstanding anything to the
contrary in this Agreement, the Limited Partner shall not offer, sell, transfer
or otherwise dispose of (other than in conjunction with a block trade or an
underwritten offering) more than $5,000,000 of Registration Shares (based on
market value) during any one-month period.
Section 7.2 Ownership of Company Shares. Upon the dissolution of the
Partnership or at the time that the Limited Partner gives notice pursuant to
Section 8.03 of the Partnership Agreement of its election to cause the
Partnership to redeem its Interest, as the case may be, the Limited Partner
shall advise the Company in writing of the number of Company Shares the legal
or beneficial interest in which is held by the Limited Partner and all members
of the Investor Group.
Article 8 Indemnification.
Section 8.1 Indemnification by Company. In the event of any
registration of Registration Shares, the Company shall indemnify and hold
harmless the Limited Partner, its directors,
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officers, shareholders, agents and employees and each Person who acts as an
underwriter in connection with the resale of Registration Shares by the Limited
Partner and each Person, if any, who controls the Limited Partner or such
underwriter within the meaning of the Securities Act or the Exchange Act (for
purposes of this Section 8.1 and Sections 8.3 through 8.5, 8.7 and 8.9, each
such person being an "Indemnified Party"), against any and all losses, claims,
damages, expenses, or liabilities, joint or several, or actions or proceedings
(whether commenced or threatened) in respect thereof, to which each such
Indemnified Party may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages, expenses, or liabilities (or actions
or proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement covering such
Registration Shares, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company will reimburse each such Indemnified Party for any legal or any
other expenses reasonably incurred by the Indemnified Party in connection with
investigating or defending any such loss, claim, damage, expense, liability,
action or proceeding; provided, that (i) the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, expense, or
liability (or action or proceeding, whether commenced or threatened, in respect
thereof) arises out of or is based solely upon 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
written information furnished to the Company through an instrument duly
executed by or on behalf of the Limited Partner or such underwriter
specifically stating that it is for use in the preparation thereof, and (ii)
the Company shall not be liable to any Person who participates as an
underwriter in the resale of Registration Shares by the Limited Partner or any
person who controls or is controlled by such underwriter within the meaning of
the Securities Act or the Exchange Act, to the extent that it is determined by
a court of competent jurisdiction in a decision not subject to further review
that any such loss, claim, damage, expense, or liability (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
such underwriter's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registration Shares to such
person if the Company furnished the
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<PAGE> 21
underwriter copies of the final prospectus and such statement or omission was
corrected in such final prospectus.
Section 8.2 Indemnification by Limited Partner. The Limited Partner
shall indemnify and hold harmless the Company, its directors, its officers who
sign the registration statement and each person, if any, who controls the
Company within the meaning of the Securities Act (for purposes of this Section
8.2 and Sections 8.3 through 8.5, 8.7 and 8.9, each such person being an
"Indemnified Party"), from and against any and all losses, claims, damages,
expenses, or liabilities, joint or several, or actions or proceedings (whether
commenced or threatened) in respect thereof, to which each such Indemnified
Party may become subject under the Securities Act or the Exchange Act or
otherwise insofar as such losses, claims, damages, expenses, or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
required to be stated, in such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or necessary to make the statements therein
not misleading, but only to the extent that such statement or omission was made
in reliance upon and in conformity with written information furnished by the
Limited Partner or any underwriter of Registration Shares for the Limited
Partner to the Company through an instrument duly executed by or on behalf of
the Limited Partner or such underwriter specifically stating that it is for use
in the preparation thereof or arises out of such underwriter's failure to send
or give a copy of the final prospectus, as the same may be then supplemented or
amended, to the person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registration Shares to such person if the Company
furnished the underwriter copies of the final prospectus and such statement or
omission was corrected in such final prospectus.
Section 8.3 Procedure. Promptly after receipt by any Indemnified Party
hereunder of notice of the commencement of any action or proceeding involving a
claim referred to in Section 8.1 or 8.2, the Indemnified Party will notify the
indemnifying party in writing of the commencement thereof; but the omission so
to notify the indemnifying party will not relieve the indemnifying party from
any liability which it may have to any Indemnified Party under Section 8.1 or
8.2 except to the extent that the indemnifying party is prejudiced thereby. In
case any such action shall be brought against any Indemnified Party, the
indemnifying party shall be entitled to participate therein and, to the extent
that the indemnifying party shall elect, to assume the defense thereof, with
counsel (which shall include local counsel, if reasonably
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<PAGE> 22
determined by the Indemnified Party to be appropriate) reasonably satisfactory
to such Indemnified Party and, after notice from the indemnifying party to such
Indemnified Party of the indemnifying party's election to so assume such
defense, the indemnifying party shall not be liable to such Indemnified Party
under this Article 8 for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such Indemnified Party, in
connection with the defense of such action; provided, however; that if the
Indemnified Party has available to it defenses or claims not available to the
indemnifying party, or there exists an actual or potential conflict of interest
between the Indemnified Party and the indemnifying party, the Indemnified Party
shall be entitled to participate in such defense with counsel of its choosing
reasonably satisfactory to the indemnifying party and the indemnifying party
shall be liable for the expenses (including the legal expense) of the
Indemnified Party in such participation in such defense. In addition, the
indemnifying party shall not be required to indemnify, reimburse or otherwise
make any contribution to the amount paid or payable by the Indemnified Party
for any losses, claims, damages, expenses, or liabilities (or actions or
proceedings, actual or threatened, in respect thereof) incurred by the
Indemnified Party in settlement of any such losses, claims, damages, expenses,
liabilities, actions or proceedings otherwise covered hereunder unless such
settlement has been previously approved by the indemnifying party, which
approval shall not be unreasonably withheld.
Section 8.4 Contribution. If for any reason the indemnity under this
Article 8 is unavailable or is insufficient to hold harmless any Indemnified
Party under Section 8.1 or 8.2, then the indemnifying party shall contribute to
the amount paid or payable to the Indemnified Party as a result of any loss,
claim, expense, damage, or liability (or actions or proceedings, whether
commenced or threatened, in respect thereof), and legal or other expenses
reasonably incurred by the Indemnified Party in connection with investigating
or defending any such loss, claim, expense, damage, liability, action or
proceeding, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party, on the one hand, and the Indemnified Party, on the
other. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or the Limited Partner,
on the other hand, and each party's relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. If, however, the allocation provided in the second preceding
sentence is not permitted by applicable law, or if the allocation provided in
the second preceding sentence provides a lesser sum to the Indemnified Party
than the amount hereinafter calculated, then the indemnifying
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<PAGE> 23
party shall contribute to the amount paid or payable by the Indemnified Party
in such proportion as is appropriate to reflect not only such relative fault
but also the relative benefits to the indemnifying party and the Indemnified
Party, as well as any other relevant equitable considerations. The parties
hereto agree that it would not be just and equitable if contributions pursuant
to this Section 8.4 were to be determined by any method of allocation which did
not take account of the equitable considerations referred to in this Section
8.4. Notwithstanding the provisions of this Section 8.4, no person found
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) by a court of competent jurisdiction shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 8.5 Indemnification Under Other Laws. Indemnification and
contribution similar to that provided in Sections 8.1 through 8.4 (with
appropriate modifications) shall be given by the Company and the Limited
Partner with respect to any required registration or qualification of the
Registration Shares under any state securities or "blue sky" laws or any
federal or other regulation other than the Securities Act.
Section 8.6 Advancement of Limited Partner's Expenses. All legal and
other expenses incurred by or on behalf of the Limited Partner in connection
with investigating or defending any loss, claim, expense, damage, liability,
action, or proceeding shall be paid by the Company in advance of the final
disposition of such investigation, defense, action, or proceeding within 20
days after the receipt by the Company of a statement or statements from the
Limited Partner (which statement or statements shall reasonably evidence such
expenses incurred by the Limited Partner) requesting from time to time such
payment, advance or advances. The entitlement of the Limited Partner to such
payment or advancement of expenses shall include those incurred in connection
with any action or proceeding by the Limited Partner seeking an adjudication or
award in arbitration pursuant to Section 8.7. In the event it is determined
that the Limited Partner was not entitled to all or any portion of the
indemnification or the advancement of expenses, the Limited Partner shall
promptly repay all amounts paid to or on behalf of the Limited Partner by or on
behalf of the Company to which the Limited Partner was not entitled.
Section 8.7 Collection. In the event that any payment due under this
Article 8 is not timely paid, or that advances pursuant to Section 8.6 are not
timely made, the Indemnified Parties affected shall be entitled to seek a final
adjudication in an appropriate court of competent jurisdiction of their
entitlement to such indemnification or advances. If an Indemnified Party is a
party to or intervenes in any proceeding in which the validity or
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<PAGE> 24
enforceability of this Article 8 is at issue or seeks an adjudication to
enforce the rights of any Indemnified Party under, or to recover damages for
breach of, this Article 8, the Indemnified Party, if it prevails in such
action, shall be entitled to recover from the indemnifying party, and shall be
indemnified by the indemnifying party against, any expenses incurred by the
Indemnified Party in seeking enforcement of such rights.
Section 8.8 No Inconsistent Position. The Company and the Limited
Partner agree that (a) they shall not assert, and are precluded from asserting,
in any proceeding before any forum that the provisions, procedures and
presumptions of this Article 8 are not valid, binding and enforceable; and (b)
they will stipulate in any proceeding before any forum that the Company and the
Limited Partner are bound by all of the provisions of this Article 8.
Section 8.9 Remedies Not Exclusive. The rights and claims contained in
this Article 8 shall be in addition to any other rights (to indemnification,
contribution or otherwise) which any Indemnified Party may have pursuant to law
or contract and shall remain operative and in full force and effect regardless
of any investigation made or omitted by or on behalf of any Indemnified Party
and, as to Indemnified Party, shall survive the transfer of any Registration
Shares by the Limited Partner.
Article 9 Assignment.
Section 9.1 Assignability of Limited Partner's Right. The Limited
Partner may, without the consent or approval of the Company, assign its rights
under this Agreement to a Person to whom the Limited Partner assigns its
Interest (subject, in any event, to the terms, conditions and limitations set
forth in the Partnership Agreement), provided that such assignee agrees in
writing to be bound by the terms of this Agreement.
Section 9.2 Assignability of the Company's Obligations. Without the
prior written consent of the Limited Partner (or, if there shall then be more
than one Limited Partner, all Limited Partners), in the sole and absolute
discretion of the Limited Partner, the Company shall not assign or delegate its
responsibilities hereunder.
Section 9.3 Additional Limited Partners. It is anticipated that the
Investor will remain the sole Limited Partner for the entire term of the
Partnership and, accordingly, the language of this Agreement generally refers
solely to "the Limited Partner." However, if there shall be more than one
Limited Partner, then, except as specifically provided in this Agreement, any
reference to "the Limited Partner" shall be deemed to be a reference to all of
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the Limited Partners or each Limited Partner or any Limited Partner at the
time, as the context requires.
Section 9.4 Binding Agreement. Subject to the provisions of Sections
9.1 and 9.2, this Agreement shall be binding upon the heirs, successors and
assigns of the parties.
Article 10 Miscellaneous.
Section 10.1 Term. This Agreement shall be effective on the Closing Date
and shall continue in effect until the expiration of the term of the
Partnership and the liquidation of the Partnership and distribution provided in
Section 8.02 of the Partnership Agreement, or, if earlier, the redemption of
the Limited Partner's Interest pursuant to the Partnership Agreement; provided,
however, that the provisions of Sections 5.5 and 7.1 and Article 8 of this
Agreement shall survive such liquidation or redemption and continue in full
force and effect so long as any claims could be lawfully asserted thereunder.
Section 10.2 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York as applied
between residents of that State entering into contracts wholly to be performed
in that State.
Section 10.3 Notices. All notices hereunder shall be in writing and
shall be given: (a) if to the Company, at 77 West Wacker Drive, 40th Floor,
Chicago, Illinois, Attention: President, or such other address or addresses of
which the Limited Partner shall have been given notice, with copies to Kirkland
& Ellis, 200 East Randolph Drive, 54th Floor, Chicago, Illinois 60601,
Attention: Robert Osborne, Esq., or such other address of which the Limited
Partner shall have been given notice; and (b) if to the Limited Partner, at the
address shown on the signature page of this Agreement, or such other address of
which the Company shall have been given notice, with copies to Brown & Wood,
One World Trade Center, New York, New York 10048-0557, Attention: Michael G.
Wolfson, Esq., and Nomura Securities International, Inc., 2 World Financial
Center, Building B, New York, NY 10281-1198, Attention: Managing Director,
Structured Finance, or such other address of which the Company shall have been
given notice. Any notice shall be deemed to have been given if personally
delivered or sent by United States mail or by commercial courier or delivery
service or by telegram or telex and shall be deemed received, unless earlier
received, (i) if sent by certified or registered mail, return receipt
requested, ten days after deposit in the mail, postage prepaid, (ii) if sent by
United States Express Mail or by commercial courier or delivery service, two
business days after delivery to a United States Post Office or delivery
service, postage prepaid, (iii) if sent by telegram, telex or facsimile
transmis-
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sion, when receipt is acknowledged by answerback, and (iv) if delivered by
hand, on the date of receipt.
Section 10.4 Entire Agreement; Amendments. This Agreement, including the
provisions of the Partnership Agreement incorporated herein and the provisions
of the Loan Agreement dated March 27, 1996 referred to in Section 2.9, sets
forth the entire understanding of the parties hereto and this Agreement shall
not be amended except by an instrument in writing executed by the Company and
the Limited Partner (or, if there shall then be more than one Limited Partner,
by a majority in Interest of the Limited Partners); provided, however, that,
notwithstanding the foregoing, if at the time of any amendment there shall be
more than one Limited Partner, (i) any amendment which alters the provisions of
Section 5.2, 5.5, 8.5 or 8.7 or Article 6 shall require the written approval of
75% in Interest of the Limited Partners and (ii) any amendment which alters the
provisions of Sections 5.1, 5.3, 5.4, 5.6, 5.8, 8.1, 8.2, 8.4, or 8.6 or this
Section 10.4, shall require the written approval of each Limited Partner.
Section 10.5 Gender and Number. As used herein, the neuter gender
includes the masculine and the feminine, and the singular includes the plural,
and vice versa, as the context requires.
Section 10.6 Counterparts. This Agreement may be executed in more than
one counterpart, each of which may be executed by fewer than all the parties,
with the same effect as if the parties executed one counterpart as of the day
and year first above written.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals as of the day and year first above written.
PRIME RESIDENTIAL, INC.
By: /s/
-----------------------------------
Name:
Title:
Makoto Maki
/s/ By Michael G. Wolfson
----------------------------------------
Makoto Maki
(By Michael G. Wolfson,
Attorney-in-Fact)
Address: Mr. Makoto Maki
4-chome, 1704-banchi
Shimada, Tenpaku-ku Nagoya-shi
Aichi-ken, Japan
JUPITER-II, L.P.
By: AJ TWO LIMITED PARTNERSHIP,
General Partner
By: AJ TWO, INC.,
General Partner
By: /s/
-----------------------------------
Name:
Title:
AJ TWO LIMITED PARTNERSHIP
By: AJ TWO, INC.,
General Partner
By: /s/
-----------------------------------
Name:
Title
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EXHIBIT 10.39(A)
AGREEMENT AND UNDERTAKING
among
Prime Residential, Inc.,
Yugenkaisha Sankyo Sekiyu,
Jupiter-I, L.P.,
and
AJ One Limited Partnership
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Dated as of March 27, 1996
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TABLE OF CONTENTS
Page
Article 1 Defined Terms . . . . . . . . . . . . . . . . . . 1
Section 1.1 Terms Defined Herein . . . . . . . . . . . . 1
Section 1.2 Incorporated Terms . . . . . . . . . . . . . 2
Article 2 Representations and Warranties of the Company . . . 4
Section 2.1 Due Incorporation and Status . . . . . . . . 4
Section 2.2 Authority . . . . . . . . . . . . . . . . . 4
Section 2.3 Valid Agreement . . . . . . . . . . . . . . 4
Section 2.4 No Default . . . . . . . . . . . . . . . . . 4
Section 2.5 No Required Consents . . . . . . . . . . . . 5
Section 2.6 Reservation of Company Shares . . . . . . . 5
Section 2.7 Validity of Company Shares . . . . . . . . . 5
Section 2.8 Disclosure . . . . . . . . . . . . . . . . . 5
Section 2.9 Mortgage Revenue Bonds and Mortgage
Documents . . . . . . . . . . . . . . . . . 6
Section 2.10 The Properties . . . . . . . . . . . . . . . 8
Section 2.11 The Property Partnership and the General
Partner . . . . . . . . . . . . . . . . . . 12
Section 2.12 Limitation on Representations . . . . . . . 18
Article 3 Representations and Warranties of
the Partnership and the General Partner . . . . . 18
Section 3.1 Due Formation of the Partnership . . . . . . 19
Section 3.2 Due Formation of the General Partner . . . . 19
Section 3.3 Valid Agreement . . . . . . . . . . . . . . 19
Section 3.4 No Default . . . . . . . . . . . . . . . . . 19
Section 3.5 No Required Consents . . . . . . . . . . . . 20
Section 3.6 Admission of the Limited Partners . . . . . 20
Section 3.7 Certain Financial Matters . . . . . . . . . 20
Article 4 Representations and Warranties of the
Investor . . . . . . . . . . . . . . . . . . . . . 20
Section 4.1 Organization . . . . . . . . . . . . . . . . 21
Section 4.2 Accredited Investor . . . . . . . . . . . . 21
Section 4.3 Valid Agreement . . . . . . . . . . . . . . 21
Section 4.4 Consultation and Reliance . . . . . . . . . 21
Section 4.5 Opportunity for Inquiry . . . . . . . . . . 21
Section 4.6 Evaluation . . . . . . . . . . . . . . . . . 21
Section 4.7 Review of Materials . . . . . . . . . . . . 21
Section 4.8 Knowledge and Experience . . . . . . . . . . 22
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Article 5 Covenants and Undertakings of the Company . . . . 22
Section 5.1 Preservation of Existence and REIT
Status . . . . . . . . . . . . . . . . . . . 22
Section 5.2 Reservation of Shares . . . . . . . . . . . 22
Section 5.3 Maintenance of Listing of Company
Shares . . . . . . . . . . . . . . . . . . . 22
Section 5.4 Contribution of Cash or Company Shares . . . 23
Section 5.5 Registration of Company Shares . . . . . . . 23
Section 5.6 Registration Expenses . . . . . . . . . . . 27
Section 5.7 Additional Registration Rights . . . . . . . 27
Section 5.8 Performance by General Partners . . . . . . 27
Section 5.9 Ownership of General Partners . . . . . . . 27
Section 5.10 General Partners Not to Declare
Bankruptcy . . . . . . . . . . . . . . . . . 28
Section 5.11 Notice of Certain Events . . . . . . . . . . 28
Article 6 Covenants and Undertakings of General Partner . . . 28
Section 6.1 Performance by Partnership . . . . . . . . . 28
Section 6.2 Enforcement of Obligations . . . . . . . . . 28
Article 7 Covenant and Undertaking of the Investor . . . . . 28
Section 7.1 Limitation on Dispositions . . . . . . . . . 28
Section 7.2 Ownership of Company Shares . . . . . . . . 28
Article 8 Indemnification . . . . . . . . . . . . . . . . . 29
Section 8.1 Indemnification by Company . . . . . . . . . 29
Section 8.2 Indemnification by Limited Partner . . . . . 30
Section 8.3 Procedure . . . . . . . . . . . . . . . . . 30
Section 8.4 Contribution . . . . . . . . . . . . . . . . 31
Section 8.5 Indemnification Under Other Laws . . . . . . 32
Section 8.6 Advancement of Limited Partner's
Expenses . . . . . . . . . . . . . . . . . . 32
Section 8.7 Collection . . . . . . . . . . . . . . . . . 33
Section 8.8 No Inconsistent Position . . . . . . . . . . 33
Section 8.9 Remedies Not Exclusive . . . . . . . . . . . 33
Article 9 Assignment . . . . . . . . . . . . . . . . . . . . 33
Section 9.1 Assignability of Limited Partner's
Right . . . . . . . . . . . . . . . . . . . 33
Section 9.2 Assignability of the Company's
Obligations . . . . . . . . . . . . . . . . 33
Section 9.3 Additional Limited Partners . . . . . . . . 34
Section 9.4 Binding Agreement . . . . . . . . . . . . . 34
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Article 10 Miscellaneous . . . . . . . . . . . . . . . . . . 34
Section 10.1 Term . . . . . . . . . . . . . . . . . . . . 34
Section 10.2 Applicable Law . . . . . . . . . . . . . . . 34
Section 10.3 Notices . . . . . . . . . . . . . . . . . . 34
Section 10.4 Entire Agreement; Amendments . . . . . . . . 35
Section 10.5 Gender and Number . . . . . . . . . . . . . 35
Section 10.6 Counterparts. . . . . . . . . . . . . . . . 35
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AGREEMENT AND UNDERTAKING
AGREEMENT AND UNDERTAKING dated as of March 27, 1996 among Prime
Residential, Inc., a corporation organized under the laws of the State of
Maryland; Yugenkaisha Sankyo Sekiyu, a corporation organized under the laws of
Japan ("Investor"); Jupiter-I L.P., a Delaware limited partnership; and AJ One
Limited Partnership, a Delaware limited partnership.
The Company, in order to induce Investor to become a party to the
Partnership Agreement and acquire an Interest in the Partnership, and the
parties, in consideration of the mutual promises and agreements made herein and
intending to be legally bound, hereby agree as follows:
Article 1 Defined Terms.
Section 1.1 Terms Defined Herein. The following terms shall, unless the
context otherwise requires, have the meanings set forth in this Section 1.1.
"Agreement" means this Agreement and Undertaking, as originally executed
and as hereafter from time to time supplemented, amended and restated.
"Indemnified Party" has the meaning given in Section 6.1, 6.2 or 6.3, as
the case may be.
"Material Adverse Effect," when used with reference to specified acts,
failures or omissions to act, or conduct of a specified Person, means that such
acts, failures or omissions to act, or conduct would have a material adverse
effect on (i) the condition (financial or otherwise), earnings, business
affairs or business prospects of such Person and its consolidated subsidiaries,
considered as one enterprise, or (ii) the ability of such Person to perform its
obligations under this Agreement.
"Partnership Agreement" means the Agreement of Limited Partnership of the
Partnership dated as of the Closing Date, as originally executed and as from
time to time supplemented, amended or restated.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement, including, without limitation, (a) the fees, disbursements and
expenses of the Company's counsel, accountants (including the costs of any
special audits or "cold comfort" letters) and experts in connection with the
registration of Company Shares pursuant to this Agreement; (b) all
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expenses in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus and any final prospectus,
and any amendments or supplements to any thereof, relating to the Registration
Shares, and the mailing and delivery of copies thereof, as required by the
Securities Act and the rules and regulations of the SEC and the NASD; (c) all
SEC filing fees in connection with the registration under the Securities Act of
Registration Shares for issuance and delivery to the Limited Partner; (d) the
filing fees, if any, incident to review by the NASD of the terms of the
issuance and delivery of the Registration Shares; (e) all expenses in
connection with the registration or qualification for offering and sale under
state securities or "blue sky" laws of the states designated pursuant to
Section 5.5.4 of the Registration Shares, including filing or registration fees
with state securities or "blue sky" authorities in connection with issuance and
delivery of Registration Shares to the Limited Partner, and the fees and
expenses of counsel in connection with such registration or qualification; (f)
the cost (including the fees and expenses of counsel approved by the Company)
of preparing and printing any "blue sky" survey in connection with the offering
or delivery of Registration Shares; (g) fees and expenses in connection with
listing the Registration Shares on each securities exchange or quotation system
on which the Company Shares are then listed or admitted to trading; provided,
however, that Registration Expenses does not include (i) any underwriting
discounts or brokerage or other commissions, (ii) any transfer taxes payable
because the Limited Partner has directed that Registration Shares deliverable
to the Limited Partner be registered in the books and records of the Company in
any name other than the name in which the Limited Partner's Interest is
registered, or (iii) any expenses of the Limited Partner (including, without
limitation, fees and expenses of its counsel).
"Registration Shares" means, at the time of reference thereto, the
Company Shares then registered or to be registered pursuant to this Agreement.
"REIT" means a real estate investment trust described in Code Section
856.
"SEC" means the Securities and Exchange Commission or any successor
regulatory authority.
Section 1.2 Incorporated Terms. The following terms, when used in this
Agreement, shall, unless the context otherwise requires, have the meanings set
forth in the Partnership Agreement (as the definitions of such terms in the
Partnership Agreement are from time to time amended):
"Affiliate"
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"Amendment"
"Capital Value"
"Closing Date"
"Code"
"Collateral Value"
"Company"
"Company Shares"
"Delaware Act"
"Dispositions"
"Exchange Act"
"General Partner"
"Interest"
"Investor"
"Investor Group"
"Letter Agreement"
"Limited Partner"
"NASD"
"Net Equity Value"
"Other Events"
"Partnership"
"Person"
"Pro Forma Priority Distribution"
"Properties" and "Property"
"Property Partnership"
"Property Partnership Agreement"
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"Redemption"
"Refinancing"
"Securities Act"
Article 2 Representations and Warranties of the Company.
The Company hereby represents and warrants to, and covenants with, the
Investor as follows:
Section 2.1 Due Incorporation and Status.
Section 2.1.1 Due Incorporation. The Company has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Maryland and is duly qualified or licensed, and in good standing, as a
foreign corporation authorized to do business in each other jurisdiction in
which its ownership of properties or its conduct of business requires such
qualification or licensing, except where the failure to be so qualified or
licensed, or in good standing, as a foreign corporation would not have a
Material Adverse Effect.
Section 2.1.2 REIT Status. As of the date hereof the Company
qualifies as a REIT under the Code.
Section 2.2 Authority. The Company has corporate power and authority to
own, lease and operate its properties, directly or through subsidiaries, and to
conduct its business as presently conducted.
Section 2.3 Valid Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and represents the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
Section 2.4 No Default. The execution and delivery of this Agreement by
the Company, the contribution by Prime Residential, L.P. of its limited
partnership interest in the Property Partnership to the General Partner,
admission of the investor to the Partnership as the Limited Partner, the
execution and delivery of the Partnership Agreement by the General Partner and
the Limited Partner, the execution and delivery by the general partner of the
Property Partnership of the Letter Agreement, the making of the Amendment, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the general
partner of the Property Partnership of its obligations under the Letter
Agreement, the performance by the General Partner of its obligations under the
Partnership Agreement and the performance by the Company of its
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obligations hereunder do not (a) violate the Articles of Incorporation or
By-Laws of the Company; or (b) violate or constitute a breach of or default
under the Property Partnership Agreement or any mortgage, indenture, loan
agreement, promissory note or similar agreement to which the Company or any of
its Affiliates is a party, or by which any of them is bound, or to which any
property of the Company or any of its Affiliates is subject, except where such
violations, breaches or defaults would not, singly or in the aggregate, have a
Material Adverse Effect; or (c) conflict with or violate any law or any
regulation, rule, order or decree of any governmental body, court or
administrative agency having jurisdiction over the Company or its Affiliates or
the properties of any of them, except where such conflicts or violations would
not, singly or in the aggregate, have a Material Adverse Effect.
Section 2.5 No Required Consents. The execution and delivery of this
Agreement by the Company and the performance by the Company of its obligations
hereunder, the contribution by Prime Residential, L.P. of its limited
partnership interest in the Property Partnership to the General Partner,
admission of the investor to the Partnership as the Limited Partner, the
execution and delivery of the Partnership Agreement by the General Partner and
the Limited Partner, the execution and delivery by the general partner of the
Property Partnership of the Letter Agreement, the making of the Amendment, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the general
partner of the Property Partnership of its obligations under the Letter
Agreement, the performance by the General Partner of its obligations under the
Partnership Agreement and the performance by the Company of its obligations
hereunder do not require any filing or registration with, or the receipt of any
consent by, any governmental or regulatory authority or other person by the
Company or any of its Affiliates other than any which have already been
obtained or waived and those provided for in Article 5.
Section 2.6 Reservation of Company Shares. The Company has duly reserved
solely for purposes of issuance pursuant to this Agreement 925,006 Company
Shares.
Section 2.7 Validity of Company Shares. The Company has duly authorized
the issuance and delivery of Company Shares pursuant to this Agreement and,
upon delivery, such Company Shares will be duly authorized, validly issued,
fully paid and non-assessable.
Section 2.8 Disclosure. The Company has heretofore delivered to the
Investor the form of the Annual Report on Form
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10-K to be filed by the Company under the Exchange Act for the year ended
December 31, 1995.
Section 2.8.1 No Misstatement or Omission. At the time of filing,
such Annual Report complied in all material respect with the requirements of
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
Section 2.8.2 Financial Statements. The financial statements,
including the notes thereto, and supporting schedules included in such Annual
Report have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis and present fairly the financial
position of the Company and its subsidiaries as of the dates indicated and the
results of their operations for the periods shown.
Section 2.8.3 Outstanding Company Shares. The authorized, issued
and outstanding Company Shares are as set forth in such Annual Report (except
for subsequent issuances, if any, pursuant to reservations, agreements, stock
options, employee benefit plans or the exercise of convertible securities
referred to in such Annual Report).
Section 2.8.4 Subsequent Events. Since the respective dates as of
which information is given in such Annual Report, except as otherwise stated
therein, there has not been any material adverse change in the condition
(financial or otherwise) or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business.
Section 2.9 Mortgage Revenue Bonds and Mortgage Documents.
Section 2.9.1 The Property Partnership has delivered to the
Investor (or its representatives) true, correct and complete (in all material
respects) summaries of all bonds, notes, mortgages, guaranties and other loan
documents (collectively, the "Mortgage Documents") affecting the Properties
which summaries are attached as Schedule 2.9.1(a) hereto, together with true,
correct and complete copies of the Placement Memoranda for the bonds identified
on Schedule 2.9.1(b) attached hereto (the "Mortgage Revenue Bonds"). The
Mortgage Revenue Bonds and the Mortgage Documents are each in full force and
effect and, except as may otherwise be described in the Disclosure Schedule, no
default or event of default (or any other event which, with notice or the
passage of time or both, would constitute a default or event of default) which
could result in an acceleration of indebtedness
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thereunder has occurred under the Mortgage Revenue Bonds or any Mortgage
Document. The Mortgage Revenue Bonds and the Mortgage Documents (and the
provisions thereof) have not been superseded, amended, modified, cancelled or
otherwise changed, released, subordinated or waived by the Property Partnership
or the lender thereunder except as may otherwise be set forth in the Disclosure
Schedule. Except as may otherwise be set forth in the Disclosure Schedule, no
maturity of any Mortgage Revenue Bond and/or Mortgage Document has been
accelerated. Each Mortgage Revenue Bond and Mortgage Document is listed on the
Loan and Property Schedule (as such term is defined below). Except in respect
of matters contemplated by Section 2.10.3, none of the Properties (or any
interest therein) have been pledged or mortgaged as security for any
indebtedness or other monetary obligations (other than the indebtedness
evidenced and/or secured by the Mortgage Documents), and the Mortgage Documents
are not cross-collateralized or cross-defaulted with any other loan documents
or agreements of any kind (except that the Mortgage Documents may be
cross-defaulted and cross-collateralized among themselves).
Section 2.9.2 Except as may otherwise be set forth in the
Disclosure Schedule, no foreclosure action or other form of enforcement has
been commenced with respect to any Mortgage Document or is imminent with
respect to any Mortgage Document.
Section 2.9.3 As of the date of this Agreement, the unpaid
principal balance of the Mortgage Revenue Bonds and each Loan (as defined
below) is as more particularly set forth on the Loan and Property Schedule, and
all interest due thereunder has been paid as of the date of this Agreement.
Interest payments under the Mortgage Revenue Bonds have been exempt from all
federal income taxation. The Company will use its best efforts to take all
actions necessary to maintain the Mortgage Revenue Bonds' exemption from all
federal taxation.
Section 2.9.4 The respective principal and interest amounts
currently outstanding with respect to each loan evidenced and/or secured by the
Mortgage Documents (individually, a "Loan", and collectively, the "Loans") as
of the date of this Agreement are as set forth in the Loan and Property
Schedule.
Section 2.9.5 True, correct and complete (in all material
respects) summaries of any and all (i) letters of credit and other credit
enhancement instruments or agreements (including, without limitation, letter of
credit reimbursement agreements) (collectively, the "LC Documents"), and (ii)
"swap", "hedge", "cap", "collar" and other similar interest rate protection
agreements (collectively, "Interest Rate Protection Agreements") with respect
to the Loans or Properties have heretofore been delivered by the Property
Partnership to the Investor (or its
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representatives) and said summaries are attached hereto as Schedule 2.9.5. The
LC Documents and the Interest Rate Protection Agreements are each in full force
and effect. No LC Documents or Interest Rate Protection Agreements have been
superseded, amended, modified, cancelled or otherwise released or waived by the
Property Partnership. Each LC Document and Interest Rate Protection Agreement
is listed on the Loan and Property Schedule.
Section 2.10 The Properties.
Section 2.10.1 Except as may otherwise be set forth in the
Disclosure Schedule, (i) the Property Partnership has not given or received any
notice or claim of material default which remains uncured with respect to any
lease relating to any Property owned by it other than notices of default given
to or received from residents of multi-family rental properties, and (ii) the
Property Partnership has not pledged, assigned or encumbered its interest in
any such leases or the rents payable thereunder except pursuant to the Mortgage
Documents.
Section 2.10.2 Except as may otherwise be set forth in the
Disclosure Schedule, (i) there are no pending or threatened in writing set off,
abatement, counterclaim, lender liability claim or defense, or any right of
rescission, whether based on its acts or omissions or otherwise which could
have a Material Adverse effect, (ii) true, correct and complete copies of all
title insurance policies insuring the Property Partnership's interest in each
Property owned by it are in the possession or control of the Property
Partnership, and (iii) no claims have been made by the Property Partnership
under its related title insurance policy insuring title to its interest in any
Property and each such policy is in full force and effect and fully paid for,
and the Property Partnership has not, to the Company's knowledge, done anything
by act or omission, and the Property Partnership has not received written
notice of and/or otherwise has no knowledge of any matter, that would impair
the enforceability of any such title insurance policy or entitle the insurer
thereunder to assert any exception from, or defense to, coverage thereunder not
set forth therein.
Section 2.10.3 The Property Partnership has good and marketable
title to each Property owned by it. None of the Properties or assets of any of
the Property Partnership are subject to any Lien except (a) liens securing the
Loans on the Mortgage Revenue Bonds, (b) Permitted Statutory Liens not yet
delinquent, and (c) Liens not yet delinquent or the validity of which are being
contested in good faith by appropriate actions and for which appropriate
reserves have been made.
Section 2.10.4 All operating statements and other financial
statements and financial data for each Property that have
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heretofore been delivered to the Investor (or its representatives) were true,
complete and correct (in all material respects) and accurately presented the
financial condition of the Property Partnership as of the dates thereof.
Section 2.10.5 Except as may otherwise be disclosed in the
Disclosure Schedule and subject to the matters contemplated in Section 2.10.3
above, all real estate taxes, charges and assessments (whether confirmed or
unconfirmed, and whether or not payable in installments), private maintenance
charges, condominium or homeowner's association dues and other prior lien
charges due and payable as of the date of this Agreement with respect to each
Property have been paid in full.
Section 2.10.6 Except as may otherwise be disclosed in the
Disclosure Schedule (and ordinary wear and tear excluded), there are no
material defects in the roof, walls, foundation, structural, mechanical or HVAC
systems in any Property and no material capital improvements or repairs shall
be required to be made to any Property in order to maintain such Property in a
first class manner and/or to comply with any applicable laws, and no such
material capital improvements and/or repairs are presently in the process of
being made. Adequate reserves have been and are being maintained for each
Property for contingencies in connection with the capital improvement, repair,
operation, maintenance, replacement and/or preservation thereof. Without
limiting the generality of the foregoing, there is no material unrepaired
damage to any Property resulting from fire or other hazard or casualty event.
Section 2.10.7 There are no existing engineering reports, soil
studies and reports, plans, specifications, architectural and engineering
drawings, or other similar material reports, studies and items relating to each
Property in the possession or control of the Property Partnership that set
forth any matters or conditions which could have a material adverse effect on
the current or planned construction, development and/or use of the relevant
Property.
Section 2.10.8 Each of the Loans evidenced and/or secured by a
Mortgage Document was a bona fide, arms-length transaction.
Section 2.10.9 Except as may otherwise be disclosed in the
Disclosure Schedule, (i) the Property Partnership has not received any written
notice or has any knowledge (A) of any material violation of any zoning,
building, or other federal, state or municipal law, ordinance, regulation or
any restrictive covenant relating to the maintenance, operation, occupancy, or
use of any Property in its present manner, (B) that any material permits,
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consents, approvals or certificates of occupancy required by any governmental
authority having jurisdiction over any Property have not been performed,
issued, renewed or paid or are not in full force and effect, (C) of any
covenants, restrictions or any other state of facts affecting any Property
which could materially interfere with, or have any material adverse effect
upon, the present or intended construction, development, use and/or operation
of such Property and (D) that there is a moratorium or governmental order in
effect with respect to any Property or that any such moratorium or similar
ordinance is contemplated, and (ii) the Property Partnership has not proffered
any material improvements or alterations to any Property to any governmental
authority.
Section 2.10.10 The Property Partnership maintains adequate
hazard, flood and other insurance policies insuring each Property against such
risks as are customarily insured against by prudent owners of properties
similarly situated as the Properties. Except as may otherwise be disclosed in
the Disclosure Schedule, each insurance policy is in full force and effect, is
fully paid, and otherwise satisfies the terms and conditions of the relevant
Mortgage Documents regarding the same, and true, correct and complete summaries
(in all material respects) of all such insurance policies have been delivered
to the Investor (or its representatives) and are attached hereto as Schedule
2.10.10.
Section 2.10.11 Except as may otherwise be set forth in the
Disclosure Schedule, no brokerage commissions or other compensation is or will
be due or payable by or on behalf of the Property Partnership to any Person,
firm, corporation, or other entity with respect to, or on account of, any of
the leases, or any renewals thereof. A true, correct and complete copy of a
rent roll listing, as of the date thereof, each lease and tenancy affecting
each Property has heretofore been delivered by the Property Partnership to the
Investor (or its representatives). Said rent roll lists (i) the unit occupied
by each such tenant, (ii) the rent payable by such tenant, (iii) any security
furnished by such tenant, (iv) the term of such tenancy, and (v) any
delinquencies in the payment of such tenant's rent. Each of such leases is in
effect, with no material amendments or modifications thereto that are not
listed on such rent roll, and no credit, set-off, recoupment, counterclaim or
defense is being claimed against any Property or the Property Partnership by
any tenant against rent coming due except for any immaterial claims in the
ordinary course of the operation of multi-family residential properties.
Section 2.10.12 Set forth on Schedule 2.10.12 attached hereto is a
true, correct and complete list of all property management, leasing brokerage
agreements and other material contracts relating to each Property. Each such
agreement is in full force and effect and unmodified (except as otherwise
provided
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on said Schedule except for any modifications which could not materially and
adversely affect the value of the affected Property), and no material default
(or event which, with notice or the passage of time or both, would constitute a
material default) has occurred thereunder.
Section 2.10.13 No Property is subject to any condominium
regime(s) or cooperative regime(s).
Section 2.10.14 Except as may otherwise be disclosed in the
Disclosure Schedule, there are no material contingent liabilities arising out
of the ownership, use or operation of, or affecting, any Property or any part
thereof not disclosed in writing to the Investor and required to be disclosed
pursuant to generally accepted accounting principles.
Section 2.10.15 The Loan and Property Schedule (as defined below)
is true, correct and complete in all respects as of the date of this Agreement.
For purposes hereof, the term "Loan and Property Schedule" means the schedule
identifying the Loans and Properties which is attached hereto as Schedule
2.10.15 and which set forth, among other things, the following information
concerning each Loan and each Property to the extent applicable to such Loan or
Property: (a) the street address of the Property (or other evidence
identifying the location of such Property); (b) the name of the lender; (c) the
unpaid principal balance and interest rate for each Loan; and (d) any unpaid
accrued interest and other charges or amounts with respect to each Loan.
Section 2.10.16 Neither the Property Partnership nor the Company
nor any Affiliate of either of them is (i) a tenant or subtenant of any
Property or (ii) the holder of any debt with respect to any of the Properties.
Section 2.10.17 No Property is subject to or regulated by any rent
stabilization, rent control, rent moratorium or other similar laws.
Section 2.10.18 There is no proceeding pending or overtly
threatened for the total or partial condemnation of any Property or for the
relocation of roadways providing access to any Property.
Section 2.10.19 The Property Partnership does not own or hold, nor
is obligated under or a party to, any options, rights of first refusal or any
contractual right to purchase, acquire, sell, assign or dispose of fee simple
title to any Property.
Section 2.10.20 Each Property has access to and from a public
street and road which is adequate for its intended use, and
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all such streets and roads have been completed, dedicated to the public use and
accepted for all purposes by the appropriate governmental authority.
Section 2.10.21 All utility services are available and operational
in sufficient size and capacity for the operation of each Property for its
intended use.
Section 2.11 The Property Partnership and the General Partner.
Section 2.11.1 The Property Partnership is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Illinois and has the requisite power to carry on its business as now
conducted. Prime MFP Residential, Inc. (the "Property Partnership General
Partner") is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power to
carry on its business as now conducted. The Property Partnership is duly
qualified, licensed and authorized as a foreign limited partnership to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or to the nature of its activities makes such
qualification or licensing necessary except where the failure to be so
qualified or licensed, or in good standing, as a foreign limited partnership
would not have a Material Adverse Effect. The Property Partnership General
Partner is duly qualified, licensed and authorized as a foreign corporation to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification or licensing necessary except where the failure to be so
qualified or licensed, or in good standing, as a foreign limited partnership
would not have a Material Adverse Effect. True, correct and complete copies of
the certificate of limited partnership of the Property Partnership and the
Amended and Restated Agreement of Limited Partnership of the Property
Partnership, dated as of August 31, 1994 (the "Property Partnership
Agreement"), and of the certificate of incorporation and by-laws for the
Property Partnership General Partner have heretofore been delivered to the
Investor and are accurate, complete, unmodified and in full force and effect as
of the date hereof. As of the date hereof and immediately prior to execution
of this Agreement, the outstanding partnership interests of the Property
Partnership consist of (i) a 1% general partnership interest in the profits,
losses, distributions and credits of the Property Partnership held by the
General Partner, and (ii) a 99% limited partnership interest in the profits,
losses, distributions and credits of the Property Partnership held by Prime
Residential, L.P. Other than in connection with the consummation of the
transactions contemplated under this Agreement, there are no outstanding
opinions, warrants, calls, subscriptions or other
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rights or agreements or commitments obligating the Property Partnership or its
Affiliates to issue, transfer or sell any additional partnership interests in
the Property Partnership. The tax basis of the Property Partnership (and each
partner in the Property Partnership) in each Property is as set forth on
Schedule 2.11.1(a) attached hereto. Set forth on Schedule 2.11.1(b) attached
hereto are the outstanding "Capital Contribution", "Adjusted Contribution" and
"Capital Account" (as such terms are defined in the Property Partnership
Agreement) balances for each partner in the Property Partnership, which
Schedule is true, accurate and complete as of the date hereof. No partner is
in default under or in violation of any provision of the Property Partnership
Agreement except for any immaterial defaults which have been waived by the
other parties thereunder.
Section 2.11.2 Neither the Property Partnership nor the Property
Partnership General Partner has any Subsidiaries or any equity or similar
interest, whether voting or non-voting, in any Person. The only real and
personal property owned or leased by the Property Partnership are the
Properties and related personal property and assets. The sole business and
purpose of the Property Partnership is to, directly or indirectly, manage,
operate, lease and dispose of the Properties or interests therein and, subject
to the Property Partnership Agreement, to engage in any related activities.
The Property Partnership has no assets other than the Properties, cash on hand
(including operating cash, cash reserves and marketable securities) in the
amount of approximately $1,832,000 as of December 31, 1995, and tangible
personal property held in the ordinary course of business and consistent with
past practices. The Property Partnership General Partner has, and will at all
times hereafter have, no material assets other than its general partnership
interest in the Property Partnership. The sole business and purpose of the
Property Partnership General Partner is, and will at all times be, to act as
the general partner of the Property Partnership in accordance with the terms
and conditions of the Property Partnership Agreement and to own its general
partnership interest in the Property Partnership.
Section 2.11.3 The Property Partnership and the Property
Partnership General Partner have heretofore delivered to the Investor (or its
representatives) the financial statements listed on Schedule 2.11.3 attached
hereto, all of which financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto), and
fairly present the consolidated financial position of the Property Partnership
and the General Partner (respectively) as of the date thereof and the results
of each of its operations and changes in each of its financial position for the
periods then ended.
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Section 2.11.4 Neither the Property Partnership nor the Property
Partnership General Partner has any liabilities or obligations, absolute or
contingent, not reflected or disclosed in its financial statements referred to
in Section 2.11.3 above which were required to be reflected or disclosed
therein in accordance with generally accepted accounting principles and which
would have a Material Adverse Effect. Since the date of completion of its
respective financial statements referred to in Section 2.11.3 above, except as
may otherwise be disclosed in the Disclosure Schedule, neither the Property
Partnership nor the Property Partnership General Partner has incurred any such
liabilities or obligations.
Section 2.11.5 With respect to each of the Property Partnership
and the Property Partnership General Partner, except as and to the extent set
forth on its applicable financial statements referred to in Section 2.11.3
above, except as may otherwise be set forth on the Disclosure Schedule, since
the date of completion of said financial statements, there has not been (a) any
material adverse change in its Condition, (b) any entry by it into any material
commitment or transaction which is not in the ordinary course of its business
and consistent with past practice; (c) any material change by it in accounting
principles or methods except insofar as may be required by a change in
generally accepted accounting principles; (d) any declaration, payment or
setting aside for payment of any distributions (whether in cash or property) in
respect to its partnership interests or any other of its securities; (e) any
material revaluation by it of any of its assets, including without limitation,
writing off of notes or accounts receivable; (f) any agreement by it to take,
whether in writing or otherwise, any action which, if taken prior to the date
of this Agreement, would have made any representation or warranty herein untrue
or incorrect in any material respect; (g) any material damage, destruction or
loss, whether covered by insurance or not, having an adverse effect upon its
Condition; (h) any issuance, grant, sale or pledge or agreement to issue,
grant, sell or pledge by it, with any Person, any partnership interests in the
Property Partnership or securities convertible into or exchangeable or
exercisable for, or otherwise evidencing a right to acquire, partnership
interests in the Property Partnership (in the case of the Property Partnership)
or any securities (in the case of the Property Partnership General Partner);
(i) any acquisition of assets by it; or (j) any disposition, encumbrance or
mortgage of any of its assets or properties (including the Properties).
Section 2.11.6 There is no action or proceeding or investigation
pending or, to the Company's knowledge, threatened against or involving the
Property Partnership, the Company, the Property Partnership General Partner,
any properties or rights of the Property Partnership or of the Property
Partnership General
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Partner or any Property which if adversely determined would, individually or in
the aggregate, have a Material Adverse Effect on the Condition of the Property
Partnership or the Property Partnership General Partner nor is the Property
Partnership, the Company, the Property Partnership General Partner or any of
their respective assets or properties (including the Properties) subject to any
order, writ, injunction or decree which would have such an effect. Without
limiting the generality of the foregoing, neither the Property Partnership, the
Company, the Property Partnership General Partner nor the existing Limited
Partner (i.e., Prime Residential, L.P.) is a debtor in any state or federal
bankruptcy, insolvency, liquidation, reorganization, receivership or
arrangement proceeding, and no such proceeding is pending or has been
threatened in writing.
Section 2.11.7 Except as may otherwise be set forth on the
Disclosure Schedule, each of the Property Partnership and the Property
Partnership General Partner has duly filed all tax returns that it was required
to file and, to their knowledge, all such tax returns were correct and
complete. The Property Partnership constitutes a partnership for all income
tax purposes rather than a corporation or association taxable as a corporation.
The Property Partnership currently has in effect an election pursuant to
Section 754 of the Internal Revenue Code.
Section 2.11.8 Each of the Property Partnership and the Property
Partnership General Partner has all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities required
to enable it to continue to conduct its business as presently conducted in
material compliance with all applicable laws.
Section 2.11.9 The Property Partnership is not in material
default, and no event has occurred which with notice, the passage of time or
both, would constitute a material default, under any contract or lease, and all
such contracts and leases are valid and binding agreements (except that no
representation is made with respect to any contracts or leases a default under
which, or the failure of which to be valid and binding, would not, individually
or in the aggregate, have a Material Adverse Effect on the Condition of the
Property Partnership).
Section 2.11.10 Except as may be described in the Disclosure
Schedule, neither the Property Partnership nor the Property Partnership General
Partner has entered into any of the following transactions with any Affiliate
or Individual Affiliate in connection with which it has continuing obligations
in effect as of the date of this Agreement: the direct or indirect purchase,
acquisition or lease of any property from, or the sale, transfer or lease of
any property (including any Property) to, or the borrowing
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of any money from, or the guarantee of any obligation of, or the acquisition of
any stock, obligations or securities of, or the entering into of any merger or
consolidation agreement, or any management, consulting, employment or similar
fee arrangement or the entering into of any other transaction or arrangement
with, or the making of any payment to (other than normal salary and bonus
payments), any Affiliate or Individual Affiliate, in the ordinary course of
business or otherwise, which is not on terms at least as favorable to the
Property Partnership or the Property Partnership General Partner (as the case
may be) as would have been applicable if such transaction had been entered into
on an arm's-length basis with an unaffiliated third party.
Section 2.11.11 No written statement, certificate, schedule, list
or other written information furnished by or on behalf of the Property
Partnership to the Investor (or its representatives) in connection with the
transactions contemplated by this Agreement or by the Partnership Agreement or
the Letter Agreement contains or will contain any materially untrue statement
or omits or will omit to state a material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were maid, not misleading. No transfer taxes are or will be payable by the
Partnership or the Investor in connection with the acquisition by Jupiter-I,
L.P. of the 99% limited partnership interest in the Property Partnership or,
in the event such transfer taxes do arise, will be paid by the Company.
Section 2.11.12 Except for the matters disclosed in respect of
the Saguaro Crest Property in the SEC filings made by the Company for the
period ending December 31, 1995.
Section 2.11.12.1 The Property Partnership has complied
with all applicable requirements of law relating to or affecting the
operations, conduct or ownership of each Property and/or its business, the
failure to comply with which would, individually or in the aggregate, have a
Material Adverse Effect on its Condition.
Section 2.11.12.2 The Properties are each in full
compliance with Environmental Laws and the Property Partnership has obtained
all necessary permits or authorizations required under Environmental Laws;
Section 2.11.12.3 There has been no release or discharge of
Hazardous Materials at any of the properties presently or formerly owned or
operated by the Property Partnership or any predecessor in interest, or at any
disposal or treatment facility which received Hazardous Materials generated by
any property
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presently or formerly owned or operated by the Property Partnership or any
predecessor in interest.
Section 2.11.12.4 No Hazardous Materials have been handled,
stored, treated, or disposed at any property currently or formerly owned or
operated by the Property Partnership or any predecessor in interest except in
compliance with Environmental Laws.
Section 2.11.12.5 No Environmental Actions have been
asserted against the Property Partnership or the properties owned by it or any
predecessor in interest nor does the Property Partnership have knowledge or
notice of any threatened or pending Environmental Action against it or the
properties owned by it or any predecessor in interest.
Section 2.11.12.6 No Environmental Actions have been
asserted against any facilities that may have received Hazardous Materials
generated by the Property Partnership or any predecessor in interest.
Section 2.11.12.7 None of the properties currently or
formerly owned or operated by the Property Partnership have been listed or have
been proposed to be listed on the National Priorities List, CERCLA or any
similar state list of contaminated sites requiring investigation or remedial
actions.
Section 2.11.12.8 No Environmental Liens have been asserted
or threatened to be asserted and no deed restrictions or other institutional
controls have been recorded against or threatened to be recorded against any
property currently or formerly owned by the Property Partnership or any
predecessor in interest.
Section 2.11.13 As used herein, the following terms shall have the
meanings indicated below:
"Condition" means, with respect to any Person, the business,
assets, properties, results of operations, financial or other condition or
prospects of such Person and its Subsidiaries, taken as a whole.
"Environmental Laws" includes the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as
amended; the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et
seq., as amended; the Clean Air Act ("CAA"), 42 U.S.C. 7401 et seq., as
amended; the Clean Water Act ("CWA"), 33 U.S.C. 1251 et seq., as amended; the
Occupational Safety and Health Act ("OSHA"), 29 U.S.C. 655 et seq., and any
other federal, state, local or municipal laws, statutes,
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regulations, rules or ordinances imposing liability or establishing standards
of conduct for protection of the environment.
"Environmental Action" means any action, proceeding, investigation
or inquiry in connection with, or any sanction or remedial obligation under,
any applicable Environmental Law.
"Environmental Lien" means any Lien imposed in connection with or
under any applicable Environmental Law.
"Individual Affiliate" means any Person who is or has been (a) a
partner of the Property Partnership, (b) a director, officer or shareholder of
the Company, the General Partner or the Limited Partner, or (c) any "associate"
(as defined in the rules pursuant to the Exchange Act) of any of the above.
"Lien" means any lien, pledge, mortgage, security interest, claim,
lease, charge, option, right of first refusal, easement, servitude,
encumbrance, participation interest, assignment, or other restriction or
limitation.
"Permitted Statutory Liens" means statutory Liens of landlords,
carriers, warehousemen, mechanics and materialmen and other similar Liens
imposed by law and incurred in the ordinary course of business for sums not yet
delinquent, or Liens being contested in good faith by appropriate actions and
for which appropriate reserves have been made.
"Subsidiary" means, with respect to any Person, any corporation at
least a majority of whose outstanding voting securities, or any other person at
least a majority of whose total equity interest, is owned by such Person.
Section 2.12 Limitation on Representations.
It is understood by the Investor that each of the representations
and warranties made by the Company, the Property Partnership and the General
Partner in this Agreement have been made to the best of such party's knowledge,
after a due and careful inquiry by such party of the relevant facts necessary
to make such representations and warranties.
Article 3 Representations and Warranties of the Partnership and the General
Partner.
The Company, the Partnership and the General Partner hereby represent,
warrant to, and covenant with, the Investor as follows:
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Section 3.1 Due Formation of the Partnership. The Partnership has been
duly organized and is validly existing and in good standing as a limited
partnership under the laws of Delaware and is duly qualified or licensed, and
in good standing, as a foreign limited partnership authorized to do business in
each other jurisdiction in which its ownership of its assets or its conduct of
business requires such qualification or licensing, except where the failure to
be so qualified or licensed, or in good standing, as a foreign limited
partnership would not have a Material Adverse Effect.
Section 3.2 Due Formation of the General Partner. The General Partner
has been duly organized and is validly existing and in good standing as a
limited partnership under the laws of Delaware and is duly qualified or
licensed, and in good standing, as a foreign limited partnership authorized to
do business in each other jurisdiction in which its ownership of its assets or
its conduct of business requires such qualification or licensing, except where
the failure to be so qualified or licensed, or in good standing, as a foreign
limited partnership would not have a Material Adverse Effect.
Section 3.3 Valid Agreement. This Agreement has been duly authorized,
executed and delivered by each of the Partnership and the General Partner and
represents the valid and binding obligation of each of them, enforceable
against each of them in accordance with its terms.
Section 3.4 No Default. The execution and delivery of this Agreement by
the Partnership and the General Partner and the performance by the Partnership
and the General Partner of their respective obligations hereunder, the
contribution by Prime Residential, L.P. of its limited partnership interest in
the Property Partnership to the General Partner, admission of the Investor to
the Partnership as the Limited Partner, the execution and delivery of the
Partnership Agreement by the General Partner and the Limited Partner, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the General
Partner of its obligations under the Partnership Agreement do not (a) violate
the Partnership Agreement or the agreement of limited partnership of the
General Partner; or (b) violate or constitute a breach of or default under any
mortgage, indenture, loan agreement, promissory note or similar agreement to
which the Partnership or the General Partner is a party, or by which either of
them is bound, or to which any property of the Partnership or the General
Partner is subject, except where such violations, breaches or defaults would
not, singly or in the aggregate, have a Material Adverse Effect; or (c)
conflict with or violate any law or any regulation, rule, order or decree of
any governmental body, court or administrative agency
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having jurisdiction over the Partnership or the General Partner or the
properties of either of them, except where such conflicts or violations would
not, singly or in the aggregate, have a Material Effect.
Section 3.5 No Required Consents. The execution and delivery of this
Agreement by the Partnership and the General Partner and the performance by the
Partnership and the General Partner of their obligations hereunder, the
contribution by Prime Residential, L.P. of its limited partnership interest in
the Property Partnership to the General Partner, admission of the investor to
the Partnership as the Limited Partner, the execution and delivery of the
Partnership Agreement by the General Partner and the Limited Partner, the
making by the General Partner and the Limited Partner of their respective
capital contributions to the Partnership, and the performance by the General
Partner of its obligations under the Partnership Agreement do not require any
filing or registration with, or the receipt of any consent, approval or permit
by, any governmental or regulatory authority or other person by the Partnership
and the General Partner other than any which have already been obtained or
waived and those that might be required in conjunction with the actions of the
Company provided for in Article 5.
Section 3.6 Admission of the Limited Partners. All action required to be
taken by the General Partner for the admission of the Investor to the
Partnership as the Limited Partner has been taken and, upon payment of the
capital contributions as provided in the Partnership Agreement, the Investor
will be a Limited Partner, entitled to the benefits of the Partnership
Agreement and the Delaware Act.
Section 3.7 Certain Financial Matters. The computation of (a) the
Capital Value of the Properties set forth in Schedule B to the Partnership
Agreement, (b) the Collateral Value and Net Equity Value of the Properties set
forth in Schedule C to the Partnership Agreement and (c) the Pro Forma Priority
Distribution set forth in Schedule D to the Partnership Agreement, and the
financial information set forth in such Schedules on which such computations
are based, are true and correct.
Article 4 Representations and Warranties of the Investor.
In order to induce the Company, the Partnership and the General Partner
to enter into this Agreement and to consummate the transactions contemplated
hereby, the Investor hereby represents and warrants to, and covenants with, the
Company, the Partnership and the General Partner as follows:
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Section 4.1 Organization. The Investor is a corporation organized under
the laws of Japan, and is not organized or qualified to do business under, or
resident in, the United States of America or any state or other subdivision
thereof. In addition, the Investor is not a "U.S. person," as that term is
defined under Rule 902(o) of Regulation S promulgated under the Securities Act.
Section 4.2 Accredited Investor. The Investor is an "accredited
investor," as such term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
Section 4.3 Valid Agreement. The Investor has all right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
the Investor, by its attorney-in-fact thereunto duly authorized, and
constitutes a legal, valid and binding obligation of the Investor, enforceable
against the Investor in accordance with its terms.
Section 4.4 Consultation and Reliance. The Investor has consulted with
and relied upon the advice of the Investor's own attorney, accountant and
investment advisor with respect to the execution and delivery by the Investor
of this Agreement, the Partnership Agreement and the other related agreements,
documents and instruments, and in connection with the consummation of the
transactions contemplated thereby.
Section 4.5 Opportunity for Inquiry. The Investor has had a reasonable
opportunity to ask questions of and receive answers from representatives of the
Company and the Partnership regarding the business, management and financial
affairs of the Company and the Partnership, including, without limitation,
matters relating to the Properties, and all financial and business matters
related thereto.
Section 4.6 Evaluation. The Investor has evaluated the merits and
risks of executing and delivering this Agreement and the Partnership Agreement
and the other documents, instruments and agreements related thereto, and has
evaluated the merits and risks of consummating the transactions contemplated
thereby.
Section 4.7 Review of Materials. The Investor has reviewed such
documents, agreements, records, and books pertaining to the Company and the
Partnership and their respective businesses and financial affairs, including,
without limitation, those relating to the properties of the Partnership and
financing thereof, as the Investor has deemed necessary or appropriate under
the circumstances; and the Investor acknowledges and agrees that all documents,
agreements, instruments, records, and books pertaining to the Company and the
Partnership and their respective businesses
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and financial affairs, including, those relating to the Properties of the
Partnership and financing thereof, have been made available to the Investor and
his attorneys, accountants and advisors for inspection.
Section 4.8 Knowledge and Experience. The Investor has such knowledge
and experience in financial and business matters that the Investor is capable
of evaluating the merits and risks involved in connection with the transactions
contemplated hereby.
Article 5 Covenants and Undertakings of the Company.
Section 5.1 Preservation of Existence and REIT Status.
Section 5.1.1 Corporate Existence. Except with respect to a
transaction permitted under the Partnership Agreement, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence and rights as a corporation under the laws of the State of
Maryland.
Section 5.1.2 REIT Status. The Company will do or cause to be
done all things necessary to meet the requirements to continue to qualify as a
REIT.
Section 5.2 Reservation of Shares. The Company will continue to maintain
as reserved those Company Shares reserved in accordance with Section 2.6 and
will, within 30 days after the end of each calendar year, in good faith compute
the maximum number of Company Shares that the Company reasonably determines
would be deliverable upon the exercise by the Limited Partner at the end of
such year of its option to cause the Partnership to redeem its Interest
pursuant to Section 8.03(c) of the Partnership Agreement (without regard to
whether such option is then exercisable) and, upon the making of such
computation, will reserve and keep available out of the authorized Company
Shares such additional Company Shares as may be necessary to maintain as
reserved the number of Company Shares so computed and shall take all such
action as may be required from time to time in order that it may validly and
legally issue fully paid and non-assessable Company Shares in accordance
herewith and therewith.
Section 5.3 Maintenance of Listing of Company Shares. The Company shall
use its best efforts to keep the Company Shares listed on the New York Stock
Exchange. If, notwithstanding its exercise of its best efforts, the Company
Shares are not listed on the New York Stock Exchange, the Company shall, at its
own expense, cause the Company Shares to be listed or admitted to trading on
another national securities exchange or the NASDAQ National Market System.
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Section 5.4 Contribution of Cash or Company Shares. Upon the dissolution
and liquidation of the Partnership or the Redemption of the Limited Partner's
Interest, the Company shall, or shall cause one or more of its Affiliates to,
contribute or lend to one or more of its Affiliates (including the General
Partner)for contribution to the Partnership or the General Partner such amount
of cash and/or such number of Company Shares as are necessary, together with
cash held by the Partnership (whether from prior operations or from
Dispositions, Refinancings, Other Events or otherwise) and Company Shares owned
by the Partnership and available for the purpose, to permit the Partnership
timely to make the distribution to the Limited Partner provided in Section
8.02(a)(i), 8.03(b) or (c) or 8.04(a), as the case may be, of the Partnership
Agreement in accordance with the terms thereof.
Section 5.5 Registration of Company Shares. If, upon the dissolution and
liquidation of the Partnership or the Redemption of the Limited Partner's
Interest, the General Partner shall determine, in its sole and absolute
discretion, to distribute any Company Shares to the Limited Partner, the
Company shall either (a) register under the Securities Act and register or
qualify under any applicable state securities or "blue sky" laws of the states
as determined pursuant to Section 5.5.4 any Company Shares to be so distributed
to the Limited Partner if such Company Shares would then be permitted to be
resold by the Limited Partner without registration under the Securities Act (as
determined by counsel of the Company) or (b) if the registration provided in
the foregoing clause (a) would not permit resale of such Company Shares by the
Limited Partner without registration under the Securities Act, register under
the Securities Act and register or qualify under any applicable state
securities or "blue sky" laws of the states as determined pursuant to Section
5.5.4 for resale by the Limited Partners any Company Shares or distributed to
the Limited Partner. Upon the election of the General Partner to distribute
Company Shares pursuant to the Partnership Agreement, the obligations of the
Company to register Company Shares under this Agreement shall include, but not
be limited to, the following:
Section 5.5.1 Registration Statement. The Company shall, as
promptly as practicable, prepare and file and use its best efforts to cause to
become effective under the Securities Act a registration statement covering the
Registration Shares and shall timely prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of the Registration Shares by the Limited
Partner until (a) if, pursuant to Section 5.5(a), the Company has registered
Company Shares for distribution to the Limited Partner, the completion of such
distribution and (b)
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if, pursuant to Section 5.5(b), the Company has registered Company Shares for
resale by the Limited Partner, the earliest of (i) the disposition of all of
the Registration Shares by the Limited Partner, (ii) the time when the Limited
Partner can, in conformity with the Securities Act, sell the Registration
Shares without such Company Shares being registered under the Securities Act
and without delivery of a prospectus and (iii) two years from the effectiveness
of the registration statement. The Company may require the Limited Partner to
furnish the Company for inclusion in the registration statement for
Registration Shares such information regarding the Limited Partner and the
distribution of the Registration Shares as the Company may from time to time
reasonably request in writing and as shall be required by law or by the SEC in
connection with the registration of such Registration Shares.
Section 5.5.2 Reasonable Investigation. In connection with the
preparation and filing under the Securities Act of the registration statement
covering Registration Shares, the Company will give the Limited Partner and the
underwriter, if any, of the Registration Shares, and their respective counsel
and accountants, drafts of such registration statement for their review and
comment prior to filing and shall afford them such reasonable and customary
access to the books and records of the Company, and such opportunities to
discuss the business of the Company with its officers, counsel and advisors,
and the independent public accountants who certified the Company's financial
statements, as shall, in the opinion the Limited Partner and such underwriter
and their respective counsel, be necessary to conduct a reasonable
investigation (as that term is used in the Securities Act).
Section 5.5.3 Copies of Registration Statement and Prospectus.
The Company shall furnish the Limited Partner and any underwriter of
Registration Shares such number of conformed copies of the registration
statement and of each amendment and supplement thereto (in each case including
all exhibits), and such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus), in conformity
with the requirements of the Securities Act, and such documents incorporated by
reference in such registration statement and such other documents as the
Limited Partner or such underwriter may reasonably request.
Section 5.5.4 Blue Sky. The Company shall use its best efforts to
register or qualify all Registration Shares under the securities or "blue sky"
laws of such jurisdictions as the Limited Partner or any underwriter of the
Registration Shares shall reasonably request, and to do any and all other acts
and things which may be reasonably requested by the Limited Partner or such
underwriter to consummate the disposition of the Registration Shares in such
jurisdictions, and to maintain such registration or
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qualification in each such jurisdiction until (a) if, pursuant to Section
5.5(a), the Company has registered Company Shares for distribution to the
Limited Partner, the completion of such distribution and (b) if, pursuant to
Section 5.5(b), the Company has registered Company Shares for resale by the
Limited Partner, the earliest of (i) the disposition of all of the Registration
Shares by the Limited Partner, (ii) the time when the Limited Partner can, in
conformity with the securities or blue sky laws of such jurisdiction, sell the
Registration Shares in such jurisdiction without such registration or
qualification and (ii) two years from the effectiveness of the registration
statement under the Securities Act, except that the Company shall not be
required to qualify generally to do business as a foreign corporation in any
jurisdiction in which it is not at the time so qualified, or to subject itself
to taxation in any jurisdiction in which it is not then subject to taxation, or
to consent to general service of process in any jurisdiction in which it is not
then subject to service of process.
Section 5.5.5 NASD Review. The Company shall assist the Limited
Partner or any underwriter of Registration Shares in connection with any
required review by the NASD of the terms of the issuance of the Registration
Shares to the Limited Partner and the terms of any resale of the Registration
Shares by the Limited Partner.
Section 5.5.6 Listing of Registration Shares. The Company shall
use its best efforts to cause the Registration Shares to be listed or admitted
to trading on each national securities exchange and quotation system on which
the Company Shares are then listed or admitted to trading.
Section 5.5.7 Underwriting Agreement. In the event that the
Company has, pursuant to Section 5.5(b), registered Company Shares for resale
by the Limited Partner and the Limited Partner proposes to enter into an
underwritten distribution of such Company Shares, the Company will join in the
agreement between the Limited Partner and the underwriters of such Company
Shares for the purpose of making such representations, warranties and covenants
as are customarily made by an issuer of securities in underwriting agreements
for the registered public offering of such securities in secondary
distributions, provided, that in such agreement the Limited Partner and such
underwriters make such representations, warranties and covenants, and provide
such indemnifications, as are customarily made and provided by the sellers and
underwriters of such securities in such distributions.
Section 5.5.8 Delivery of Opinions. The Company shall (a)
furnish to the Limited Partner an opinion of counsel to the Company, addressed
to the Limited Partner and dated the date of the
25
<PAGE> 30
distribution of the Registration Shares to the Limited Partner, and (b) use its
best efforts to furnish to the Limited Partner a "comfort letter" signed by the
independent public accountants who certified the Company's financial statements
included in the registration statement, it being understood and agreed that
such opinion and "comfort letter" shall cover substantially the same matters
with respect to the registration statement (and the prospectus included
therein) as are customarily covered in opinions of issuer's counsel and
accountants' comfort letters delivered to underwriters in underwritten public
offerings of securities and such other matters as the Limited Partner shall
reasonably request and shall not be inconsistent with customary third-party
opinion practice or the accounting literature at the time, as the case may be.
Section 5.5.9 Exchange Act Filings. The Company shall timely file
all reports, proxy or information statements, and other documents required to
be filed by the Company pursuant to Section 13(a), Section 13(c), Section 14 or
Section 15(d) of the Exchange Act.
Section 5.5.10 Subsequent Events. (a) So long as the Company is
required to maintain the effectiveness of a registration statement pursuant to
Section 5.5 in connection with resales of Registration Shares, the Company
shall notify the Limited Partner promptly of (i) the issuance by the SEC or any
state securities authority of any stop order or other action suspending the
effectiveness of the registration or the qualification for sale in any
jurisdiction of the Registration Shares or the initiation of any formal
proceedings for that purpose or (ii) the happening of any event as a result of
which a prospectus included in the registration statement covering such
Registration Shares 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, in the light of the circumstances under which they were
made, not misleading.
(b) Upon receipt of any notice from the Company of the happening
of any event of the kind described in Section 5.5.10(a), the Limited Partner
shall forthwith discontinue disposition of Registration Shares pursuant to the
registration statement and the prospectus contained therein until the
withdrawal of any order suspending the effectiveness of the registration
statement of the qualification for sale or the Limited Partner's receipt of
copies of a supplemented or amended prospectus contemplated by Section
5.5.10(c) below, as the case may be, and, if so directed by the Company, the
Limited Partner will deliver to the Company (at its expense) all copies in its
possession, other than permanent file copies then in the Limited Partner's
possession, of the prospectus
26
<PAGE> 31
covering such Registration Shares current at the time of receipt of such
notice.
(c) The Company shall, upon the occurrence of any event
contemplated by Section 5.5.10(a), prepare and furnish to the Limited Partner
without unreasonable delay a supplement or post-effective amendment to the
registration statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that such
prospectus will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 5.6 Registration Expenses. In connection with any registration
of Company Shares under this Agreement, the Company will pay or provide for the
payment of all Registration Expenses (including any amounts payable by the
Partnership pursuant to Section 8.05 of the Partnership Agreement) regardless
of whether the registration statement is declared effective or the length of
time that the registration statement is required to remain effective. The
Limited Partner shall pay (a) any underwriting discounts or brokerage or other
commissions, or transfer taxes, in connection with any resale of Company Shares
by the Limited Partner, (b) any transfer taxes payable because the Limited
Partner has directed that Registration Shares deliverable to the Limited
Partner be registered in the books and records of the Company in any name other
than the name in which the Limited Partner's Interest is registered, and (c)
any expenses of the Limited Partner (including, without limitation, fees and
expenses of its counsel).
Section 5.7 Additional Registration Rights. Nothing contained in this
Agreement shall prevent the Company from granting to any Persons the right to
request the Company to register any equity securities of the Company under the
Securities Act, or any securities convertible or exchangeable into or
exercisable for such equity securities, and nothing contained in this Agreement
shall obligate the Company to permit the Limited Partner to participate in any
such registration.
Section 5.8 Performance by General Partners. The Company shall cause the
General Partner timely and diligently to discharge its obligations under the
Partnership Agreement and under this Agreement and shall cause the general
partner of the Property Partnership timely and diligently to discharge its
obligations under the Property Partnership Agreement and the Letter Agreement.
Section 5.9 Ownership of General Partners. The Company shall take or
cause to be taken all actions necessary to assure that at all times during the
term of this Agreement all of the legal and beneficial interest in the General
Partner and the
27
<PAGE> 32
general partner of the Property Partnership are owned by the Company and/or
Prime Residential, L.P.
Section 5.10 General Partners Not to Declare Bankruptcy. Neither
the General Partner nor the Company shall cause or consent to, and neither
shall cause Prime Residential, L.P. to cause or consent to, the General Partner
or the general partner of the Property Partnership (a) making an assignment for
the benefit of creditors, (b) appointing or consenting to the appointment of a
custodian of all or substantially all of the assets of the General Partner or
the general partner of the Property Partnership, (c) commencing a voluntary
case under any Federal or state bankruptcy, insolvency, reorganization or other
similar law (including the Bankruptcy Reform Act of 1978, as amended, or any
succeeding law) (a "Bankruptcy Law"), or (d) consent to an involuntary case
under any Bankruptcy Law filed against the General Partner or the general
partner of the Property Partnership.
Section 5.11 Notice of Certain Events. The Company shall, as
promptly as reasonably practicable after the consummation of any event referred
to in Sections 8.03(d)(i)(A), (B) and (C) of the Partnership Agreement, give
the Partnership and the Limited Partner written notice of the occurrence of
such event, setting forth the circumstances of such event and a pro forma
computation of the operation of such Sections.
Article 6 Covenants and Undertakings of General Partner.
Section 6.1 Performance by Partnership. The General Partner shall cause
the Partnership timely and diligently to observe all of its covenants and
responsibilities under the Partnership Agreement.
Section 6.2 Enforcement of Obligations. The General Partner shall
enforce, and cause the Partnership to enforce, its rights under the Letter
Agreement and under this Agreement.
Article 7 Covenant and Undertaking of the Investor.
Section 7.1 Limitation on Dispositions. Notwithstanding anything to the
contrary in this Agreement, the Limited Partner shall not offer, sell, transfer
or otherwise dispose of (other than in conjunction with a block trade or an
underwritten offering) more than $5,000,000 of Registration Shares (based on
market value) during any one-month period.
Section 7.2 Ownership of Company Shares. Upon the dissolution of the
Partnership or at the time that the Limited Partner gives notice pursuant to
Section 8.03 of the Partnership Agreement of its election to cause the
Partnership to redeem its
28
<PAGE> 33
Interest, as the case may be, the Limited Partner shall advise the Company in
writing of the number of Company Shares the legal or beneficial interest in
which is held by the Limited Partner and all members of the Investor Group.
Article 8 Indemnification.
Section 8.1 Indemnification by Company. In the event of any registration
of Registration Shares, the Company shall indemnify and hold harmless the
Limited Partner, its directors, officers, shareholders, agents and employees
and each Person who acts as an underwriter in connection with the resale of
Registration Shares by the Limited Partner and each Person, if any, who
controls the Limited Partner or such underwriter within the meaning of the
Securities Act or the Exchange Act (for purposes of this Section 8.1 and
Sections 8.3 through 8.5, 8.7 and 8.9, each such person being an "Indemnified
Party"), against any and all losses, claims, damages, expenses, or liabilities,
joint or several, or actions or proceedings (whether commenced or threatened)
in respect thereof, to which each such Indemnified Party may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
expenses, or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement covering such Registration Shares, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company will reimburse each such
Indemnified Party for any legal or any other expenses reasonably incurred by
the Indemnified Party in connection with investigating or defending any such
loss, claim, damage, expense, liability, action or proceeding; provided, that
(i) the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, expense, or liability (or action or proceeding,
whether commenced or threatened, in respect thereof) arises out of or is based
solely upon 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 written information furnished to the
Company through an instrument duly executed by or on behalf of the Limited
Partner or such underwriter specifically stating that it is for use in the
preparation thereof, and (ii) the Company shall not be liable to any Person who
participates as an underwriter in the resale of Registration Shares by the
Limited Partner or any person who controls or is controlled by such underwriter
within the meaning of the Securities Act or the Exchange Act, to the extent
that it is
29
<PAGE> 34
determined by a court of competent jurisdiction in a decision not subject to
further review that any such loss, claim, damage, expense, or liability (or
action or proceeding, whether commenced or threatened, in respect thereof)
arises out of such underwriter's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registration Shares to such person if the Company furnished the underwriter
copies of the final prospectus and such statement or omission was corrected in
such final prospectus.
Section 8.2 Indemnification by Limited Partner. The Limited Partner
shall indemnify and hold harmless the Company, its directors, its officers who
sign the registration statement and each person, if any, who controls the
Company within the meaning of the Securities Act (for purposes of this Section
8.2 and Sections 8.3 through 8.5, 8.7 and 8.9, each such person being an
"Indemnified Party"), from and against any and all losses, claims, damages,
expenses, or liabilities, joint or several, or actions or proceedings (whether
commenced or threatened) in respect thereof, to which each such Indemnified
Party may become subject under the Securities Act or the Exchange Act or
otherwise insofar as such losses, claims, damages, expenses, or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
required to be stated, in such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or necessary to make the statements therein
not misleading, but only to the extent that such statement or omission was made
in reliance upon and in conformity with written information furnished by the
Limited Partner or any underwriter of Registration Shares for the Limited
Partner to the Company through an instrument duly executed by or on behalf of
the Limited Partner or such underwriter specifically stating that it is for use
in the preparation thereof or arises out of such underwriter's failure to send
or give a copy of the final prospectus, as the same may be then supplemented or
amended, to the person asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registration Shares to such person if the Company
furnished the underwriter copies of the final prospectus and such statement or
omission was corrected in such final prospectus.
Section 8.3 Procedure. Promptly after receipt by any Indemnified Party
hereunder of notice of the commencement of any action or proceeding involving a
claim referred to in Section 8.1 or 8.2, the Indemnified Party will notify the
indemnifying party in
30
<PAGE> 35
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any Indemnified Party under Section 8.1 or 8.2 except to
the extent that the indemnifying party is prejudiced thereby. In case any such
action shall be brought against any Indemnified Party, the indemnifying party
shall be entitled to participate therein and, to the extent that the
indemnifying party shall elect, to assume the defense thereof, with counsel
(which shall include local counsel, if reasonably determined by the Indemnified
Party to be appropriate) reasonably satisfactory to such Indemnified Party and,
after notice from the indemnifying party to such Indemnified Party of the
indemnifying party's election to so assume such defense, the indemnifying party
shall not be liable to such Indemnified Party under this Article 8 for any
legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such Indemnified Party, in connection with the defense
of such action; provided, however; that if the Indemnified Party has available
to it defenses or claims not available to the indemnifying party, or there
exists an actual or potential conflict of interest between the Indemnified
Party and the indemnifying party, the Indemnified Party shall be entitled to
participate in such defense with counsel of its choosing reasonably
satisfactory to the indemnifying party and the indemnifying party shall be
liable for the expenses (including the legal expense) of the Indemnified Party
in such participation in such defense. In addition, the indemnifying party
shall not be required to indemnify, reimburse or otherwise make any
contribution to the amount paid or payable by the Indemnified Party for any
losses, claims, damages, expenses, or liabilities (or actions or proceedings,
actual or threatened, in respect thereof) incurred by the Indemnified Party in
settlement of any such losses, claims, damages, expenses, liabilities, actions
or proceedings otherwise covered hereunder unless such settlement has been
previously approved by the indemnifying party, which approval shall not be
unreasonably withheld.
Section 8.4 Contribution. If for any reason the indemnity under this
Article 8 is unavailable or is insufficient to hold harmless any Indemnified
Party under Section 8.1 or 8.2, then the indemnifying party shall contribute to
the amount paid or payable to the Indemnified Party as a result of any loss,
claim, expense, damage, or liability (or actions or proceedings, whether
commenced or threatened, in respect thereof), and legal or other expenses
reasonably incurred by the Indemnified Party in connection with investigating
or defending any such loss, claim, expense, damage, liability, action or
proceeding, in such proportion as is appropriate to reflect the relative fault
of the indemnifying party, on the one hand, and the Indemnified Party, on the
other. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
31
<PAGE> 36
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or the Limited Partner,
on the other hand, and each party's relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. If, however, the allocation provided in the second preceding
sentence is not permitted by applicable law, or if the allocation provided in
the second preceding sentence provides a lesser sum to the Indemnified Party
than the amount hereinafter calculated, then the indemnifying party shall
contribute to the amount paid or payable by the Indemnified Party in such
proportion as is appropriate to reflect not only such relative fault but also
the relative benefits to the indemnifying party and the Indemnified Party, as
well as any other relevant equitable considerations. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 8.4 were to be determined by any method of allocation which did not
take account of the equitable considerations referred to in this Section 8.4.
Notwithstanding the provisions of this Section 8.4, no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) by a court of competent jurisdiction shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Section 8.5 Indemnification Under Other Laws. Indemnification and
contribution similar to that provided in Sections 8.1 through 8.4 (with
appropriate modifications) shall be given by the Company and the Limited
Partner with respect to any required registration or qualification of the
Registration Shares under any state securities or "blue sky" laws or any
federal or other regulation other than the Securities Act.
Section 8.6 Advancement of Limited Partner's Expenses. All legal and
other expenses incurred by or on behalf of the Limited Partner in connection
with investigating or defending any loss, claim, expense, damage, liability,
action, or proceeding shall be paid by the Company in advance of the final
disposition of such investigation, defense, action, or proceeding within 20
days after the receipt by the Company of a statement or statements from the
Limited Partner (which statement or statements shall reasonably evidence such
expenses incurred by the Limited Partner) requesting from time to time such
payment, advance or advances. The entitlement of the Limited Partner to such
payment or advancement of expenses shall include those incurred in connection
with any action or proceeding by the Limited Partner seeking an adjudication or
award in arbitration pursuant to Section 8.7. In the event it is determined
that the Limited Partner was not entitled to all or any portion of the
indemnification or the advancement of expenses, the Limited Partner shall
promptly repay all amounts paid to or on
32
<PAGE> 37
behalf of the Limited Partner by or on behalf of the Company to which the
Limited Partner was not entitled.
Section 8.7 Collection. In the event that any payment due under this
Article 8 is not timely paid, or that advances pursuant to Section 8.6 are not
timely made, the Indemnified Parties affected shall be entitled to seek a final
adjudication in an appropriate court of competent jurisdiction of their
entitlement to such indemnification or advances. If an Indemnified Party is a
party to or intervenes in any proceeding in which the validity or
enforceability of this Article 8 is at issue or seeks an adjudication to
enforce the rights of any Indemnified Party under, or to recover damages for
breach of, this Article 8, the Indemnified Party, if it prevails in such
action, shall be entitled to recover from the indemnifying party, and shall be
indemnified by the indemnifying party against, any expenses incurred by the
Indemnified Party in seeking enforcement of such rights.
Section 8.8 No Inconsistent Position. The Company and the Limited
Partner agree that (a) they shall not assert, and are precluded from asserting,
in any proceeding before any forum that the provisions, procedures and
presumptions of this Article 8 are not valid, binding and enforceable; and (b)
they will stipulate in any proceeding before any forum that the Company and the
Limited Partner are bound by all of the provisions of this Article 8.
Section 8.9 Remedies Not Exclusive. The rights and claims contained in
this Article 8 shall be in addition to any other rights (to indemnification,
contribution or otherwise) which any Indemnified Party may have pursuant to law
or contract and shall remain operative and in full force and effect regardless
of any investigation made or omitted by or on behalf of any Indemnified Party
and, as to Indemnified Party, shall survive the transfer of any Registration
Shares by the Limited Partner.
Article 9 Assignment.
Section 9.1 Assignability of Limited Partner's Right. The Limited
Partner may, without the consent or approval of the Company, assign its rights
under this Agreement to a Person to whom the Limited Partner assigns its
Interest (subject, in any event, to the terms, conditions and limitations set
forth in the Partnership Agreement), provided that such assignee agrees in
writing to be bound by the terms of this Agreement.
Section 9.2 Assignability of the Company's Obligations. Without the
prior written consent of the Limited Partner (or, if there shall then be more
than one Limited Partner, all Limited Partners), in the sole and absolute
discretion of the Limited
33
<PAGE> 38
Partner, the Company shall not assign or delegate its responsibilities
hereunder.
Section 9.3 Additional Limited Partners. It is anticipated that the
Investor will remain the sole Limited Partner for the entire term of the
Partnership and, accordingly, the language of this Agreement generally refers
solely to "the Limited Partner." However, if there shall be more than one
Limited Partner, then, except as specifically provided in this Agreement, any
reference to "the Limited Partner" shall be deemed to be a reference to all of
the Limited Partners or each Limited Partner or any Limited Partner at the
time, as the context requires.
Section 9.4 Binding Agreement. Subject to the provisions of Sections 9.1
and 9.2, this Agreement shall be binding upon the heirs, successors and assigns
of the parties.
Article 10 Miscellaneous.
Section 10.1 Term. This Agreement shall be effective on the Closing
Date and shall continue in effect until the expiration of the term of the
Partnership and the liquidation of the Partnership and distribution provided in
Section 8.02 of the Partnership Agreement, or, if earlier, the redemption of
the Limited Partner's Interest pursuant to the Partnership Agreement; provided,
however, that the provisions of Sections 5.5, 5.6 and 7.1 and Article 8 of this
Agreement shall survive such liquidation or redemption and continue in full
force and effect so long as any claims could be lawfully asserted thereunder.
Section 10.2 Applicable Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York as applied
between residents of that State entering into contracts wholly to be performed
in that State.
Section 10.3 Notices. All notices hereunder shall be in writing and
shall be given: (a) if to the Company, at 77 West Wacker Drive, 40th Floor,
Chicago, Illinois, Attention: President, or such other address or addresses of
which the Limited Partner shall have been given notice, with copies to Kirkland
& Ellis, 200 East Randolph Drive, 54th Floor, Chicago, Illinois 60601,
Attention: Robert Osborne, Esq., or such other address of which the Limited
Partner shall have been given notice; and (b) if to the Limited Partner, at the
address shown on the signature page of this Agreement, or such other address of
which the Company shall have been given notice, with copies to Schulte Roth &
Zabel, 900 Third Avenue, New York, New York 10022, Attention: Andrew H. Levy,
Esq., and Nomura Securities International, Inc., 2 World Financial Center,
Building B, New York, NY 10281-1198, Attention: Managing Director, Structured
Finance, or such other address of which the
34
<PAGE> 39
Company shall have been given notice. Any notice shall be deemed to have been
given if personally delivered or sent by United States mail or by commercial
courier or delivery service or by telegram or telex and shall be deemed
received, unless earlier received, (i) if sent by certified or registered mail,
return receipt requested, ten days after deposit in the mail, postage prepaid,
(ii) if sent by United States Express Mail or by commercial courier or delivery
service, two business days after delivery to a United States Post Office or
delivery service, postage prepaid, (iii) if sent by telegram, telex or
facsimile transmission, when receipt is acknowledged by answerback, and (iv) if
delivered by hand, on the date of receipt.
Section 10.4 Entire Agreement; Amendments. This Agreement,
including the provisions of the Partnership Agreement incorporated herein, sets
forth the entire understanding of the parties hereto and this Agreement shall
not be amended except by an instrument in writing executed by the Company and
the Limited Partner (or, if there shall then be more than one Limited Partner,
by a majority in Interest of the Limited Partners); provided, however, that,
notwithstanding the foregoing, if at the time of any amendment there shall be
more than one Limited Partner, (i) any amendment which alters the provisions of
Section 5.2, 5.5, 8.5 or 8.7 or Article 6 shall require the written approval of
75% in Interest of the Limited Partners and (ii) any amendment which alters the
provisions of Sections 5.1, 5.3, 5.4, 5.6, 5.8, 8.1, 8.2, 8.4, or 8.6 or this
Section 10.4, shall require the written approval of each Limited Partner.
Section 10.5 Gender and Number. As used herein, the neuter gender
includes the masculine and the feminine, and the singular includes the plural,
and vice versa, as the context requires.
Section 10.6 Counterparts. This Agreement may be executed in more
than one counterpart, each of which may be executed by fewer than all the
parties, with the same effect as if the parties executed one counterpart as of
the day and year first above written.
35
<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals as of the day and year first above written.
PRIME RESIDENTIAL, INC.
By: /s/
------------------------------
Name:
Title:
YUGENKAISHA SANKYO SEKIYU
By: /s/
------------------------------
Name:
Title:
Address: c/o Yugenkaisha Ushioda
Kosan
1-5-13 Hirakawa-cho
Chiyoda-ku
Tokyo
JUPITER-I, L.P.
By: AJ ONE LIMITED PARTNERSHIP,
General Partner
By: AJ ONE, INC.,
General Partner
By: /s/
------------------------------
Name:
Title:
AJ ONE LIMITED PARTNERSHIP
By: AJ ONE, INC.,
General Partner
By: /s/
------------------------------
Name:
Title
36
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