<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Wellington Properties Trust
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[WELLINGTON PROPERTIES TRUST LETTERHEAD]
November 6, 1998
Dear Shareholder:
The enclosed Proxy Statement describes a dynamic transaction for Wellington
Properties Trust (the "Company"). If approved by the shareholders, the
transaction will diversify the Company's asset base and expand the Company's
presence into new markets and additional property types and significantly
increase the number of properties in which the Company has an interest.
In anticipation of the Transaction (as more completely described in the enclosed
Proxy Statement), the Company recently formed an operating partnership (the
"Operating Partnership") in which the Company is the sole general partner. If
the shareholders of the Company approve the Transaction and the Transaction is
consummated, the Transaction will result in the Operating Partnership acquiring
31 office and industrial properties for approximately $193.7 million.
The Proxy Statement contains four separate proposals, each of which must be
approved by the shareholders in order to allow the Transaction to be completed.
However, the consummation of the Transaction is conditioned on certain other
events and matters (as described in the enclosed Proxy Statement) in addition to
shareholder approval, and there can be no assurance that the Transaction will be
consummated. Management is confident, however, that upon obtaining your approval
the other necessary conditions will be met and the Transaction will be
consummated.
The Board of Trustees has voted to approve the Transaction and hereby recommends
its adoption to the shareholders. A Special Meeting of Shareholders has been
called for November 16, 1998 at the Wellington Centre located at 18650 W.
Corporate Drive, Brookfield, Wisconsin. Please read the enclosed Notice of
Special Meeting and Proxy Statement for a complete discussion of the many
aspects of this Transaction and their effects on the Company and its
shareholders. IT IS IMPORTANT THAT YOU RETURN YOUR PROXY BALLOTS ON OR BEFORE
November 16, 1998.
If you have any questions, please do not hesitate to call either your account
executive at Wellington, Robert F. Rice or me.
Best personal regards,
WELLINGTON PROPERTIES TRUST
/S/ Arnold K. Leas
Arnold K. Leas
President/Chief Executive Officer
<PAGE>
WELLINGTON PROPERTIES TRUST
18650 W. Corporate Drive, Suite 300
P.O. Box 0919
Brookfield, Wisconsin 53008-0919
________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
________________
TO BE HELD ON NOVEMBER 16, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Wellington Properties Trust, a Maryland real estate investment
trust (the "Company"), will be held on November 16, 1998 at 9:00 a.m., local
time, at the Wellington Centre, located at 18650 W. Corporate Drive, Brookfield,
Wisconsin 53045, for the following purposes:
1. To approve a transaction (the "Transaction") the principal components of
which are as follows: (a) Wellington Properties Investments, L.P., a Delaware
limited partnership in which the Company is the sole general partner (the
"Operating Partnership"), or one or more of the Operating Partnership's wholly
owned subsidiaries will acquire 31 office and light industrial properties in
exchange for the issuance of 9,860,838 partnership units that will be
exchangeable, under certain circumstances, on a one-for-one basis, for Common
Shares, par value $0.01 per share (the "Common Shares") of the Company; (b) the
Company will issue warrants to acquire up to 1,000,000 Common Shares; (c) the
Company will issue 105,263 Common Shares; (d) the Company will enter into a new
credit facility; (e) the Company will pay to an affiliate of the Company a cash
termination fee of approximately $1.6 million, and the advisory agreement
between the Company and such affiliate will be terminated; (f) the Company will
enter into employment agreements with Duane H. Lund and Robert F. Rice to serve
as the Company's Chief Executive Officer and President, respectively; (g) if
elected pursuant to the third proposal described below, Steven B. Hoyt and Paul
T. Lambert will become Trustees of the Company; and (h) the Company will enter
into property management agreements with various persons and entities with
respect to the day-to-day operations and leasing of the properties to be
acquired;
2. To approve certain amendments to the Company's Declaration of Trust,
including classification of the Board of Trustees, which amendments are set
forth in Articles of Amendment and Restatement that shall take effect only upon
consummation of the initial closing in connection with the Transaction;
3. To elect two additional members of the Board of Trustees of the Company
and to elect certain of the current members of the Board of Trustees to serve
extended terms, which elections shall take effect only upon consummation of the
initial closing in connection with the Transaction;
4. To approve the adoption of the Wellington Properties Trust 1998 Share
Option Plan; and
5. To transact such other business as may properly be brought before the
Special Meeting or any adjournment thereof.
Any action may be taken on the foregoing matters at the Special Meeting on the
date specified above, or on any date or dates to which, by original or later
adjournment, the Special Meeting may be adjourned.
In addition, shareholders of the Company may be asked at the Special Meeting
to approve the adjournment of the Special Meeting to another date and time as
indicated in any such proposed adjournment. The Board of Trustees has fixed the
close of business on August 21, 1998 as the record date for the Special Meeting.
Only shareholders of record of the Company's Common Shares, $0.01 par value per
share, at the close of business on that date will be entitled to notice of and
to vote at the Special Meeting and at any adjournments thereof.
You are requested to fill in and sign the enclosed Proxy Card, which is being
solicited by the Board of Trustees, and to mail it promptly in the enclosed
postage-prepaid envelope. Any proxy may be revoked by delivery of a later dated
proxy. Shareholders of record who attend the Special Meeting may vote in
person, even if they have previously delivered a signed proxy.
By Order of the Board of Trustees
/S/ Robert F. Rice
Brookfield, Wisconsin Robert F. Rice
November 6, 1998 Secretary
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE-PREPAID ENVELOPE
PROVIDED. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU
WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
WELLINGTON PROPERTIES TRUST
18650 W. Corporate Drive, Suite 300
P.O. Box 0919
Brookfield, Wisconsin 53008-0919
________________
PROXY STATEMENT
________________
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 16, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of Wellington Properties Trust, a Maryland real
estate investment trust (the "Company"), for use at the Special Meeting of
Shareholders of the Company to be held on November 16, 1998, and at any
adjournments thereof (the "Special Meeting"). At the Special Meeting,
shareholders will be asked to:
. approve the Transaction (as hereinafter defined), the principal
components of which are as follows: (a) Wellington Properties
Investments, L.P., a Delaware limited partnership in which the Company
is the sole general partner, or one or more of its wholly owned
subsidiaries (Wellington Properties Investments, L.P., together with
such subsidiaries, being hereinafter collectively referred to as the
"Operating Partnership") will acquire 31 office and light industrial
properties (the "Acquired Properties") in exchange for the issuance of
9,860,838 partnership units (the "Units") that will be exchangeable,
under certain circumstances, for Common Shares, par value $0.01 per
share (the "Common Shares") of the Company; (b) the Company will issue
warrants (the "Warrants") to acquire up to 500,000 Common Shares to
each of American Real Estate Equities, LLC, a Delaware limited
liability company ("AREE"), and Wellington Management Corporation, a
Wisconsin corporation and affiliate of the Company ("WMC"); (c) the
Company will issue 105,263 Common Shares (the "AREE Common Shares") to
AREE in exchange for $1.0 million in cash; (d) the Company will enter
into the New Credit Facility (as hereinafter defined); (e) the Company
will pay to WMC a cash termination fee of approximately $1.6 million,
and the advisory agreement between the Company and WMC will be
terminated; (f) the Company will enter into employment agreements with
Duane H. Lund and Robert F. Rice to serve as the Company's Chief
Executive Officer and President, respectively; (g) if elected pursuant
to the third proposal described below, Steven B. Hoyt and Paul T.
Lambert will become Trustees of the Company; and (h) the Company will
enter into property management agreements (the "Property Management
Agreements") with various persons and entities with respect to the
day-to-day operations and leasing of the Acquired Properties;
. approve certain amendments to the Company's Declaration of Trust (the
"Declaration"), including classification of the Board of Trustees,
which amendments are set forth in Articles of Amendment and
Restatement (the "Articles of Amendment and Restatement") that shall
take effect only upon consummation of the initial closing in
connection with the Transaction;
. elect two additional members of the Board of Trustees of the Company
and elect certain of the current members of the Board of Trustees to
serve extended terms, which elections shall take effect only upon
consummation of the initial closing in connection with the
Transaction;
. approve the adoption of the Wellington Properties Trust 1998 Share
Option Plan (the "Option Plan"); and
. transact such other business as may properly be brought before the
Special Meeting or any adjournment thereof.
<PAGE>
In addition, shareholders of the Company may be asked at the Special Meeting to
approve the adjournment of the Special Meeting to another date and time as
indicated in any such proposed adjournment. However, proxies voting against the
Transaction will not be used to vote for adjournment of the meeting to solicit
more votes pursuant to such discretionary authority.
Shareholders of the Company should note that the terms of the Transaction
were determined without any appraisals of any of the Acquired Properties and
without a fairness opinion of the Transaction from the financial point of view
of the Company. In addition, certain of the current Trustees and executive
officers of the Company have certain interests in, and will receive certain
benefits from, the Transaction that are in addition to those of the shareholders
of the Company. See "Proposal I--Approval of the Transaction--Risk
Factors--Conflicts of Interest of Certain Current and Proposed Trustees and
Executive Officers" and "--Lack of Independent Valuation of Acquired Properties
and Units."
This Proxy Statement and the accompanying Notice of Special Meeting and
Proxy Card are first being sent to shareholders on or about November 6, 1998.
The Board of Trustees has fixed the close of business on August 21, 1998 as the
record date for the Special Meeting (the "Record Date"). Only holders of record
of Common Shares at the close of business on the Record Date will be entitled to
notice of and to vote at the Special Meeting. As of the Record Date, there were
734,161 Common Shares outstanding and entitled to vote at the Special Meeting.
Holders of Common Shares outstanding as of the close of business on the Record
Date will be entitled to one vote for each Common Share held by them on each
matter presented to the shareholders at the Special Meeting.
SHAREHOLDERS OF THE COMPANY ARE REQUESTED TO COMPLETE, SIGN, DATE AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. COMMON SHARES REPRESENTED BY A PROPERLY EXECUTED PROXY CARD RECEIVED
PRIOR TO THE VOTE AT THE SPECIAL MEETING AND NOT REVOKED WILL BE VOTED AT THE
SPECIAL MEETING AS DIRECTED ON THE PROXY CARD. IF A PROPERLY EXECUTED PROXY
CARD IS SUBMITTED AND NO INSTRUCTIONS ARE GIVEN, THE PERSONS DESIGNATED AS PROXY
HOLDERS ON THE PROXY CARD WILL VOTE (I) FOR THE APPROVAL OF THE TRANSACTION,
(II) FOR THE AMENDMENTS TO THE DECLARATION SET FORTH IN THE ARTICLES OF
AMENDMENT AND RESTATEMENT, (III) FOR THE ELECTION OF THE TWO NOMINEES FOR THE
BOARD OF TRUSTEES AND THE ELECTION OF CERTAIN OF THE CURRENT MEMBERS OF THE
BOARD OF TRUSTEES TO SERVE EXTENDED TERMS, (IV) FOR THE ADOPTION OF THE OPTION
PLAN, AND (V) FOR ANY ADJOURNMENT OF THE SPECIAL MEETING. PURSUANT TO THE
PROVISIONS OF THE AMENDED BYLAWS OF THE COMPANY (THE "BYLAWS"), NO MATTERS OTHER
THAN THOSE SET FORTH IN THIS PROXY STATEMENT WILL BE PRESENTED OR VOTED UPON AT
THE SPECIAL MEETING.
The presence, in person or by proxy, of holders of at least a majority of
the total number of outstanding Common Shares entitled to vote is necessary to
constitute a quorum for the transaction of business at the Special Meeting. The
affirmative vote of the holders of at least a majority of the votes entitled to
be cast at the Special Meeting will be required for the approval of the
amendments to the Declaration set forth in the Articles of Amendment and
Restatement, the affirmative vote of the holders of a plurality of the votes
cast with a quorum present at the Special Meeting will be required for the
election of additional Trustees and the election of certain current Trustees to
serve extended terms, and the affirmative vote of the holders of a majority of
the votes cast with a quorum present at the Special Meeting will be required for
the approval of all other matters to be voted upon. Abstentions and broker non-
votes will each be counted towards the presence of a quorum, although, in all
matters to be acted upon except the approval of the amendments to the
Declaration set forth in the Articles of Amendment and Restatement, abstentions
and broker non-votes will not be counted as votes cast and, accordingly, will
have no effect on the plurality or majority votes required. With respect to the
approval of the amendments to the Declaration set forth in the Articles of
Amendment and Restatement, abstentions and broker non-votes will have the effect
of a vote against the proposal. There is no cumulative voting with respect to
any of the matters to be acted upon.
A shareholder of record may revoke a proxy at any time before it has been
exercised by filing a written revocation with the Secretary of the Company at
the address of the Company set forth above, by filing a duly executed proxy
bearing a later date, or by appearing in person and voting by ballot at the
Special Meeting. Any shareholder of record as of the Record Date attending the
Special Meeting may vote in person whether or not a proxy has been previously
given, but the presence (without further action) of a shareholder at the Special
Meeting will not constitute revocation of a previously given proxy. If the
Special Meeting is adjourned for any reason, at any subsequent reconvening of
the Special Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the Special Meeting
(except for any proxies that have theretofore effectively been revoked or
withdrawn).
The costs of preparing, assembling and mailing the Notice of Special
Meeting, this Proxy Statement and the Proxy Card will be borne by the Operating
Partnership; provided that, if the Transaction is not consummated for any
reason, AREE will bear such costs. Proxies may also be solicited personally or
by telephone by Trustees and officers of the Company, who will receive no
additional compensation in connection with such solicitation activities.
All of the Trustees have indicated their intention to vote the Common
Shares owned by them in favor of each of the proposals (including voting for
each of the nominees to the Board of Trustees and each of the nominees to
serve
2
<PAGE>
extended terms as Trustees) at the Special Meeting. As of the Record Date, the
Trustees and executive officers of the Company owned 25,034 Common Shares
entitled to vote at the Special Meeting, representing approximately 3.4% of the
Common Shares issued and outstanding on the record date and entitled to vote at
the Special Meeting.
THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-KSB (THE "ANNUAL REPORT"),
INCLUDING FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, WAS
MAILED TO SHAREHOLDERS ON OR ABOUT MAY 1, 1998. THE ANNUAL REPORT, HOWEVER, IS
NOT PART OF THE PROXY SOLICITATION MATERIAL. ADDITIONAL COPIES OF THE ANNUAL
REPORT, AND ANY QUARTERLY REPORT ON FORM 10-QSB, TOGETHER WITH EXHIBITS, ARE
AVAILABLE, WITHOUT CHARGE, UPON WRITTEN REQUEST TO WELLINGTON PROPERTIES TRUST,
18650 W. CORPORATE DRIVE, SUITE 300, P.O. BOX 0919, BROOKFIELD, WISCONSIN
53008-0919.
THIS PROXY STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED IN
THIS PROXY STATEMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "MAY,"
"INTEND," "EXPECT" AND SIMILAR EXPRESSIONS IDENTIFY CERTAIN OF SUCH FORWARD-
LOOKING STATEMENTS. ACTUAL PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY
FROM THOSE CONTEMPLATED, EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN. IN ADDITION, THE SAFE HARBOR FOR SUCH FORWARD-LOOKING
STATEMENTS PROVIDED BY SECTION 21E OF THE EXCHANGE ACT IS NOT AVAILABLE FOR
STATEMENTS MADE IN CONNECTION WITH AN OFFERING BY, OR RELATING TO THE OPERATIONS
OF, A PARTNERSHIP, AND SUCH SAFE HARBOR IS THEREFORE NOT APPLICABLE TO
STATEMENTS CONTAINED HEREIN THAT RELATE TO THE OPERATIONS OF THE OPERATING
PARTNERSHIP.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page No.
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<S> <C>
PROPOSAL I - APPROVAL OF THE TRANSACTION..................................................................... 8
THE TRANSACTION......................................................................................... 8
Introduction....................................................................................... 8
Background of the Transaction...................................................................... 13
Reasons for the Transaction........................................................................ 14
Potential Risks Associated with the Transaction.................................................... 15
Recommendation of the Board of Trustees............................................................ 16
Interests of Certain Persons in the Transaction.................................................... 16
The Operating Partnership and Operating Partnership Agreement...................................... 17
Principal Features of the Transaction; Effects of the Transaction.................................. 21
Representation and Warranties...................................................................... 22
Conditions of the Transaction; Termination; Waiver and Amendment................................... 23
Conduct of the Business of the Company, AREE, the Operating Partnership and WMC Pending
the Closing.................................................................................. 24
Certain Additional Covenants....................................................................... 25
Prior Relationship Between AREE and the Company.................................................... 26
The Assigned Acquisition Agreements And Related Matters............................................ 27
The Acquired Properties............................................................................ 28
Tenants............................................................................................ 32
Lease Expirations.................................................................................. 33
Mortgage Indebtedness to be Assumed................................................................ 44
Certain Property Tax Information................................................................... 44
New Credit Facility................................................................................ 44
Financial Information.............................................................................. 46
Regulatory Approval................................................................................ 46
Accounting Treatment............................................................................... 46
Certain Federal Income Tax Consequences of the Transaction......................................... 46
Federal Securities Law Consequences................................................................ 46
Public Announcement of the Transaction............................................................. 47
Dissenters' Rights of Appraisal.................................................................... 47
RISK FACTORS............................................................................................ 47
Conflicts of Interest of Certain Current and Proposed Trustees and Executive Officers.............. 47
Lack of Independent Valuation of Acquired Properties and Units..................................... 48
Potential Payment of Excess Consideration Due to Fixed Per Unit Purchase Price..................... 48
Concentration of Share Ownership................................................................... 49
Potential Adverse Effects of Combining Operations.................................................. 49
Absence of Written Agreement Regarding New Credit Facility......................................... 49
Proposed Requirements and Restrictions Under the New Credit Facility............................... 49
Rights Granted to Fee Owners and WMC in Connection with Sales or Transfers of Acquired
Properties................................................................................... 50
</TABLE>
4
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<TABLE>
<S> <C>
Changes in Senior Management and Control of Board of Trustees...................................... 50
Expansion into New Property Types.................................................................. 50
Dependence on Primary Markets...................................................................... 51
Outside Management of Properties................................................................... 51
Shares Eligible for Future Sale.................................................................... 51
No Limitation on Indebtedness...................................................................... 52
Potential Adverse Tax Consequences of Failure to Qualify as a REIT................................. 52
Limitations on Changes in Control.................................................................. 53
Real Estate Investment Risks....................................................................... 54
Potential Environmental Liabilities................................................................ 55
Dependence on Key Personnel........................................................................ 55
Debt Financing and Debt Maturities................................................................. 56
Effect on Common Share Price of Earnings and Cash Distributions.................................... 56
Additional Complexity and Costs Associated with Portfolio Acquisitions............................. 56
Acquisition of Undesirable Properties in Connection with Portfolio Acquisitions.................... 57
Dependence on External Sources of Capital.......................................................... 57
Dilution Relating to Future Acquisitions........................................................... 57
Year 2000.......................................................................................... 57
FEDERAL INCOME TAX MATTERS.............................................................................. 58
Treatment of the Transaction....................................................................... 58
Taxation of the Company............................................................................ 58
REIT Qualification Requirements.................................................................... 59
Tax Aspects of the Company's Investments in the Operating Partnership.............................. 62
Taxation of Shareholders........................................................................... 63
Other Tax Considerations........................................................................... 65
PROPOSAL II - APPROVAL OF AMENDMENTS TO THE DECLARATION OF TRUST............................................. 66
General............................................................................................ 66
Significant Changes Resulting from the Approval of the Amendments to the Declaration............... 67
Principal Reasons to Approve the Amendments to the Declaration; Potential Risks Associated
with Approval of the Amendments to the Declaration........................................... 70
Potential Conflicts of Interest in Board of Trustees' Recommendation of Approval of the
Amendments to the Declaration................................................................ 71
PROPOSAL III - ELECTION OF TRUSTEES.......................................................................... 72
Information Regarding Current Trustees, Nominees and Current and Proposed Executive
Officers..................................................................................... 73
Current and Proposed Executive Officers............................................................ 74
Committees of the Board of Trustees................................................................ 75
Trustee Compensation............................................................................... 76
Shareholders' Agreement............................................................................ 76
Section 16(a) Beneficial Ownership Reporting Compliance............................................ 76
EXECUTIVE COMPENSATION.................................................................................. 76
Summary Compensation............................................................................... 76
</TABLE>
5
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<TABLE>
<S> <C>
Employment Agreements.............................................................................. 76
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................... 77
Property Management Agreements..................................................................... 77
Advisor Fees....................................................................................... 78
Expense Reimbursement.............................................................................. 78
The Master Contribution Agreement and the Assigned Acquisition Agreements.......................... 78
The WMC Contribution Agreement..................................................................... 79
Employment Agreements.............................................................................. 79
Warrants........................................................................................... 79
AREE Common Shares................................................................................. 79
Guarantees of Certain Trustees and Shareholders....................................................
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................... 80
Registration Rights................................................................................ 81
PROPOSAL IV - ADOPTION OF THE OPTION PLAN.................................................................... 82
General............................................................................................ 82
Description of Option Plan......................................................................... 82
Principal Reasons to Adopt the Option Plan......................................................... 83
Potential Conflict of Interest in Board of Trustees' Recommendation of Adoption of the Option
Plan......................................................................................... 84
SELECTED FINANCIAL DATA...................................................................................... 85
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 87
Overview........................................................................................... 87
Results of Operations.............................................................................. 87
Liquidity and Capital Resources.................................................................... 89
Cash Flows......................................................................................... 90
Inflation.......................................................................................... 90
Funds from Operations.............................................................................. 90
Prospective Accounting Standards................................................................... 91
Year 2000.......................................................................................... 91
BUSINESS AND PROPERTIES...................................................................................... 92
Company History.................................................................................... 92
The Properties..................................................................................... 92
Mortgage Indebtedness.............................................................................. 93
Leases............................................................................................. 93
Brokerage and Leasing.............................................................................. 93
Competition........................................................................................ 93
Employees.......................................................................................... 93
Legal Proceedings.................................................................................. 94
Regulations and Insurance.......................................................................... 94
Environmental Matters.............................................................................. 94
</TABLE>
6
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<TABLE>
<S> <C>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES.................................................................. 95
Investment Policies................................................................................ 95
Financing Policies................................................................................. 95
Conflict of Interest Policies...................................................................... 96
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS..................................................... 97
OTHER MATTERS................................................................................................ 97
WELLINGTON PROPERTIES TRUST - INDEX TO FINANCIAL STATEMENTS.................................................. F-1
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
AMENDED AND RESTATED CONTRIBUTION AGREEMENT
BETWEEN WELLINGTON PROPERTIES TRUST,
WELLINGTON PROPERTIES INVESTMENTS, L.P.,
AMERICAN REAL ESTATE EQUITIES, LLC, AND
THE OTHER LP UNIT RECIPIENTS........................................................................ EXHIBIT A
CONTRIBUTION AGREEMENT BETWEEN WELLINGTON
PROPERTIES INVESTMENTS, L.P. AND WELLINGTON
MANAGEMENT CORPORATION.............................................................................. EXHIBIT B
AGREEMENT OF LIMITED PARTNERSHIP OF
WELLINGTON PROPERTIES INVESTMENTS, L.P. ............................................................ EXHIBIT C
WELLINGTON PROPERTIES TRUST
COMMON SHARE PURCHASE WARRANT....................................................................... EXHIBIT D
WELLINGTON PROPERTIES TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT............................................................... EXHIBIT E
WELLINGTON PROPERTIES TRUST
1998 SHARE OPTION PLAN.............................................................................. EXHIBIT F
</TABLE>
7
<PAGE>
PROPOSAL I
APPROVAL OF THE TRANSACTION
The Units, Warrants and Common Shares that are proposed to be issued in
connection with the Transaction, if exercised (in the case of the Warrants) or
if exchanged for Common Shares (in the case of the Units), would constitute
greater than 20% of the Common Shares and voting power outstanding prior to such
issuance. See "--The Transaction--Principal Features of the Transaction; Effects
of the Transaction." Though the consummation of the Transaction does not require
shareholder approval under Maryland, Delaware or any other applicable laws, the
rules of the Nasdaq SmallCap Market ("Nasdaq"), on which the Common Shares are
listed and traded, require majority shareholder approval, in certain
circumstances, of the sale or issuance of common stock, or securities
convertible into, or exercisable for, common stock, equal to 20% or more of the
common stock or voting power outstanding immediately preceding such issuance. As
a result, the Company is submitting the Transaction, on the terms and conditions
described below, for approval by its shareholders. If the Transaction is
approved by the requisite shareholders, the Company intends to consummate the
Transaction as soon as practicable thereafter; provided, however, that, should
either Proposal II (relating to the approval of amendments to the Declaration)
or Proposal III (relating to the election of two additional Trustees and the
election of certain current Trustees to serve extended terms) not be approved by
the requisite shareholders, conditions precedent to the consummation of the
Transaction will not have been fulfilled, and, as a result, the Company will not
consummate the Transaction. See "The Transaction--Conditions of the Transaction;
Termination; Waiver and Amendment." The vote of a majority of the Common Shares
represented in person or by proxy at the Special Meeting will be required to
approve the Transaction.
The following discussion is an attempt to summarize the principal
components of the Transaction and does not purport to be an exhaustive
discussion of all of the terms of the Transaction. The discussion contained in
this Proxy Statement is qualified in its entirety by reference to: (i) the
Amended and Restated Master Contribution Agreement dated August 31, 1998 by and
between the Company, the Operating Partnership, AREE and certain other
signatories thereto (as it may be amended from time to time, the "Master
Contribution Agreement"); (ii) the Contribution Agreement dated August 31, 1998
by and between WMC (as hereinafter defined) and the Operating Partnership (as it
may be amended from time to time, the "WMC Contribution Agreement"); (iii) the
Wellington Properties Investment, L.P. Agreement of Limited Partnership dated
August 31, 1998 (as it may be amended from time to time, the "Operating
Partnership Agreement"); and (iv) the form of Warrant, which are attached hereto
as Exhibits A, B, C and D, respectively.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE TRANSACTION
THE TRANSACTION
PURPOSE OF THE TRANSACTION
For purposes of this Proxy Statement, the term "Transaction" will mean a
transaction the principal components of which are as follows (and which are more
fully described in numbered paragraphs 1-15 below): (i) the Operating
Partnership will, pursuant to the Master Contribution Agreement, the Assigned
Acquisition Agreements (as hereinafter defined) and the WMC Contribution
Agreement (each as described below), acquire from certain persons and entities
the Acquired Properties in exchange for the issuance of up to 9,860,838 Units in
the Operating Partnership (which Units, with certain limitations, are
exchangeable on a one-for-one basis, subject to adjustment, for Common Shares),
the payment of approximately $33.6 million in cash, and the assumption of
approximately $71.8 million in indebtedness; (ii) the Company will issue the
Warrants to AREE and WMC; (iii) the Company will issue the AREE Common Shares to
AREE in exchange for $1.0 million in cash; (iv) the Company will enter into the
New Credit Facility; (v) the Company will pay to WMC a cash termination fee of
approximately $1.6 million, and the advisory agreement between the Company and
WMC will be terminated; (vi) the Company will enter into employment agreements
with Duane H. Lund and Robert F. Rice to serve as the Company's Chief Executive
Officer and President, respectively; (vii) if elected pursuant to Proposal III
below, Steven B. Hoyt and Paul T. Lambert will become Trustees of the Company;
and (viii) the Company will enter into the Property Management Agreements with
respect to the day-to-day operations and leasing of the Acquired Properties. The
purpose of the Transaction is for the Company to acquire the Acquired Properties
and to integrate those operations and properties with the current properties of
the Company (the "Current Properties" and, together with the Acquired
Properties, the "Properties"). The acquisition of the Acquired Properties may be
consummated through one closing or a series of
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closings, and, if such acquisition is accomplished through a series of closings,
references in this Proxy Statement to the consummation, the closing or the
closing date of the Transaction shall refer to the consummation of the
acquisition of the final Acquired Property. The precise number of Units to be
issued to any person or entity in connection with the consummation of the
acquisition of an Acquired Property is subject to adjustment based on the
particular requirements imposed under the relevant agreement concerning, among
other things, prorations, payment of closing costs and assumptions or payment of
existing indebtedness, as well as the actual date on which the acquisition
occurs and the potential requirement that such person or entity be obligated to
satisfy, on a post-closing basis, such obligations imposed under the relevant
agreement. Accordingly, references within this Proxy Statement to a number of
Units to be issued to or held by a particular person or entity are estimates and
are not expected to vary materially from the actual numbers.
The principal features of the Transaction are as follows:
1. AREE is a Delaware limited liability company owned in equal thirds by WLPT
Funding, LLC, a Delaware limited liability company ("WLPT Funding"),
Lambert Equities II, LLC, also a Delaware limited liability company
("Lambert Equities"), and Steven B. Hoyt (Nominee for Trustee). Duane H.
Lund (Proposed Chief Executive Officer) owns 90% of WLPT Funding and is its
sole manager, while the remaining 10% of WLPT Funding is owned by an
unrelated third party. Paul T. Lambert (Nominee for Trustee) is the
controlling majority owner and sole manager of Lambert Equities. Messrs.
Lund, Lambert and Hoyt, together with WLPT Funding and Lambert Equities,
will sometimes be referred to collectively as the "AREE Members."
2. AREE owns 100% of CSC of Minnesota, LLC, a Delaware limited liability
company ("CSC"), which owns fee title to the Cold Springs Office Center,
one of the Acquired Properties.
3. AREE has entered into a series of property contribution agreements and
property purchase agreements (collectively, the "Assigned Acquisition
Agreements") with the fee owners of 29 of the Acquired Properties (the "Fee
Owners"). Steven B. Hoyt and members of his immediate family are equity
participants in some of the Fee Owners. The remaining Fee Owners are not
affiliated with any of the Company, its current Trustees or officers, AREE
or any of the AREE Members.
4. AREE, the Operating Partnership, the Company and the AREE Members have
entered into the Master Contribution Agreement pursuant to which AREE will
assign to the Operating Partnership all of its rights and obligations under
the Assigned Acquisition Agreements and will transfer to the Operating
Partnership 100% of the membership interests in CSC. In consideration for
such assignment and transfer, the Operating Partnership will
. issue an aggregate of 9,390,250 Units, valued at $8.50 per Unit
(reflecting total consideration valued at approximately $79.8
million),
. assume approximately $64.4 million of third-party mortgage
indebtedness encumbering the AREE Acquired Properties (as hereinafter
defined), and
. make a cash payment of approximately $31.2 million to the Fee Owners
(provided, however, that no cash consideration will be paid to Steven
B. Hoyt).
5. As a result of the issuance of the Units as described in paragraph 4 above:
. A total of 6,274,524 Units (reflecting consideration valued at
approximately $53.3 million) will be issued to the Fee Owners,
including 2,666,299 Units (representing consideration valued at
approximately $22.7 million) to Steven B. Hoyt and 182,546 Units
(representing consideration valued at approximately $1.6 million) to
members of Mr. Hoyt's immediate family.
. A total of 3,115,726 Units (reflecting consideration valued at
approximately $26.5 million) will be issued to AREE or the AREE
Members.
. AREE and the AREE Members (and their family members) will own a total
of 5,964,571 Units
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(representing consideration of approximately $50.7 million) and the
unrelated Fee Owners (i.e., exclusive of the equity participation of
Mr. Hoyt and his family) will own a total of 3,425,679 Units
(representing consideration of approximately $29.1 million).
6. There are five separate portfolios of properties being contributed to the
Operating Partnership through the Master Contribution Agreement, which are
described as follows:
. Apple Valley Properties. This portfolio consists of three office
buildings (the "Apple Valley Properties"), located in Apple Valley and
Burnsville, Minnesota, with approximately 168,873 rentable square feet
in the aggregate, and which are currently owned in fee by entities
controlled by John and Barbara Hansen. The Operating Partnership will
acquire the Apple Valley Properties for approximately $16.0 million
excluding costs, which is to be paid by the assumption of
approximately $8.7 million of third-party mortgage indebtedness
encumbering the Apple Valley Properties and the issuance of 860,571
Units (representing consideration of approximately $7.3 million). See
"--The Acquired Properties."
. Cold Springs Office Center. This property is an office building with
approximately 77,533 rentable square feet, located in St. Cloud,
Minnesota, and is currently owned by CSC. The Operating Partnership
will acquire 100% of the membership interests in CSC, and thereby
acquire Cold Springs Office Center, for approximately $12.9 million
excluding costs, which is to be paid by the assumption of $7.5 million
of third-party mortgage indebtedness encumbering the property and the
issuance of 633,688 Units (representing consideration of approximately
$5.4 million). See "--The Acquired Properties."
. Feld Properties. This portfolio consists of seven office buildings
with approximately 168,646 rentable square feet in the aggregate and
one light industrial building with approximately 19,200 square feet of
gross leasable area ("GLA"), located in Green Bay, Wisconsin (the
"Feld Properties"), and which are currently owned in fee by entities
controlled by Edwin R. Feld. The Operating Partnership will acquire
the Feld Properties for approximately $21.0 million excluding costs,
which is to be paid by the issuance of 925,841 Units (representing
consideration of approximately $7.9 million) and a cash payment of
approximately $13.1 million. See "--The Acquired Properties."
. Hoyt Properties. This portfolio consists of three office buildings
with approximately 204,778 rentable square feet in the aggregate and
nine light industrial buildings with approximately 675,173 square feet
of GLA, located in Bloomington, Burnsville, Brooklyn Park,
Minneapolis, Eagan and Plymouth, Minnesota (the "Hoyt Properties"),
and which are currently owned by entities controlled by Steven B. Hoyt
(Nominee for Trustee). The Operating Partnership will acquire the Hoyt
Properties for approximately $78.3 million excluding costs, which is
to be paid by the assumption of approximately $26.1 million of third-
party mortgage indebtedness encumbering the Hoyt Properties, the
issuance of 4,676,032 Units (representing consideration of
approximately $39.7 million) and a cash payment of approximately $12.5
million. See "--The Acquired Properties."
. Stonegate Properties. This portfolio consists of six office buildings
with approximately 407,047 rentable square feet in the aggregate,
located in Hoffman Estates, Illinois (the "Stonegate Properties"), and
which are currently owned by entities controlled by George A. Moser.
The Operating Partnership will acquire the Stonegate Properties for
approximately $47.3 million excluding costs, which is to be paid by
the assumption of approximately $22.2 million of third-party mortgage
indebtedness encumbering the Stonegate Properties, the issuance of
2,294,118 Units (representing consideration of approximately $19.5
million) and a cash payment of approximately $5.6 million. See "--The
Acquired Properties."
7. WMC is a Wisconsin corporation. Arnold K. Leas, the Chairman of the Board
of Trustees of the Company, is the President and Chief Executive Officer of
WMC and owns, together with members of his immediate family and trusts for
the benefit of such persons, approximately 41.8% of the outstanding capital
stock of WMC. WMC owns (or currently has the right to acquire) 100% of the
membership interests in Wellington Centre Company, LLC, a Wisconsin limited
liability company ("WCC"). WCC owns fee title to one of the Acquired
Properties--
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Wellington Centre, a 95,367 rentable square foot office building.
8. The Operating Partnership and WMC have entered into the WMC Contribution
Agreement. Pursuant to the WMC Contribution Agreement, the Operating
Partnership will acquire 100% of the membership interests in WCC, and
thereby acquire Wellington Centre, for approximately $13.8 million
excluding costs, which is to be paid by the assumption of approximately
$7.3 million of indebtedness encumbering the property, the issuance of
470,588 Units (representing consideration valued at approximately $4.0
million) and a cash payment of approximately $2.5 million. See "--The
Acquired Properties."
9. The Company will issue Warrants to each of AREE and WMC to acquire up to
500,000 Common Shares of the Company, or 1,000,000 Common Shares in the
aggregate. The Warrants will become exercisable one year after the date of
issuance and will be exercisable for a nine-year period thereafter, at an
exercise price of $8.50 per Common Share with respect to 500,000 Warrants,
$10.25 per Common Share with respect to 250,000 Warrants, $12.25 per Common
Shares with respect to 150,000 Warrants and $14.75 per Common Share with
respect to 100,000 Warrants. See "--Principal Features of the Transaction;
Effects of the Transaction--Issuance of Warrants."
10. The Company will issue to AREE 105,263 Common Shares at a per share price
of $9.50, for total cash consideration of $1.0 million. Such cash will be
contributed by the Company to the Operating Partnership. See "--Principal
Features of the Transaction; Effects of the Transaction--Issuance of AREE
Common Shares."
11. The Company will enter into the New Credit Facility. See "--New Credit
Facility."
12. The Company will pay a cash termination fee of approximately $1.6 million
to WMC, and the advisory agreement between the Company and WMC will be
terminated. See "--Certain Additional Covenants--Termination Fee Payable
to WMC" and "Proposal III--Election of Trustees--Certain Relationships and
Related Transactions--Advisor Fees."
13. The Company will enter into employment agreements with Duane H. Lund and
Robert F. Rice to serve as the Company's Chief Executive Officer and
President, respectively. See "Proposal III--Election of Trustees--
Executive Compensation--Employment Agreements."
14. If elected pursuant to Proposal III below, Steven B. Hoyt and Paul T.
Lambert will become Trustees of the Company. See "Proposal III--Election
of Trustees."
15. The Company will enter into the Property Management Agreements with respect
to the day-to-day operations and leasing of the Acquired Properties. See
"Proposal III--Election of Trustees--Certain Relationships and Related
Transactions--Property Management Agreements."
Immediately following consummation of the Transaction, the Common Shares
issuable upon exchange of the Units, the Common Shares issuable upon exercise of
the Warrants and the AREE Common Shares will represent approximately 83.9%, 8.5%
and 0.9%, respectively, of the Common Shares that are issued and outstanding on
a fully diluted basis (as hereinafter defined) at such time. As a result of the
Transaction, Steven B. Hoyt (Nominee for Trustee), Paul T. Lambert (Nominee for
Trustee), Arnold K. Leas (Chairman of the Board and current President), and
Duane H. Lund (proposed Chief Executive Officer) will hold (individually,
through their immediate families or through entities in which they may be
considered to have voting or investment control, including AREE) 30.7%, 8.0%,
9.2% and 15.7%, respectively, of the issued and outstanding Common Shares on a
fully diluted basis. References in this Proxy Statement to Common Shares issued
and outstanding "on a fully diluted basis" shall mean, collectively: (i) all
Common Shares issued and outstanding as of a particular date, (ii) Common Shares
issuable upon exchange of the issued and outstanding Units as of such date,
(iii) Common Shares issuable upon the exercise of all of the issued and
outstanding Warrants as of such date, (iv) the AREE Common Shares and (v) all
options and warrants to acquire Common Shares exercisable within 60 days of such
date.
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The following diagram illustrates the ownership of the Company and the
Operating Partnership both immediately after the consummation of the Transaction
and assuming conversion of all Units into Common Shares and the exercise of all
warrants (including the Warrants) and all currently outstanding options to
acquire Common Shares:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
WELLINGTON PROPERTIES TRUST
(Post-Transaction)
Percentage Before Percentage After Conversion
Conversion of Units or of all Units and Exercise of
Owner Exercise of Warrants/Options Warrants/Options
----- ---------------------------- --------------------------------
<S> <C> <C>
Public 74.8% 5.6%
Current Trustees
and Officers(1) 12.6% 9.4%
AREE(2) 12.6% 55.9%
Other Fee Owners 0% 29.1%
---------------------------------------------------------------------------------------------------------------
|
100% | 100%
|
Before | After
------ | -----
1% | 100%
- ------------------------- ----------------------------------------------------------------------------- --------------------------
Maple Grove Lake Pointe
Apartment Homes, Apartment Homes,
Inc. (owner of a THE OPERATING PARTNERSHIP Inc. (owner of a
Current Property) (owner of interests in the 31 Acquired Properties) Current Property)
- ------------------------- ----------------------------------------------------------------------------- -------------------------
100% 100%
---------------------- ----------------------
CSC WCC
(owner of Cold (owner of
Springs Office Wellington
Center Centre)
---------------------- ----------------------
</TABLE>
__________________
(1) Includes the ownership of WMC
(2) Includes the ownership of the AREE Members of their immediate families
Pursuant to the Master Contribution Agreement and the WMC Contribution
Agreement, the Operating Partnership will acquire interests in the Acquired
Properties in exchange for the issuance by the Operating Partnership of Units,
the assumption of indebtedness, and the payment of cash. All Units to be issued
by the Operating Partnership will be restricted as to conversion to Common
Shares for a 12-month period. In addition, 3,115,726 Units to be issued will be
further restricted from sale for an additional 12-month period. Because the
Company controls the Operating Partnership,
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the Company will consolidate the Operating Partnership with the Company and
record the Acquired Properties at purchase price plus direct costs of
acquisition using purchase accounting principles.
BACKGROUND OF THE TRANSACTION
In March 1998, Arnold K. Leas, President and Chairman of the Board of the
Company, was contacted by Morgan Stanley Asset Management ("MSAM") regarding an
equity investment by MSAM in the Company. During the next several months,
representatives of the Company and MSAM engaged in considerable negotiations and
discussions regarding such a transaction, and a principal of MSAM conducted an
initial due diligence visit with the Company. As a result of these discussions,
MSAM prepared a preliminary term sheet in which it proposed to invest up to
$50.0 million in equity of the Company upon terms and conditions that included
the purchase of Common Shares at a price of $7.00 per Common Share. After
careful consideration of this proposal and the ongoing discussions with AREE
described below, the Board of Trustees of the Company decided that the MSAM
proposal was not in the best interests of the Company or its shareholders and
that the Company should instead pursue the transaction with AREE, for reasons
including, but not limited to, the following: (i) while the transaction with
MSAM would have increased the Company's total capitalization, it would have had
little effect on market capitalization and consequently only a limited effect on
liquidity; (ii) the MSAM transaction would have limited the Company's portfolio
to multifamily residential properties and would not have offered the benefits of
the diversity of property types provided by the Transaction; and (iii) the share
price to have been paid by MSAM ($7.00) was significantly lower than that to be
paid by AREE ($8.50).
During the spring of 1998, AREE contacted Arnold K. Leas to inquire about
the Company and to express an interest in possibly pursuing a transaction with
the Company. On May 10, 1998, an introductory meeting took place between
representatives of AREE and the Company. On May 26, 1998, representatives of
the two parties again met to discuss AREE's continuing interest in a possible
transaction with the Company, and on May 28, 1998, AREE submitted an initial
proposal to the Company, providing for a transaction in which the Company would
create the Operating Partnership, and AREE would contribute to the Operating
Partnership both (i) its interest in certain contribution agreements and
purchase agreements between AREE and third parties and (ii) any other AREE
assets, in exchange for cash and Units. The precise amount of consideration to
be paid to AREE was to be determined on the basis of an internal review of
certain information regarding the AREE Acquired Properties viewed on an
aggregated basis. Such information included: (i) three-year projections of cash
flows and net operating income; (ii) physical descriptions of the properties,
including building type, GLA, number of tenants, truck well doors (where
applicable), year constructed or renovated, occupancy, percentage of office
buildout and floor plans; (iii) tenant information, including rent rolls and
tenant profiles; (iv) photographs of the properties; (v) maps and site
locations; (vi) market reports; (vii) site visits to certain of the properties
by senior management of the Company; and (viii) profiles of the principals of
AREE. The Company did not rely on independent appraisals for each property
because the Company believed that its Trustees and executive officers have the
experience and expertise necessary for an evaluation of commercial real estate.
The ultimate amount of consideration was determined through an arms-length
negotiation, during which the Company's Trustees and executive officers relied
on the factors described above as well as the other important factors described
in detail under "--Reasons for the Transaction."
During the following week, AREE and the Company continued to provide due
diligence information to each other concerning their respective business
operations for purposes of refining the proposed business terms. Company
representatives consulted with one another and third-party experts to discuss
the information received from AREE and concluded that the quality of the
portfolio of properties that AREE proposed to contribute (through contribution
agreements and purchase contracts to which AREE would be a party), in terms of
physical characteristics, geographic location, tenant profile and other factors,
would provide substantial benefits to the Company and its shareholders, when
combined with the Company's portfolio. As a result, the Company decided to
continue its negotiations with AREE so as to finalize mutually acceptable terms
pursuant to which AREE and the Company might consummate a transaction of the
nature proposed by AREE. At a meeting on June 4, 1998, the Company and AREE
executed a Memorandum of Understanding that, among other things, required the
Company to negotiate with AREE on an exclusive basis. Shortly following the
meeting, representatives of AREE and the Company held an organizational meeting
to begin due diligence of the Company's real estate and those properties
proposed to be acquired by the Operating Partnership, through the transaction
under negotiation between AREE and the Company, and the Company instructed its
counsel to begin the preparation of definitive documentation.
From June 5, 1998 through July 1, 1998, each party and its financial and
legal representatives engaged in extensive due diligence concerning the
Company's real estate and those properties proposed to be acquired by the
Operating Partnership through the transaction under negotiation between the
Company and AREE. During that same period of time, preliminary drafts of the
documentation of the proposed transactions were exchanged between
representatives of AREE and the Company. On July 6, 1998, the Company and AREE
executed a Master Contribution
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Agreement (the "Original Master Contribution Agreement"), in which they
incorporated certain of the terms and provisions of the Memorandum of
Understanding and otherwise provided the terms under which the Transaction would
occur. On July 14, 1998, as a result of continuing negotiations among the
parties, the Company and AREE amended the Memorandum of Understanding to clarify
certain terms and to correct certain inaccuracies in the Memorandum of
Understanding.
On August 12, 1998, the Board of Trustees of the Company convened to
discuss the status of the proposed transaction between the Company and AREE and
the relevant documentation. At such meeting, representatives of, and counsel
for, the Company reported that the parties were close to agreement on
substantially all substantive issues. The Board of Trustees unanimously (i)
approved the terms of the Transaction with certain modifications suggested by
the Board of Trustees, concluding that the Transaction was fair to, and in the
best interests of, the Company and its shareholders, (ii) authorized management
of the Company to execute any and all documentation required in connection with,
or relating to the Transaction, including, but not limited to, any appropriate
amendments to the Original Master Contribution Agreement, and (iii) recommended
that the Company's shareholders approve the Transaction. Following such meeting,
the Company's management directed legal counsel to revise the Original Master
Contribution Agreement to reflect the changes recommended by the Board of
Trustees and to incorporate all relevant provisions of the Memorandum of
Understanding. Management also directed that proxy materials regarding the
Transaction be prepared for submission to the shareholders.
On August 31, 1998, the Board of Trustees of the Company convened to review
final documentation and thereupon: (i) approved the Master Contribution
Agreement, pursuant to which the Memorandum of Understanding was formally
terminated; (ii) approved, as general partner of the Operating Partnership, the
WMC Contribution Agreement; (iii) approved the issuance of Warrants for 500,000
Common Shares to each of WMC and AREE in connection with the Transaction, and
approved the form of Warrant and related subscription agreement; and (iv) set a
record date of August 21, 1998 for determining those shareholders entitled to
vote at the Special Meeting and set a meeting date of September 24, 1998 for the
Special Meeting and approved the preliminary proxy materials with respect to the
Special Meeting and directed the same to be filed with the Securities and
Exchange Commission. Immediately following such meeting, the Company and AREE
executed the Master Contribution Agreement, the Operating Partnership and WMC
executed the WMC Contribution Agreement and the parties executed the other
relevant documentation.
On October 9, 1998, the Board of Trustees of the Company convened to reset
the date for the Special Meeting to October 30, 1998 and approve certain
revisions to the Articles of Amendment and Restatement described in Proposal II.
On October 29, 1998, the Board of Trustees of the Company convened to reset
the date for the Special Meeting to November 16, 1998.
REASONS FOR THE TRANSACTION
The Board of Trustees believes that the Transaction is fair to, and in the
best interests of, the Company and its shareholders. Accordingly, the Board of
Trustees has approved the Transaction and recommends that the Company's
shareholders vote for approval of the Transaction. In reaching its
determination, the Board of Trustees consulted with the Company's management,
legal counsel and accountants and considered a variety of factors, including,
but not limited to, the following:
1. The Board considered that the increase in the size and diversity of the
Company's portfolio resulting from the Transaction could significantly improve
its access to financing on more attractive terms. The Board believed that such
improved access to financing would not only allow the Company to improve the
performance of certain of the Properties through expansion, renovation and
leasing, but also support external growth through additional future acquisitions
and selective development.
2. The Board considered that the Transaction would expand the diversity
and geographic location of its portfolio, making it less susceptible to adverse
conditions resulting from changes in regional economic conditions and other
factors that could adversely affect its ability to attract and retain high
quality tenants at market rents.
3. The Board considered that the Transaction would expand and diversify
the types of properties in its portfolio by the addition of office and light
industrial properties, making the Company less susceptible to adverse conditions
resulting from changes in the multifamily residential property industry.
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4. The Board considered that the Transaction could provide the Company
with greater access to capital markets, which could significantly increase the
market capitalization of the Company. The Board believes that increased total
market capitalization would provide the Company's shareholders with enhanced
liquidity by generating renewed interest in the Company among the financing
community and making Common Shares a more attractive investment for
institutional investors.
5. The Board considered that the Transaction is expected to enhance the
Company's credit profile and, thus, its ability to issue rated securities or
arrange for other debt financings on favorable terms.
6. The Board considered the characteristics of the Acquired Properties,
including occupancy rates, geographic diversity, diversity of types of
properties and other factors that the Board believed would make the Acquired
Properties beneficial acquisitions in terms of their potential future cash
flows.
7. The Board considered the demonstrable success of Messrs. Hoyt, Lambert
and Lund in the acquisition, development and management of various real
properties and believes that they will provide tangible future benefits to the
Company. The Board believes that the combination of existing management of the
Company with Messrs. Hoyt, Lambert
and Lund will enhance the level of management depth and experience, with the
Company benefiting from the expertise of both groups.
8. The Board considered that it believes that the Company and its
stockholders will realize the benefit of synergies and on-going operational cost
savings through economies of scale, including general and administrative cost
savings and operating efficiencies due to critical mass in areas such as bulk
purchasing and insurance.
9. The Board considered that, as a result of the Transaction, the Company
would be a larger and financially stronger company, which would facilitate
combinations with other public or private entities, providing another possible
efficient and attractive means of growth.
POTENTIAL RISKS ASSOCIATED WITH THE TRANSACTION
The Board of Trustees also considered potentially negative factors that
could arise from the Transaction, including, but not limited to, the following:
1. The Board considered the significant costs involved in connection with
the consummation of the Transaction, and the substantial management time and
effort required to effectuate the Transaction and to integrate the Acquired
Properties.
2. The Board considered the possibility that the anticipated benefits of
the Transaction might not be fully realized.
3. The Board considered the possibility that the Company will not have the
capacity effectively and cost-efficiently to integrate the large number of
Acquired Properties. See "--Risk Factors--Potential Adverse Effects of Combining
Operations" and "--Expansion into New Property Types."
4. The Board considered the potentially substantial reduction of current
shareholders' percentage ownership interest and effective voting power in the
event of exercise of the Warrants or exchange of the Units to be issued in the
Transaction, which could affect the market price for the Common Shares. See "--
Risk Factors--Concentration of Share Ownership."
5. The Board considered the absence of appraisal rights for the Company's
shareholders in connection with the Transaction.
6. The Board considered the lack of independent appraisals of the Acquired
Properties and the lack of an independent appraisal, valuation or fairness
opinion with respect to the Transaction as a whole. See "--Risk Factors--Lack
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of Independent Valuation of Acquired Properties and Units" and "--Potential
Payment of Excess Consideration Due to Fixed Per Unit Purchase Price."
7. The Board considered the substantial influence to be exercised by AREE
and its members through their control of the executive management of the Company
(if Duane H. Lund is appointed Chief Executive Officer of the Company), their
presence as two of the seven members of the Board of Trustees (if Steven B. Hoyt
and Paul T. Lambert are elected as Trustees pursuant to Proposal III) and the
concentration of ownership of the Common Shares, on a fully diluted basis, by
AREE and its members. See "--Risk Factors--Concentration of Share Ownership"
and "--Changes in Senior Management and Control of Board of Trustees."
8. The Board considered the adverse consequences of the assumption of
significant mortgage indebtedness. See "--Risk Factors--Proposed Requirements
and Restrictions Under the New Credit Facility" and "--No Limitation on
Indebtedness."
The Board of Trustees did not believe that the negative factors were
sufficient, either individually or collectively, to outweigh the advantages of
the Transaction. Further, in view of the variety of factors considered by the
Board of Trustees in connection with its evaluation of the Transaction, the
Board of Trustees did not find it practicable to, and did not, quantify or
otherwise assign relative weights to the specific factors considered in reaching
its conclusion.
RECOMMENDATION OF THE BOARD OF TRUSTEES
As a result of the foregoing, the Board of Trustees believes that the
Transaction is fair to, and in the best interests of, the Company and its
shareholders and has approved the Transaction, and recommends that the
Transaction be approved and adopted by the shareholders at the Special Meeting.
All of the Trustees have indicated their intention to vote the Common Shares
owned by them in favor of the Transaction at the Special Meeting.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Property Management Agreements. In connection with the Transaction, the
Operating Partnership will enter into Property Management Agreements with
respect to the Acquired Properties with various parties, including Hoyt
Properties Inc. ("HPI"), an entity controlled by Steven B. Hoyt (Nominee for
Trustee), and WMC Realty, Inc. ("WRI"), a wholly owned subsidiary of WMC,
affiliate of the Company in which Arnold Leas (Chairman of the Board of
Trustees) is President and Chief Executive Officer, and in which members of his
immediate family and trusts for the benefit of such persons own approximately
41.8% of the outstanding capital stock. Pursuant to such Property Management
Agreements, the management entities will receive fees based on the gross rental
receipts collected in connection with the operation of such Acquired Properties.
See "Proposal III--Election of Trustees--Certain Relationships and Related
Transactions--Property Management Agreements."
Termination Fee. In connection with the Transaction, WMC will receive a
termination fee of approximately $1.6 million in consideration of the
termination of certain existing advisory fee arrangements between the Company
and WMC. See "--Certain Additional Covenants--Termination Fee Payable to WMC"
and "Proposal III--Election of Trustees--Certain Relationships and Related
Transactions--Advisor Fees."
Receipt of Securities. Upon the closing of the Transaction (the "Closing"),
Steven B. Hoyt, Paul T. Lambert and Duane H. Lund will hold (individually or in
entities in which they may be considered to have voting or investment control)
3,604,781, 938,482 and 1,844,025 Units, respectively, representing 30.7%, 8.0%
and 15.7%, respectively, of the issued and outstanding Common Shares on a fully
diluted basis. In addition, as a result of the Transaction, AREE, in which Mr.
Hoyt and entities controlled by Messrs. Lambert and Lund are the sole members,
and of which Mr. Lund is the President, will hold (i) 241,176 Units, (ii)
Warrants to acquire up to 500,000 Common Shares and (iii) 105,263 AREE Common
Shares, representing 2.1%, 4.3% and 0.9%, respectively, of the issued and
outstanding Common Shares on a fully diluted basis. See "--Principal Features of
the Transaction; Effects of the Transaction--Issuance of Warrants" and "--
Issuance of AREE Common Shares" and "Proposal III--Election of Trustees--
Security Ownership of Certain Beneficial Owners and Management."
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In connection with the Transaction, WMC will receive 470,588 Units and
Warrants to acquire up to 500,000 Common Shares, representing an aggregate of
8.3% of the issued and outstanding Common Shares on a fully diluted basis. See
"--Principal Features of the Transaction; Effects of the Transaction--Issuance
of Warrants" and "Proposal III--Election of Trustees--Security Ownership of
Certain Beneficial Owners and Management."
Employment Agreements. In connection with the Transaction, the Company
will enter into employment agreements with Duane H. Lund and Robert F. Rice
(current Executive Vice President and Secretary and proposed President)
providing for a base salary, a discretionary bonus and certain other benefits.
See "Proposal III--Election of Trustees--Executive Compensation--Employment
Agreements."
Insurance. The Company has applied for Trustees' and officers' insurance
through Professional Liability Insurers, an insurance broker, which currently is
seeking quotes from approximately six insurance carriers. If insurance is
procured through Professional Liability Insurers, Wellington Insurance Services,
Inc. ("WISI"), a wholly owned subsidiary of WMC, will receive a commission equal
to approximately 10% of each premium paid. It is currently anticipated that
such insurance will be procured at or before Closing. In addition, casualty
insurance for all of the Properties will be procured under policies placed by
WISI. WISI will receive a commission equal to approximately 15% of each premium
paid in connection with such placement.
THE OPERATING PARTNERSHIP AND OPERATING PARTNERSHIP AGREEMENT
The interests of the general partner and any and all limited partners in
the Operating Partnership will be represented by Units. Currently, all Units
are "Common Units," and are economically equivalent to Common Shares of the
Company. "Preferred Units" may also be issued by the Operating Partnership, on
such terms as the Company, as sole general partner, shall determine. The rights
of Common Units are, and the rights of any particular class of Preferred Units
shall be, as set forth in the Operating Partnership Agreement.
Management. The Operating Partnership was formed on July 28, 1998 as a
limited partnership under the Delaware Revised Uniform Limited Partnership Act,
as amended (the "Partnership Act"). The Company is the sole general partner of
the Operating Partnership, and expects to own a minority interest in the
Operating Partnership for the foreseeable future. The Company will use the
proceeds from the sale of the AREE Common Shares to fulfill its capital
contribution obligations to the Operating Partnership.
The Company, as sole general partner, has the exclusive power and authority
to conduct the business of the Operating Partnership, subject to the consent of
the limited partners in certain limited circumstances. Limited partners will
have no right or authority to act for or to bind the Operating Partnership. No
limited partner may take part in the conduct or control of the business or
affairs of the Operating Partnership by virtue of being a holder of Units. In
particular, the limited partners expressly acknowledge in the Operating
Partnership Agreement that the Company, as sole general partner, is acting on
behalf of the Operating Partnership's limited partners and the Company's
shareholders, collectively, and is under no obligation to consider the tax
consequences to limited partners when making decisions for the benefit of the
Operating Partnership. The limited partners further agree that, in the event of
a conflict between the interests of Company shareholders and limited partners,
the Company, as sole general partner, shall discharge its fiduciary duties to
the limited partners by acting in the best interests of its shareholders.
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Removal of the General Partner. The Operating Partnership Agreement
provides that the limited partners may not remove the Company, with or without
cause, as general partner of the Operating Partnership. In addition, the
Company may not transfer any of its interests as general partner in the
Operating Partnership, except in connection with a merger or sale of all or
substantially all of the Company's assets (subject to certain conditions).
Sales of Assets. Under the Operating Partnership Agreement, the Company,
as sole general partner, has the exclusive authority to determine whether, when
and on what terms the assets of the Operating Partnership (including the
Acquired Properties) will be sold. A sale of all or substantially all of the
assets of the Operating Partnership (or a merger of the Operating Partnership
with another entity) generally requires an affirmative vote of the holders of a
majority of the outstanding Units held by limited partners (a "Limited Partner
Consent"), assuming for such purposes the deemed conversion of all Preferred
Units into Common Units, as described below under "Redemption and Conversion of
Units."
Conduct of Company Business. Absent a Limited Partner Consent, the Company
may not enter into or conduct any business other than in connection with
managing the business of the Operating Partnership and any business that it is
otherwise conducting as of the date of formation of the Operating Partnership.
Thus, absent a Limited Partner Consent and subject to limited exceptions, the
assets of the Company shall be limited to (i) its interest in Maple Grove
Apartment Homes, Inc. and Lake Pointe Apartment Homes, Inc., the two
subsidiaries it currently owns (the "Existing Subsidiaries"), each of which
Existing Subsidiaries owns a multifamily residential property, (ii) Units
(representing the Company's equity investment from time to time in the Operating
Partnership), and (iii) certain indebtedness obligations of the Operating
Partnership. While the business of the Operating Partnership is restricted, the
Operating Partnership Agreement does not prevent a transaction in which another
entity that owns assets and conducts businesses outside of the Operating
Partnership acquires control (or a majority of the outstanding Common Shares) of
the Company. As a result, but for the interest in the Existing Subsidiaries, it
is intended that Common Units and Common Shares generally be fungible. However,
because the limited partners in the Operating Partnership do not participate in
the economic performance of the Existing Subsidiaries, a Common Share has a
beneficial interest in a greater asset pool than does a Unit. As of the date
(the "Closing Date") of the Closing, it is expected that the book value of the
Existing Subsidiaries' net assets will be approximately 9% of the pro forma book
value of the Operating Partnership's net assets. To maintain parity in value
between the Common Shares and the Common Units, therefore, the Operating
Partnership and the Company will generally agree to make distributions of cash
to partners and shareholders, respectively, as if there were no "disequilibrium"
between the Operating Partnership and the Company. In turn, the Company may be
required to borrow funds from the Operating Partnership to meet its distribution
obligations.
Reimbursement of the Company; Transactions with the Company and its
Affiliates. The Company will not receive any compensation for its services as
general partner of the Operating Partnership. The Company, however, as a
partner in the Operating Partnership, has the same right to allocations and
distributions as other partners holding the same class of Units (currently, the
Company, as general partner, holds only Common Units). In addition, the
Operating Partnership will reimburse the Company for all expenses the Company
incurs relating to its activities as general partner, its continued existence
and qualification as a real estate investment trust (a "REIT") for purposes of
Section 856 of the Internal Revenue Code of 1986, as amended (the "Code"), and
all other liabilities incurred by the Company in connection with the pursuit of
its business and affairs as they may relate to the Operating Partnership
Agreement (including expenses incurred by the Company in connection with the
Transaction and the issuance of Common Shares or other securities of the Company
generally).
Except as expressly permitted by the Operating Partnership Agreement,
affiliates of the Company will not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less favorable
to the Operating Partnership than terms that would be obtained from an
unaffiliated third party. Notwithstanding the foregoing, the Company may
borrow Operating Partnership funds pursuant to the Operating Partnership
Agreement.
Redemption, Exchange and Conversion of Units. Subject to certain
limitations in the Operating Partnership Agreement and, in the case of Preferred
Units, following the conversion of such Preferred Units as described in the
immediately following sentence, holders of Common Units generally will have the
right to require the redemption of their Common Units at any time one year after
the original issuance date of such Units (the "Unit Redemption Right"). Limited
partners that hold Preferred Units will have the right to convert such Preferred
Units into Common Units (at the
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conversion rate established at the time any particular class or series of
Preferred Units is established). Once the conversion has occurred, a converting
preferred limited partner shall have a Unit Redemption Right with respect to the
resulting Common Units.
Unless the Company elects to assume and perform the Operating Partnership's
obligation with respect to the Unit Redemption Right, as described below, a
limited partner exercising the Unit Redemption Right will receive cash from the
Operating Partnership in an amount equal to the market value of the Units to be
redeemed. The market value of a Unit for this purpose will be equal to the
average of the closing bid and ask prices of a Common Share on Nasdaq for the
ten trading days before the day on which the redemption notice was given. In
lieu of the Operating Partnership's acquiring the Units for cash, the Company
will have the right to elect to acquire the Units directly from a limited
partner exercising the Unit Redemption Right, in exchange for either cash or
Common Shares, and, upon such acquisition, the Company will become the owner of
such Units. Pursuant to such exchange, each Common Unit is exchangeable or
redeemable for one Common Share or its cash equivalent. The "conversion factor"
is subject to customary anti-dilution adjustments (e.g., in the event of a stock
dividend by the Company). Upon exercise of the Unit Redemption Right, the
limited partner's right to receive distributions for the Units so redeemed or
exchanged will cease. At least 1,000 Units (or all remaining Units owned by the
limited partner if less than 1,000 Units) must be redeemed or exchanged each
time the Unit Redemption Right is exercised. No exchange can occur if delivery
of Common Shares would be prohibited either under those provisions of the
Declaration designed to protect the Company's qualification as a REIT, or under
applicable federal or state securities laws.
The Company will at all times reserve and keep available, out of its
authorized but unissued Common Shares, solely for the purpose of effecting the
issuance of Common Shares pursuant to Unit Redemption Rights, a sufficient
number of Common Shares as shall, from time to time, be sufficient for the
exchange of all outstanding Units not owned by the Company.
Upon the exercise by a limited partner of a Unit Redemption Right, such
limited partner shall be accorded registration rights in accordance with the
Master Registration Rights Agreement (as hereinafter defined).
Restrictions on Transfer of Units by Limited Partners. The Operating
Partnership Agreement imposes certain restrictions on the sale, assignment,
gift, pledge or other transfer (each a "Transfer") of Units. It is a condition
to any Transfer otherwise permitted under the Operating Partnership Agreement
that the transferee assume all of the obligations of the transferor under the
Operating Partnership Agreement. No transferor limited partner shall be
relieved of its obligations under the Operating Partnership Agreement without
the consent of the Company, in its reasonable discretion. Any transferee shall
be subject to all ownership limitations set forth in the Declaration. Unless a
transferee is admitted as a substituted partner, which admission shall be at the
general partner's sole discretion, it will have only the economic rights, and
none of the voting rights, of a limited partner under the Operating Partnership
Agreement.
Without the consent of the Company, limited partners generally may Transfer
their Units (but still must receive consent of the Company in order for the
transferee to be a substituted partner) to: (i) the Company; (ii) an affiliate,
spouse or other limited partner of the Operating Partnership; (iii) a charitable
trust; and (iv) certain financial institutions in connection with a pledge
securing a bona fide loan. Each Transfer not described in the preceding
sentence is subject to a 10-day right of first refusal in favor of the Company
and must be made only to an accredited investor, as defined under the federal
securities laws. In no event may a limited partner Transfer a Unit without the
consent of the Company (a) in violation of applicable law, (b) if such Transfer
requires the registration of Units pursuant to any applicable federal or state
securities laws, or (c) if such Transfer could adversely affect the ability of
the Company to remain qualified as a REIT.
Issuance of Additional Units. The Company has broad discretion to cause
the Operating Partnership to issue additional Units to the limited partners or
to other persons (including the Company) for such consideration and on such
terms and conditions as the Company, as sole general partner, deems appropriate.
However, if the Company issues Common Shares, the Company must contribute to the
Operating Partnership the proceeds, if any, received by the Company from such
issuance, and the Operating Partnership shall issue a number of Common Units to
the Company equal to the number of Common Shares so issued. Upon Closing, the
proceeds of issuance of the AREE Common Shares will be contributed by the
Company to the Operating Partnership in exchange for 105,263 Units. The
Operating Partnership will
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also issue additional Common Units to the Company in the event the Company
transfers any of the Current Properties (or proceeds therefrom) to the Operating
Partnership. The Operating Partnership Agreement provides that the Operating
Partnership may also issue Preferred Units of different classes and series
having such rights, preferences and other privileges, variations and
designations as may be determined by the Company, from time to time. Any such
Preferred Units may have terms, provisions and rights which are preferential to
the terms, provisions and rights of the Common Units. Preferred Units, however,
may be issued to the Company only in connection with an offering of securities
of the Company having substantially similar rights to the Preferred Units and
the contribution by the Company to the Operating Partnership of the proceeds of
such offering. No limited partner has preemptive, preferential or other similar
rights with respect to additional capital contributions or loans to the
Operating Partnership or the issuance or sale of any Units.
Capital Contributions. No partner of the Operating Partnership will be
required to make additional capital contributions to the Operating Partnership,
except that the Company is generally required to contribute net proceeds of the
sale of Common Shares (and other equity interests) of the Company to the
Operating Partnership. Except in the case of certain limited partners who may
agree to contribute capital to restore any deficits in their respective capital
accounts at liquidation, no limited or general partner will be required to pay
to the Operating Partnership any deficit or negative balance which may exist in
its capital account.
Distributions; Allocations of Income and Loss. The Operating Partnership
Agreement generally provides for the quarterly distribution of the "Minimum
Distribution Amount" (as defined below), as determined in the manner provided in
the Operating Partnership Agreement, first to satisfy any preferred return
relating to any outstanding Preferred Units and thereafter to the partners of
the Operating Partnership in proportion to their percentage interests in the
Operating Partnership (which, so long as only one class of Units is outstanding,
is determined for any partner by the number of Units such partner owns relative
to the total number of Units outstanding). "Minimum Distribution Amount" means,
for any period for which distributions are being made, the amount of cash
necessary (i) to satisfy priority returns owing to holders of Preferred Units
and (ii) to enable the Company to satisfy the then-prevailing REIT requirements
(including those relating to distributions to shareholders) and avoid the
imposition of any excise tax under the Code. Neither the Company nor the other
partners holding a particular class of Units is entitled to any preferential or
disproportionate distributions of available cash with respect to such class of
Units (it being understood that Preferred Units may be entitled to priority
distributions relative to Common Units or other classes of Preferred Units).
Amounts in excess of the Minimum Distribution Amount may be distributed, with
such amounts to be determined by the Company, as sole general partner, in its
sole and absolute discretion.
Exculpation and Indemnification of the Company. The Operating Partnership
Agreement generally provides that the Company, as sole general partner, will
incur no liability to the Operating Partnership or any limited partner for
losses sustained, liabilities incurred, or benefits not derived as a result of
errors in judgment or for any mistakes of fact or law or for anything that it
may do or refrain from doing in connection with the business and affairs of the
Operating Partnership if the Company carried out its duties in good faith.
Without limiting the foregoing, the Company has no liability for the loss of any
limited partner's capital. In addition, the Company is not responsible for any
misconduct, negligent act or omission of any consultant, contractor, or agent of
the Operating Partnership or of the Company and has no obligation with respect
thereto other than to use good faith in the selection of all such contractors,
consultants, and agents.
The Operating Partnership Agreement also requires the Operating Partnership
to indemnify the Company, the Trustees and officers of the Company and such
other persons as the Company may from time to time designate against any loss or
damage, including reasonable legal fees and court costs, incurred by such person
by reason of anything it may do or refrain from doing for or on behalf of the
Operating Partnership, or in connection with its business or affairs, unless it
is established that: (i) the act or omission of the indemnified person was
material to the matter giving rise to the proceeding and either was committed in
bad faith or was the result of active and deliberate dishonesty; (ii) the
indemnified person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful. Any such indemnification claims must be satisfied only out of the
assets of the Operating Partnership, and any applicable insurance proceeds or
indemnity.
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Amendment of the Operating Partnership Agreement. Amendments to the
Operating Partnership Agreement may be proposed by the Company or by limited
partners owning at least 25% of the then outstanding Units (including Units
owned by the Company, as sole general partner, and assuming the deemed
conversion of all Preferred Units into Common Units). Generally, the Operating
Partnership Agreement may be amended with the approval of the Company, as sole
general partner, and a majority of all outstanding Units (including Units owned
by the Company, as sole general partner, and assuming the deemed conversion of
all Preferred Units into Common Units). Certain provisions regarding, among
other things, the rights and duties of the Company as general partner (e.g.,
restrictions on the Company's power to conduct additional businesses) or the
dissolution of the Operating Partnership may not be amended without the approval
of a sufficient number of limited partners to constitute a Limited Partner
Consent. Certain amendments that would, among other things: (i) convert a
limited partner's interest into a general partner's interest; (ii) modify the
limited liability of a limited partner; (iii) alter the interest of a partner in
profits or losses, or the right to receive any distributions (except as
permitted under the Operating Partnership Agreement with respect to the
admission of new partners or the issuance of additional Units); or (iv) alter
the Unit Redemption Right, must be approved by the Company and each limited
partner that would be adversely affected by such amendment. Certain other
amendments that would, among other things: (a) add to the general partner's
obligations; (b) reflect changes in the composition of the limited partners; (c)
provide for the rights and preferences of Preferred Units; or (d) reflect a
change that does not adversely affect any limited partner in any material
respect or that cures an ambiguity in the Operating Partnership Agreement, may
be made by the Company, as sole general partner, without the consent of any
limited partner.
Term. The Operating Partnership will be dissolved and its affairs wound up
upon the earliest of (i) December 31, 2097; (ii) the withdrawal of the Company
as general partner without the permitted transfer of the Company's interest to a
successor general partner (except in certain limited circumstances relating to a
merger or sale of the Company); (iii) the sale of all or substantially all of
the Operating Partnership's assets and properties; (iv) the entry of a decree of
judicial dissolution of the Operating Partnership pursuant to the provisions of
the Partnership Act; (v) the entry of a final non-appealable judgment ruling
that the last remaining general partner is bankrupt or insolvent (except that,
in either such case, in certain circumstances the limited partners may vote to
continue the Operating Partnership and substitute a new general partner in place
of the Company); or (vi) with the consent of the Company, as sole general
partner, and limited partners holding two-thirds of the outstanding Units owned
by limited partners (assuming the deemed conversion of all Preferred Units into
Common Units).
PRINCIPAL FEATURES OF THE TRANSACTION; EFFECTS OF THE TRANSACTION
The Transaction will involve a number of related transactions that are
expected to occur simultaneously or sequentially following approval of the
Transaction by the Company's shareholders and the satisfaction or waiver of the
other conditions to the Transaction as set forth in the Master Contribution
Agreement and the WMC Contribution Agreement.
Assigned Acquisition Agreements. AREE has entered into the Assigned
Acquisition Agreements with the Fee Owners of the Acquired Properties other than
Cold Springs Office Center (which AREE owns through its 100% membership interest
in CSC) and Wellington Centre (such properties are hereinafter referred to as
the "AREE Assigned Properties" and, together with Cold Springs Office Center,
are hereinafter referred to as the "AREE Acquired Properties"). Steven B. Hoyt
(Nominee for Trustee) and members of his immediate family are equity
participants in some of the Fee Owners. The contribution agreements (the
"Assigned Contribution Agreements") provide for the contributors to contribute
certain of the AREE Assigned Properties to the Operating Partnership (as
assignee of AREE) in exchange for (i) Units, (ii) the assumption of certain
indebtedness encumbering certain of such AREE Acquired Properties, (iii) cash
(in certain instances) and (iv) additional cash in amounts sufficient to pay
certain closing costs customarily paid in real estate transactions. The
purchase agreements (the "Assigned Purchase Agreements") provide for the sale of
certain of the AREE Assigned Properties to the Operating Partnership (as
assignee of AREE) for a cash purchase price. Pursuant to the Master
Contribution Agreement, AREE will contribute its rights under the Assigned
Acquisition Agreements and will transfer its membership interest in CSC to the
Operating Partnership in exchange for Units. As a result, the Operating
Partnership will acquire 30 properties, consisting of 20 office properties and
10 light industrial properties. In consideration of the contract rights to
purchase the AREE Assigned Properties and the transfer of the 100% membership
interest in CSC, the Operating Partnership will (a) issue an aggregate of
9,390,250 Units, valued at a price of $8.50 per Unit, of which 6,274,524 Units
will be issued to the Fee Owners or their respective affiliates as required
under the Assigned Contribution Agreements, and 3,115,726 Units will be issued
to AREE (1,559,728 of which will be issued at the direction of Steven B. Hoyt
under the Assigned Contribution Agreement for the Hoyt Properties), with 59,104
of such Units to be paid to WLPT, one of the AREE Members, as reimbursement of
expenses, 2,815,446 of such Units to be distributed equally among WLPT Funding,
Lambert Equities and Steven B. Hoyt, and the remaining 241,176 Units to be
retained by AREE, (b) assume approximately $64.4 million of indebtedness
encumbering the AREE Acquired Properties, and (c) make a cash payment of
approximately $31.2 million. See "--The Acquired Properties."
WMC Contribution Agreement. The WMC Contribution Agreement provides that
WMC will contribute 100% of the issued and outstanding membership interests of
WCC to the Operating Partnership in exchange for (i) the issuance of 470,588
Units, valued at a price of $8.50 per Unit, (ii) the assumption of approximately
$7.3 million of indebtedness encumbering Wellington Centre, and (iii) a cash
payment of approximately $2.5 million. WCC is the fee simple owner of Wellington
Centre, a 95,367 rentable square foot office building located in Brookfield,
Wisconsin and in which the Company maintains its principal offices. As a result
of the transactions under the WMC Contribution Agreement, the Operating
Partnership will become the sole member of WCC and, as a result, the indirect
owner of Wellington Centre.
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Through the combined operation of the Master Contribution Agreement, the
Assigned Acquisition Agreements and the WMC Contribution Agreement, the
Operating Partnership will acquire 31 properties, consisting of 21 office
properties and 10 light industrial properties. In consideration of such
acquisition, the Operating Partnership will (i) issue an aggregate of up to
9,860,838 Units, valued at a price of $8.50 per Unit, (ii) assume approximately
$71.8 million of indebtedness encumbering the Acquired Properties, and (iii)
make a cash payment of approximately $33.6 million. See "-- The Acquired
Properties."
Changes in Board of Trustees; Changes in Management. As a condition to
closing under the Master Contribution Agreement and the WMC Contribution
Agreement, (i) the Company will cause its Board of Trustees to consist of seven
trustees, (ii) Paul T. Lambert and Steven B. Hoyt (each an affiliate of AREE)
will be nominated for election to the Board of Trustees, and (iii) the Board of
Trustees will appoint Duane H. Lund (President of AREE), Robert F. Rice and
Arnold K. Leas, the Chief Executive Officer, President and Chairman of the Board
of Trustees, respectively, of the Company. See "Proposal III--Election of
Trustees."
Issuance of Warrants. In connection with the Transaction, the Company will
issue to each of AREE and WMC Warrants to acquire up to 500,000 Common Shares of
the Company. The Warrants will become exercisable one year after the date of
issuance and will be exercisable for a nine-year period thereafter. The Warrants
will be exercisable for Common Shares at a price of $8.50 per Common Share with
respect to 250,000 Common Shares issued to each party, $10.25 per Common Share
with respect to 125,000 Common Shares issued to each party, $12.25 per Common
Share with respect to 75,000 Common Shares issued to each party, and $14.75 per
Common Share with respect to 50,000 Common Shares issued to each party. The
Warrants will contain standard anti-dilution provisions with respect mergers,
consolidations, stock dividends or splits, and other business combinations and
capital reorganizations of the Company. The Warrants will be transferable at any
time at the option of the holders of the Warrants. The Company will provide
registration rights with respect to the Warrants as described in "--Issuance of
AREE Common Shares" below.
Issuance of AREE Common Shares. On or prior to the Closing, the Company
will issue to AREE 105,263 Common Shares for an aggregate purchase price of $1.0
million, to be paid in cash. In the event that the Transaction is not
consummated on or before December 31, 1998, the $1.0 million purchase price will
be returned to AREE, and the AREE Common Shares will be canceled. In connection
with the issuance of the AREE Common Shares and the Warrants, each of AREE and
WMC will enter into a Registration Rights Agreement (the "AREE/WMC Registration
Rights Agreement") pursuant to which the Company will, for each of AREE and WMC,
and their permitted transferees, register (a) the Common Shares issuable upon
the exchange of Units, (b) the Common Shares issuable upon the exercise of the
Warrants, and (c) the AREE Common Shares, within one year following the Closing.
Furthermore, the Company will agree to use commercially reasonable efforts to
register for resale under the Securities Act the AREE Common Shares and the
Common Shares issuable upon exercise of the Warrants and to maintain the
effectiveness of such registration statement until, in the case of the AREE
Common Shares, the date of disposition of all such AREE Common Shares, and, in
the case of the Warrants, the earlier of the date of the disposition of all of
such Common Shares or three years after the exercise of all of the Warrants.
Additionally, the AREE/WMC Registration Rights Agreement will grant certain
piggyback registration rights with respect to the AREE Common Shares
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and the Common Shares issuable upon exercise of the Warrants. The AREE/WMC
Registration Rights Agreement will contain customary covenants and agreements of
the respective parties concerning the registration of the AREE Common Shares and
the Common Shares underlying the Warrants, the provision of certain information
and the incurrence of certain costs and expenses in connection with the
obligations of the parties thereunder, as well as the agreement of the parties
to provide customary indemnification from material misstatements or omissions in
connection with any registration of the AREE Common Shares or the Common Shares
underlying the Warrants as required.
REPRESENTATION AND WARRANTIES
The Master Contribution Agreement and the WMC Contribution Agreement
contain various customary representations and warranties relating to the parties
thereto, as well as pertaining to the Acquired Properties and interests therein
to be contributed to the Operating Partnership. These representations include,
among other things, representations with respect to: (i) the respective
organization, formation, corporate or similar structure and ownership, and other
corporate and partnership matters; (ii) the due authorization, execution,
delivery, performance and enforceability of the Master Contribution Agreement or
the WMC Contribution Agreement, as the case may be, and related matters; (iii)
the absence of conflicts in connection with the Transaction and the Master
Contribution Agreement or the WMC Contribution Agreement, as the case may be, as
well as having obtained required consents and approvals from third parties; (iv)
title to, and condition of, the AREE Acquired Properties or Wellington Centre,
as the case may be, including, representations concerning title, environmental
condition, physical condition, easements and similar rights of way and
restrictions; (v) tenants, leases and other similar possessory agreements and
instruments; (vi) the absence of liabilities and absence of any litigation which
could adversely affect the combined business or the acquired assets; (vii)
compliance with applicable licenses, regulations, rules and other orders; (viii)
the absence of certain material adverse events, changes or effects; (ix)
insurance, taxes, labor relations, and employment rules and regulations; and (x)
financial statements and financial information and, as to the Company, reports
and other documents filed with the Securities and Exchange Commission and other
regulatory agencies. Each of the Assigned Acquisition Agreements contains
similar representations and warranties to the extent applicable. See "--The
Assigned Acquisition Agreements and Related Matters."
CONDITIONS OF THE TRANSACTION; TERMINATION; WAIVER AND AMENDMENT.
In addition to approval of the Transaction by the shareholders of the
Company, the obligations of the Company and the Operating Partnership to
consummate the Transaction are subject to the satisfaction or waiver of the
following other principal conditions: (i) that all representations and
warranties made by AREE or WMC under the Master Contribution Agreement or the
WMC Contribution Agreement, as the case may be, shall be true, in all material
respects, as of the Closing Date; (ii) that AREE or WMC, as the case may be,
shall have performed all of the covenants and obligations required to be
performed at or prior to Closing; (iii) that the title company selected by the
parties shall be unconditionally committed to issue title insurance policies for
the AREE Acquired Properties or Wellington Centre, as the case may be, on terms
consistent with the requirements of the Assigned Acquisition Agreements and the
Master Contribution Agreement, or the WMC Contribution Agreement, as the case
may be, and as accepted by the Operating Partnership; (iv) the receipt by the
Operating Partnership of tenant estoppel certificates from a certain percentage
of those tenants of the AREE Acquired Properties or Wellington Centre, as the
case may be; (v) that the title and condition of the AREE Acquired Properties or
Wellington Centre, as the case may be, shall not have materially changed from
the date on which the parties entered into the Master Contribution Agreement or
the WMC Contribution Agreement, as the case may be; (vi) with respect to the
Master Contribution Agreement, that the Assigned Acquisition Agreements are in
full force and effect; and (vii) the absence of any preliminary or permanent
injunction that would prevent consummation of the Transaction.
The obligations of AREE and WMC to consummate the Transaction are
conditioned on the satisfaction or waiver of the following other principal
conditions: (i) that all representations and warranties made by the Company or
the Operating Partnership, respectively, under the Master Contribution Agreement
or the WMC Contribution Agreement, as the case may be, shall be true, in all
material respects, as of the Closing Date; (ii) that the Operating Partnership
and the Company shall have performed all of the respective covenants and
obligations imposed on each of them under the Master Contribution Agreement or
the WMC Contribution Agreement, as the case may be, and required to be performed
at or prior to Closing; (iii) that the Company shall have obtained trustees' and
officers' insurance coverage, the substance of
23
<PAGE>
which is reasonably satisfactory to AREE and its members or WMC, as the case may
be; and (iv) that all required consents with respect to the assumption by the
Operating Partnership of indebtedness encumbering the AREE Acquired Properties
or Wellington Centre, as the case may be, be obtained from the applicable
lender.
The obligations of each of AREE, WMC and the Company to consummate the
Transaction are subject to the satisfaction or waiver of the following other
principal conditions: (i) that the Operating Partnership shall have obtained
institutional financing reasonably acceptable to AREE, WMC and the Company; (ii)
that the Operating Partnership shall have entered into management agreements
with, among others, WRI and HPI, on terms reasonably acceptable to AREE, WMC and
the Company, to manage certain of the Acquired Properties in certain geographic
areas; (iii) that the Company shall have implemented equity-based compensation
plans reasonably acceptable to AREE, WMC and the Company; (iv) that the
Operating Partnership shall have entered into assumption agreements with respect
to any secured financing encumbering the AREE Acquired Properties that will not
be paid off at, or immediately following, the Closing; (v) that the dividend
reinvestment plan of the Company shall have been amended in a manner reasonably
acceptable to AREE, WMC and the Company; (vi) that the Transaction shall have
been approved by the Company's shareholders; (vii) that the Company shall have
amended its Declaration in a manner reasonably acceptable to AREE, WMC and the
Company; and (viii) the execution and delivery by the relevant parties of
certain agreements and instruments, including, but not limited to, the Master
Registration Rights Agreement, the Shareholders' Agreement (as hereinafter
defined) and the Employment Agreements, the form and substance of which are
mutually acceptable to AREE, WMC and the Company. See "--New
24
<PAGE>
Credit Facility;" "Proposal II--Approval of Amendments to the Declaration of
Trust" and "Proposal III--Election of Trustees--Shareholders' Agreement," "--
Executive Compensation--Employment Agreements" and "--Certain Relationships and
Related Transactions."
In the event of a termination or a breach by either party of its
obligations under the Master Contribution Agreement or the WMC Contribution
Agreement, the maximum monetary liability that may be imposed on any party is
$500,000. In addition, $200,000 of the advance paid by AREE to the Company is
nonrefundable should the Transaction not be consummated for any reason and shall
be paid to the Company as liquidated damages. See "--Certain Additional
Covenants."
No change, amendment, modification or waiver of the Master Contribution
Agreement or the WMC Contribution Agreement, as the case may be, is permitted in
the absence of a writing signed by the parties to such agreement who would be
affected by such amendment, modification or waiver. If any material change,
amendment or modification is made to, or any waiver of a material condition is
granted with respect to, the Master Contribution Agreement or the WMC
Contribution Agreement, the Company intends to engage in a resolicitation of
shareholder approval of the Transaction as so modified.
CONDUCT OF THE BUSINESS OF THE COMPANY, AREE, THE OPERATING PARTNERSHIP AND WMC
PENDING THE CLOSING
Covenants of the Company. The Master Contribution Agreement provides that,
except as otherwise expressly permitted or contemplated by the Master
Contribution Agreement, or as otherwise consented to by AREE, during the period
between the date of the Master Contribution Agreement and the Closing Date, the
Company: (i) will operate and manage its Current Properties in the same manner
as they had been operated and managed prior to the date of the Master
Contribution Agreement and in accordance with all applicable laws; (ii) will not
acquire or dispose of any material real property; and (iii) will take all
actions reasonably necessary to make its required closing deliveries to AREE.
Covenants of AREE. The Master Contribution Agreement also provides that,
except as otherwise expressly permitted or contemplated by the Master
Contribution Agreement, or as otherwise consented to by the Company, during the
period between the date of the Master Contribution Agreement and the Closing
Date, AREE: (i) will not consent (to the extent such consent is required under
any of the Assigned Acquisition Agreements) to the operation or management of
the AREE Acquired Properties in any manner other than the same manner as they
had been operated and managed prior to the date of the Master Contribution
Agreement and in accordance with all applicable laws; (ii) will not consent (to
the extent such consent is required under any of the Assigned Acquisition
Agreements) to new leases or other contracts affecting the AREE Acquired
Properties; (iii) will take certain actions to keep the Assigned Acquisition
Agreements in full force and effect; and (iv) will take all actions reasonably
necessary to make its required closing deliveries to the Company and the
Operating Partnership.
Covenants of WMC. The WMC Contribution Agreement also provides that,
except as otherwise expressly permitted or contemplated by the WMC Contribution
Agreement, or as otherwise consented to by the Company, during the period
between the date of the WMC Contribution Agreement and the Closing Date, WMC:
(i) shall cause WCC to operate and manage Wellington Centre in the same manner
as it had been operated and managed prior to the date of the WMC Contribution
Agreement and in accordance with all applicable laws; (ii) will not allow WCC to
enter into new leases or other contracts affecting Wellington Centre; and (iii)
will take all actions reasonably necessary to make its required closing
deliveries to the Operating Partnership.
CERTAIN ADDITIONAL COVENANTS
Certain Tax-Related Restrictions Affecting the Acquired Properties.
Pursuant to the terms of the Assigned Contribution Agreements and the WMC
Contribution Agreement, the Operating Partnership has made certain covenants and
undertakings to and for the benefit of the Fee Owners and WMC (and their members
and partners) to ensure that the tax-deferral protections sought by the Fee
Owners and WMC pursuant to their respective contributions of Acquired Properties
to the Operating Partnership under Section 721 of the Code are maintained for
some period of time following the Closing. The post-Closing periods of time
during which such covenants and undertakings remain in effect range from two to
10 years. Each of the Assigned Contribution Agreements and the WMC Contribution
Agreement provides for the
25
<PAGE>
Operating Partnership's agreement to some or all of the following: (i) to cause
sales or other voluntary dispositions of an Acquired Property to occur through a
method that will qualify for nonrecognition of gain under the Code; (ii) to
maintain either (a) an amount of nonrecourse debt equal to, or exceeding, the
amount of nonrecourse mortgage debt encumbering the Acquired Property in
question as of the closing of the acquisition of such Acquired Property (the
"Assumed Indebtedness"); or (b) an amount of indebtedness for which the Fee
Owner or WMC, as the case may be, bears (or is deemed to bear) the "economic
risk of loss" under certain specified Treasury Regulations; (iii) to provide the
Fee Owner or WMC, as the case may be, with the right to enter into a limited
deficit restoration obligation in an amount equal to the Assumed Indebtedness;
and (iv) to avoid a distribution of property that would cause the Fee Owners or
WMC to recognize income or gain under the Code. See "Risk Factors--Rights
Granted to Fee Owners and WMC in Connection with Transfers of Certain Acquired
Properties."
Lockup and Volume Restrictions. Each of AREE, its members and WMC has
agreed not to sell, convey or otherwise transfer for a period of 24 months after
the issuance of such securities, subject to certain limited exceptions, (i) any
of the Units issued to them pursuant to the Master Contribution Agreement, the
Assigned Contribution Agreement between AREE and entities controlled by Steven
B. Hoyt, or the WMC Contribution Agreement, (ii) any Common Shares issued upon
exchange of the Units as provided in the Operating Partnership Agreement, (iii)
any Common Shares issued upon exercise of the Warrants, or (iv) any of the AREE
Common Shares. In addition, each of AREE and its members and WMC has agreed that
the aggregate number of Common Shares that they may sell will be limited (a)
during any 10-day period, to a number not to exceed 20% of the average daily
trading volume of the Common Shares for the 30 trading days immediately
preceding such 10-day period, and (b) during any year, to a number equal to one-
third of the number of Units initially issued to such person. Each of the Fee
Owners under the Assigned Contribution Agreements (other than entities
controlled by Mr. Hoyt, who are subject to the 24-month lock-up described in the
preceding sentence) has agreed not to sell, convey or otherwise transfer for a
period of 12 months after issuance, subject to certain limited exceptions, the
Units issued to them pursuant to the Assigned Contribution Agreements. In
addition, most of the Fee Owners under the Assigned Contribution Agreements
(including entities controlled by Mr. Hoyt) have agreed that the aggregate
number of Common Shares that they may sell will be limited (x) during any 10-day
period, to a number not to exceed 10% of the average daily trading volume of the
Common Shares for the 30 trading days immediately preceding such 10-day period
and (y) during any year, to a number equal to one-quarter of the number of Units
initially issued to such person.
Master Registration Rights Agreement. In connection with the Transaction,
WMC, AREE and the Fee Owners under the Assigned Contribution Agreements will
enter into a Master Registration Rights Agreement with the Company (the "Master
Registration Rights Agreement"). In general, the Company will, for each Unit
recipient, register the Common Shares issuable upon the exchange of Units within
one year following the issuance of such Units and will agree to use commercially
reasonable efforts to register for resale under the Securities Act the Common
Shares issuable upon exchange of the Units, and to maintain the effectiveness of
such registration statement until the earlier of the date of the disposition of
all of such Common Shares or three years after the exchange of all Units issued
in the Transaction.
26
<PAGE>
Additionally, the Master Registration Rights Agreement will provide that the
Company shall grant certain piggyback registration rights to the holders of
Units (but only as to the Common Shares issuable upon exchange of such Units).
The Master Registration Rights Agreement will contain customary covenants and
agreements of the respective parties concerning the registration of the Common
Shares, the provision of certain information and the incurrence of certain costs
and expenses in connection with the obligations of the parties thereunder, as
well as the agreement of the parties to provide customary indemnification from
material misstatements or omissions in connection with any registration of the
Common Shares as required.
Employment Agreements. In connection with the Transaction, the Company will
enter into Employment Agreements with Duane H. Lund and Robert F. Rice to serve
as Chief Executive Officer and President, respectively, and providing for a base
salary, a discretionary bonus and certain other benefits. See "Proposal II--
Election of Trustees--Executive Compensation--Employment Agreements."
Shareholders' Agreement. At Closing, the Company and the Subject
Shareholders (as hereinafter defined) will enter into the Shareholders'
Agreement, pursuant to which the Subject Shareholders will agree to take certain
actions with respect to the election of Messrs. Hoyt and Lambert to the Board of
Trustees, the filling of vacancies on the Board of Trustees and the election of
certain executive officers of the Company. See "Proposal III--Election of
Trustees--Shareholders' Agreement."
Termination Fee Payable to WMC. Pursuant to the WMC Contribution Agreement,
and in consideration of WMC's agreement to terminate certain existing advisory
fee arrangements between the Company and WMC (see "Proposal III--Election of
Trustees--Certain Relationships and Related Transactions"), in connection with
the Transaction, the Company will pay to WMC a termination fee (the "Termination
Fee") equal to: (i) 1.0% of the first $150.0 million of the Contributed
Portfolio Value (as defined below), plus (ii) 0.25% of all Contributed Portfolio
Value in excess of $150.0 million. For this purpose, "Contributed Portfolio
Value" means the aggregate of (a) the gross purchase price paid by the Operating
Partnership to acquire any of the AREE Acquired Properties pursuant to the
Assigned Acquisition Agreements and the Master Contribution Agreement; (b) any
additional value attributed to the AREE Acquired Properties pursuant to the
terms of the Master Contribution Agreement; and (c) the aggregate purchase price
paid by the Operating Partnership to acquire Wellington Centre pursuant to the
WMC Contribution Agreement. If the Transaction is consummated in a series of
closings, the Termination Fee shall be paid to WMC pro rata upon each closing on
the basis of the values of the Acquired Properties for which the acquisition by
the Operating Partnership is consummated at such closing.
Liquidated Damages. In connection with the negotiation of the Transaction,
AREE advanced $240,000 to the Company, $200,000 of which is nonrefundable and
will be paid to the Company as liquidated damages should the Transaction not be
consummated for any reason.
Payment of Expenses. The Master Contribution Agreement and the WMC
Contribution Agreement provide that the Company will reimburse AREE and WMC, as
the case may be, at Closing for actual out-of-pocket costs and expenses incurred
in connection with the Transaction, including earnest money deposits, third
party consultants' fees and expenses, loan fees, underwriting fees, legal fees,
accounting fees, due diligence expenses, closing costs and travel expenses.
Exclusivity. AREE and the Company have agreed that they will not solicit,
entertain or accept any formal or informal offers to merge with any other
entities so long as the Master Contribution Agreement is in effect. Unless
sooner terminated by the mutual agreement of AREE and the Company, either party
may terminate the Master Contribution Agreement (without the consent of the
other party) if the Closing has not occurred on or before December 31, 1998.
PRIOR RELATIONSHIP BETWEEN AREE AND THE COMPANY
On August 5, 1998, AREE made a $40,000 loan (the "Iowa Loan") to the
Company in connection with the Company's pending acquisition of a certain
multifamily residential property (the "Iowa Property") located in Des Moines,
Iowa and commonly known as Park Forest Apartment Homes. The Iowa Loan matures
on the earlier of (i) the Closing Date and (ii) December 31, 1998 and is
repayable in a combination of cash, Common Shares, other securities or any
combination of the foregoing. If AREE elects to accept all or some portion of
the repayment of the Iowa Loan in Common
27
<PAGE>
Shares, then the Common Shares shall be issued at a value of $8.50 per share.
AREE may elect, in its sole discretion, whether the form of repayment of the
Iowa Loan shall be cash, Common Shares, other securities or any combination of
the foregoing. The Company used the proceeds of the Iowa Loan to make an
additional earnest money deposit required in consideration of a further
extension of the closing date of the acquisition of the Iowa Property.
THE ASSIGNED ACQUISITION AGREEMENTS AND RELATED MATTERS
General. AREE has entered into the Assigned Acquisition Agreements with
the Fee Owners of the AREE Assigned Properties. In general, the Assigned
Contribution Agreements provide for the contributors to contribute and convey
their respective interests in the AREE Assigned Properties to AREE in exchange
for (i) a number of Units, (ii) the assumption of certain indebtedness
encumbering certain of such AREE Assigned Properties, (iii) cash (in certain
instances) and (iv) additional cash in amounts sufficient to pay certain closing
costs customarily paid in real estate transactions. In general, the Assigned
Purchase Agreements provide for sellers to convey their respective interests in
the AREE Assigned Properties to AREE in exchange for a cash purchase price.
Pursuant to the Master Contribution Agreement, AREE will assign its rights under
the Assigned Acquisition Agreements to the Operating Partnership, and the
Operating Partnership will assume the obligations of AREE under the Assigned
Acquisition Agreements.
The Assigned Acquisition Agreements contain various customary
representations and warranties concerning the parties to the Assigned
Acquisition Agreements and the AREE Assigned Properties. These representations
include, among others, representations with respect to: (i) organization,
formation, corporate or similar structure and ownership; (ii) title and
condition of the AREE Assigned Properties, including representations concerning
title, environmental condition, physical condition, easements and similar rights
of way and restrictions; (iii) tenants, leases and other agreement and
instruments; (iv) the absence of liabilities and litigation which could
adversely affect the AREE Assigned Properties; (v) compliance with applicable
licenses, regulations, rules and other orders; (vi) insurance, taxes, labor
relations and employment rules and regulations; (vii) financial statements and
financial information; and (viii) investment representations.
The obligation of each Fee Owner to consummate the transactions
contemplated by the Assigned Acquisition Agreements is expressly conditioned on
the assignment by AREE of the Assigned Acquisition Agreements to the Operating
Partnership, the agreement of the Operating Partnership to assume the
obligations of AREE under the Assigned Acquisition Agreements, and the
satisfaction and performance by the Operating Partnership of the obligations and
requirements imposed on AREE under the Assigned Acquisition Agreements. In
addition, the obligations of AREE and each Fee Owner to consummate the
transaction contemplated by the Assigned Acquisition Agreements are conditioned
on the satisfaction of certain other conditions, including, among others: (i)
that all representations and warranties shall be true and correct in all
material respects as of the date of acquisition of the relevant AREE Assigned
Properties, as if such representations and warranties were made as of such date;
(ii) that AREE (or its assignee) and the Fee Owner shall have performed, in all
material respects, all covenants required to be performed each of them,
respectively, under the applicable Assigned Acquisition Agreements on or before
the closing of the acquisition of the relevant AREE Assigned Properties; (iii)
conditions with respect to physical condition of the AREE Assigned Properties,
payment of real estate taxes, zoning, insurance, utilities, lease estoppels and
delivery of pay-off letters or assumption agreements (with corresponding
estoppel statements) from secured lenders holding liens encumbering the relevant
AREE Assigned Properties; and (iv) that all required consents with respect to
the assumption by the Operating Partnership of indebtedness encumbering the
relevant AREE Assigned Properties be obtained from the applicable lender.
Upon Closing, each of the Fee Owners receiving Units and WMC will be
subject to certain volume and lockup restrictions with respect to their Units.
See "--Certain Additional Covenants--Lockup and Volume Restrictions."
Apple Valley Properties. Through the combined operation of the Master
Contribution Agreement and the Assigned Acquisition Agreements, the Operating
Partnership will acquire the Apple Valley Properties from entities controlled by
John and Barbara Hansen for approximately $16.0 million excluding costs. The
Apple
28
<PAGE>
Valley Properties consist of three office buildings, located in Apple Valley and
Burnsville, Minnesota, with an aggregate of approximately 168,873 rentable
square feet. See "--The Acquired Properties."
Cold Springs Office Center. Through the operation of the Master
Contribution Agreement, the Operating Partnership will acquire AREE's 100%
membership interests in CSC, which owns fee title to the Cold Springs Office
Center, for approximately $12.9 million excluding costs. Cold Springs Office
Center is an office building, located in St. Cloud, Minnesota, with
approximately 77,533 rentable square feet. See "--The Acquired Properties."
Feld Properties. Through the combined operation of the Master Contribution
Agreement and the Assigned Acquisition Agreements, the Operating Partnership
will acquire the Feld Properties from entities controlled by Edwin R. Feld, for
approximately $21.0 million excluding costs. The Feld Properties consist of
seven office buildings with an aggregate of approximately 168,646 rentable
square feet and one light industrial building with approximately 19,200 square
foot GLA and are located in Green Bay, Wisconsin. See "--The Acquired
Properties."
Hoyt Properties. Through the combined operation of the Master Contribution
Agreement and the Assigned Acquisition Agreements, the Operating Partnership
will acquire the Hoyt Properties from entities controlled by Steven B. Hoyt
(Nominee for Trustee), for approximately $78.3 million excluding costs. The Hoyt
Properties consist of three office buildings with an aggregate of approximately
204,778 rentable square foot and nine light industrial buildings with an
aggregate of approximately 675,173 square foot GLA and are located in
Bloomington, Burnsville, Brooklyn Park, Minneapolis, Eagan and Plymouth,
Minnesota. See "--The Acquired Properties."
Stonegate Properties. Through the combined operation of the Master
Contribution Agreement and the Assigned Acquisition Agreements, the Operating
Partnership will acquire the Stonegate Properties from entities controlled by
George A. Moser, for approximately $47.3 million excluding costs. The Stonegate
Properties consist of six office buildings, located in Hoffman Estates,
Illinois, with an aggregate of approximately 407,047 rentable square feet. See
"--The Acquired Properties."
Wellington Centre. Pursuant to the WMC Contribution Agreement, the
Operating Partnership will acquire from WMC a 100% membership interest in WCC,
for approximately $13.8 million excluding costs. Wellington Centre is a 95,367
rentable square foot office building, located in Brookfield, Wisconsin, in which
the Company leases its corporate offices. See "--The Acquired Properties." WCC
is a Wisconsin limited liability company that was formed by WMC for the purpose
of acquiring Wellington Centre. WMC is the managing member of WCC and presently
owns a 19% interest in WCC. There are approximately 39 investor members of WCC.
Arnold K. Leas, Chairman of the Board of Trustees and President of the Company,
is an investor member of WCC owning approximately 6.25% of WCC. In addition, Mr.
Leas, members of his immediate family and trusts for the benefit of such persons
own approximately 41.8% of the outstanding capital stock of WMC. Upon Closing,
WMC will acquire 100% ownership of WCC by paying investor members of WCC an
aggregate of approximately $1.9 million in cash, whereupon WMC shall contribute
to the Operating Partnership WMC's 100% membership interest in WCC.
THE ACQUIRED PROPERTIES
In connection with the Transaction, the Operating Partnership will acquire
the Acquired Properties, consisting of 21 office properties and 10 light
industrial properties. The following tables set forth certain information
relating to the Acquired Properties:
29
<PAGE>
Office Properties
<TABLE>
<CAPTION>
TOTAL TENANTS LEASING
RENTAL 10% OR MORE OF
REVENUE PER RENTABLE SQUARE
RENTABLE FOOTAGE AS OF
SQUARE FOOT SEPTEMBER 1, 1998
PERCENTAGE LEASED LEASED AS OF AND LEASE
YEAR BUILT/ RENTABLE AS OF SEPTEMBER TOTAL RENTAL SEPTEMBER 1, EXPIRATION
PROPERTY LOCATION RENOVATED SQUARE FEET 1, 1998 REVENUE(5) 1998 DATE
----------------- --------- ----------- ------- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1500 Tech Center 1987 71,139 88% $1,193,388 $19.06 National Tech Team,
Hoffman Estates, IL (1) Inc. (19%) 2/00;
Home Access Health
Corporation (24%) -
7/02
300 North First Avenue 1885/1987 72,132 96 1,066,476 15.40 KKE Architects (24%) -
Minneapolis, MN (2) 6/05
300 North Madison 1979/1997 61,633 99 1,020,948 16.73 IBM (22%) 9/99;
Green Bay, WI (3) Schreiber Foods (22%)
9/99; Employers Health
(52%) 8/02
2030 Cliff Road 1985 13,374 100 139,392 10.42 ISD #196 (100%) 8/04
Eagan, MN (2)
Apple Valley Commons I 1986 58,668 98 982,644 17.09 Severson & Sheldon
Apple Valley, MN (4) P.A. (18%) - 3/99;
State of MN/Public
Defense (16%) - 6/99;
Dynacor, Inc. (15%)
- 7/99; Hampton Bank
(12%) - 12/99
Apple Valley Commons II 1988 63,002 87 894,636 16.32 Dist. #196 ALC Senior
Apple Valley, MN (4) High (23%) - 6/02;
EPIC Agency (10%) -
8/03
Burnsville Financial Center 1981/1988 47,203 88 690,732 16.63 Nationwide Realty
Burnsville, MN (4) (18%) - 12/99; Midway
National Bank (12%)
- 6/03
Cold Springs Office Center 1990 77,533 99 1,475,664 19.22 Cold Spring Granite
St. Cloud, MN (55%) - 4/02;
Central MN ECSU
(14%) - 9/02; First
American Bank (17%)
- 4/05
Columbus Office Building 1937/1996 21,079 96 265,452 13.12 Schober & Ulatows
Green Bay, WI (3) (26%) 6/99; Marie A
Stanton (12%) 7/05
Monroe South 1978/1994 14,499 90 194,676 14.92 AAA (28%) 8/99;
Green Bay, WI (3) Knutson Mortgage
(15%) 10/98;
Charles R. Koehn
(16%) 2/00; Merrill
Lynch (32%) 3/4
Northwest Corporate Centre Phase I 1985 87,271 94 1,540,836 18.78 Ford Motor Company
Hoffman Estates, IL (1) (10%) 7/01; RMI
Network Services
(10%) 3/03
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
TOTAL TENANTS LEASING
RENTAL 10% OR MORE OF
REVENUE PER RENTABLE SQUARE
RENTABLE FOOTAGE AS OF
SQUARE FOOT SEPTEMBER 1, 1998
PERCENTAGE LEASED LEASED AS OF AND LEASE
YEAR BUILT/ RENTABLE AS OF SEPTEMBER TOTAL RENTAL SEPTEMBER 1, EXPIRATION
PROPERTY LOCATION RENOVATED SQUARE FEET 1, 1998 REVENUE(5) 1998 DATE
----------------- --------- ----------- ------- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Northwest Corporate Centre Phase II 1986 87,200 100 1,525,908 17.50 Wink Communication
Hoffman Estates, IL (1) Group, Inc. (12%)
1/00; Gibbs & Soell,
Inc. (11%) 2/01;
Pulte Home
Corporation (14%)
9/01
Northwest Corporate Centre Phase III 1986 87,550 87 1,526,544 20.04 TMP Worldwide, Inc.
Hoffman Estates, IL (1) (11%) 3/00
Park Business Center I-III 1978/1998 38,508 95 614,772 (6) 12.33 (6) Owen Ayers &
Green Bay, WI (3) Associates (13%)
3/02; Unity Hospice
(12%) 9/07; State of
Wisconsin (11%) 10/03
Park Business Center IV 1994 13,243 100 (6) (6) Community Bio
Green Bay, WI (3) Resources (100%) 4/04
Riverside Business Center 1975/1994 10,538 85 141,288 15.77 Dennison, Kranzus
Green Bay, WI (3) (62%) 2/03;
Endermologie (12%)
7/99
Thresher Square East/West 1900/1987 119,272 100 1,714,380 14.37 BRW, Inc. (48%) -
Minneapolis, MN (2) 7/01; Search
Institute (16%) -
8/02
Tollway Centre II 1978 37,423 78 706,584 (7) 11.81 (7) Research & Results,
Hoffman Estates, IL (1) Inc. (14%) 4/99;
Nolan (10%) 7/02
Tollway Centre III 1978 36,464 84 (7) (7) B&F Tech Code Services
Hoffman Estates, IL (1) (12%) 12/99; Natural
Golf (23%) 8/01
Walnut Business Center 1972/1995 9,146 99 119,052 13.15 West Bendd Insurance
Green Bay, WI (3) (28%) - 3/03; Trillium
Staffing (12%) 7/99;
CD Serve (18%) 1/99;
Kasdorf Lewis (17%)
9/99; New Tenant (19%)
7/00
Wellington Centre Office Building 1986 95,367 100 1,706,988 17.90 Highlands Insurance
Brookfield, WI (35%) 1/01;
Wellington Mgmt.
Invest., Insurance
(19%) 2/01;
Association for
Health Care (19%)
6/03; Executrain
(15%) 3/04
--------- ---- ----------- ---------
TOTALS OR WEIGHTED AVERAGE 1,122,244 94.3% $17,520,360 $ 16.56
========= ==== =========== =========
</TABLE>
____________
(1) Stonegate Properties
(2) Hoyt Properties
(3) Feld Properties
(4) Apple Valley Properties
31
<PAGE>
(5) Total rental revenue is the monthly contractual base rent as of September
1, 1998 multiplied by 12, plus the estimated annualized expense
reimbursements under existing leases.
(6) For purposes of the presentation of total rental revenue and total rental
revenue per rentable square foot, Park Business Center I-III and Park
Business Center IV have been combined.
(7) For purposes of the presentation of total rental revenue and total rental
revenue per rentable square foot, Tollway Centre II and Tollway Centre III
have been combined.
Light Industrial Properties
<TABLE>
<CAPTION>
TOTAL TENANTS LEASING
RENTAL 10% OR MORE OF
REVENUE PER RENTABLE SQUARE
RENTABLE FOOTAGE AS OF
SQUARE FOOT SEPTEMBER 1, 1998
PERCENTAGE LEASED LEASED AS OF AND LEASE
YEAR BUILT/ NUMBER OF AS OF SEPTEMBER TOTAL RENTAL SEPTEMBER 1, EXPIRATION
PROPERTY LOCATION RENOVATED GLA BUILDINGS 1, 1998 REVENUE(5) 1998 DATE
----------------- --------- --- --------- ------- ---------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
7300 Boone 1979 50,000 1 100% $ 406,380 $ 8.13 AULT Incorporated
Brooklyn Park, MN (1) (100%) 8/99
Bloomington Business Plaza 1987 121,063 1 92 977,388 8.78 Cable Photography
Bloomington, MN (1) (17%) 12/02
Burnsville Bluffs II 1986 45,040 1 80 320,580 8.90 Data Listing (24%)
Burnsville, MN (1) - 4/01; Buddy's
Kitchen (55%) - 11/01
Cirrus Building 1997 138,000 1 100 1,650,480 11.96 Industrial Resource
Duluth, MN (1) Corp. (100%) - 1/13
Complast Building 1952/1978 83,733 1 100 602,136 7.19 Complast International
Bloomington, MN (1) (100%) 3/00
I-43 Business Center (3) 19,200 1 (3) N/A N/A N/A
Green Bay, WI (2)
Nicollet Business VI 1997 50,291 1 100 399,408 7.94 Wakata Design Systems
Burnsville, MN (1) (19%) - 3/02;
Quickdraw Design,
Inc. (30%) - 8/02;
Xata Corporation
(41%) - 6/04
Nicollet Business VII (4) 118,400 1 (4) N/A N/A Builders Showcase
Burnsville, MN (1) (14%) 12/02; Buddy's
Kitchen (33%) 4/08
Pillsbury Business Center 1985 42,460 1 100 304,680 7.18 Air Freight Unlimited
Bloomington, MN (1) (17%) - 6/99; Ron
Johnson Steel (22%)
- 7/00; R&O Elevator
(52%) - 4/08
Plymouth Tech Center I 1998 26,186 1 72 185,844 9.86 Microage (46%) - 2/03;
Plymouth, MN (1) ---------- ---- United Operations
(26%) - 8/03
TOTALS OR WEIGHTED AVERAGE 694,373 10 95.3% $4,846,896 $ 7.32
======= == ==== ========== ======
</TABLE>
_____________
(1) Hoyt Properties
(2) Feld Properties
(3) Under construction and currently scheduled to be completed in November 1998.
(4) Under construction and currently scheduled to be completed in October 1998.
(5) Total rental revenue is the monthly contractual base rent as of September 1,
1998 multiplied by 12, plus the estimated annualized expense reimbursements
under existing leases.
32
<PAGE>
TENANTS
The Acquired Properties are leased to approximately 345 tenants that are
engaged in a variety of businesses. The following table sets forth information
regarding leases with the 20 largest tenants of the Acquired Properties based
upon annualized base rent for the Acquired Properties as of September 1, 1998:
<TABLE>
<CAPTION>
Aggregate Net Percentage of
Remaining Rentable Percentage of Aggregate
Number of Lease Term in Square Feet Aggregate Leased Annualized Base Annualized Base
Tenant Name Leases Months Leased Square Feet Rent Rent
----------- ------ ------ ------ ----------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Industrial Resource Corp 1 170 138,000 7.6% $1,729,140 10.1%
Cold Spring Granite 1 42 42,394 2.3 540,524 3.2
Employers Health 1 46 36,094 2.0 519,754 3.0
BRW, Inc. 3 32 56,338 3.1 471,025 2.7
KKE Architects 3 79 28,843 1.6 401,461 2.3
Highlands Insurance 1 28 32,997 1.8 395,964 2.3
Home Access Health 1 46 17,250 0.9 339,825 2.0
Corporation
Complast International 1 18 83,733 4.6 329,908 1.9
Buddy's Kitchen 1 115 39,136 2.2 325,220 1.9
AULT Incorporated 1 11 50,000 2.8 250,000 1.5
Schreiber Foods 1 12 15,504 0.9 233,490 1.4
IBM 1 12 15,104 0.8 214,477 1.3
Xata Corporation 1 69 20,588 1.1 195,586 1.1
Wellington Mgmt. Invest., 1 29 17,715 1.0 194,865 1.1
Insurance
USN Communications 1 54 9,243 0.5 186,709 1.1
Search Institute 1 47 19,206 1.1 185,530 1.1
Community Bio Resources 1 67 11,747 0.6 180,199 1.1
Association for Health Care 1 57 17,825 1.0 178,250 1.0
Executrain 1 66 14,697 0.8 175,924 1.0
First American Bank 1 79 13,520 0.7 172,380 1.0
-- -- ------- ------- ---------- -----
TOTALS OR WEIGHTED AVERAGE 24 54 679,934 37.4% $7,220,231 42.1%
== == ======= ======= ========== =====
</TABLE>
33
<PAGE>
LEASE EXPIRATIONS
The following table sets forth detailed lease expiration information for
each of the Acquired Properties for leases in place as of September 1, 1998,
assuming that none of the tenants exercise renewal options or termination
rights, if any, at or prior to the scheduled expirations.
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004 2005 2006
- --------------------------- ------- --------- --------- --------- --------- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- ---------------------------
WELLINGTON CENTRE OFFICE BUILDING
Square Footage of
Expiring Leases - - - 50,712 - 27,068 17,587 - -
Percentage of Total
Leased Square Feet - - - 53.2% - 28.4% 18.4% - -
Final Annual Base Rent
Under Expiring
Leases (2) - - - 590,829 - 364,959 210,516 - -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - 11.65 - 13.48 11.97 - -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases
Number of Leases - - - 50.7% - 31.3% 18.0% - -
Expiring - - - 2 - 2 2 - -
COLD SPRINGS OFFICE CENTER
Square Footage of
Expiring Leases - 283 6,145 3,308 53,605 - - 13,520 -
Percentage of Total
Leased Square Feet - 0.4% 8.0% 4.3% 69.7% - - 17.6% -
Final Annual Base Rent
Under Expiring
Leases (2) - 2,830 37,975 48,462 591,421 - - 172,380 -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - 10.00 6.18 14.65 11.03 - - 12.75 -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases
Number of Leases - 0.3% 4.5% 5.7% 69.3% - - 20.2% -
Expiring - 1 2 1 2 - - 1 -
APPLE VALLEY PROPERTIES
APPLE VALLEY COMMONS I
Square Footage of
Expiring Leases 1,085 44,737 7,286 1,610 - 2,490 - - -
Percentage of Total
Leased Square Feet 1.9% 77.6% 12.6% 2.8% - 4.3% - - -
Final Annual Base Rent
Under Expiring
Leases (2) 10,329 482,377 72,081 14,396 - 25,675 - - -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) 9.52 10.78 9.89 8.94 - 10.31 - - -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases 1.7% 79.0% 11.8% 2.4% - 4.2% - - -
Number of Leases
Expiring 1 10 6 2 - 2 - - -
<CAPTION>
------ ------- ---------- ----------
2009 AND
YEAR OF LEASE EXPIRATION 2007 2008 THEREAFTER TOTAL
- --------------------------- ------ ------- ---------- ----------
<S> <C> <C> <C> <C>
PROPERTY INFORMATION
- ---------------------------
WELLINGTON CENTRE OFFICE
BUILDING
Square Footage of
Expiring Leases - - - 95,367
Percentage of Total
Leased Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - 1,166,304
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - 12.23
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases
Number of Leases - - - 100.0%
Expiring - - - 6
COLD SPRINGS OFFICE CENTER
Square Footage of
Expiring Leases - - - 76,861
Percentage of Total
Leased Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - 853,068
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - 11.10
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases
Number of Leases - - - 100.0%
Expiring - - - 7
APPLE VALLEY PROPERTIES
APPLE VALLEY COMMONS I
Square Footage of
Expiring Leases - - 430 57,638
Percentage of Total
Leased Square Feet - - 0.8% 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - 5,762 610,620
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - 13.40 10.59
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases
Number of Leases - - 0.9% 100.0%
Expiring - - 1 22
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004
- ------------------------ ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
APPLE VALLEY COMMONS II
Square Footage of
Expiring Leases 3,267 12,756 7,212 3,485 18,420 9,086 -
Percentage of Total
Leased Square Feet 6.0% 23.5% 13.3% 6.4% 34.0% 16.8% -
Final Annual Base Rent
Under Expiring
Leases (2) 31,325 119,259 63,374 30,459 170,349 83,107 -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) 9.59 9.35 8.79 8.74 9.25 9.15 -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases 6.3% 24.0% 12.7% 6.1% 34.2% 16.7% -
Number of Leases
Expiring 2 6 6 3 3 3 -
BURNSVILLE FINANCIAL
CENTER
Square Footage of
Expiring Leases 3,000 12,190 4,320 12,823 - 9,530 -
Percentage of Total
Leased Square Feet 7.2% 29.1% 10.3% 30.6% - 22.8% -
Final Annual Base Rent
Under Expiring
Leases (2) 24,390 100,850 34,149 113,993 - 85,889 -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) 8.13 8.27 7.90 8.89 - 9.01 -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases 6.8% 28.1% 9.5% 31.7% - 23.9% -
Number of Leases
Expiring 1 3 4 7 - 2 -
CONSOLIDATED TOTALS FOR
APPLE VALLEY PROPERTIES
Square Footage of
Expiring Leases 7,352 69,683 18,818 17,918 18,420 21,106 -
Percentage of Total
Leased Square Feet 4.8% 45.3% 12.2% 11.7% 12.0% 13.7% -
Final Annual Base Rent
Under Expiring
Leases (2) 66,044 702,486 169,604 158,848 170,349 194,671 -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) 8.98 10.08 9.01 8.87 9.25 9.22 -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases 4.5% 47.9% 11.6% 10.8% 11.6% 13.3% -
Number of Leases
Expiring 4 19 16 12 3 7 -
HOYT PROPERTIES
CIRRUS BUILDING
Square Footage of
Expiring Leases - - - - - - -
Percentage of Total
Leased Square Feet - - - - - - -
Final Annual Base Rent
Under Expiring
Leases (2 ) - - - - - - -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - - - -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - - - -
Number of Leases Expiring - - - - - - -
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2005 2006 2007 2008 THEREAFTER TOTAL
- ------------------------ ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
APPLE VALLEY COMMONS II
Square Footage of
Expiring Leases - - - - - 54,226
Percentage of Total
Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - - 497,873
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - - 9.18
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases
Expiring - - - - - 23
BURNSVILLE FINANCIAL
CENTER
Square Footage of
Expiring Leases - - - - - 41,863
Percentage of Total
Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - - 359,271
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - - 8.58
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases
Expiring - - - - - 17
CONSOLIDATED TOTALS FOR
APPLE VALLEY PROPERTIES
Square Footage of
Expiring Leases - - - - 430 153,727
Percentage of Total
Leased Square Feet - - - - 0.3% 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - 5,762 1,467,764
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - 13.40 9.55
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - 0.3% 100.0%
Number of Leases
Expiring - - - - 1 62
HOYT PROPERTIES
CIRRUS BUILDING
Square Footage of
Expiring Leases - - - - 138,000 138,000
Percentage of Total
Leased Square Feet - - - - 100.0% 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - 1,729,140 1,729,140
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - 12.53 12.53
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - 100.0% 100.0%
Number of Leases Expiring - - - - 1 1
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004
- ------------------------ ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
PLYMOUTH TECH CENTER I
Square Footage of
Expiring Leases - - - - - 18,809 -
Percentage of Total
Leased Square Feet - - - - - 100.0% -
Final Annual Base Rent
Under Expiring
Leases (2) - - - - - 177,643 -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - - 9.44 -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0% -
Number of Leases
Expiring - - - - - 2 -
PILLSBURY BUSINESS CENTER
Square Footage of
Expiring Leases - 7,083 13,307 - - - -
Percentage of Total
Leased Square Feet - 16.7% 31.3% - - - -
Final Annual Base Rent
Under Expiring
Leases (2) - 35,344 59,620 - - - -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - 4.99 4.48 - - - -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - 16.5% 27.8% - - - -
Number of Leases
Expiring - 1 2 - - - -
BURNSVILLE BLUFFS II
Square Footage of
Expiring Leases - - - 35,889 - - -
Percentage of Total
Leased Square Feet - - - 100.0% - - -
Final Annual Base Rent
Under Expiring
Leases (2) - - - 214,195 - - -
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - 5.97 - - -
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - 100.0% - - -
Number of Leases
Expiring - - - 2 - - -
NICOLLET BUSINESS VI
Square Footage of
Expiring Leases 4,800 - - - 24,586 - 20,588
Percentage of Total
Leased Square Feet 9.6% - - - 49.2% - 41.2%
Final Annual Base Rent
Under Expiring
Leases (2) 16,800 - - - 170,111 - 195,586
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) 3.50 - - - 6.92 - 9.50
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases 4.4% - - - 44.5% - 51.1%
Number of Leases Expiring - - - 2 - 1
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2005 2006 2007 2008 THEREAFTER TOTAL
- ------------------------ ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
PLYMOUTH TECH CENTER I
Square Footage of
Expiring Leases - - - - - 18,809
Percentage of Total
Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - - 177,643
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - - 9.44
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases
Expiring - - - - - 2
PILLSBURY BUSINESS CENTER
Square Footage of
Expiring Leases - - - - 22,070 42,460
Percentage of Total
Leased Square Feet - - - - 52.0% 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - 119,399 214,363
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - 5.41 5.05
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - 55.7% 100.0%
Number of Leases
Expiring - - - - 1 4
BURNSVILLE BLUFFS II
Square Footage of
Expiring Leases - - - - - 35,889
Percentage of Total
Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - - 214,195
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - - 5.97
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases
Expiring - - - - - 2
NICOLLET BUSINESS VI
Square Footage of
Expiring Leases - - - - - 49,974
Percentage of Total
Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring
Leases (2) - - - - - 382,497
Final Annual Base Rent
per Square Foot
Under Expiring
Leases (3) - - - - - 7.65
Percentage of Total
Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 4
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004
------------------------ ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
NICOLLET BUSINESS VII
Square Footage of Expiring Leases - - - - 16,864 - -
Percentage of Total Leased Square Feet - - - - 30.1% - -
Final Annual Base Rent
Under Expiring Leases (2) - - - - 121,084 - -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - 7.18 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - 27.1% - -
Number of Leases Expiring - - - - 1 - -
7300 BOONE
Square Footage of Expiring Leases - 50,000 - - - - -
Percentage of Total Leased Square Feet - 100.0% - - - - -
Final Annual Base Rent
Under Expiring Leases (2) - 250,000 - - - - -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - 5.00 - - - - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - 100.0% - - - - -
Number of Leases Expiring - 1 - - - - -
THRESHER SQUARE WEST
Square Footage of Expiring Leases 3,454 686 - 32,478 19,206 - -
Percentage of Total Leased Square Feet 6.2% 1.2% - 58.2% 34.4% - -
Final Annual Base Rent
Under Expiring Leases (2) 30,523 7,546 - 261,448 185,530 - -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 8.84 11.00 - 8.05 9.66 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 6.3% 1.6% - 53.9% 38.2% - -
Number of Leases Expiring 2 1 - 1 1 - -
THRESHER SQUARE EAST
Square Footage of Expiring Leases 1,618 7,643 3,985 27,508 8,310 8,801 -
Percentage of Total Leased Square Feet 2.8% 13.2% 6.9% 47.5% 14.4% 15.2% -
Final Annual Base Rent
Under Expiring Leases (2) 24,270 82,964 37,099 248,430 91,410 123,214 -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 15.00 10.85 9.31 9.03 11.00 14.00 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 4.0% 13.7% 6.1% 40.9% 15.0% 20.3% -
Number of Leases Expiring 1 5 2 5 1 1 -
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2005 2006 2007 2008 THEREAFTER TOTAL
------------------------ ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
NICOLLET BUSINESS VII
Square Footage of Expiring Leases - - - 39,136 - 56,000
Percentage of Total Leased Square Feet - - - 69.9% - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - 325,220 - 446,304
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - 8.31 - 7.97
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - 72.9% - 100.0%
Number of Leases Expiring - - - 1 - 2
7300 BOONE
Square Footage of Expiring Leases - - - - - 50,000
Percentage of Total Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 250,000
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - 5.00
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 1
THRESHER SQUARE WEST
Square Footage of Expiring Leases - - - - - 55,824
Percentage of Total Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 485,047
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - 8.69
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 5
THRESHER SQUARE EAST
Square Footage of Expiring Leases - - - - - 57,865
Percentage of Total Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 607,387
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - 10.50
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 15
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004
------------------------ ------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
2030 CLIFF ROAD
Square Footage of Expiring Leases - - - - - - 13.374
Percentage of Total Leased Square Feet - - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - - 108.329
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - - 8.10
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - - 100.0%
Number of Leases Expiring - - - - - - 1
COMPLAST BUILDING
Square Footage of Expiring Leases - - 83,733 - - - -
Percentage of Total Leased Square Feet - - 100.0% - - - -
Final Annual Base Rent
Under Expiring Leases (2) - - 329,908 - - - -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - 3.94 - - - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - 100.0% - - - -
Number of Leases Expiring - - 1 - - - -
BLOOMINGTON BUSINESS PLAZA
Square Footage of Expiring Leases - 20,555 7,302 35,387 39,570 6,025 -
Percentage of Total Leased Square Feet - 17.8% 6.3% 30.7% 34.3% 5.2% -
Final Annual Base Rent
Under Expiring Leases (2) - 111,554 41,604 214,807 252,302 26,390 -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - 5.43 5.70 6.07 6.38 4.38 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - 15.9% 5.9% 30.6% 35.9% 3.8% -
Number of Leases Expiring - 5 2 7 6 1 -
300 NORTH FIRST AVENUE
Square Footage of Expiring Leases 2,085 4,212 2,372 32,184 473 11,130 -
Percentage of Total Leased Square Feet 3.0% 6.1% 3.4% 46.3% 0.7% 16.0% -
Final Annual Base Rent
Under Expiring Leases (2) 16,680 47,464 21,610 255,981 4,494 96,287 -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 8.00 11.27 9.11 7.95 9.50 8.65 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 2.7% 7.6% 3.5% 41.2% 0.7% 15.5% -
Number of Leases Expiring 1 2 2 8 1 2 -
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2005 2006 2007 2008 THEREAFTER TOTAL
------------------------ ---- ----- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
2030 CLIFF ROAD
Square Footage of Expiring Leases - - - - - 13,374
Percentage of Total Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 108,329
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - 8.10
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 1
COMPLAST BUILDING
Square Footage of Expiring Leases - - - - - 83,733
Percentage of Total Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 329,908
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - 3.94
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 1
BLOOMINGTON BUSINESS PLAZA
Square Footage of Expiring Leases - 6,547 - - - 115,386
Percentage of Total Leased Square Feet - 5.7% - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - 55,650 - - - 702,307
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - 8.50 - - - 6.09
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - 7.9% - - - 100.0%
Number of Leases Expiring - 1 - - - 22
300 NORTH FIRST AVENUE
Square Footage of Expiring Leases 17,090 - - - - 69,546
Percentage of Total Leased Square Feet 24.5% - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) 179.445 - - - - 621,961
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 10.50 - - - - 8.94
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 28.8% - - - - 100.0%
Number of Leases Expiring 1 - - - - 17
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004 2005
------------------------ ------- --------- --------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
CONSOLIDATED TOTALS FOR HOYT PROPERTIES
Square Footage of Expiring Leases 11,957 90,179 110,699 163,446 109,009 44,765 33,962 17,090
Percentage of Total Leased Square
Feet 1.5% 11.5% 14.1% 20.8% 13.9% 5.7% 4.3% 2.2%
Final Annual Base Rent Under
Expiring Leases (2) 88,273 534,872 489,841 1,194,861 824,931 423,534 303,915 179,445
Final Annual Base Rent per Square
Foot Under Expiring Leases (3) 7.38 5.93 4.42 7.31 7.57 9.46 8.95 10.50
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 1.4% 8.5% 7.8% 19.1% 13.2% 6.8% 4.8% 2.9%
Number of Leases Expiring 5 15 9 23 12 6 2 1
FELD PROPERTIES
300 NORTH MADISON
Square Footage of Expiring Leases 1,627 32,297 - - 36,094 - - -
Percentage of Total Leased Square
Feet 2.3% 46.1% - - 51.6% - - -
Final Annual Base Rent Under
Expiring Leases (2) 23,120 478,065 - - 519,754 - - -
Final Annual Base Rent per Square
Foot Under Expiring Leases (3) 14.21 14.80 - - 14.40 - - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 2.3% 46.8% - - 50.9% - - -
Number of Leases Expiring 1 3 - - 1 - - -
PARK BUSINESS CENTER I
Square Footage of Expiring Leases 200 - 1,367 - 5,734 1,460 - -
Percentage of Total Leased Square
Feet 1.4% - 9.9% - 41.3% 10.5% - -
Final Annual Base Rent Under
Expiring Leases (2) 2,400 - 16,923 - 58,372 17,520 - -
Final Annual Base Rent per Square
Foot Under Expiring Leases (3) 12.00 - 12.38 - 10.18 12.00 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 1.5% - 10.8% - 37.4% 11.2% - -
Number of Leases Expiring 1 - 1 - 1 1 - -
PARK BUSINESS CENTER II
Square Footage of Expiring Leases 8,339 8,555 2,414 2,184 1,788 - - -
Percentage of Total Leased Square
Feet 35.8% 36.7% 10.4% 9.4% 7.7% - - -
Final Annual Base Rent
Under Expiring Leases (2) 88,366 92,944 30,247 24,659 19,060 - - -
Final Annual Base Rent per Square
Foot Under Expiring Leases (3) 10.60 10.86 12.53 11.29 10.66 - - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 34.6% 36.4% 11.8% 9.7% 7.5% - - -
Number of Leases Expiring 7 10 1 2 1 - - -
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2006 2007 2008 THEREAFTER TOTAL
------------------------ ------ ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
CONSOLIDATED TOTALS FOR HOYT PROPERTIES
Square Footage of Expiring Leases 6,547 - 61,206 138,000 786,860
Percentage of Total Leased Square Fee 0.8% - 7.7% 17.5% 100.0%
Final Annual Base Rent Under Expiring
Leases (2) 55,650 - 444,619 1,729,140 6,269,081
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 8.50 - 7.26 12.53 7.97
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases 0.9% - 7.0% 27.6% 100.0%
Number of Leases
Expiring 1 - 2 1 77
FELD PROPERTIES
300 NORTH MADISON
Square Footage of Expiring Leases - - - - 70,018
Percentage of Total Leased Square Fee - - - - 100.0%
Final Annual Base Rent Under Expiring
Leases (2) - - - - 1,020,939
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - 14.58
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases - - - - 100.0%
Number of Leases Expiring - - - - 5
PARK BUSINESS CENTER I
Square Footage of Expiring Leases - 5,107 - - 13,868
Percentage of Total Leased Square Fee - 36.9% - - 100.0%
Final Annual Base Rent Under Expiring
Leases (2) - 61,029 - - 156,244
Final Annual Base Rent
per Square Foot Under Expiring Leases (3) - 11.95 - - 11.27
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases - 39.1% - - 100.0%
Number of Leases Expiring - 1 - - 5
PARK BUSINESS CENTER II
Square Footage of Expiring Leases - - - - 23,280
Percentage of Total Leased Square Fee - - - - 100.0%
Final Annual Base Rent Under Expiring
Leases (2) - - - - 255,276
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - 10.97
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases - - - - 100.0%
Number of Leases Expiring - - - - 21
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004 2005
------------------------ ------- --------- --------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
PARK BUSINESS CENTER III
Square Footage of Expiring Leases - - - - - 4,607 - -
Percentage of Total Leased Square
Feet - - - - - 100.0% - -
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 54,639 - -
Final Annual Base Rent per Square
Foot
Under Expiring Leases (3) - - - - - 11.86 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0% - -
Number of Leases Expiring - - - - - 2 - -
PARK BUSINESS CENTER IV
Square Footage of Expiring Leases - - - - - - 11,747 -
Percentage of Total Leased Square
Feet - - - - - - 100.0% -
Final Annual Base Rent Under
Expiring Leases (2) - - - - - - 180,199 -
Final Annual Base Rent per Square
Foot Under Expiring Leases (3) - - - - - - 15.34 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - - 100.0% -
Number of Leases Expiring - - - - - - 1 -
WALNUT BUSINESS CENTER
Square Footage of Expiring Leases 542 5,041 1,985 - - 2,948 - -
Percentage of Total Leased Square
Feet 5.2% 47.9% 18.9% - - 28.0% - -
Final Annual Base Rent Under
Expiring Leases (2) 5,279 54,898 23,046 - - 34,049 - -
Final Annual Base Rent
per Square Foot
Under Expiring Leases (3) 9.74 10.89 11.61 - - 11.55 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 4.5% 46.8% 19.7% - - 29.0% - -
Number of Leases Expiring 1 3 1 - - 1 - -
COLUMBUS OFFICE BUILDING
Square Footage of Expiring Leases 1,626 13,769 1,738 3,044 656 - - 3,142
Percentage of Total Leased Square
Feet 6.8% 57.4% 7.2% 12.7% 2.7% - - 13.2%
Final Annual Base Rent Under
Expiring Leases (2) 16,585 151,792 19,152 31,781 7,380 - - 37,358
Final Annual Base Rent per Square
Foot Under Expiring Leases (3) 10.20 11.02 11.02 10.44 11.25 - - 11.89
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 6.3% 57.5% 7.3% 12.0% 2.8% - - 14.1%
Number of Leases
Expiring 2 8 2 3 1 - - 1
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2006 2007 2008 THEREAFTER TOTAL
------------------------ ------ ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
PARK BUSINESS CENTER III
Square Footage of Expiring Leases - - - - 4,607
Percentage of Total Leased Square Fee - - - - 100.0%
Final Annual Base Rent Under Expiring
Leases (2) - - - - 54,639
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - 11.86
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases - - - - 100.0%
Number of Leases Expiring - - - - 2
PARK BUSINESS CENTER IV
Square Footage of Expiring Leases - - - - 11,747
Percentage of Total Leased Square Fee - - - - 100.0%
Final Annual Base Rent Under Expiring
Leases (2) - - - - 180,199
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - 15.34
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases - - - - 100.0%
Number of Leases Expiring - - - - 1
WALNUT BUSINESS CENTER
Square Footage of Expiring Leases - - - - 10,516
Percentage of Total Leased Square Fee - - - - 100.0%
Final Annual Base Rent Under Expiring
Leases (2) - - - - 117,272
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - 11.15
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases - - - - 100.0%
Number of Leases Expiring - - - - 6
COLUMBUS OFFICE BUILDING
Square Footage of Expiring Leases - - - - 23,975
Percentage of Total Leased Square Feet - - - - 100.0%
Final Annual Base Rent Under Expiring
Leases (2) - - - - 264,048
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - 11.01
Percentage of Total Final Annual
Base Rent Represented by Expiring Leases - - - - 100.0%
Number of Leases Expiring - - - - 17
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004 2005 2006
------------------------ ------- --------- --------- --------- --------- --------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
MONROE SOUTH I
Square Footage of Expiring
Leases - 4,393 - - - - - - -
Percentage of Total Leasesd
Square Feet - 100.0% - - - - - - -
Final Annual Base Rent
Under Expiring Leases (2) - 49,114 - - - - - - -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - 11.18 - - - - - - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - 100.0% - - - - - - -
Number of Leases Expiring - 1 - - - - - - -
MONROE SOUTH II
Square Footage of Expiring
Leases 2,376 - 2,491 - - - 5,024 - -
Percentage of Total Leased
Square Feet 24.0% - 25.2% - - - 5.08% - -
Final Annual Base Rent
Under Expiring Leases (2) 35,688 - 33,354 - - - 74,757 - -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 15.02 - 13.39 - - - 14.88 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 24.8% - 23.2% - - - 52.0% - -
Number of Leases Expiring 1 - 1 - - - 1 - -
RIVERSIDE BUSINESS CENTER
Square Footage of Expiring
Leases 493 1,539 - 930 - 7,984 - - -
Percentage of Total Leased
Square Feet 4.5% 14.1% - 8.5% - 72.9% - - -
Final Annual Base Rent
Under Expiring Leases (2) 5,640 17,822 - 10,221 - 103,393 - - -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 11.44 11.58 - 10.99 - 12.95 - - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 4.1% 13.0% - 7.5% - 75.4% - - -
Number of Leases Expiring 1 1 - 1 - 1 - - -
CONSOLIDATED TOTALS FOR FELD
PROPERTIES
Square Footage of Expiring
Leases 15,203 65,594 9,995 6,158 44,272 16,999 16,771 3,142 -
Percentage of Total Leased
Square Feet 8.3% 35.8% 5.5% 3.4% 24.2% 9.3% 9.1% 1.7% -
Final Annual Base Rent
Under Expiring Leases (2) 177,078 844,635 122,722 66,661 604,566 209,601 254,956 37,358 -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 11.65 12.88 12.28 10 .83 13.66 12.33 15.20 11.89 -
Percentage of Total Final Annual
Base Rent Represented by Expiring
Leases 7.4% 35.5% 5.2% 2.8% 25.4% 8.8% 10.7% 1.6% -
Number of Leases Expiring 14 26 6 6 4 5 2 1 -
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2007 2008 THEREAFTER TOTAL
------------------------ ------ ------- ---------- ----------
<S> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
MONROE SOUTH I
Square Footage of Expiring
Leases - - - 4,393
Percentage of Total Leasesd
Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - 49,114
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - - - 11.18
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - 100.0%
Number of Leases Expiring - - - 1
MONROE SOUTH II
Square Footage of Expiring
Leases - - - 9,891
Percentage of Total Leased
Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - 143,799
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - - - 14.54
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - 100.0%
Number of Leases Expiring - - - 3
RIVERSIDE BUSINESS CENTER
Square Footage of Expiring
Leases - - - 10,946
Percentage of Total Leased
Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - 137,076
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - - - 12.52
Percentage of Total Final Annual
Base Rent Represented by Expiring
Leases - - - 100.0%
Number of Leases Expiring - - - 4
CONSOLIDATED TOTALS FOR FELD
PROPERTIES
Square Footage of Expiring
Leases 5,107 - - 183,241
Percentage of Total Leased
Square Feet 2.7% - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) 61,029 - - 2,378,606
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 11.95 - - 12.98
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 2.6% - - 100.0%
Number of Leases Expiring 1 - - 65
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004 2005 2006
------------------------ ------- --------- --------- --------- --------- --------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
STONEGATE PROPERTIES
NORTHWEST CORPORATE CENTRE
PHASE I
Square Footage of Expiring
Leases 1,358 21,229 10,531 29,192 8,971 8,947 - 1,751 -
Percentage of Total Leasesd
Square Feet 1.7% 25.9% 12.8% 35.6% 10.9% 11.0% - 2.1% -
Final Annual Base Rent
Under Expiring Leases (2) 17,708 312,776 156,170 424,532 146,469 124,274 - 28,419 -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 13.04 14.73 14.83 14.54 16.33 13.89 - 16.23 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 1.5% 25.8% 12.9% 35.1% 12.1% 10.3% - 2.3% -
Number of Leases Expiring 1 7 4 9 3 1 - 1 -
NORTHWEST CORPORATE CENTRE
PHASE II
Square Footage of Expiring
Leases 7,042 9,245 16,681 44,747 2,676 - - 2,518 -
Percentage of Total Leased
Square Feet 8.2% 10.7% 19.4% 52.0% 3.1% - - 2.9% -
Final Annual Base Rent
Under Expiring Leases (2) 107,553 134,132 240,460 659,593 39,417 - - 46,860 -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 15.27 14.51 14.42 14.75 14.73 - - 18.61 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 8.3% 10.4% 18.7% 51.2% 3.1% - - 3.6% -
Number of Leases Expiring 3 6 5 10 2 - - 1 -
NORTHWEST CORPORATE CENTER
PHASE III
Square Footage of Expiring
Leases 4,267 17,959 29,420 2,473 3,096 3,196 - 7,546 -
Percentage of Total Leased
Square Feet 6.3% 26.4% 43.3% 3.6% 4.6% 4.7% - 11.1% -
Final Annual Base Rent
Under Expiring Leases (2) 54,496 228,947 435,730 36,264 40,712 58,742 - 138,044 -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 12.77 12.75 14.81 14.66 13.15 18.38 - 18.29 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 5.5% 23.1% 43.9% 3.6% 4.1% 5.9% - 13.9% -
Number of Leases Expiring 5 14 10 2 1 1 - 2 -
1500 TECH CENTER
Square Footage of Expiring
Leases 2,581 12,963 13,195 11,179 22,573 - - - -
Percentage of Total Leased
Square Feet 4.1% 20.7% 21.1% 17.9% 36.2% - - - -
Final Annual Base Rent
Under Expiring Leases (2) 32,417 151,507 169,160 125,066 147,639 - - - -
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) 12.56 11.69 12.82 11.193 6.54 - - - -
Percentage of Total Final Annual
Base Rent Represented by Expiring
Leases 5.2% 24.2% 27.0% 20.0% 23.6% - - - -
Number of Leases Expiring 1 4 1 2 2 - - - -
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2007 2008 THEREAFTER TOTAL
------------------------ ------ ------- ---------- ----------
<S> <C> <C> <C> <C>
PROPERTY INFORMATION
- --------------------
STONEGATE PROPERTIES
NORTHWEST CORPORATE CENTRE
PHASE I
Square Footage of Expiring
Leases - - - 81,979
Percentage of Total Leasesd
Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - 1,210,348
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - - - 14.76
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - 100.0%
Number of Leases Expiring - - - 26
NORTHWEST CORPORATE CENTRE
PHASE II
Square Footage of Expiring
Leases - 3,181 - 86,090
Percentage of Total Leased
Square Feet - 3.7% - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - 60,598 - 1,288,973
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - 19.05 - 14.97
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - 4.7% - 100.0%
Number of Leases Expiring - 1 - 28
NORTHWEST CORPORATE CENTER
PHASE III
Square Footage of Expiring
Leases - - - 67,957
Percentage of Total Leased
Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - 992,935
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - - - 14.61
Percentage of Total Final Annual
Base Rent Represented by Expiring
Leases - - - 100.0%
Number of Leases Expiring - - - 35
1500 TECH CENTER
Square Footage of Expiring
Leases - - - 62,491
Percentage of Total Leased
Square Feet - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - 625,789
Final Annual Base Rent per
Square Foot
Under Expiring Leases (3) - - - 10.01
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - 100.0%
Number of Leases Expiring - - - 10
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004
------------------------ ------- ---- ---- ---- ---- ---- ----
PROPERTY INFORMATION
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TOLLWAY CENTRE II
Square Footage of Expiring Leases 6,883 12,015 8,243 2,125 3,902 - -
Percentage of Total Leased Square Feet 20.8% 36.2% 24.9% 6.4% 11.7% - -
Final Annual Base Rent
Under Expiring Leases (2) 47,760 98,526 50,053 13,898 19,588 - -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 6.94 8.20 6.07 6.54 5.02 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 20.8% 42.9% 21.8% 6.0% 8.5% - -
Number of Leases Expiring 3 5 3 1 1 - -
TOLLWAY CENTRE III
Square Footage of Expiring Leases - 11,171 3,286 10,342 4,521 - -
Percentage of Total Leased Square Feet - 38.1% 11.2% 35.3% 15.4% - -
Final Annual Base Rent
Under Expiring Leases (2) - 91,111 30,812 62,584 32,043 - -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - 8.16 9.38 6.05 7.09 - -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - 42.1% 14.2% 28.9% 14.8% - -
Number of Leases Expiring - 4 2 2 2 - -
CONSOLIDATED TOTALS FOR STONEGATE PROPERTIES
Square Footage of Expiring Leases 22,131 84,582 81,356 100,058 45,739 12,143 -
Percentage of Total Leased Square Feet 6.1% 23.4% 22.5% 27.7% 12.7% 3.4% -
Final Annual Base Rent
Under Expiring Leases (2) 259,934 1,016,999 1,082,385 1,322,297 425,868 183,016 -
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 11.75 12.02 13.30 13.22 9.31 15.07 -
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 5.7% 22.3% 23.7% 29.0% 9.3% 4.0% -
Number of Leases Expiring 13 40 25 26 11 2 -
CONSOLIDATED TOTALS FOR ACQUIRED PROPERTIES
Square Footage of Expiring Leases 56,643 310,321 227,013 290,888 271,045 95,013 50,733
Percentage of Total Leased Square Feet 3.6% 19.9% 14.5% 18.6% 17.4% 6.1% 3.2%
Final Annual Base Rent
Under Expiring Leases (2) 591,329 3,101,822 1,902,527 2,791,129 2,617,135 1,010,822 558,871
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 10.44 10.00 8.38 9.60 9.66 10.64 11.02
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 3.8% 20.0% 12.2% 18.0% 16.8% 6.5% 3.6%
Number of Leases Expiring 36 101 58 68 32 20 4
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2005 2006 2007 2008 THEREAFTER TOTAL
------------------------ ---- ---- ---- ---- ---------- -----
PROPERTY INFORMATION
- --------------------
<S> <C> <C> <C> <C> <C> <C>
TOLLWAY CENTRE II
Square Footage of Expiring Leases - - - - - 33,168
Percentage of Total Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 229,825
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - 6.93
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 13
TOLLWAY CENTRE III
Square Footage of Expiring Leases - - - - - 29,320
Percentage of Total Leased Square Feet - - - - - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) - - - - - 216,550
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) - - - - - 7.39
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases - - - - - 100.0%
Number of Leases Expiring - - - - - 10
CONSOLIDATED TOTALS FOR STONEGATE PROPERTIES
Square Footage of Expiring Leases 11,815 - - 3,181 - 361,005
Percentage of Total Leased Square Feet 3.3% - - 0.9% - 100.0%
Final Annual Base Rent
Under Expiring Leases (2) 13,323 - - 60,598 - 4,564,420
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 18.06 - - 19.05 - 12.64
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 4.7% - - 1.3% - 100.0%
Number of Leases Expiring 4 - - 1 - 122
CONSOLIDATED TOTALS FOR ACQUIRED PROPERTIES
Square Footage of Expiring Leases 45,567 6,547 5,107 64,387 138,430 1,561,694
Percentage of Total Leased Square Feet 2.9% 0.4% 0.3% 4.2% 8.9% 100.0%
Final Annual Base Rent
Under Expiring Leases (2) 602,506 55,650 61,029 505,217 1,734,902 15,532,939
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 13.22 8.50 11.95 7.85 12.53 9.95
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 3.9% 0.4% 0.4% 3.3% 11.1% 100.0%
Number of Leases Expiring 7 1 1 3 2 333
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
YEAR OF LEASE EXPIRATION 1998(1) 1999 2000 2001 2002 2003 2004
------------------------ ------- ---- ---- ---- ---- ---- ----
PROPERTY INFORMATION
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED TOTALS FOR ALL PROPERTIES
Square Footage of Expiring Leases 56,643 310,321 227,013 341,600 271,045 122,081 68,320
Percentage of Total Leased Square Feet 3.4% 18.7% 13.7% 20.6% 16.4% 7.4% 4.1%
Final Annual Base Rent
Under Expiring Leases (2) 591,329 3,101,822 1,902,527 3,381,958 2,617,135 1,375,781 769,387
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 10.44 10.00 8.38 9.90 9.66 11.27 11.26
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 3.5% 18.6% 11.4% 20.3% 15.7% 8.2% 4.6%
Number of Leases Expiring 36 101 58 70 32 22 6
<CAPTION>
2009 AND
YEAR OF LEASE EXPIRATION 2005 2006 2007 2008 THEREAFTER TOTAL
------------------------ ---- ---- ---- ---- ---------- -----
PROPERTY INFORMATION
- --------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED TOTALS FOR ALL PROPERTIES
Square Footage of Expiring Leases 45,567 6,547 5,107 64,387 138,430 1,657,061
Percentage of Total Leased Square Feet 2.7% 0.4% 0.3% 3.9% 8.4% 100.0%
Final Annual Base Rent
Under Expiring Leases (2) 602,506 55,650 61,029 505,217 1,734,902 16,699,243
Final Annual Base Rent per Square Foot
Under Expiring Leases (3) 13.22 8.50 11.95 7.85 12.53 10.08
Percentage of Total Final Annual
Base Rent Represented by
Expiring Leases 3.6% 0.3% 0.4% 3.0% 10.4% 100.0%
Number of Leases Expiring 7 1 1 3 2 339
</TABLE>
(1) Represents lease expirations from September 1, 1998 to December 31, 1998.
(2) Represents annual base rent for the first annual period in accordance with
lease terms.
(3) Calculated by dividing the annual base rent for the final annual period by
the net rentable square feet subject to such leases.
44
<PAGE>
MORTGAGE INDEBTEDNESS TO BE ASSUMED
<TABLE>
<CAPTION>
INTEREST
PRINCIPAL RATE AT
FACE AMOUNT OF BALANCE AS OF SEPT. 1, AMORTIZATION MATURITY AMOUNT DUE PREPAYMENT
PROPERTY LOCATION MORTGAGE SEPT. 1, 1998 1998 (YEARS) DATE AT MATURITY PENALTY
----------------- -------- ------------- ------- ------------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Cirrus Building $ 7,500,000 $ 7,416,377 8.53% 15 4/1/12 $ 290,681 No
Duluth, MN prepayment
until 2003
Bloomington Business Plaza 4,750,000 4,499,472 7.30 18 11/14/04 3,344,232 Yield
Bloomington, MN Maintenance
Nicollet Business VI 2,350,000 2,336,278 7.00 30 2/8/08 2,012,720 Yield
Burnsville, MN Maintenance
300 North First Avenue 2,900,000 2,883,103 7.44 25 4/1/07 2,382,384 Formula
Minneapolis, MN based on
principal
Thresher Square East 4,335,000 4,095,000 7.30 19 5/1/15 0 No prepayment
Minneapolis, MN
Thresher Square West 3,805,000 3,135,000 7.30 18 6/1/10 0 No prepayment
Minneapolis, MN
Apple Valley Commons I 3,880,000 3,517,500 4.00 20 7/1/15 0 Yield
Apple Valley, MN Maintenance
Apple Valley Commons II 3,100,000 2,067,646 8.50 15 9/1/11 0 Yield
Apple Valley, MN Maintenance
Burnsville Financial Center 3,100,000 3,100,000 7.15 15 9/1/05 2,051,597 Yield
Burnsville, MN Maintenance
Complast Building 1,880,000 1,743,227 10.00 30 1/1/00 1,711,867 No prepayment
Bloomington, MN
Wellington Centre 7,400,000 7,346,618 7.58 30 10/20/27 0 No prepayment
Brookfield, WI
Cold Springs Office Center 7,500,000 7,500,000 9.75 20 9/30/00 7,285,826 $20,000
St. Cloud, MN
Northwest Corporate Center 6,200,000 6,035,655 8.35 20 2/1/18 0 Yield
Phase I Hoffman Estates, IL Maintenance
Northwest Corporate Center 12,400,000 11,751,171 9.00 23 2/15/18 0 Yield
Phase II and III, Hoffman Maintenance
Estates, IL
1500 Tech Center 4,725,000 4,363,482 9.60 23 7/15/17 0 Yield
Hoffman Estates, IL Maintenance
------------ ----------- -----------
TOTAL $75,825,000 $71,790,529 $19,079,307
============ =========== ===========
</TABLE>
CERTAIN PROPERTY TAX INFORMATION
The aggregate real estate tax obligations paid on behalf of the Acquired
Properties for calendar year 1997 were approximately $4.2 million.
45
<PAGE>
NEW CREDIT FACILITY
A major United States money center bank (the "Lender") has submitted a term
sheet to the Company summarizing the terms under which the Lender would provide
a credit facility for the benefit of the Company and the Operating Partnership
(the "New Credit Facility"). The New Credit Facility will be a maximum $37.5
million facility (subject to reduction depending upon the appraised value of the
Acquired Properties), which will be split into a senior tranche of $17.8 million
and a mezzanine tranche of $19.7 million. The New Credit Facility will be
nonrecourse, except that the Company and the Operating Partnership will jointly
guarantee both (i) normal and customary exclusions or "carve-outs" from the
nonrecourse protections under the New Credit Facility, and (ii) the entirety of
the New Credit Facility in the event of certain to-be-defined "bad" acts by any
borrowing entity. The borrower under the senior tranche will be a to-be-formed
Delaware limited liability company in which the sole member is a to-be-formed
Delaware limited liability company in which the sole member is the Mezzanine
Borrower, as hereinafter defined (the "Senior Borrower"). The borrower under the
mezzanine tranche will be a to-be-formed Delaware limited liability company in
which the Operating Partnership is the sole member (the "Mezzanine Borrower").
The senior tranche will be
46
<PAGE>
secured by first mortgage liens against certain of the Acquired Properties, and
all such mortgages will be cross-defaulted and cross-collateralized. The
mezzanine tranche will be secured by a collateral assignment of the Operating
Partnership's membership interest in the Mezzanine Borrower.
The New Credit Facility will have a five-year term. Borrowings under the
senior tranche of the New Credit Facility will bear interest at a rate equal to
that of 30-day LIBOR, plus 2.00% per annum, while borrowings under the mezzanine
tranche will bear interest at a rate per annum of LIBOR plus a "Credit Spread."
During the first year of the New Credit Facility, the Credit Spread will be
7.00%; however, the Credit Spread will increase during the term of the New
Credit Facility to 8.25% in the fifth year of that term. Borrowings under the
senior tranche may not be prepaid within the first two years of the facility,
and thereafter may be prepaid subject to the payment of any applicable LIBOR
breakage cost. Borrowings under the mezzanine tranche may be prepaid at any
time, subject to a prepayment premium. If the Senior Borrower desires to sell or
refinance an Acquired Property securing the senior tranche, the Senior Borrower
may obtain a partial release of the Acquired Property from the senior tranche,
provided that the Senior Borrower complies with certain conditions (such as
reasonable notice and absence of default) and pays to the Lender both the
prepayment premium applicable to that portion of the senior tranche then being
repaid and an additional amount based on a defeasance formula. In the event the
Mezzanine Borrower sells an Acquired Property, then it will be required to pay
to the Lender both the prepayment premium allocable to the portion of the
mezzanine tranche being repaid and an amount calculated pursuant to the same
defeasance formula as applies to the senior tranche. The Lender will be paid
customary up-front and administrative fees in connection with the New Credit
Facility.
The New Credit Facility will contain representations and warranties
customary for transactions of this type, including: (i) corporate existence and
good standing; (ii) corporate authorization; (iii) absence of conflicts; (iv)
enforceability; (v) absence of defaults; (vi) ownership of properties; (vii)
absence of material litigation; (viii) payment of taxes, insurance and other
obligations; (ix) compliance with laws; (x) compliance with governmental
regulations; (xi) solvency; (xii) compliance with ERISA; (xiii) compliance with
zoning laws; and (xiv) environmental matters.
The New Credit Facility will contain various affirmative covenants
regarding operations that are customary for transactions of this type, as well
as various restrictive covenants also customary for transactions of this type,
including limitations on: (i) incurrence of indebtedness; (ii) incurrence of
liens and encumbrances; (iii) fundamental changes; (iv) affiliated transactions;
(v) investments; and (vi) mergers, consolidations, changes of control and other
reorganizations. Although the Company and the Operating Partnership will be
permitted to make those distributions to the beneficial owners of the Common
Shares and to the partners of the Operating Partnership that are required to
enable the Company to maintain its REIT status (except in the event of certain
defaults under the New Credit Facility), at certain times during the term of the
New Credit Facility, the Company and the Operating Partnership will not be
permitted to make any excess distributions unless certain debt service coverage
requirements are met.
The New Credit Facility will contain events of default customary for
transactions of this type, including: (i) payment defaults; (ii) violations of
covenants; (iii) certain material adverse changes; (iv) breaches of
representations and warranties; (v) cross-defaults to other indebtedness; and
(vi) certain bankruptcy and insolvency events.
The closing of the New Credit Facility will be dependent on the
satisfaction or waiver of conditions customary for transactions of this type,
including: (i) delivery of corporate and other documents and opinions of
counsel; (ii) the absence of material adverse changes or litigation; (iii)
provision of insurance; and (iv) payment of certain fees and expenses. There
can be no assurance that these conditions will be satisfied or that the New
Credit Facility will be consummated on the terms described above or otherwise.
47
<PAGE>
FINANCIAL INFORMATION
Historical financial information for the Company and the Acquired
Properties, as well as pro forma financial information for the Company
reflecting the consummation of the Transaction, may be found in this Proxy
Statement beginning on page F-1. In addition, certain historical financial data
for the Company, as well as certain pro forma financial data for the Company
reflecting the consummation of the Transaction, may be found in this Proxy
Statement under the caption "Selected Financial Data," which data should be read
in conjunction with the historical and pro forma financial information and notes
thereto beginning on page F-1 of this Proxy Statement.
REGULATORY APPROVAL
Other than payments and filings necessary in connection with transfer of
real estate and other taxes associated with the contribution of the Acquired
Properties, management of the Company does not believe that any filing with or
approval of any governmental authority is necessary in connection with the
consummation of the Transaction.
ACCOUNTING TREATMENT
Pursuant to the Master Contribution Agreement, the Operating Partnership
will acquire interests in the AREE Acquired Properties in exchange for: (a) the
issuance by the Operating Partnership of 9,390,250 Units (convertible on a
one-for-one basis such that one Unit is convertible into one Common Share); (b)
the assumption of indebtedness aggregating approximately $64.4 million; and (c)
the payment of approximately $31.2 million in cash. Pursuant to the WMC
Contribution Agreement, the Operating Partnership will acquire an interest in
Wellington Centre in exchange for: (i) the issuance by the Operating Partnership
of 470,588 Units (convertible on a one-for-one basis such that one Unit is
convertible into one Common Share); (ii) the assumption of indebtedness of
approximately $7.3 million; and (iii) the Payment of approximately $2.5 million
in cash. All Units to be issued by the Operating Partnership will be restricted
as to conversion to Common Shares for a 12-month period. In addition, 3,115,726
Units to be issued will be further restricted from sale for an additional
12-month period. Because the Company controls the Operating Partnership, the
Company will consolidate the Operating Partnership with the Company and record
the Acquired Properties at purchase price plus direct costs of acquisition using
purchase accounting principles.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The Company does not expect that the Transaction will have any specific
federal income tax consequences to its current shareholders. Following the
Transaction, the Company's shareholders will continue to own Common Shares as
before the Transaction, and the acquisition of Units by AREE, its members, WMC
and certain of the Fee Owners is not expected to alter the income tax effect of
owning or subsequently transferring Common Shares. In view of the individual
nature of each shareholder's income tax situation, shareholders are urged to
consult their own tax adviser with respect to the specific federal, state and
local tax consequences associated with the Transaction. Reference is also made
to the information set forth herein under the section entitled "Federal Income
Tax Matters" for a discussion of certain federal income tax aspects concerning
the contribution of the Acquired Properties and a general discussion of the
ownership of an interest in a REIT.
FEDERAL SECURITIES LAW CONSEQUENCES
All of the Units, the Warrants and the AREE Common Shares to be issued in
the Transaction will be offered and sold pursuant to the exemption from the
registration provisions of the Securities Act provided by Rule 506 promulgated
under the Securities Act, and, therefore, will be subject to restrictions on
their transferability. Moreover, pursuant to the Master Contribution Agreement
and the Assigned Contribution Agreements, each of the persons and entities
receiving Units in the Transaction will agree not to transfer such Units, or the
Common Shares issuable upon exchange of the Units, for a period of 12 months
following the date of issuance of the Units, subject to certain limited
exceptions; provided, however, that WMC, AREE and its members will agree not to
transfer such Units or Common Shares for a period of 24 months following the
date of the issuance of the Units. In general, the Company will, for each of (i)
the Unit recipients, (ii) the Warrant holders, and (iii) AREE, as the holder of
the AREE Common Shares, register (a) the Common Shares issuable upon the
exchange of Units, (b) the Common Shares issuable upon the exercise of Warrants,
and (c) the AREE Common Shares, within one year following the Closing and will
agree to use commercially reasonable efforts to register for resale under the
Securities Act the AREE Common Shares and the Common Shares issuable upon
exchange of the
48
<PAGE>
Units or exercise of the Warrants and to maintain the effectiveness of such
registration statement until, in the case of the AREE Common Shares, the date
when all of such AREE Common Shares have been disposed of and, in the case of
the Units and the Warrants, the earlier of the date when, in each case, all of
such Common Shares have been disposed of or three years after the exchange of
all Units or exercise of all Warrants, as the case may be, issued in the
Transaction. Additionally, each of the Master Registration Rights Agreement and
the AREE/WMC Registration Rights Agreement will provide that the Company shall
grant certain piggyback registration rights to the holders of such Units,
Warrants and AREE Common Shares (but, in the case of the Units and the Warrants,
only as to the Common Shares issuable upon exchange of such Units or exercise of
such Warrants).
PUBLIC ANNOUNCEMENT OF THE TRANSACTION
The first public announcement of the proposed transactions described above
was made by the Company on June 10, 1998. No trading in the Common Shares had
occurred on June 8 or June 9, 1998. On June 5, 1998 (the last day preceding
such public announcement on which trading in the Common Shares did occur), both
the high and low sale prices of the Common Shares were $8.875 per Common Share.
DISSENTERS' RIGHTS OF APPRAISAL
Under Maryland law, dissenting shareholders of the Company are not entitled
to rights of appraisal and to receive fair value for their Common Shares in
connection with the Transaction.
RISK FACTORS
The Company's shareholders should carefully consider, among other things,
the following risk factors before voting on the proposals set forth in this
Proxy Statement.
CONFLICTS OF INTEREST OF CERTAIN CURRENT AND PROPOSED TRUSTEES AND EXECUTIVE
OFFICERS
Conflicts of Interest in Failure to Enforce Terms of Master Contribution
Agreement, WMC Contribution Agreement and Other Agreements. Following the
Transaction, AREE, through Messrs. Hoyt and Lambert, and WMC, through Mr. Leas,
will have substantial influence over the Board of Trustees. In addition, Mr.
Lund will be appointed the Chief Executive Officer of the Company in connection
with the Transaction. Consequently, such persons may have a conflict of
interest with respect to their obligations as officers and Trustees to the
extent the Company or the Operating Partnership attempts to enforce its rights
under the Master Contribution Agreement or the WMC Contribution Agreement or any
other agreement to which AREE or its members or WMC or their respective
affiliated entities are parties, including, without limitation, (i) Property
Management Agreements with HPI and WRI and (ii) certain leases of office space
in the Acquired Properties. The failure to enforce the material terms of any
such agreement, particularly indemnification provisions and the remedy
provisions for breaches of representations and warranties or failures to perform
covenants, could result in a substantial monetary loss to or otherwise could
have a material adverse effect on the Company and its shareholders.
Conflicts of Interest of Current Trustees in Approving the Transaction.
Conflicts of interest relating to the Transaction exist because certain members
of the current Board of Trustees have certain interests in, and will receive
certain benefits from, the Transaction that are in addition to the interests of
and benefits to be received by the shareholders of the Company. In this regard,
if the Transaction is consummated, and if the nominees for election as Trustees
are elected at the Special Meeting, Arnold K. Leas will remain on the Board of
Trustees of the Company with a term scheduled to expire at the 2001 Annual
Meeting of Shareholders. Mr. Leas, members of his immediate family and trusts
for the benefit of such persons own approximately 41.8% of the outstanding
capital stock of WMC, which, upon consummation of the Transaction, will receive
470,588 Units (valued at an aggregate of approximately $4.0 million based on a
price of $8.50 per Unit), will be paid the Termination Fee of approximately $1.6
million and will receive 500,000 Warrants. For an initial term of two years
after the Closing, WRI, a wholly owned subsidiary of WMC, will receive a
management fee equal to 5.0% of the gross rental receipts collected in
connection with the operation of Wellington Centre, along with an incentive
bonus if certain targets are met. In addition, in connection with the
Transaction, the Company will obtain Trustees' and officers' insurance and
casualty insurance with respect to all of the Properties. WISI, a wholly owned
subsidiary of WMC, will receive a commission equal to approximately 10% of each
premium paid with respect to the
49
<PAGE>
Trustees' and officers' insurance and 15% of each premium paid in connection
with the casualty insurance. Finally, each member of the current Board of
Trustees may be considered to have an inherent conflict of interest in his
recommendation of the adoption of the amendments to the Declaration contained in
the Articles of Amendment and Restatement (the approval of which is a condition
precedent to the consummation of the Transaction) in that certain of such
amendments (a) could have the effect of entrenching the current Board of
Trustees or making their removal more difficult, and (b) provide the current
Board of Trustees with additional protection through the enhancement of the
indemnification benefits provided under the Declaration. See also "Proposal II--
Approval of Amendments to the Declaration of Trust--Potential Conflicts of
Interest in Board of Trustees' Recommendation of Approval of the Amendments to
the Declaration."
Competition from Other Business Interests of Certain Officers and Trustees.
Messrs. Lambert and Hoyt may own or have a substantial economic interest in
properties that will not be acquired by the Company as part of the Transaction.
In particular, Mr. Hoyt owns several additional industrial properties located in
Plymouth, Minnesota, which properties may compete with certain of the Acquired
Properties located in the same area. The Company believes that none of the
other properties in which Messrs. Lambert or Hoyt has a material economic
interest will compete with any of the properties owned by the Company after
completion of the Transaction; however, it is possible that these properties may
compete with the Company in the future in the event the Company were to invest
in a property in close proximity to such properties.
Guarantees of Certain Trustees and Shareholders. After the consummation of
the Transaction, each of AREE, Steven B. Hoyt and John Hansen will remain as
guarantors of certain of the mortgage indebtedness to be assumed by the Company
with respect to the AREE Acquired Properties. See "--The Transaction--Mortgage
Indebtedness to be Assumed" and "Proposal III--Election of Trustees--Certain
Relationships and Related Transactions--Guarantees of Certain Trustees and
Shareholders." As a result, AREE, as a significant shareholder of the Company,
and Mr. Hoyt, as a Trustee of the Company, may have different objectives
regarding the appropriate performance of the Operating Partnership under the
applicable assumed indebtedness and any potential refinancing of the same. AREE,
Mr. Hoyt and Mr. Hansen (who will be a holder of Units) may attempt to influence
the Company to refinance or otherwise take actions to release such entity or
individual from such guarantees, even though such refinancing or such action
might otherwise be financially or operationally disadvantageous to the
Company.
Tax Consequences to Certain Officers and Trustees. After the Transaction,
certain officers and Trustees of the Company will own Units. Prior to the
exchange of such Units for Common Shares, officers and Trustees of the Company
who own Units may suffer different and more adverse tax consequences than
holders of Common Shares or other holders of Units upon the sale of certain of
the Company's Properties, the refinancing of debt associated with those
Properties or in connection with a proposed tender offer or merger involving the
Company and, therefore, such individuals and the Company, as partners in the
Operating Partnership, may have different objectives regarding the appropriate
terms of any such transaction.
LACK OF INDEPENDENT VALUATION OF ACQUIRED PROPERTIES AND UNITS
Pursuant to the terms of the Master Contribution Agreement and the WMC
Contribution Agreement, the Acquired Properties will be acquired by the
Operating Partnership in exchange for 9,860,838 Units, the assumption of
approximately $71.8 million of mortgage and related indebtedness and the payment
of approximately $33.6 million cash. The terms on which the Acquired Properties
will be contributed to the Operating Partnership were negotiated among the
Company, AREE and WMC, but without any appraisals of any of the Acquired
Properties and without a fairness opinion of the Transaction from the financial
point of view of the Company. In addition, certain of the current Trustees have
certain interests in, and will receive certain benefits from, the Transaction
that are in addition to those of the shareholders of the Company (see
"--Conflicts of Interest of Certain Current and Proposed Trustees and Executive
Officers"). Consequently, no assurance can be given as to whether the
consideration paid for the assets contributed by each of AREE and WMC is equal
to, less than or greater than a third-party valuation of such assets or that the
Transaction would be considered by an independent third party to be fair to, or
in the best interest of, the outside shareholders of the Company.
POTENTIAL PAYMENT OF EXCESS CONSIDERATION DUE TO FIXED PER UNIT PURCHASE
PRICE
The Units to be issued in the Transaction have been valued for purposes of
the Transaction at a fixed price of $8.50 per Unit, which price was the current
market price for the Common Shares on the date the initial Memorandum of
Understanding was executed (which has been subsequently superseded by the Master
Contribution Agreement). The Company subsequently agreed to issue the AREE
Common Shares at a per-share price of $9.50. On October 6, 1998, the Closing
price for the Common Shares on Nasdaq was $8.50 per share. If the Transaction is
consummated at a time when the market price for the Common Shares on Nasdaq
exceeds $8.50 or $9.50 per share, then the persons receiving Units or AREE
Common Shares, respectively, will be receiving a consideration in the
Transaction which has a market value in excess of the fixed price attributable
to such securities in the Master Contribution Agreement and the WMC Contribution
Agreement and, on the basis of the market price of the securities to be issued,
the Company may be receiving assets having a value less than the aggregate
market value attributable to the securities issued as consideration for the
contribution of those
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assets. Changes in the market price of the Common Shares at the time of the
consummation of the Transaction will affect the value of the securities to be
issued in the Transaction.
CONCENTRATION OF SHARE OWNERSHIP
Immediately following the Transaction, AREE and its members will
collectively beneficially own approximately 54.3% of the issued and outstanding
Common Shares on a fully diluted basis. In addition, pursuant to the
Shareholder Agreement, the Subject Shareholders, who will hold approximately
63.6% of the issued and outstanding Common Shares on a fully diluted basis, have
agreed to vote all of their Common Shares for Trustees designated by AREE and
WMC. As of June 30, 1998, shareholders of the Company who were not insiders of
the Company held approximately 80.8% of the issued and outstanding Common
Shares, while issued and outstanding Common Shares held by current shareholders
who are not insiders of the Company will represent approximately 5.3% of the
issued and outstanding Common Shares on a fully diluted basis following
consummation of the Transaction. Accordingly, current outside shareholders of
the Company may experience substantial dilution of their voting power with
respect to matters submitted to the Company's shareholders, and AREE, WMC,
George A. Moser and persons and entities affiliated with AREE, WMC or George A.
Moser may have substantial influence over the Company and on the outcome of any
matters submitted to the Company's shareholders or the Operating Partnership's
limited partners for approval, which influence might not be consistent with the
interests of other shareholders of the Company or limited partners of the
Operating Partnership. See "Proposal III--Election of Trustees--Security
Ownership of Certain Beneficial Owners and Management."
POTENTIAL ADVERSE EFFECTS OF COMBINING OPERATIONS
There can be no assurance that costs or other factors associated with the
integration of the Company and the Acquired Properties would not adversely
affect future combined results of operations or the benefits of expected cost
savings to incur as a result of the Transaction. Additionally, the timing and
integration of the separate business enterprises may cause substantial
fluctuations in operating results for the foreseeable future.
ABSENCE OF WRITTEN AGREEMENT REGARDING NEW CREDIT FACILITY
A condition to the consummation of the Transaction is the consummation of
the New Credit Facility. None of the Company, the Operating Partnership, AREE or
WMC has entered into any written agreement with respect to the New Credit
Facility. There can be no assurance that the terms of the New Credit Facility
when (and if) consummated will not differ materially from the terms described
herein and that the future prospects and results of operations of the Company
will not be materially and adversely affected by the terms thereof.
PROPOSED REQUIREMENTS AND RESTRICTIONS UNDER THE NEW CREDIT FACILITY
Guarantee. The Company and the Operating Partnership may be required to
provide a full guarantee of the New Credit Facility in the event of the
commission of certain "bad" acts in contravention of the terms of the New Credit
Facility. In such event, the Company and the Operating Partnership may have
full recourse liability for all monies due under the New Credit Facility.
Restrictions on Distributions. At certain times during the term of the New
Credit Facility, the Company and the Operating Partnership may be restricted as
to the amount of dividends that may be paid on the Common Shares and the
distributions that may be made to the partners of the Operating Partnership. As
a result, prior to an event of default under the New Credit Facility, the
Company and the Operating Partnership may be permitted to make dividend payments
and other distributions only in the amount required to enable the Company to
retain its REIT status (the "Required Distributions"). After the occurrence of
certain events of default under the New Credit Facility, however, the Company
and the Operating Partnership may not be permitted to make the Required
Distributions, and, in that event, the Company may not be able to retain its
status as a REIT.
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RIGHTS GRANTED TO FEE OWNERS AND WMC IN CONNECTION WITH SALES OR TRANSFERS OF
ACQUIRED PROPERTIES
The Company has agreed that, for periods of time following the Closing
Date, which periods range from two to 10 years, the Operating Partnership shall
be prohibited from the sale, transfer or other voluntary disposition of such
Acquired Properties (other than by way of foreclosure), and from repaying
mortgage indebtedness secured by one or more of such Acquired Properties (unless
such repaid mortgage indebtedness is replaced by a new mortgage loan in
substantially the same amount as that repaid), unless the terms of any such sale
or refinancing transaction comply with certain restrictions and requirements
described in the Assigned Contribution Agreements that are intended to permit
the transferring Fee Owners of ownership interests in such Acquired Properties
to defer the recognition of gain for federal income tax purposes, which gain
would ordinarily be recognized by such Fee Owners on the sale of such property
or satisfaction of such mortgage indebtedness. For example, a sale of an
Acquired Property utilizing a like-kind exchange, pursuant to Section 1031 of
the Code, is a permissible methodology through which the Operating Partnership
may consummate a sale of an Acquired Property without causing the need for the
Fee Owners to recognize gain on that sale. As a result of these contractual
restrictions, the Company may be prevented from entering into transactions for
the sale or refinancing of Acquired Properties during certain periods of time or
on economic terms that might otherwise be in the best interests of the Company's
shareholders or the other partners in the Operating Partnership, or the Company
may incur certain costs or expenses in favor of the Fee Owners at a time that
might not be in the best interests of the Company's shareholders. See "--The
Transaction--Certain Additional Covenants."
CHANGES IN SENIOR MANAGEMENT AND CONTROL OF BOARD OF TRUSTEES
In the event the Transaction is consummated, Duane H. Lund will become the
Chief Executive Officer of the Company and Steven B. Hoyt and Paul T. Lambert
will become Trustees of the Company. Each of such individuals is an affiliate
of AREE and is not currently an officer, trustee, director or employee of the
Company and, as a result, has had no experience with the operations of the
Company. Although Messrs. Hoyt and Lambert will constitute only two of seven
members of the Board of Trustees, as a result of provisions of the Company's
Bylaws requiring 80% Trustee approval with respect to substantially all material
actions taken by the Company (including actions taken by the Company as sole
general partner of the Operating Partnership), Messrs. Hoyt and Lambert will
have substantial influence and control over matters to be considered by the
Board of Trustees and as to those matters that the Board of Trustees determines
to submit to shareholders for consideration. As Chief Executive Officer, Mr.
Lund will have substantial influence over the Company's day-to-day operations.
Additionally, although Mr. Lund has in excess of 11 years of experience in
commercial real estate and has served as a senior regional director of a
publicly traded REIT, he has had no experience as chief executive officer of a
publicly traded entity. See "Proposal III--Election of Trustees."
EXPANSION INTO NEW PROPERTY TYPES
Although current management has experience in the acquisition and
development of multifamily residential properties, the Acquired Properties
consist solely of office and industrial properties, and there can be no
assurance that management of the Company will be able successfully to integrate
and oversee these diverse types of properties. The acquisition and development
of office and industrial properties may be subject to certain risks that are
applicable to a lesser degree to multifamily residential properties, including
the necessity of entering into longer-term leases, greater variety of required
tenant services and greater need to engage third-party leasing brokers. For a
description of general risks involving investments in real estate, see "--Real
Estate Investment Risks."
DEPENDENCE ON PRIMARY MARKETS
The Company's historical experience is in Wisconsin, where the Current
Properties are located. After the completion of the Transaction, the Operating
Partnership's properties will be located in the Midwest region of the United
States. The Company's revenues and the value of its Properties may be affected
by a number of factors in its markets, including the local economic climate
(which may be adversely impacted by business layoffs or downsizing, industry
slowdowns, changing demographics and other factors) and local real estate
conditions (such as oversupply of, or reduced demand for, residential, office or
industrial space). Therefore, the Company's performance and the ability of the
Operating Partnership to make distributions to the Company and the limited
partners will likely be dependent, to a significant extent, on the economic
conditions in such markets. See "--The Transaction--The Acquired Properties."
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OUTSIDE MANAGEMENT OF PROPERTIES
The Company does not self-manage its Current Properties, nor will it self-
manage the Acquired Properties. Instead, the Company will be entirely
externally managed and will enter into Property Management Agreements with
various third parties, each of which will be engaged to perform day-to-day
property management and leasing services for certain of the Properties located
in a particular geographic region. In the event that the Company is
dissatisfied with the quality of services performed by any of such third-party
managers, the Company will seek to terminate the Property Management Agreement
in question and will seek to engage another third party appropriate for the
geographic region in question; however, each of the agents that the Company will
initially engage to manage and lease the Acquired Properties is controlled by
holder of Units who, therefore, may have a conflict of interest with respect to
such activities. In addition, the initial terms of the Property Management
Agreements range from two to five years and are not terminable by the Company
prior to such time except in certain limited circumstances. Should the Company
terminate any such Property Management Agreement, except under such limited
circumstances, prior to the expiration of the then-current term thereof, the
Company would remain obligated to pay the applicable management fee (which fees
range from 2.0% to 5.0% of the gross rental receipts associated with a
particular Property) with respect to the balance of the term of the terminated
Property Management Agreement. In addition, the Company generally would require
the services of a new property manager, whose fees may be in excess of the 2.0%
to 5.0% of gross rental receipts payable under the Property Management
Agreements. See "Proposal III--Election of Trustees--Certain Relationships and
Related Transactions--Property Management Agreements."
In addition to the risks described above, it should be noted that self-
management, rather than external management, of assets is generally favored by
REITs. The Company will have no control over, or ownership interest in, the
third-party managers, which will operate as independent contractors.
Consequently, the Company will not be able to assure that the day-to-day
operations of these properties are conducted in a manner consistent with the
Company's best interests.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of Common Shares in the public market from
time to time following the Transaction could adversely affect prevailing market
prices of the Common Shares. In the Transaction, 105,263 AREE Common Shares
will be issued and up to 9,860,838 Common Shares will be issuable from time to
time upon exchange of Units to be issued in the Transaction. Pursuant to the
Master Contribution Agreement and the WMC Contribution Agreement, AREE and its
members and WMC have agreed not to sell, transfer or otherwise dispose of their
Common Shares, including Common Shares issuable upon exchange of Units, for a
period of 24 months following the date of issuance of such securities, subject
to certain limited exceptions. In addition, pursuant to the Assigned
Contribution Agreements, the other holders of Units issued in the Transaction
(other than entities controlled by Mr. Hoyt, who are subject to the 24-month
lock-up described in the preceding sentence) have agreed not to sell, transfer
or otherwise dispose of the Common Shares issuable upon exchange of Units for a
period of 12 months following the date of issuance such Units, subject to
certain limited exceptions. The Company has agreed to promptly file 12 months
after the Closing Date a registration statement with the SEC to register under
the federal securities laws the Common Shares issued to AREE and the Common
Shares issuable to holders of Units issued in the Transaction upon exchange of
such Units or exercise of the Warrants. Following the registration of such
Common Shares, the sale in the public market of such Common Shares could, and
depending upon the number of Common Shares involved, likely would, adversely
affect prevailing market prices. Such sales could reduce the market price of
the Common Shares, and the Company's ability to raise additional capital through
equity markets could adversely be affected.
NO LIMITATION ON INDEBTEDNESS
Following the Transaction, the Company intends to fund acquisition
opportunities partially through short-term borrowings, as well as out of
undistributed cash. It expects to refinance properties purchased with short-term
borrowings either with long-term indebtedness or equity financing depending upon
the economic conditions at the time of refinancing. The Company will have a
general policy of maintaining a ratio of debt-to-total market capitalization
(i.e., total debt of the Company as a percentage of the market value of issued
and outstanding Common Shares and Units plus total debt) of approximately 65% or
less. However, there are no limitations in the Company's or the Operating
Partnership's
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organizational documents that limit the amount of indebtedness that either
entity may incur, although the New Credit Facility and other debt instruments
will contain certain restrictions on the amount of indebtedness that the Company
may incur. Accordingly, the Board of Trustees could alter or eliminate this
policy from time to time to the extent permitted by its debt agreements. If this
policy were changed, the Company or the Operating Partnership could become more
highly leveraged, resulting in an increase in debt service payments that could
adversely affect the Company's or the Operating Partnership's cash flow, and
consequently, the cash available for distribution to shareholders and partners
and could increase the risk of default on the Company's or the Operating
Partnership's indebtedness. The Company's or the Operating Partnership's
leverage level could also affect their ability to (i) obtain financing in the
future, (ii) undertake refinancings on terms and subject to conditions deemed
acceptable, (iii) pursue their acquisition strategies or (iv) compete
effectively or operate successfully under adverse economic conditions.
POTENTIAL ADVERSE TAX CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company believes that it has qualified and will continue to operate in
a manner intended to allow it to qualify as a REIT under the Code. Although the
Company's management believes that the Company was organized and operates in
such a manner, no assurance can be given that the Company qualifies as a REIT or
that the Company will remain qualified as a REIT following the Transaction.
Qualification as a REIT involves the application of highly technical and complex
provisions of the Code for which there are only limited judicial or
administrative interpretations and involves the determination of various factual
matters and circumstances not entirely within the Company's control.
Treasury Regulations require the Company to maintain records that disclose
the actual ownership of its outstanding shares of beneficial interest. In
fulfilling its obligations to maintain records, the Company must demand written
statements each year from the record holders of designated percentages of its
shares of beneficial interest disclosing the actual owners of such shares (as
prescribed by Treasury Regulations). A list of those persons failing or
refusing to comply with such demand must be maintained as part of the Company's
records. Under recently enacted legislation, for taxable years beginning after
August 7, 1997, a REIT that fails to send its so-called "shareholder demand
letters" may be subject to a $50,000 fine. For periods beginning prior to
August 7, 1997 (including the Company's 1996 and 1997 taxable years), the
consequences of a failure to issue shareholder demand letters were uncertain,
although applicable Treasury Regulations indicate that failure to do so could
result in loss of REIT status. Based upon those regulations, the Internal
Revenue Service (the "IRS"), in a few highly publicized cases, sought to
disqualify certain REITs for failure to send their shareholder demand letters.
For its taxable years ending both 1996 and 1997, the Company
unintentionally failed to send in a timely fashion to its shareholders such
shareholder demand letters. Such shareholder demand letters were sent by the
Company to its shareholders in September 1998. As a consequence of that failure,
the IRS may contend that the Company did not qualify as a REIT for 1996 and
1997. The IRS has given no indication that it intends to challenge the Company's
qualification as a REIT for failure to send such letters. If the IRS were
successfully to challenge the Company's status as a REIT, it could do so both
for years 1996 and 1997, require the Company to pay tax on its income as a
regular corporation, and deny the Company the ability to re-elect REIT status
until possibly as late as 2002. In this event, the Company could be subject to
potentially significant tax liabilities, and the amount of cash available for
distribution to shareholders would be reduced and possibly eliminated.
The Company believes the Operating Partnership has been organized as a
partnership and will qualify for treatment as such under the Code. If the
Operating Partnership ceases to qualify as a partnership, the Company would fail
to qualify as a REIT, and the Operating Partnership would become subject to
federal income tax on its income at corporate rates. See "--Federal Income Tax
Matters."
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LIMITATIONS ON CHANGES IN CONTROL
Following the consummation of the Transaction, the Declaration (as to be
amended by the Articles of Amendment and Restatement) and the Operating
Partnership Agreement will contain a number of provisions that may limit the
ability of outside parties to acquire control of the Company, including the
following:
Ownership Limits. To facilitate maintenance of its qualification as a REIT
for federal income tax purposes, the Company will prohibit ownership, directly
or by virtue of the attribution provisions of the Code, by any single
shareholder of more than the lesser of (a) 3.0% of the value of all issued and
outstanding equity securities of the Company, (b) 9.9% of the total combined
voting power of all classes of issued and outstanding equity securities of the
Company, and (c) 9.9% of the total number of shares of all classes of issued and
outstanding equity securities of the Company. These limits may have the effect
of precluding a change in control of the Company by a third party without the
consent of the Board of Trustees, even if such change in control would be in the
interest of the limited partners of the Operating Partnership or shareholders of
the Company (and even if such change in control would not reasonably be expected
to jeopardize the REIT status of the Company). See "Proposal II--Approval of
Amendments to the Declaration of Trust."
Staggered Board. After the Transaction, the Board of Trustees of the
Company will have three classes of Trustees. The terms of the first, second and
third classes will expire in 1999, 2000 and 2001, respectively. Trustees for
each class will be chosen for a three-year term upon the expiration of the term
of the then current class, beginning in 1999. The staggered terms for Trustees
may affect the shareholders' ability to effect a change in control of the
Company even if a change in control would be in the best interests of the
limited partners of the Operating Partnership or shareholders of the Company.
See "Proposal II--Approval of Amendments to the Declaration of Trust" and
"Proposal III--Election of Trustees."
Preferred Shares of Beneficial Interest. The Declaration (as to be amended
by the Articles of Amendment and Restatement) will authorize the Board of
Trustees of the Company to issue up to 10,000,000 preferred shares of beneficial
interest and to establish the preferences and rights of any preferred beneficial
interests issued. The issuance of preferred shares of beneficial interest
having special preferences or rights could have the effect of delaying or
preventing a change in control of the Company. For instance, although it
currently has no plans to do so, the Company could institute a "rights plan"
pursuant to which it would declare a dividend of preferred share purchase rights
to its existing shareholders. If triggered, such purchase rights would have
certain anti-takeover effects that would cause substantial to a person or group
of persons that acquires more than a specified percentage of the Common Shares
on terms not approved by the Board of Trustees. The proposed increase in
authorized Preferred Shares of the Company could therefore discourage, delay or
make more difficult a merger, tender offer or other similar transaction, even if
such transaction were in the best interests of the shareholders of the Company
or the partners of the Operating Partnership. See "Proposal II--Approval of
Amendments to the Declaration of Trust."
Consent Rights of the Limited Partners. Under the Operating Partnership
Agreement, the Company generally will be able to merge or consolidate with
another entity with the consent of the general partner and a Limited Partner
Consent as long as the holders of Units either will receive or will have the
right to receive the same consideration as the holders of Common Shares.
Because a Limited Partner Consent is necessary, a merger or consolidation
otherwise beneficial to shareholders of the Company may be prohibited. See "--
The Transaction--The Operating Partnership and Operating Partnership Agreement."
Inability to Transfer the Company's Interests. The Operating Partnership
Agreement will provide that the Company may not transfer any of its interests as
general partner in the Operating Partnership, except in certain limited
circumstances. See "--The Transaction--The Operating Partnership and Operating
Partnership Agreement."
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Maryland Business Combination Statute. Under the Maryland General
Corporation Law (the "MGCL"), as applicable to real estate investment trusts,
certain "business combinations" (including certain issuances of equity
securities) between a Maryland real estate investment trust and any person who
owns 10% or more of the voting power of the trust's then outstanding shares of
beneficial interest or an affiliate or an associate of the trust that, at any
time in the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the trust's shares (an "Interested
Shareholder") or an affiliate of the Interested Shareholder are prohibited for
five years after the most recent date on which the Interested Shareholder became
an Interested Shareholder. Thereafter, any such business combination must be
approved by the board of trustees of the trust and a supermajority (80%) of the
trust's outstanding voting shares, and by two-thirds of voting shares other than
voting shares held by an Interested Shareholder unless, among other conditions,
the trust's common shareholders receive a minimum price (as defined in the MGCL)
for their shares and the consideration is received in cash or in the same form
as previously paid by the Interested Shareholder. As permitted by the MGCL, the
Company has opted out of the protections of the statute with respect to all
transactions with AREE or its affiliates. Accordingly, AREE and its affiliates
may be able to enter into "business combination" transactions with the Company
without the supermajority approval of the shareholders.
Severance Obligations. Pursuant to the Employment Agreements to be entered
into with Messrs. Rice and Lund, the Company will be obligated to pay each such
individual three times his salary and average performance bonuses and continue
his benefits for three years upon a merger or other change of control if the
individual terminates his employment within sixty days after the merger or
change of control or the Company or its successor terminates the individual
within one year either before or after such merger or change of control.
Payment of such severance amounts may deter potential acquirors of the Company
even if such proposed acquisitions would be beneficial to the shareholders or
the Company. See "Proposal III--Election of Trustees--Executive Compensation--
Employment Agreements."
REAL ESTATE INVESTMENT RISKS
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend on the
amount of income generated and expenses incurred. If the Acquired Properties do
not generate revenues sufficient to meet operating expenses, including debt
service and capital expenditures, the cash flows of the Operating Partnership
and the Company and ability to pay distributions to the shareholders of the
Company or the holders of Units will be adversely affected.
Income from real property investments may be adversely affected by a number
of factors, including the national economic climate, the local economic climate
(which may be adversely impacted by plant closings, industry slowdowns and other
factors), local real estate conditions (such as an oversupply of or a reduced
demand for residential space, office space or industrial space), the
attractiveness of a property to potential tenants, the perceptions by
prospective residents of the safety and convenience of a residential community,
the ability of the owner to provide adequate management, maintenance and
insurance, and increased operating costs (including real estate taxes and
utilities). In addition, revenues from properties and real estate values are
also affected by such factors as the cost of compliance with regulations and the
potential for liability under applicable laws, including changes in tax laws and
housing laws, interest rate levels and the availability of financing. The income
of the Operating Partnership and the Company would be adversely affected if a
significant number of tenants were unable to pay rent or if office, residential
or industrial space could not be rented on favorable terms. Certain significant
expenditures associated with an investment in real estate (such as mortgage
payments, real estate taxes and maintenance costs) generally are not reduced
when circumstances cause a reduction in income from the investment.
Operating Risks. The Acquired Properties are subject to all operating
risks common to real estate properties in general, any and all of which could
adversely affect occupancy or rental rates. Increases in operating costs due to
inflation and other factors may not be offset by increased rents. Tenants may
be unable or unwilling to pay rent increases. The local rental market may limit
the extent to which rents for residential, office and industrial space may be
increased to meet increased expenses without decreasing occupancy rates. If any
of the above occur, the ability of the Operating Partnership to achieve its
desired yields on its properties and to make expected distributions to the
Company and the limited partners could be adversely affected.
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Compliance with Laws and Regulations. Many laws and governmental
regulations are applicable to the Acquired Properties, and changes in these laws
and regulations, or their interpretation by agencies and the courts, occur
frequently. Under the Americans with Disabilities Act of 1990 (the "ADA"), all
places of public accommodation, effective beginning in 1992, are required to
meet certain federal requirements related to access and use by disabled persons.
Compliance with the ADA requires removal of structural barriers to handicapped
access in certain public areas where such removal is "readily achievable." A
number of additional federal, state and local laws exist which also may require
modifications to the Acquired Properties, or restrict certain further
renovations thereof, with respect to access thereto by disabled persons.
Noncompliance with the ADA or any of such other laws could result in the
imposition of fines or an award of damages to private litigants. Although
management of the Company believes that after the Transaction the Properties
will be substantially in compliance with present requirements, final regulations
under the ADA have not yet been promulgated and the Company is likely to incur
additional costs of complying with the ADA. If required changes involve a
greater amount of expenditures than the Company currently anticipates, the
ability of the Operating Partnership to make expected distributions to the
Company and the limited partners could be adversely affected. See "Business and
Properties --Regulations and Insurance."
Financially Distressed Tenants. In the event of any default by a tenant,
the Company may experience delays in enforcing its rights as landlord and may
incur substantial costs in protecting its investment. A tenant of the Company's
Properties may seek the protection of the bankruptcy laws at any time, which
could result in the rejection and termination of such tenant's lease and thereby
cause a reduction in the cash flow available for distribution by the Operating
Partnership and the Company.
Market Illiquidity. Equity real estate investments are relatively
illiquid. This illiquidity will tend to limit the ability to vary the Operating
Partnership's portfolio promptly in response to changes in economic or other
conditions. In addition, the Operating Partnership's ability to sell properties
held for fewer than four years will be limited by the Code, which may affect the
Operating Partnership's ability to sell properties without adversely affecting
returns to shareholders and limited partners.
POTENTIAL ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required (often regardless of knowledge or responsibility) to investigate and
remediate the effects of hazardous or toxic substances or petroleum product
releases at its properties, and may be held liable to a governmental entity or
to third parties for property damage and for investigation and remediation costs
incurred by them in connection with the contamination, which costs may be
substantial. The presence of such substances (or the failure to properly
remediate the contamination) may have a material adverse effect on the owner's
ability to borrow against, sell or rent the affected property. In addition,
certain environmental laws create liens on contaminated sites in favor of the
government for damages and costs it incurs in connection with the contamination.
Certain federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of asbestos-containing materials ("ACMs") when such
materials are in poor condition or in the event of construction, remodeling,
renovation or demolition of a building. Those laws may impose liability for
release of ACMs and may provide for third parties to seek recovery from owners
or operators of real properties for personal injury associated with ACMs. In
connection with its ownership and operation of the Properties, the Operating
Partnership and the Company may potentially be liable for such costs.
No assurances can be given that (i) future laws, ordinances or regulations
will not impose material environmental liability or (ii) the current
environmental condition of the Properties will not be affected by the condition
of land or operations in the vicinity of such properties (such as the presence
of underground storage tanks) or by properties of third parties unrelated to the
Operating Partnership or the Company. See "Business and Properties--
Environmental Matters."
DEPENDENCE ON KEY PERSONNEL
In connection with the Transaction, Duane H. Lund will become the Chief
Executive Officer of the Company, Robert F. Rice will become the President of
the Company, and Paul T. Lambert and Steven B. Hoyt will become members of the
Company's Board of Trustees. The Company will be dependent on the efforts of
these individuals and the Company's other executive officers and Trustees.
Although the Company believes that it could find replacements for its key
personnel, the loss of the services of such key personnel could have a temporary
adverse effect on the Company's
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operations. In addition, there can be no assurance that such replacements would
have any experience with the operations of the Company or with the management of
a publicly traded REIT. See "Proposal III--Election of Trustees."
DEBT FINANCING AND DEBT MATURITIES
The Company and the Operating Partnership are subject to, and after the
Transaction will continue to be subject to, the risks normally associated with
debt financing, including the risk that the cash flows of the Company and the
Operating Partnership will be insufficient to meet required payments of
principal and interest, the risk that indebtedness on the Properties will not be
able to be refinanced at maturity or that the terms of such refinancing will not
be as favorable as the terms of such indebtedness.
If the Company or the Operating Partnership were unable to refinance its
indebtedness on acceptable terms, or at all, the Company or the Operating
Partnership might be forced to dispose of one or more of the Properties upon
disadvantageous terms, which might result in losses to the Company or the
Operating Partnership and might adversely affect their ability to make
distributions. If prevailing interest rates or other factors at the time of
refinancing result in higher interest rates on refinancings, the interest
expense of the Company and the Operating Partnership would increase, which would
adversely affect the cash flows of the Company and the Operating Partnership and
their ability to pay expected distributions to limited partners and
shareholders. Further, if a Property is mortgaged to secure payment of
indebtedness, and the Company or the Operating Partnership is unable to meet
mortgage payments, the mortgagee could foreclose upon the Property, appoint a
receiver and receive an assignment of rents and leases or pursue other remedies,
all with a consequent loss of income and asset value to the Company and the
Operating Partnership. Foreclosures could also create taxable income without
accompanying cash proceeds, thereby hindering the Company's ability to meet the
REIT distribution requirements of the Code. See "--The Transaction--New Credit
Facility."
EFFECT ON COMMON SHARE PRICE OF EARNINGS AND CASH DISTRIBUTIONS
It is generally believed that the market value of the equity securities of
a REIT is primarily based upon the market's perception of the REIT's growth
potential for its core portfolio, the value of its real estate portfolio and its
prospects for accretive acquisitions and development. The combination of these
factors creates a market perception of a REIT's current and potential future
cash distributions, whether from operations, sales, acquisitions, developments
or refinancings, and is secondarily based upon the value of the underlying
assets. For that reason, Common Shares may trade at prices that are higher or
lower than the net asset value per Common Share or per Unit. To the extent the
Company retains operating cash flow for investment purposes, working capital
reserves or other purposes rather than distributing such cash flow to
shareholders, these retained funds, while increasing the value of the Company's
underlying assets, may not correspondingly increase the market price of the
Common Shares. The failure of the Company to meet the market's expectation with
regard to future earnings and cash distributions would likely adversely affect
the market price of the Common Shares.
ADDITIONAL COMPLEXITY AND COSTS ASSOCIATED WITH PORTFOLIO ACQUISITIONS
After the Transaction, the Operating Partnership may acquire portfolios of
multifamily residential properties, office properties, retail properties or
industrial properties in single transactions in order to reduce acquisition
expenses per property and to obtain a critical mass of assets that provides
operating leverage. However, portfolio acquisitions are more complex than
single-property acquisitions, and the risk that a multiple-property acquisition
will not close may be greater than in a single-property acquisition. In
addition, the costs for a proposed portfolio acquisition are generally greater
than for a single-property acquisition. The failure to close one or more
portfolio acquisitions could materially adversely impact the Operating
Partnership's ability to increase funds from operations and may result in a
charge to earnings for costs related to the failed acquisition.
Portfolio acquisitions may also result in the Operating Partnership's
owning properties in dispersed markets that are geographically removed from the
Operating Partnership's principal markets. This geographic diversity will place
additional demands on the Operating Partnership's ability to manage such
operations.
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ACQUISITION OF UNDESIRABLE PROPERTIES IN CONNECTION WITH PORTFOLIO
ACQUISITIONS
Another risk associated with portfolio acquisitions is that a seller may
require a group of properties to be purchased as a package, even though one or
more of the properties in the portfolio does not meet the Operating
Partnership's investment criteria. In those cases, the Operating Partnership may
attempt to make a joint bid with another buyer, or may purchase a portfolio of
properties with the intent to subsequently dispose of the properties that do not
meet the Operating Partnership's criteria. In the case of joint bids, however,
it is possible that the other buyer may default in its obligations, which
increases the risk that the acquisition may not close, with the adverse
consequences described above. In cases where the Operating Partnership intends
to dispose of properties it does not wish to own, there can be no assurance as
to how quickly the Operating Partnership could sell or exchange those properties
or the terms on which they could be sold or exchanged. In addition, any gains on
the sale of properties within four years of the date of acquisition could be
subject to a 100% income tax under regulations applicable to REITs.
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DEPENDENCE ON EXTERNAL SOURCES OF CAPITAL
As with other REITs, but unlike corporations generally, the Company's
ability to reduce its debt and finance its growth largely must be funded by
external sources of capital because the Company generally will have to
distribute to its shareholders 95% of its taxable income in order to qualify as
a REIT. The Company's access to external capital will depend upon a number of
factors, including the market's perception of the Company's growth potential,
its current and potential future cash distributions and the market price of the
Common Shares. The Company has not conducted operations through a limited
partnership prior to the Transaction and, although management believes that the
Company will be able to access the public market to raise capital, there can be
no assurance that it will be able to do so.
DILUTION RELATING TO FUTURE ACQUISITIONS
The Operating Partnership expects to pursue acquisitions of additional
properties, which may be financed through the issuance of Units or other limited
partnership interests directly to property owners or to the Company in exchange
for cash. Any such Units or other limited partnership interests in the Operating
Partnership may have certain preferences. Additional issuances of Units in
connection with acquisitions of additional properties or for cash may occur in
the discretion of the Board of Trustees and would result in proportional
reductions of the percentage ownership interests of the limited partners (or
other holders of Units) of the Operating Partnership.
YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
As a result of the Transaction, the Company anticipates it will upgrade its
current information systems. The Company intends to review any and all
purchases in this regard to ensure year 2000 compliance. The Company does not
believe that the impact of the recognition of the year 2000 by its information
and operating technology systems will have a material adverse effect on the
Company's financial condition and results of operations.
There can be no assurance that there will not be any year 2000-related
operating problems or unanticipated expenditures that will arise with the
Company's computer systems and software, whether existing or newly acquired, or
that the systems of other companies on which the Company's systems rely will be
timely converted and would not have an adverse effect on the Company's
systems.
FEDERAL INCOME TAX MATTERS
The Company was organized in 1994 and elected to be taxed as a REIT
commencing with its taxable year ended on December 31, 1996. The Company
believes that it was organized and has operated in a manner that permits it to
satisfy the requirements for taxation as a REIT under the applicable provisions
of the Code and intends to continue to operate in such a manner. No assurance
can be given, however, that such requirements have been or will continue to be
met. The following is a summary of certain federal income tax considerations
that may be relevant to the Company and its shareholders in connection with the
Transaction, including the continued treatment of the Company as a REIT for
federal income tax purposes.
The following discussion is based on the law existing and in effect on the
date hereof, and the Company's qualification and taxation as a REIT will depend
on compliance with such law and with any future amendments or modifications to
such law. The qualification and taxation as a REIT will further depend upon the
ability to meet, on a continuing basis through actual operating results, the
various qualification tests imposed under the Code discussed below. No assurance
can be given that the Company will satisfy such tests on a continuing basis.
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In brief, a corporation that invests primarily in real estate can, if it
meets the REIT provisions of the Code described below, claim a tax deduction for
the dividends it pays to its shareholders. Such a corporation generally is not
taxed on its "REIT taxable income" to the extent such income is currently
distributed to shareholders, thereby substantially eliminating the "double
taxation" (i.e., tax at both corporate and shareholder levels) that generally
results from an investment in a corporation. However, as discussed in greater
detail below, such an entity remains subject to tax in certain circumstances
even if it qualifies as a REIT. Further, if the entity were to fail to qualify
as a REIT in any year, it would not be able to deduct any portion of the
dividends it paid to its shareholders and would be subject to full federal
income taxation on its earnings, thereby significantly reducing or eliminating
the cash available for distribution to its shareholders.
TREATMENT OF THE TRANSACTION
For certain of the Acquired Properties, that portion of the Transaction
will be treated as a taxable purchase of the assets from the contributors. This
will not cause the Company or the Operating Partnership to recognize taxable
gain or loss. For certain other of the Acquired Properties, that portion of the
Transaction will be treated as a tax-free contribution to the capital of the
Operating Partnership. Pursuant to Section 704(c) of the Code, items of income,
gain, loss and deduction attributable to appreciated or depreciated property
that is contributed to a partnership in exchange for an interest in the
partnership must be allocated for Federal income tax purposes in a manner such
that the contributor is charged with, or benefits from, the unrealized gain or
unrealized loss associated with the property at the time of the contribution.
The amount of such unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of the contributed property at the time
of contribution and the adjusted tax basis of such property at the time of
contribution (the "Pre-Contribution Gain or Loss"). The Operating Partnership
Agreement requires allocations of income, gain, loss and deduction attributable
to such contributed property to be made in a manner that is consistent with
Section 704(c) of the Code. Thus, if the Operating Partnership sells contributed
property at a gain or loss, such gain or loss will be allocated to the
contributing partners, and away from the Company, generally to the extent of the
Pre-Contribution Gain or Loss.
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT, it will not
generally be subject to federal income tax on that portion of its REIT taxable
income or capital gain which is distributed to shareholders. The Company may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gains not distributed. Under recently enacted legislation, shareholders
may be required to include their proportionate share of the REIT's undistributed
long-term capital gain in income, but receive a credit for their share of any
taxes paid on such gain by the REIT.
Notwithstanding its qualification as a REIT, the Company also may be
subject to taxation in certain other circumstances. If the Company should fail
to satisfy either the 75% or the 95% gross income test (each as discussed
below), and nonetheless maintains its qualification as a REIT (i.e., because
certain other requirements are met), it will be subject to a 100% tax on the
greater of the amount by which the Company fails either the 75% or the 95% test,
multiplied by a fraction intended to reflect the Company's profitability. The
Company will also be subject to a tax of 100% on net income from any "prohibited
transaction" (as described below). Further, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" which is held
primarily for sale to customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, it will be subject to tax on
such income from foreclosure property at the highest corporate rate. In
addition, if the Company should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year and (iii) any undistributed
taxable income from prior years, the Company would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed.
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The Company also may be subject to the corporate alternative minimum tax,
as well as to tax in certain situations not presently contemplated.
The Company will use the calendar year both for federal income tax
purposes, as is required of a REIT, and for financial reporting purposes.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and certain relief provisions do not apply, the Company will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to shareholders in any
year in which the Company fails to qualify as a REIT will not be deductible by
the Company, nor generally will they be required to be made under the Code. In
such event, all distributions to shareholders will be taxable as ordinary income
to the extent of current and accumulated earnings and profits (but, subject to
certain limitations in the Code, corporate distributees may be eligible for a
dividends received deduction). Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
REIT QUALIFICATION REQUIREMENTS
In order to qualify as a REIT, the Company must meet the following
requirements, among others:
Share Ownership Tests. The Company's shares of beneficial interest (which
term, in the case of the Company, currently means the Common Shares) must be
held by a minimum of 100 persons for at least 335 days in each taxable year (or
a proportionate number of days in any short taxable year). In addition, at all
times during the second half of each taxable year, no more than 50% in value of
the outstanding shares of beneficial interest of the Company may be owned,
directly or indirectly (and taking into account the effects of certain
constructive ownership rules), by five or fewer "individuals" (the "50%
Limitation"). For such purposes, the term "individual" includes tax-exempt
entities, but any shares of beneficial interest held by a qualified domestic
pension or other retirement trust will not be treated as held by a single
individual but will be treated as held directly by the pension or trust
beneficiaries in proportion to their actuarial interest in such trust. In
addition, shares of beneficial interest owned, directly or indirectly, by a
corporation will be considered as being owned proportionately by its
shareholders.
In order to force compliance with the foregoing share ownership tests (the
"Share Ownership Tests"), the Articles of Amendment and Restatement place
certain restrictions on the transfer of shares of beneficial interest to prevent
concentration of ownership of beneficial interests in the Company. Moreover, to
evidence compliance with these requirements, Treasury Regulations require the
Company to maintain records that disclose the actual ownership of its
outstanding shares of beneficial interest. In fulfilling its obligations to
maintain records, the Company must and will demand written statements each year
from the record holders of designated percentages of its shares of beneficial
interest disclosing the actual owners of such shares (as prescribed by Treasury
Regulations). A list of those persons failing or refusing to comply with such
demand must be maintained as part of the Company's records. A shareholder
failing or refusing to comply with the Company's written demand must submit with
his tax return a similar statement disclosing the actual ownership of Company's
shares of beneficial interest and certain other information.
Under recently enacted legislation, for taxable years beginning after
August 7, 1997, a REIT that fails to send its so-called "shareholder demand
letters" may be subject to a $50,000 fine. For periods beginning prior to
August 7, 1997 (including the Company's 1996 and 1997 taxable years), the
consequences of a failure to issue shareholder demand letters were uncertain,
although applicable Treasury Regulations indicate that failure to do so could
result in loss of REIT status. Based upon those regulations, the IRS, in a few
highly publicized cases, sought to disqualify certain REITs for failure to send
their shareholder demand letters.
For its taxable years ending both 1996 and 1997, the Company
unintentionally failed to send to its shareholders the shareholder demand
letters requesting information as to the Company's share ownership in light of
the Share Ownership Tests. As a consequence of that failure, the IRS may contend
that the Company did not qualify as a REIT for 1996 and 1997, even though the
Company did not (but for the failure to send letters) fail the Share Ownership
Tests.
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The IRS has given no indication that it intends to challenge the Company's
qualification as a REIT for failure to send such letters. If the IRS were
successfully to challenge the Company's status as a REIT, it could do so both
for years 1996 and 1997, require the Company to pay tax on its income as a
regular corporation, and deny the Company the ability to re-elect REIT status
until possibly as late as 2002. Given that the Company would have reported a
net taxable loss as an ordinary corporation, the Company believes that the
requirement to pay tax on income as a regular corporation would be of little
consequence. The inability to reelect status as a REIT until 2002, however,
would be material.
Asset Tests. In addition to meeting the Share Ownership Tests, the Company
must satisfy two tests relating to the nature of its assets (determined in
accordance with generally accepted accounting principles) (the "Assets Tests").
First, at the close of each quarter of the Company's taxable year, at least 75%
of the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, government securities and qualified temporary investments (the
"75% Asset Test"). For such purposes, where the Company owns 100% of the stock
of a subsidiary corporation (each a "qualified REIT subsidiary"), the separate
taxable existence of such subsidiary will be ignored and the Company will be
deemed to own directly all of the assets and liabilities of such subsidiary.
Similarly, where the Company invests in a partnership (such as the Operating
Partnership), the Company will be deemed to own a proportionate share of the
partnership's assets (based upon its ownership of capital). Secondly, although
the remaining 25% of the Company's assets generally may be invested without
restriction, the Company may not own securities of any one non-government issuer
(which is not a qualified REIT subsidiary) which exceed (i) 5% of the value of
the Company's total assets (the "Value Test") or (ii) 10% of the outstanding
voting securities of any one such issuer (the "Voting Stock Test").
In the instant case, the Company's investment in the Operating Partnership
will constitute an investment in qualified assets for purposes of the 75% Asset
Test and, provided that the Operating Partnership owns only assets qualified to
be owned by a REIT, the Company's indirect ownership of those assets by virtue
of its ownership of Units will be considered ownership of qualified assets. It
is not contemplated that the Operating Partnership will acquire any assets which
are not eligible to be owned by a REIT. Further, the Company's ownership of the
outstanding stock of each of Existing Subsidiaries should be considered the
ownership of a qualified asset insofar as the Company owns 100% of the
outstanding stock of each entity and such entities own only qualified REIT
assets.
Gross Income Tests. In addition to the Share Ownership Tests and the Asset
Tests, there are two separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year (the
"Income Tests"). For such purposes, where the Company invests in a partnership
(such as the Operating Partnership), (i) the Company will be treated as
receiving its share of the income and loss of the partnership, and (ii) the
gross income of the partnership will retain the same character in the hands of
the Company as it has in the hands of the partnership. Similarly, in the case
of its qualified REIT subsidiaries, the Company will be deemed to earn the
income of such subsidiaries directly such that, to the extent that such income
is qualified REIT income in the hands of the subsidiaries, the income will be
qualified REIT income to the Company. The two Income Tests are described below.
The 75% Test. At least 75% of the Company's gross income for the taxable
year must be "qualifying income" (the "75% Income Test"). Qualifying income
generally includes: (i) rents from real property (except as modified below);
(ii) interest on obligations secured by mortgages on, or interests in, real
property; (iii) gains from the sale or other disposition of interests in real
property and real estate mortgages, other than gain from property held primarily
for sale to customers in the ordinary course of the Company's trade or business
("dealer property"); (iv) dividends or other distributions on shares in other
REITs, as well as gain from the sale of such shares; (v) abatements and refunds
of real property taxes; (vi) income from the operation, and gain from the sale,
of property acquired at or in lieu of a foreclosure of the mortgage secured by
such property ("foreclosure property"); and (vii) commitment fees received for
agreeing to make loans secured by mortgages on real property or to purchase or
lease real property.
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Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% Income Test (or the test relating to 95% of a
REIT's gross income described below (the "95% Income Test")) if the Company, or
an owner of 10% or more of the Company, directly or constructively owns 10% or
more of such tenant. In addition, if rent attributable to personal property
leased in connection with a lease of real property is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
such personal property will not qualify as rents from real property. Moreover,
an amount received or accrued will not qualify as rents from real property (or
as interest income) for purposes of the 75% Income Test and 95% Income Test if
it is based in whole or in part on the income or profits of any person (although
an amount received or accrued generally will not be excluded from "rents from
real property" solely by reason of being based on a fixed percentage or
percentages of receipts or sales). Finally, for rents received to qualify as
rents from real property for purposes of the 75% Income Test and 95% Income
Test, the Company generally must not operate or manage the property or furnish
or render services to customers, other than through an "independent contractor"
from whom the Company derives no income. The "independent contractor"
requirement does not apply to the extent that the services provided by the
Company are "usually or customarily rendered" in connection with the rental of
space for occupancy only, and are not otherwise considered "rendered to the
occupant for his convenience." In addition, under recently enacted legislation,
the Company may directly perform a de minimis amount of non-customary services.
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The 95% Income Test. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income or from
dividends, interest, or gains from the sale or other disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of such 95% Income Test, but not for purposes of the 75% Income Test.
For purposes of determining whether the Company complies with the 75%
Income Test and the 95% Income Test, the term "gross income" does not include
income from prohibited transactions. A "prohibited transaction" is a sale of
property held primarily for sale in the ordinary course of the taxpayer's
business (excluding foreclosure property). Important exceptions apply,
including sales of property held for at least four years and meeting certain
other requirements (relating to the number of properties sold in a year, their
tax bases and the cost of improvements made thereto).
Even if the Company fails to satisfy one or both of the 75% Income Test and
95% Income Test for any taxable year, it may still qualify as a REIT for such
year if it is eligible for relief under certain provisions of the Code. Such
relief provisions will generally be available if: (i) the Company's failure to
comply is due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect information on
this schedule is not due to fraud with intent to evade tax. If such relief
provisions apply, however, the Company will nevertheless be subject to a 100%
tax on the greater of the amount by which it fails either the 75% Income Test or
95% Income Test, multiplied by a fraction intended to reflect the Company's
profitability.
Compliance with Income Tests. For the year following the Closing, AREE,
WMC or the contributors of the Acquired Properties, or affiliates in which such
parties have a 10% or greater interest, will be obligated as tenants to pay rent
of approximately $314,000 with respect to the Acquired Properties. Rental
income paid by such affiliates will not constitute qualifying rental income for
purposes of the 75% Income Test and the 95% Income Test.
The Company expects, based on current rent levels, as set forth in the pro
forma financial information included elsewhere in this Proxy Statement, that its
annual gross income following the Transaction will be at least $23.0 million.
The Company estimates that its annual gross income for purposes of the Income
Tests will be $3.2 million, such that the Company can earn up to $159,000
wtihout violating the 95% Income Test. Aside from the Company's percentage share
of rental income to be paid by affiliates of AREE, WMC and other Fee Owners
(currently estimated at $3,000), the Company does not expect that it will earn
material amounts of non-qualifying income from either the Acquired Properties or
its Current Properties. Based on the foregoing, the Company has determined that
it will continue to satisfy the 75% Income Test and the 95% Income Test
following consummation of the Transaction.
The Company intends to monitor closely its non-qualifying income and
anticipates that non-qualifying income from its other activities will not result
in the Company failing to satisfy either the 75% Income Test or 95% Income Test.
Certain of the contributors to the Operating Partnership may provide certain
services at the properties in which the Company owns interests and possibly at
any newly acquired properties. The Company believes that for purposes of the 75%
and 95% Income Tests, the services provided at such properties and any other
services and amenities provided by partners of the Operating Partnership or
their agents with respect to such properties will be of the type usually or
customarily rendered in connection with the rental of space for occupancy only
and not rendered to the occupants of such properties. The Company intends that
services that cannot be provided directly by the Operating Partnership or other
agents will be performed by independent contractors.
Annual Distribution Requirements. In addition to the foregoing, to qualify
as a REIT, the Company is required to distribute dividends to its shareholders
each year in an amount at least equal to (A) the sum of (i) 95% of the Company's
"REIT taxable income" (computed without regard to the "dividends received
deduction" and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, for foreclosure property, minus (B) the sum of certain
items of non-cash income. Such distributions must be paid in the taxable year
to which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after the declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its REIT taxable income, as adjusted, it will be
subject to tax on the undistributed amount at regular capital gain or ordinary
corporate tax rates, as the case may be.
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The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the
preceding paragraph. In this regard, the Operating Partnership Agreement
authorizes the Company in its capacity as general partner to take such steps as
may be necessary to cause the Operating Partnership to distribute to its
partners an amount sufficient to permit the Company to meet the distribution
requirements. It is possible that the Company may not have sufficient cash or
other liquid assets to meet the 95% distribution requirement, due to timing
differences between the actual receipt of income and actual payment of expenses
on the one hand, and the inclusion of such income and deduction of such expense
in computing the Company's REIT taxable income on the other hand, or for other
reasons. The Company will monitor closely the relationship between its REIT
taxable income and cash flow and, if necessary, intends to borrow funds (or
cause the Operating Partnership or other affiliates to borrow funds) in order to
satisfy the distribution requirement. However, there can be no assurance that
such borrowing would be available at such time.
If the Company fails to meet the 95% distribution requirement as a result
of an adjustment to the Company's tax return by the IRS, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Further, in any year in which the Company
fails to qualify as a REIT, the Company will be ineligible to deduct its
distributions to shareholders, while the shareholders will be subject to tax at
ordinary income rates (to the extent of current and accumulated earnings and
profits of the Company) on distributions received (unless the dividends received
deduction available for corporate shareholders applies). More importantly,
unless entitled to relief under specific statutory provisions, the Company may
also be disqualified from re-electing taxation as a REIT for the four taxable
years following the year during which qualification was lost.
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TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN THE OPERATING PARTNERSHIP
General. An entity classified as a partnership for federal income tax
purposes is not, itself, subject to such tax. Rather, the Code provides that
each partner, in computing his or her federal income tax liability, is required
to take into account separately his or her distributive share of all items of
partnership income, gain, loss, deduction, credit and tax preference for any
taxable year of the partnership ending within or with his or her taxable year,
regardless of whether or not such partner has received or will receive any
distributions of cash or property from the partnership. For such purposes, each
partner's distributive share of such items generally will be determined in
accordance with the allocations set forth in the partnership agreement among all
partners, provided such allocations are recognized for federal income tax
purposes.
The Company will hold Units, representing an interest in the capital and
profits of the Operating Partnership. The allocations of Operating Partnership
income, gain, loss, deductions, credits and tax preferences, as set forth in the
Partnership Agreement, are intended to comply with the technical provisions of
Code Section 704(b) and should be recognized for tax purposes. As such, the
Company will include its proportionate share of the foregoing partnership items
for purposes of the various REIT gross income tests and in the computation of
its REIT taxable income.
Notwithstanding the allocation provisions of the Code, however, for
purposes of complying with the gross income and asset tests applicable to REITs
(as discussed above), the Company will be deemed to own its proportionate share
of each of the assets of the Operating Partnership and will be deemed to have
received a share of the income of the Operating Partnership based on its capital
interest in the Operating Partnership. Accordingly, any resultant increase in
the Company's REIT taxable income from its interest in the Operating Partnership
(whether or not a corresponding cash distribution is also received from the
Operating Partnership) will increase its distribution requirements, but will not
be subject to federal income tax in the hands of the Company (provided that the
Company satisfies other requirements applicable for REITs, including making
distributions of income to its shareholders). Moreover, for purposes of the
REIT asset tests, the Company will include its proportionate share of assets
held by the Operating Partnership.
Tax Allocations with respect to Properties. Pursuant to Section 704(c) of
the Code, income, gain, loss and deductions attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution (a "Book-Tax Difference"). Such
allocations are solely for federal income tax purposes and do not affect the
book capital amounts or other economic arrangements among the partners.
Consequently, the Operating Partnership Agreement requires certain allocations
to be made in a manner consistent with Section 704(c) of the Code.
Treasury Regulations under Section 704(c) provide partnerships with a
choice of several methods of accounting for Book-Tax Differences. The Operating
Partnership and the Company have not yet determined which of the alternative
methods of accounting for Book-Tax Differences will be elected, and accordingly,
such determination could have differing timing and other effects on the Company.
The Company's properties acquired in taxable transactions will in general
have a tax basis equal to their fair market value. Section 704(c) of the Code
will not apply in such cases.
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Sale of Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any "dealer property" generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "--Taxation of the Company--General" and "--The 95% Test."
Under existing law, whether property is dealer property is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. The Company has held and the Operating Partnership intends to hold
their properties for investment with a view to long-term appreciation, to engage
in the business of acquiring, owning, operating and developing its properties
and other commercial properties, and to make such occasional sales of
properties, whether presently held or acquired subsequent to the date hereof, as
are consistent with the Company's investment objectives. Based upon the
Company's investment objectives, the Company believes that overall, its current
properties should not be considered dealer property and that the amount of
income from prohibited transactions, if any, will not be material.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders out of current or accumulated earnings and profits generally will
be taxed to such shareholders as ordinary dividend income, except that
distributions of net capital gain designated by the Company as capital gain
dividends will generally be taxed to such shareholders as long-term capital gain
without regard to the period for which the shareholder has held his or its
shares of beneficial interest. However, corporate shareholders may be required
to treat up to 20% of capital gain dividends as ordinary income. To the extent
that the Company makes distributions in excess of current and accumulated
earnings and profits, such distributions will be treated (i) first, as a tax-
free return of capital to the shareholder, reducing the tax basis of such
shareholder's shares of beneficial interest by the amount of such excess
distribution (but not below zero), and (ii) then, as capital gain to the extent
of any distribution in excess of the shareholder's tax basis.
In addition, any dividend declared by the Company in October, November or
December of any year that is payable to a shareholder of record on a specific
date in any such month shall be treated as both paid by the Company and received
by the shareholder on December 31 of such year, provided that the dividend is
actually paid by the Company during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses of the Company. Federal income tax rules may also require that
certain minimum tax adjustments and preferences be apportioned to the Company's
shareholders.
Under recently enacted legislation, the Company may also elect to retain
and pay income tax on its net capital gain for any taxable year. If the Company
so elects, a shareholder must include in income his or its proportionate share
of the Company's undistributed capital gain for the taxable year, and will be
deemed to have paid his or its proportionate share of the income tax paid by the
Company with respect to such undistributed capital gain. Such tax would be
credited against the shareholder's tax liability and subject to normal refund
procedures. In addition, each shareholder's basis in his or its shares of
beneficial interest would be increased by the amount of undistributed capital
gain (less the tax paid by the Company) included in the shareholder's income.
As a result of other recently enacted legislation, gain from the sale or
exchange of certain investments held for more than 12 months will be taxed at a
maximum rate of 20%. Gain from the sale or exchange of such investments held
for 12 months or less will be taxed at a maximum rate of 28%. A maximum rate of
25% applies with respect to "unrecaptured section 1250 gain" recognized on the
sale or exchange of certain real estate assets. Further, according to a recent
IRS Notice, the Company may classify, in accordance with specified procedures,
portions of its designated capital gain dividend as (i) a 20% rate gain
distribution (which would be taxed as capital gain in the 20% group), (ii) an
unrecaptured section 1250 gain distribution (which would be taxed as capital
gain in the 25% group) or (iii) a 28% rate capital gain distribution (which
would be taxed as capital gain in the 28% group). If no designation is made, the
entire designated capital gain dividend will be treated as a 28% rate capital
gain distribution.
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In general, any loss upon a sale or exchange of shares of beneficial
interest by a shareholder who has held such shares for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss, to the extent of prior distributions required to be treated by such
shareholders as long-term capital gains.
Backup Withholding. The Company will report to its domestic shareholders
and to the IRS the amount of distributions paid for each calendar year, and the
amount of tax withheld, if any, with respect thereto. Under the backup
withholding rules, a shareholder may be subject to backup withholding at a rate
of 31% with respect to distributions paid unless such shareholder (i) is a
corporation or comes with certain other exempt categories and, when required,
demonstrates this fact or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. A
shareholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding is available as a credit against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions made to any shareholders who
fail to certify their non-foreign status to the Company. See " --Taxation of
Foreign Shareholders."
Taxation of Tax-Exempt Shareholders. The IRS has issued a revenue ruling
in which it held that amounts distributed by a REIT to a tax-exempt employees'
pension trust do not constitute unrelated business taxable income ("UBTI").
Subject to the discussion below regarding a "pension-held REIT," based upon such
ruling, distributions by the Company to a shareholder that is a tax-exempt
entity should not constitute UBTI, provided that the tax-exempt entity has not
financed the acquisition of its shares of beneficial interest with "acquisition
indebtedness" within the meaning of the Code, that such shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity, and that the
Company, consistent with its present intent, does not hold a residual interest
in a real estate mortgage investment conduit ("REMIC") that is an entity or
arrangement that satisfies the standards set forth in Section 860D of the Code.
If any pension or other retirement trust that qualifies under Section
401(a) of the Code (a "qualified pension trust") holds more than 10% by value of
the interests in a "pension-held REIT" at any time during a taxable year, a
portion of the dividends paid to the qualified pension trust by such REIT may
constitute UBTI. For these purposes, a "pension-held REIT" is defined as a REIT
(i) which would not have qualified as a REIT but for the provisions of the Code
which look through such a qualified pension trust in determining ownership of
shares of the REIT and (ii) as to which at least one qualified pension trust
holds more than 25% by value of the interests of such REIT or one or more
qualified pension trusts (each owning more than a 10% interest by value in the
REIT) hold in the aggregate more than 50% by value of the interests in such
REIT.
Taxation of Foreign Shareholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a brief summary of
such rules.
Gain from the sale or exchange of shares held by a Non-U.S. Shareholder in
a "domestically-controlled REIT" is not generally subject to tax in the United
States (unless such gain is effectively connected with such person's United
States trade or business). For such purposes, a REIT will qualify as a
"domestically-controlled REIT" so long as less than 50% in value of its shares
of beneficial interest are held by foreign persons (i.e., non-resident aliens,
and foreign corporations, partnerships, trusts and estates). The Company
currently anticipates that it will qualify as a domestically-controlled REIT.
As such, gain from the sale of shares of beneficial interest by a foreign person
should not be subject to United States taxation. However, notwithstanding the
Company's current expectation that the Company will qualify as a domestically-
controlled REIT, because such shares will be publicly traded, no assurance can
be given that the Company will continue to so qualify.
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Distributions of cash generated by the Company's real estate operations
(but not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at a rate of 30%. A
lower rate of tax will apply if (i) an applicable tax treaty reduces that tax
and the foreign shareholder files with the Company the required form evidencing
such lower rate, or (ii) the foreign shareholder files an IRS Form 4224 with the
Company claiming that the distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United
States real property interests by the Company are subject to income and
withholding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Additionally, such distributed amounts may also be subject to
"branch profits tax" in the hands of a foreign corporate shareholder not
otherwise entitled to treaty relief or exemption. The Company is required by
applicable Treasury Regulations to withhold 35% of any distribution to a foreign
person that could be designated by the Company as a capital gain dividend. This
amount is creditable against the foreign shareholder's FIRPTA tax liability.
The federal income taxation of foreign persons is a highly complex matter
that may be affected by other considerations. Accordingly, foreign investors in
the Company should consult their own tax advisor regarding the income and
withholding tax considerations with respect to their investment in the Company.
OTHER TAX CONSIDERATIONS
Possible Legislative or Other Actions Affecting Tax Consequences.
Shareholders should recognize that the present federal income tax treatment of
an investment in the Company may be modified by legislative, judicial or
administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with federal
income taxation are constantly in review by persons involved in the legislative
process and by the IRS and the Treasury Department, resulting in revisions of
regulations and revised interpretations of established concepts as well as
statutory changes. No assurance can be given as to the form or content
(including with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof can adversely
affect the tax consequences of an investment in the Company.
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State and Local Taxes. The Company and the Operating Partnership may be
subject to state or local taxation, and the Company's shareholders may be
subject to state or local taxes in various jurisdictions, including those in
which they transact business or reside. The state and local tax treatment of the
Company and its shareholders may not conform to the federal income tax
consequences discussed above.
PROPOSAL II
APPROVAL OF AMENDMENTS TO THE DECLARATION OF TRUST
GENERAL
The Company's Board of Trustees has approved and declared advisable, and
recommends to the shareholders that they approve, amendments to the Company's
Declaration of Trust, as set forth in the Articles of Amendment and Restatement,
that would: (i) make certain changes in the composition of the Board of
Trustees; (ii) provide for staggered terms of the members of the Board of
Trustees; (iii) change the standard of removal of a Trustee; (iv) specify the
method of filling certain vacancies on the Board of Trustees; (v) provide a
specific standard of care for Trustees in their performance of their duties as
such; (vi) provide for general, rather than specific, powers of the Board of
Trustees; (vii) increase the number of authorized shares of the Company; (viii)
delete certain requirements regarding the treatment of Common Shares; (ix)
specifically limit dissenting shareholders' rights to appraisal and to receive
fair value for their shares to those required by Maryland law; (x) specify the
method of approval of certain related party transactions; (xi) make certain
changes to the "excess share" provisions of the Declaration; (xii) delete
provisions regarding reports to shareholders and shareholder access to Company
records; (xiii) amend provisions relating to the amendment of the Declaration;
and (xiv) provide for the indemnification of, and advancement of expenses to,
officers and Trustees of the Company with respect to certain matters.
Shareholders should note in particular that the Declaration, as amended
upon the filing of the Articles of Amendment of Restatement, would provide for a
staggered Board of Trustees and would classify the current Board of Trustees
into three classes serving terms expiring at the 1999, 2000 and 2001 Annual
Meetings of Shareholders. As a result, although the current Trustees were
elected at the 1998 Annual Meeting of Shareholders to serve only one-year terms,
the terms of certain of the Trustees would not expire at the 1999 Annual Meeting
of Shareholders, but would instead by extended for a period of up to two
additional years. See "Proposal III--Election of Trustees."
The Board of Trustees believes that the approval of the amendments to the
Declaration as set forth in the Articles of Amendment and Restatement is in the
best interests of the Company and its shareholders. If Proposals I and III, in
addition to this Proposal II, are approved by the shareholders of the Company,
the Board of Trustees anticipates that the Articles of Amendment and Restatement
will be filed in Maryland and will become effective concurrently with the
consummation of the initial closing in connection with the Transaction. If,
however, any of Proposals I, II or III is not approved by the requisite
shareholders of the Company or no closings in connection with the Transaction
occur, the Board of Trustees anticipates that it will not cause the proposed
Articles of Amendment and Restatement to become effective and the current
Declaration will remain in effect. The vote of a majority of the Common Shares
entitled to vote at the Special Meeting will be required to approve the
amendments to the Declaration set forth in the Articles of Amendment and
Restatement.
The discussion contained in this Proxy Statement is qualified in its
entirety by reference to the form of Articles of Amendment and Restatement of
the Company's Declaration of Trust, which is attached hereto as Exhibit E.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENTS TO THE DECLARATION OF TRUST
SIGNIFICANT CHANGES RESULTING FROM THE APPROVAL OF THE AMENDMENTS TO THE
DECLARATION
The following discussion of the significant differences between the current
Declaration and the Declaration as it would be amended by the Articles of
Amendment and Restatement is an attempt to summarize the more important
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differences and does not purport to be an exhaustive discussion of all of the
differences. Such differences can be determined in full by reference to Title 8
of the Corporations and Associations Articles of the Annotated Code of Maryland
(the "Maryland REIT Law"), the MGCL, the current Declaration, the Bylaws and the
Articles of Amendment and Restatement.
Board Composition. The current Declaration provides for the initial number
of Trustees of the Company to be five, with such number to be increased or
decreased by the Trustees then in office, provided that the total number of
Trustees shall not be less than three nor more than 15. The current Declaration
specifies that a majority of Trustees must be "independent" Trustees (not
employed by the Company).
As amended by the Articles of Amendment and Restatement, the Declaration
would set the initial size of the Board of Trustees at seven and would not place
any upper limit on the number of Trustees in office (though the lower limit of
three is retained). As amended by the Articles of Amendment and Restatement,
the Declaration would not require any specified number or percentage of
independent Trustees.
Staggered Terms. The current Declaration provides that the Trustees be
elected annually at each Annual Meeting of Shareholders to serve one-year terms.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide that the Board of Trustees be divided into three classes, with one
class to hold office initially for a term expiring at the 1999 Annual Meeting of
Shareholders, another class to hold office initially for a term expiring at the
2000 Annual Meeting of Shareholders and the third class to hold office initially
for a term expiring at the 2001 Annual Meeting of Shareholders. The
Declaration, as so amended, would further provide that, at each annual meeting
of shareholders, the successors to the class of Trustees whose term expires at
such meeting shall be elected to hold office for a term expiring at the annual
meeting held in the third year following the year of their election, and the
other Trustees shall remain in office. As a result, although the current
Trustees were elected at the 1998 Annual Meeting of Shareholders to serve only
one-year terms, the terms of certain of the Trustees would not expire at the
1999 Annual Meeting of Shareholders, but would instead by extended for a period
of up to two additional years. See "Proposal III--Election of Trustees."
Removal of Trustees. The current Declaration provides that a Trustee may
be removed at a meeting of shareholders called for that purpose, by the
affirmative vote of a majority of the shares outstanding and entitled to vote in
the election of Trustees.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide that a Trustee may be removed only with Cause (as hereinafter
defined) at a meeting of shareholders called for that purpose, by the
affirmative vote of at least two-thirds of the shares outstanding and entitled
to vote in the election of Trustees. "Cause" is defined as (i) theft, fraud or
embezzlement or active and deliberate dishonesty by a Trustee; (ii) habitual
neglect of duty by a Trustee having a material and adverse significance to the
Company; or (iii) the conviction of a Trustee of a felony or of any crime
involving moral turpitude.
Vacancies. The current Declaration does not address the filling of
vacancies occurring on the Board of Trustees.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide that, subject to certain rights of the shareholders, any vacancy
created by removal for Cause may be filled by the remaining Trustees or by the
vote of shareholders. The Declaration, as so amended, would further provide
that a Trustee elected by the Trustees to fill a vacancy will hold office until
the next Annual Meeting of Shareholders, while a Trustee elected by the
shareholders to fill a vacancy will have the same remaining term as that of his
predecessor.
Duties of Trustees. The current Declaration does not set forth a standard
of care for the performance of the duties of a Trustee.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide that a Trustee shall perform his duties as a Trustee in good
faith, in a manner he reasonably believes to be in the best interests of the
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Company, and with the care that an ordinarily prudent person in a like position
would use under similar circumstances. The Declaration, as so amended, would
further provide that a Trustee, with certain exceptions, may, in the exercise of
his duties as such, rely on certain information, opinions, reports and
statements prepared or presented by certain persons.
Powers of Trustees. The current Declaration sets forth in detail specific
powers of the Board of Trustees, including with respect to investments, sale,
disposition and use of property, financings, loans, issuances of securities,
expenses and taxes, collection and enforcement, deposits, allocation and
accounts, valuation of property, ownership and voting powers, officers,
associations, reorganizations, insurance, executive compensation, distributions,
indemnification, charitable contributions, bankruptcy, the fiscal year, the
corporate seal, bylaws, voting trusts and proxies.
As amended by the Articles of Amendment and Restatement, the Declaration
would vest the Board of Trustees with a general power over the property and
business of the Company, without enumeration of specific powers of the Board.
Number of Authorized Shares. The current Declaration provides authority
for the issuance of up to 100,070,000 Common Shares and 500,000 Preferred
Shares.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide authority for the issuance of up to 100,000,000 Common Shares and
10,000,000 Preferred Shares.
Common Shares. The current Declaration provides that shares of a
particular class of issued Common Shares shall have equal dividend,
distribution, liquidation and other rights, and shall have no preference,
preemptive, appraisal, conversion or exchange rights.
As amended by the Articles of Amendment and Restatement, the Declaration
would contain no similar limitation.
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Appraisal Rights. The current Declaration is silent as to whether
shareholders will have any appraisal rights.
As amended by the Articles of Amendment and Restatement, the Declaration
would specifically state that shareholders shall have no appraisal rights except
as expressly required by Maryland law.
Related Party Transactions. The current Declaration allows the Board of
Trustees to authorize certain related party transactions under certain
circumstances, and provides that no such transaction shall be invalidated or
rendered void or voidable solely by reason of any related party relationship if
the existence of such is disclosed or known to the Board of Trustees.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide that a related party transaction is not void or voidable solely by
reason of such relationship if either (i) the existence thereof is disclosed to
or known by (a) the Board of Trustees and the transaction is approved by a
majority of the disinterested Trustees or (b) the shareholders entitled to vote
and the transaction is approved by a majority of the votes cast by disinterested
shareholders entitled to vote, or (ii) the transaction is fair and reasonable to
the Company.
Excess Share Provisions. The current Declaration provides for substantial
restrictions with respect to a shareholder's ability to concentrate ownership of
Shares in (as hereinafter defined) a manner which has a material adverse effect
on the status of the Company as a REIT.
As amended by the Articles of Amendment and Restatement, the Declaration
would maintain similar restrictions but provide for broader limitations in an
effort to protect more effectively the status of the Company as a REIT and to
maintain the character of its income as qualified REIT income. Specifically,
the amendments set forth in the Articles of Amendment and Restatement expand the
list of events upon which Common Shares and Preferred Shares of the Company
(collectively, "Shares") may become so-called "excess shares" to include (a)
events other than transfers of Shares, and (b) constructive ownership by any
shareholder (other than so-called "existing holders") of Shares representing
more than the lesser of (i) 3.0% of the value of the outstanding Shares of the
Company (which number may be adjusted, subject to
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certain limitations, in the discretion of the Board of Trustees, (ii) 9.9% of
the total combined voting power of all classes of Shares, or (iii) 9.9% of the
total number of Shares of all classes of Shares outstanding. In the case of
existing holders (including for such purpose, AREE and any person owning Shares
representing more than 3.0% of the value of the outstanding Shares on the date
of consummation of the Transaction), AREE will be limited to 32.0% of the value
of the outstanding Shares and voting power of the Shares of the Company and all
other persons will be limited to whatever percentage of Shares they hold on the
date of consummation of the Transaction. Additionally, consistent with the
current Declaration, the Declaration, as so amended, would provide that, once
Shares become excess shares, they are transferred to a special trust for the
benefit of a shareholder other than the record owner of such Shares. However,
unlike the current Declaration, the Declaration, as so amended, would provide
(a) that the trustee of the trust holding excess shares (rather than the
purported record owner) may designate the permitted owner for such shares, (b)
that, until such time as a permitted owner is so designated, the beneficiary of
the special trust is a charity designated by the Board of Trustees and (c) that
the trustee of the special trust has both voting and dividend rights with
respect to any excess shares held in trust.
Certain Actions by Shareholders. The current Declaration does not change
the Maryland statutory requirement of a two-thirds vote of shareholders for the
Company to take certain actions.
As amended by the Articles of Amendment and Restatement, the Declaration
would allow the Company to take the following actions upon a majority (rather
than two-thirds) vote of shareholders: (i) the voluntary dissolution or
termination of the Company; (ii) the reorganization of the Company; and (iii)
the merger or consolidation of the Company, or a share exchange by the Company,
or the sale or disposition of all or substantially all of the property of the
Company.
Reports to Shareholders. The current Declaration sets forth certain
reports that are required to be provided to shareholders of the Company.
As amended by the Articles of Amendment and Restatement, the Declaration
would contain no similar provision, although Maryland law will require an annual
report to shareholders.
Access to Records. The current Declaration provides for access to certain
records of the Company by shareholders under certain circumstances.
As amended by the Articles of Amendment and Restatement, the Declaration
would contain no similar provision, although Maryland law will provide similar
rights.
Amendments to Declaration. The current Declaration provides that the
shareholders of the Company may amend the Declaration upon the affirmative vote
of the holders of a majority of the shares then outstanding and entitled to vote
on the matter. The current Declaration further provides that the Trustees may
amend provisions of the Declaration by a majority vote to enable the Company to
qualify as a REIT under the Code or the Maryland REIT Law.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide that the Declaration of Trust may be amended by the shareholders
only upon the approval of the Board of Trustees and with the affirmative vote of
the holders of a majority of the shares then outstanding and entitled to vote on
the matter. The Articles of Amendment and Restatement further provide that the
Trustees may amend the provisions of the Declaration of Trust, without the vote
of shareholders, by a two-thirds vote (i) to increase or decrease the aggregate
number of shares or the number of shares of any class that the Company has
authority to issue or classify or reclassify any unissued shares by setting or
changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption of any series or class of shares, and (ii)
to enable the Company to qualify as a REIT under the Code or the Maryland REIT
Law.
Indemnification of Officers and Trustees. The current Declaration vests
the Company with the power to indemnify, and advance expenses to, present and
former shareholders, officers and Trustees of the Company with respect to
certain claims and liabilities to which such person may become subject by reason
of being or having been a shareholder, officer or Trustee of the Company.
As amended by the Articles of Amendment and Restatement, the Declaration
would provide that the Company shall indemnify, and advance expenses to, present
and former officers and Trustees of the Company with respect to certain claims
and liabilities to which such person may become subject by reason of serving or
having served in such capacity. As
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amended by the Articles of Amendment and Restatement, the Declaration would vest
the Company with the power to indemnify any other persons permitted but not
required to be indemnified under Maryland law, and states that the Company may,
but shall not be required to, purchase or maintain insurance of behalf of any
persons required or permitted to be indemnified. See "Proposal I--Approval of
the Transaction--The Transaction--Interests of Certain Persons in the
Transaction."
PRINCIPAL REASONS TO APPROVE THE AMENDMENTS TO THE DECLARATION; POTENTIAL RISKS
ASSOCIATED WITH APPROVAL OF THE AMENDMENTS TO THE DECLARATION
The Board of Trustees believes that the Declaration as amended and restated
by the proposed Articles of Amendment and Restatement will provide long-term
benefits to the Company and its shareholders in that it will allow the Company
and the Board of Trustees needed flexibility in corporate planning and the
ability to respond to developments in the Company's business. In addition, the
Board of Trustees believes that the amendments effected by the proposed Articles
of Amendment and Restatement will enhance the Company's ability to attract
highly qualified individuals to serve as officers and Trustees of the Company.
Finally, certain of the changes proposed by the amendments contained in the
Articles of Amendment and Restatement are substantially ministerial in nature.
Hostile Takeover Attempts. The Board of Trustees believes that the
increase in the size of the Board of Trustees and deletion of the upper limit on
the number of members of the Board, the implementation of staggered terms, the
heightened standard for removal of Trustees, the provisions regarding filling of
vacancies on the Board of Trustees and the increase in the number of authorized
shares of the Company (all as set forth in the Articles of Amendment and
Restatement) will render more difficult unsolicited attempts from third parties
to take over the Company, giving the Company and the Board of Trustees
sufficient time to consider carefully and evaluate unsolicited offers and
increasing the likelihood that all shareholders will receive a fair price for
their shares in any transactions relating to such offers. The Board of Trustees
does not know of any pending offer by any party to acquire control of the
Company. However, the Board of Trustees is aware that other companies and their
shareholders have been subjected to various tactics which could be contrary to
the best interests of a corporation and its shareholders in connection with any
such proposed acquisition of control. A hostile takeover attempt that has not
been negotiated or approved by the board of a corporation can seriously disrupt
the business and management of a corporation and generally present to the
shareholders the risk of terms which may be less than favorable to all of the
shareholders than would be available in a board-approved transaction. Board-
approved transactions may be carefully planned and undertaken at an opportune
time in order to obtain maximum value for the corporation and all of its
shareholders with due consideration to matters such as the recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation and maximum strategic deployment of corporate assets.
The Board of Trustees believes that these provisions of the Declaration as
amended by the Articles of Amendment and Restatement will reduce the likelihood
that an unsolicited offer to acquire control of the Company will be pursued in
an unfair or inequitable manner and thus reduce the likelihood that the Company
would be required to incur significant expense and be subject to substantial
disruption in connection with such an attempt.
The Board of Trustees recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
sometimes be beneficial to shareholders by providing them with considerable
value for their shares. The changes described above could therefore impede or
delay the ability to effect a change in control of the Company even if such
change in control were in the best interests of the shareholders. In addition,
the approval of the amendments to the Declaration set forth in the Articles of
Amendment and Restatement will not necessarily ensure or guarantee that
shareholders of the Company will receive a price for their shares in connection
with an acquisition of control of the Company that reflects the value of such
shares. However, the Board of Trustees believes that the potential
disadvantages of unapproved takeover attempts are sufficiently great such that
prudent steps to reduce the likelihood of such takeover attempts are in the best
interests of the Company and its shareholders, and that the likelihood that a
price will reflect the value of shares of the Common Shares and will be fair and
equitable will be increased by the approval of the amendments to the Declaration
set forth in the Articles of Amendment and Restatement. Notwithstanding this
belief, shareholders should recognize that one of the effects of such steps may
be to discourage a future attempt to acquire control of the Company which is not
presented to and approved by the Board of Trustees, but which certain of the
Company's shareholders may believe to be in their best interests or in which
shareholders might receive a substantial premium for their shares over the then-
market price. As a result, shareholders who might desire to participate in such
a transaction may not
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have an opportunity to do so. See "Proposal I--Approval of the Transaction--Risk
Factors--Limitations on Changes in Control."
Other Corporate Planning and Corporate Developments. The Board of Trustees
believes that the adoption of general, rather than specific, powers of the Board
of Trustees, the deletion of the limitations regarding classes of Common Shares,
the specified method of approval of certain related party transactions, the
amendment of provisions relating to the amendment of the Declaration, and the
increase in the number of authorized shares of the Company will have the effect
of allowing the Company, the Board of Trustees and the shareholders the needed
flexibility to engage in corporate planning and quickly respond to certain
corporate developments, including possible financing and acquisition
transactions, stock splits or dividends, issuances of shares in connection with
employee benefit programs and other general corporate purposes. These proposed
amendments will, in the opinion of the Board of Trustees, allow the shareholders
and the Board of Trustees to implement decisions and respond to situations more
quickly as a result of the broad powers of the Board of Trustees, the
implementation of a specific method of dealing with related party transactions,
the necessity of only a majority vote (rather than two-thirds) in some instances
and the availability of authorized shares to effect any transaction.
While the Board of Trustees believes that these proposed amendments will
provide long-term benefits to the Company and its shareholders, shareholders
should note in particular that the issuance of additional Common Shares or
Preferred Shares (which would be available for issuance as a result of the
increase in the authorized shares of the Company) may have a dilutive effect on
earnings per share and book value per share, as well as a dilutive effect on the
voting power of existing shareholders. In addition, the perception that
significant issuances of Common Shares could occur could have an adverse effect
on the market price of the Common Shares. See "Proposal I--Approval of the
Transaction--Risk Factors--Shares Eligible for Future Sale."
Officers and Members of the Board of Trustees. The Board of Trustees
believes that the indemnification provisions contained in the Articles of
Amendment and Restatement will require the Company to provide indemnification of
its officers and Trustees to the fullest extent of Maryland law. In addition,
the Board of Trustees believes that the specific delineation of a standard of
care for Trustees in the performance of their duties will be a beneficial guide
to Trustee, the Company and its shareholders. The Company seeks to retain the
most capable individuals available to serve as its Trustees and officers, and
the Board of Trustees believes that providing the maximum reasonable protection
of its officers and Trustees through the adoption of the indemnification
provisions set forth in the Articles of Amendment and Restatement, as well as
the adoption of a specific standard of care that Trustees may use as a guide in
the performance of their duties, could be a significant factor in ensuring the
continued services of the officers and Trustees of the Company, attracting other
qualified and experienced individuals to serve in such capacities and freeing
them to make corporate decisions on the merits rather than out of a desire to
avoid personal liability. Though the Company has not yet experienced
significant difficulties in attracting or retaining officers or Trustees, there
can be no assurance that, if present litigation trends continue, this will
continue to be the case.
Ministerial Changes. The proposed amendments contained in the Articles of
Amendment and Restatement include numerous ministerial changes included
primarily to clarify the language of the Declaration. While most of such
changes are not significant and therefore will not be discussed in this Proxy
Statement, shareholders should note that the Declaration, as amended by the
Articles of Amendment and Restatement, would specifically limit shareholders'
appraisal rights to those required by Maryland law (while the current
Declaration is silent on this subject), and delete provisions regarding reports
to shareholders and shareholder access to Company records on the basis that such
reports and such access are specifically provided for in the Maryland REIT Law
(and therefore need not be restated in the Declaration).
POTENTIAL CONFLICTS OF INTEREST IN BOARD OF TRUSTEES' RECOMMENDATION OF APPROVAL
OF THE AMENDMENTS TO THE DECLARATION
The provisions of the amendments to the Declaration set forth in the
Articles of Amendment and Restatement that are intended to render more difficult
a hostile takeover attempt could have the effect of entrenching, and making more
difficult the removal of, the current Board of Trustees, and therefore the Board
of Trustees may have an inherent conflict in recommending the approval of such
anti-takeover provisions. In addition, it should be noted that there may be an
inherent conflict of interest in the Board of Trustees' recommendation regarding
the indemnification provisions of the
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amendments to the Declaration set forth in the Articles of Amendment and
Restatement due to the interest of the members of the Board of Trustees in
obtaining the protection and benefits of such provisions.
PROPOSAL III
ELECTION OF TRUSTEES
Pursuant to the Declaration, the total number of members allowed to serve
on the Company's Board of Trustees may be no less than three and no more than
15. At the Company's 1998 Annual Meeting of Shareholders, held on May 27, 1998,
five Trustees were elected to serve one-year terms expiring at the next annual
meeting of shareholders. Pursuant to authority set forth in the Declaration, on
August 12, 1998, the Board of Trustees resolved to expand the number of members
of the Board from five to seven. While the Board of Trustees has the authority,
pursuant to the Bylaws, to fill the vacancies created by the expansion of the
Board membership, the Company has determined to submit the matter of the
election of the two additional Trustees to a vote of shareholders. The Board of
Trustees has nominated Paul T. Lambert and Steven B. Hoyt (the "Nominees") to
serve as Trustees. The Board of Trustees anticipates that, only if Proposals I
and II are approved by the shareholders and the initial closing in connection
with the Transaction is consummated, each of the Nominees will serve as a
Trustee if elected. However, if either Proposal I or Proposal II is not
approved by the shareholders or no closings in connection with the Transaction
occur, the Board of Trustees anticipates that the Nominees will decline to serve
as Trustees. In addition, if any person nominated by the Board of Trustees is
unable to accept election, the proxies will vote for the election of such other
person or persons as the Board of Trustees may recommend.
In addition, as more fully discussed in Proposal II above, at the Special
Meeting, the shareholders of the Company will be asked to approve amendments to
the Declaration. One of the changes that would be effected by the approval of
such amendments and the filing of Articles of Amendment and Restatement is that
the Trustees of the Company will be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, with the members of each class to hold office until their
successors are duly elected and qualified. As a result, at each annual meeting
of shareholders, the successors to the class of Trustees whose term expires at
such annual meeting would be elected to hold office for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election (with the other Trustees to remain in office). If Proposal II is
approved by the requisite shareholders, when the Articles of Amendment and
Restatement become effective, the members of the Board of Trustees will be
divided into three classes serving terms expiring at the 1999, 2000 and 2001
Annual Meetings of Shareholders, with the current members of the Board of
Trustees to be placed into the classes indicated below. As a result, the
Company is submitting to a vote of shareholders the election of Arnold K. Leas
and Robert P. Ripp as Trustees to serve longer terms than the one-year terms for
which they were elected at the 1998 Annual Meeting of Shareholders. If the
election of such Trustees to serve extended terms pursuant to this Proposal III
is approved by the requisite shareholders, Mr. Leas would be elected to serve a
term ending at the 2001 Annual Meeting of Shareholders, and Mr. Ripp would be
elected to serve a term ending at the 2000 Annual Meeting of Shareholders. If
the election of Mr. Leas and/or Mr. Ripp to serve such extended terms is not
approved by the requisite shareholders, their respective terms would expire at
the 1999 Annual Meeting of Shareholders.
In addition, one of the new Trustees proposed to be elected at the Special
Meeting (who shall be Paul T. Lambert if he is so elected) will be placed into
Class I (with a term expiring at the 2001 Annual Meeting of Shareholders), and
the other new Trustee proposed to be elected at the Special Meeting (who shall
be Steven B. Hoyt if he is so elected) will be placed in Class II (with a term
expiring at the 2000 Annual Meeting of Shareholders). If Proposal II is not
approved by the requisite shareholders or the Articles of Amendment and
Restatement do not become effective for any other reason, or if Mr. Leas and/or
Mr. Ripp is not elected by the requisite shareholders to serve an extended term
as set forth above, the Trustees elected at the Special Meeting will be elected
to serve terms ending at the 1999 Annual Meeting of Shareholders, although it is
anticipated that, in any such case, Messrs. Hoyt and Lambert, if so elected,
will decline to serve as Trustees.
The vote of a plurality of the Common Shares represented in person or by
proxy at the Special Meeting will be required to elect the Nominees named below
to the Company's Board of Trustees and to elect Mr. Leas and Mr. Ripp to
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serve the extended terms described herein. Shareholders may withhold authority
to vote for either Nominee, Mr. Leas or Mr. Ripp by writing the name of such
person on the line provided for such purpose on the Proxy Card.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION OF THE
NOMINEES AND THE ELECTION OF CERTAIN TRUSTEES TO EXTENDED TERMS.
INFORMATION REGARDING CURRENT TRUSTEES, NOMINEES AND CURRENT AND PROPOSED
EXECUTIVE OFFICERS
The following biographical descriptions set forth certain information with
respect to the current Trustees, Nominees for election as Trustees at the
Special Meeting and certain current and proposed executive officers, based on
information furnished to the Company by such persons. The following information
is as of June 30, 1998, unless otherwise specified.
<TABLE>
<CAPTION>
Name Age Title(s)
---- --- --------
<S> <C> <C>
Arnold K. Leas 64 Chairman of the Board of Trustees and President
Steven B. Hoyt 46 Nominee for Trustee
Paul T. Lambert 45 Nominee for Trustee
Lyle W. Larcheid 69 Trustee
Peter Ogden 39 Trustee
Robert P. Ripp 71 Trustee
Gerald Sobczak 49 Trustee
Duane H. Lund 34 Proposed Chief Executive Officer
Robert F. Rice 47 Executive Vice President and Secretary (and Proposed President)
Gregory S. Leas 37 Executive Vice President
Garret T. Nakama 53 Controller and Treasurer
Dale Pinkalla 41 Vice President, Property Management
</TABLE>
PROPOSED CLASS I TRUSTEES AND NOMINEES - TERMS TO EXPIRE IN 2001
PAUL T. LAMBERT, Nominee for Trustee of the Company, served on the Board of
Directors and was the Chief Operating Officer of First Industrial Realty Trust,
Inc., a Maryland corporation ("First Industrial"), from its initial public stock
offering in June 1994 to the end of 1995. Mr. Lambert was one of the largest
contributors to the formation of First Industrial and one of its founding
shareholders. Prior to forming First Industrial, Mr. Lambert was Managing
Partner of the Midwest region for The Shidler Group, a national private real
estate investment company ("Shidler"). Prior to joining Shidler, Mr. Lambert
was a commercial real estate developer with Dillingham Corporation and, prior to
such time, was a consultant with The Boston Consulting Group. Mr. Lambert was
also a founding shareholder of CGA Group, Ltd., a holding company whose
subsidiary is a AAA-rated financial guarantor based in Bermuda.
ARNOLD K. LEAS, Chairman of the Board of Trustees and President of the
Company, has served in such capacities since the Company's inception in 1994.
Mr. Leas has also served as a director, Chief Executive Officer and President of
WMC since WMC's inception in 1988. WMC and its subsidiary, Wellington
Investment Services Corp., currently manage over $100 million dollars of
investors' funds. From 1984 to 1988, Mr. Leas was Executive Vice President of
Decade Securities, Inc., a Milwaukee company that was involved primarily in the
syndication of multi-family apartment complexes throughout the United States.
Mr. Leas is on the Board of Directors of the Metropolitan Milwaukee Association
of Commerce Council of Small Business Executives and is a graduate of the
Realtors Institute. In connection with the Transaction, Mr. Leas will resign as
President but will remain the Chairman of the Board of Trustees of the Company.
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PROPOSED CLASS II TRUSTEES AND NOMINEES - TERMS TO EXPIRE IN 2000
STEVEN B. HOYT, Nominee for Trustee of the Company, has served as managing
general partner of Hoyt Development (from 1979 to 1989) and Chief Executive
Officer of HPI (from 1989 to present). HPI currently owns over 1,000,000 square
feet of industrial and office property in Minnesota and has developed over
5,000,000 square feet of commercial property since its inception. From 1994 to
1995, Mr. Hoyt served as a Senior Regional Director of First Industrial. Mr.
Hoyt is a member of the Board of Directors of the Better Business Bureau and has
served in numerous state and national positions for the National Association of
Industrial and Office Parks (NAIOP).
ROBERT P. RIPP, Trustee of the Company, has served in such capacity since
the Company's inception in 1994. Mr. Ripp is the owner of RESI Realtor, a
Milwaukee-based real estate brokerage firm. Prior to forming RESI Realtor in
1985, Mr. Ripp was the Vice President/General Sales Manager for Wauwatosa
Realty, a real estate brokerage firm with 27 offices in the State of Wisconsin.
PROPOSED CLASS III TRUSTEES - TERMS TO EXPIRE IN 1999
LYLE W. LARCHEID, Trustee of the Company, has served in such capacity since
1994. Mr. Larcheid has served as Senior Vice President of lending at Wauwatosa
Savings Bank in Wauwatosa, Wisconsin since 1986. Prior to 1986, Mr. Larcheid
was Senior Executive Vice President at St. Francis Savings and Loan in St.
Francis, Wisconsin.
PETER OGDEN, Trustee of the Company, has served in such capacity since the
Company's inception in 1994. Mr. Ogden has served as the President and owner of
Ogden & Company since 1990 and the Vice President, Treasurer and owner of Ogden
Development Group, Inc. since 1986, both of which are Milwaukee-based providers
of real estate brokerage, leasing and property management services and which
manage over 2,500 apartment and condominium units, in addition to shopping
centers and office, industrial and mixed-use buildings.
GERALD SOBCZAK, Trustee of the Company, has served in such capacity since
the Company's inception in 1994. Since 1990, Mr. Sobczak has been a self-
employed real estate investor, owning and operating apartment units. From 1989-
1990, Mr. Sobczak served as Building Manager for American Landmark Properties,
and from 1984-1988 was an Asset/Property Manger for Eastmore Real Estate.
CURRENT AND PROPOSED EXECUTIVE OFFICERS
DUANE H. LUND, proposed Chief Executive Officer of the Company, will be
appointed to such position in connection with the Transaction. Mr. Lund was a
founding shareholder of First Industrial and served as a Senior Regional
Director of First Industrial from 1994 to June 1998. In such capacity, Mr. Lund
acquired and managed over 11,000,000 square feet of commercial property with a
value in excess of $750 million. From 1989 to 1994, Mr. Lund was an Acquisition
Partner with Shidler, where he was involved in coordinating the underwriting and
due diligence for over $200 million of commercial property. Prior to 1989, Mr.
Lund was a tax consultant with Peat Marwick Main & Company. Mr. Lund is a
member of the Boards of Directors of the Wisconsin Real Estate Alumni
Association and National Association of Industrial and Office Properties
Minnesota Chapter and is a member of the advisory boards of Midwest Real Estate
News, Minnesota Real Estate Journal and KPMG Peat Marwick Alumni Association.
ROBERT F. RICE, Executive Vice President and Secretary of the Company, has
served as Secretary of the Company since its inception in 1994 and as Executive
Vice President of the Company since May 1997. Prior to the Company's formation,
Mr. Rice served as Vice President/General Counsel to WMC beginning in November
1993. From 1989 to October 1993, Mr. Rice provided advice with respect to
Resolution Trust Corporation matters through Resource Alternatives, Inc., a
provider of legal and consulting services to the real estate industry. From
1984 to 1989, Mr. Rice served as a director, officer and general counsel for
various affiliates of St. Francis Bank, F.S.B. In connection with the
Transaction, Mr. Rice will resign as Executive Vice President and Secretary of
the Company and will be appointed President of the Company, although Mr. Rice
has agreed to continue to serve as Secretary of the Company until such time as
the Board of Trustees has identified a replacement and such individual has
agreed to serve in such capacity.
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GREGORY S. LEAS, Executive Vice President of the Company, has served in
such capacity since the Company's inception in 1994. From 1990 to the present,
Mr. Leas also has served in various management capacities with WMC. From 1986
to 1990, Mr. Leas was employed in the litigation department at Fried, Frank,
Harris, Shriver & Jacobson in New York City. It is currently anticipated that,
in connection with the Transaction, Mr. Leas will resign as Executive Vice
President of the Company.
GARRET T. NAKAMA, Controller and Treasurer of the Company, has served in
such capacities since the Company's inception in 1994. From 1991 to the
present, Mr. Nakama has served as Vice President/Finance for WMC. From 1986 to
1991, Mr. Nakama was employed as Controller of Nassco, Inc., a New Berlin,
Wisconsin supplier of equipment. It is currently anticipated that, in connection
with the Transaction, Mr. Nakama will resign as Controller and Treasurer of the
Company, although Mr. Nakama has agreed to continue to serve in such capacities
until such time as the Board of Trustees has identified a replacement for Mr.
Nakama and such individual has agreed to serve in such capacities.
DALE PINKALLA, Vice President, Property Management, has served in such
capacity since 1993. Since 1993, Mr. Pinkalla also has served as Director of
Real Estate for WMC. Prior to joining the Company and WMC in 1993, Mr. Pinkalla
was employed as an account officer for the Real Estate Group of Wells Fargo
Bank. From 1989 to 1992, Mr. Pinkalla was a partner/project manager of a $25
million neighborhood shopping center for Blueport Development Corporation.
Prior to that time, Mr. Pinkalla worked for several years as a Mortgage Banking
Officer/Vice President for Wells Fargo Bank. It is currently anticipated that,
in connection with the Transaction, Mr. Pinkalla will resign as Vice President,
Property Management, of the Company.
The Board of Trustees held six meetings during 1997. Each of the Trustees
attended at least 75% of the total meetings of the Board of Trustees and of the
committees of the Board of Trustees on which he served.
There are no familial relationship among any of the Trustees, Nominees or
current or proposed executive officers of the Company, except that Gregory S.
Leas is the son of Arnold K. Leas.
The Company is currently seeking to identify and retain additional
qualified candidates with national commercial real estate and capital markets
expertise and experience to serve as "independent" (non-employee) members of the
Board of Trustees of the Company. Messrs. Ripp, Ogden, Sobczak and Larcheid
have executed written agreements to resign as members of the Company's Board of
Trustees upon the Company's identification of candidates that would be willing
to serve in their stead on the Board of Trustees. In accordance with the
Bylaws, the remaining members of the Board of Trustees will fill the vacancies
created by such resignations without submission of the matter to a vote of
shareholders. Any Trustees selected by the remaining members of the Board of
Trustees to fill any such vacancy shall serve until the next Annual Meeting of
Shareholders, at which the Board of Trustees will nominate candidates to be
elected by the shareholders to serve for the remainder of the term.
COMMITTEES OF THE BOARD OF TRUSTEES
The Board of Trustees has appointed an Audit Committee and a Compensation
Committee and intends to appoint an Investment Committee upon Closing. The
Company currently has no Nominating Committee.
Audit Committee. The Audit Committee, which currently consists of Messrs.
Larcheid, Sobczak and Nakama, reviews related party transactions, makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants, the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of the Company's internal accounting controls. The Audit Committee met
one time in 1997. It is currently anticipated that, in connection with the
Transaction, Mr. Nakama will resign from the Audit Committee and will be
replaced by the Board of Trustees with Mr. Ogden.
Compensation Committee. The Compensation Committee, which currently
consists of Messrs. Arnold K. Leas, Ogden and Ripp, makes recommendations and
exercises all powers of the Board of Directors in connection with certain
compensation matters, including incentive compensation and benefit plans. The
Compensation Committee administers,
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and has authority to grant awards under, the Company's 1998 Stock Incentive Plan
(the "Current Incentive Plan") and the proposed Option Plan. The Compensation
Committee met one time in 1997. It is currently anticipated that, in connection
with the Transaction, Messrs. Ogden and Ripp will resign from the Compensation
Committee and will be replaced by the Board of Trustees with Messrs. Lambert and
Hoyt.
Investment Committee. It is currently anticipated that, in connection with
the Transaction, the Board of Trustees will appoint an Investment Committee
consisting of Messrs. Lambert and Arnold K. Leas, which will provide supervision
and direction in connection with acquisitions and new investments. The
Company's acquisition personnel will provide the Investment Committee with
written reports describing new investment opportunities in detail based on
research and analyses applying appropriate underwriting criteria. The Investment
Committee, after carefully reviewing each such submission, then will meet with
such personnel and approve certain acquisitions and development projects. In
connection with larger acquisition and development projects, the Investment
Committee will make a formal recommendation to the Board of Trustees.
TRUSTEE COMPENSATION
In 1997, Trustees who were also employees of the Company or its affiliates
received no additional compensation for their services as Trustees, while non-
employee Trustees of the Company received a fee of $250 per Board of Trustees or
committee meeting attended. It is currently anticipated that, beginning as of
the initial closing in connection with the Transaction, all Trustees will
receive a fee of $250 per Board of Trustees or committee meeting attended, plus
the reimbursement of all reasonable out-of-pocket expenses incurred in
connection with such attendance, and each member of the Investment Committee
will receive a $20,000 annual fee for his service in such capacity.
SHAREHOLDERS' AGREEMENT
In connection with the Transaction, each of AREE, Duane H. Lund, WLPT
Funding, Paul T. Lambert, Lambert Equities, Steven B. Hoyt, WMC, Robert F. Rice,
Arnold K. Leas, Rose Marie Leas and Gregory S. Leas (collectively, the "Subject
Shareholders") will enter into a Shareholders' Agreement (the "Shareholders'
Agreement") with the Company for a 10-year term. Pursuant to the Shareholders'
Agreement, the Subject Shareholders will agree that each of them shall take
whatever actions are necessary (including, but not limited to, the voting of all
Common Shares owned, from time to time, by each of them, respectively, whether
directly or indirectly) in order to: (i) cause Messrs. Lambert and Hoyt to be,
and to continue to be, elected to the Company's Board of Trustees; (ii) cause
the Company's Board of Trustees to fill any vacancies on the board with a person
mutually selected by AREE and WMC; and (iii) cause the Board of Trustees to
elect Mr. Lund as the Company's Chief Executive Officer, Robert F. Rice as
President of the Company, and Arnold L. Leas as Chairman of the Board of
Trustees.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
WMC and each of the Trustees and executive officers of the Company have
failed to file any Form 3, Form 4 or Form 5 as required under the Rule 16a-3(e)
promulgated under the Exchange Act. The Company cannot estimate the number of
such Forms that were required to be filed but were not so filed.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
From its inception in 1994 through the year ended December 31, 1997, the
Company paid no compensation to any of its executive officers.
EMPLOYMENT AGREEMENTS
In connection with the Transaction, the Company will enter into employment
agreements (the "Employment Agreements") with Duane H. Lund and Robert F. Rice.
The Employment Agreements will provide for an initial base
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salary of $150,000 and a discretionary performance bonus of up to 200% of base
salary. In addition, each Employment Agreement provides that the officers shall
receive those health, life and disability and other benefits extended by the
Board of Trustees to other similarly situated executives. Each Employment
Agreement has an evergreen term of three years. In the event of termination of
the respective officer's employment by the Company without cause or in the event
such person's employment discontinues following a change in control of the
Company, the Company or, in the case of a change in control, its successor, will
be obligated to pay to such officer an amount equal to three years' base salary
and performance bonus and continue his benefits for three years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PROPERTY MANAGEMENT AGREEMENTS
Residential Properties. The Company has entered into a Property Management
Agreement with WRI pursuant to which WRI currently manages the day-to-day
operations of the Current Properties and, upon Closing, will continue to manage
the residential properties of the Existing Subsidiaries and the Operating
Partnership and will manage Wellington Centre. In 1997, WRI received a
management fee equal to 3.5% and an administrative fee equal to 1.5%, and in
1996 WRI received a management fee equal to 5.0%, of the gross rental receipts
collected in connection with the operation of the Maple Grove Apartments
property. In both 1996 and 1997, WRI received a management fee equal to 5.0% of
the gross rental receipts collected in connection with the operation of the Lake
Pointe Apartments property. Such management and administrative fees for the
properties totaled $144,355 and $125,074, respectively, for the years ended
December 31, 1997 and 1996.
Apple Valley Properties. In connection with the Transaction, the Operating
Partnership will enter into a Property Management Agreement with AV Development
Company, Burnsville Financial Center Partnership and AV Commons, II, LLP, each
of which is controlled by John Hansen, and each of which is currently a Fee
Owner of one or more of the Apple Valley Properties, to serve as property
managers and leasing agents of the Apple Valley Properties. As a result, based
on Mr. Hansen's control of these entities, Mr. Hansen in effect will manage the
day-to-day operations and leasing of the Apple Valley Properties. In
consideration of such services, such entities will receive a management fee
equal to 4.0% of the aggregate gross rental receipts collected in connection
with the operation of the Apple Valley Properties. In addition, such entities
will be eligible to receive an incentive bonus if certain targets are met or
exceeded as set forth in budget to be mutually prepared each year by such
entities and the Operating Partnership. The initial term of the Property
Management Agreement with respect to the Apple Valley Properties will be two
years.
Hoyt Properties. In connection with the Transaction, the Operating
Partnership will enter into a Property Management Agreement with HPI, an entity
controlled by Steven B. Hoyt, to serve as the property manager and leasing agent
of the Hoyt Properties, the Feld Properties and Cold Springs Office Center.
Pursuant to such Property Management Agreement, HPI will manage the day-to-day
operations and leasing of the Hoyt Properties, the Feld Properties and Cold
Springs Office Center. In consideration of such services, HPI will receive a
management fee ranging from 2.0% to 5.0% of the gross rental receipts collected
in connection with the operation of the Hoyt Properties, the Feld Properties and
Cold Springs Office Center. In addition, HPI will be eligible to receive an
incentive bonus if certain targets are met or exceeded as set forth in budget to
be mutually prepared each year by HPI and the Operating Partnership. The initial
term of the Property Management Agreement with respect to the Hoyt Properties,
the Feld Properties and Cold Springs Office Center will be two years.
Stonegate Properties. In connection with the Transaction, the Operating
Partnership will enter into a Property Management Agreement with Stonegate
Development Corp. ("Stonegate"), an entity controlled by George A. Moser, to
serve as the property manager and leasing agent of the Stonegate Properties. As
a result, based on Mr. Moser's control of Stonegate, Mr. Moser in effect will
manage the day-to-day operations and leasing of the Stonegate Properties. In
consideration of such services, Stonegate will receive a management fee equal to
4.0% of the gross rental receipts collected in connection with the operation of
the Stonegate Properties. In addition, Stonegate will be eligible to receive an
incentive bonus if certain targets are met or exceeded as set forth in budget to
be mutually prepared each year by Stonegate and the Operating Partnership. The
initial term of the Property Management Agreement with respect to the Stonegate
Properties will be five years.
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Wellington Centre. In connection with the Transaction, the Operating
Partnership will enter into a Property Management Agreement with WRI to serve as
the property manager and leasing agent of Wellington Centre, pursuant to which
WRI will manage the day-to-day operations and leasing of Wellington Centre. WRI
will receive a management fee equal to 5.0% of the gross rental receipts
collected in connection with the operation of Wellington Centre. In addition,
WRI will be eligible to receive an incentive bonus if certain targets are met or
exceeded as set forth in budget to be mutually prepared each year by WRI and the
Operating Partnership. The initial term of the Property Management Agreement
with respect to Wellington Centre will be two years.
ADVISOR FEES
On August 2, 1994, the Company contracted to retain WMC to serve as advisor
to the Company (the "Advisor Agreement"). In payment for these services, WMC
received a fee equal to 5.0% of the gross proceeds of the Company's initial
public stock offering. Advisor fees for the years ended December 31, 1997 and
1996 were $0 and $8,251, respectively. In addition, WMC is entitled to receive
an Incentive Advisory Fee equal to 10.0% of the realized gain with respect to
each sale or refinancing of a property owned by the Company.
In the event a property is sold at a loss, no Incentive Advisory Fees will
be paid until the amount of the loss has been offset by gains from other sales.
Incentive Advisory Fees for the years ended December 31, 1997 and 1996 were
$18,265 and $0, respectively.
In addition, WMC is entitled to recover certain expenses including travel,
legal, accounting and insurance. These expenses totaled $114,133 and $70,012
for the years ended December 31, 1997 and 1996, respectively. Fees for
services, such as legal and accounting, provided by WMC's employees, in the
opinion of WMC, may not exceed fees that would have been charged by independent
third parties.
The initial term of the Advisor Agreement ended on December 31, 1995 and is
renewed automatically each year. The Advisor Agreement may be terminated
without cause, by either party, on 60 days' written notice, and by the Company,
for cause, immediately upon written notice.
Pursuant to the Master Contribution Agreement, in connection with the
Transaction, the Advisor Agreement will be terminated, and in consideration
thereof, WMC will be paid the Termination Fee. See "Proposal I--Approval of the
Transaction--The Transaction--Certain Additional Covenants."
EXPENSE REIMBURSEMENT
The Master Contribution Agreement and the WMC Contribution Agreement
provide that the Company will reimburse AREE and WMC, as the case may be, at
Closing for actual out-of-pocket costs and expenses incurred in connection with
the Transaction, including earnest money deposits, third party consultants' fees
and expenses, loan fees, underwriting fees, legal fees, accounting fees, due
diligence expenses, closing costs and travel expenses. See "Proposal I--
Approval of the Transaction--The Transaction--Certain Additional Covenants."
THE MASTER CONTRIBUTION AGREEMENT AND THE ASSIGNED ACQUISITION AGREEMENTS
Pursuant to the Master Contribution Agreement, AREE will contribute its
rights under the Assigned Acquisition Agreements and will transfer its
membership interest in CSC to the Operating Partnership in exchange for Units.
As a result, the Operating Partnership will acquire 30 properties, consisting of
20 office properties and 10 light industrial properties. In consideration of the
contract rights to purchase the AREE Assigned Properties and the transfer of the
100% membership interest in CSC, the Operating Partnership will (a) issue an
aggregate of 9,390,250 Units, valued at a price of $8.50 per Unit, of which
6,274,524 Units will be issued to the Fee Owners or their respective affiliates
as required under the Assigned Contribution Agreements, and 3,115,726 Units will
be issued to AREE (1,559,728 of which will be issued at the direction of Steven
B. Hoyt under the Assigned Contribution Agreement for the Hoyt Properties), with
59,104 of such Units to be paid to WLPT, one of the AREE Members, as
reimbursement of expenses, 2,815,446 of such Units to be distributed equally
among WLPT Funding, Lambert Equities and Steven B. Hoyt, and the remaining
241,176 Units to be retained by AREE, (b) assume approximately $64.4 million of
indebtedness encumbering the AREE Acquired Properties, and (c) make a cash
payment of approximately $31.2 million. See "Proposal I--Approval of the
Transaction--The Transaction."
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THE WMC CONTRIBUTION AGREEMENT
Pursuant to the WMC Contribution Agreement, the Operating Partnership will
acquire WMC's 100% membership interest in WCC, the owner of Wellington Centre,
for approximately $13.8 million, which is to be paid by the assumption of
approximately $7.3 million in indebtedness, the issuance of 470,588 Units of the
Operating Partnership (which Units will be valued at approximately $4.0 million
based on a price of $8.50 per Unit) and the payment of approximately $2.5
million in cash. Wellington Centre is a 95,367 rentable square foot building,
located in Brookfield, Wisconsin, in which the Company leases its corporate
offices. WCC is a Wisconsin limited liability company that was formed by WMC for
the purpose of acquiring Wellington Centre. WMC is the managing member of WCC
and presently owns a 19% interest in WCC. There are approximately 39 investor
members of WCC. Arnold K. Leas, the Chairman of the Board of Trustees and
President of the Company, is an investor member of WCC owning approximately
6.25% of WCC. In addition, Mr. Leas, members of his immediate family and trusts
for the benefit of such persons own approximately 41.8% of the outstanding
capital stock of WMC. Upon Closing, WMC will acquire 100% ownership of WCC by
paying investor members of WCC an aggregate of approximately $1.9 million in
cash, whereupon WMC shall contribute to the Operating Partnership WMC's 100%
membership interest in WCC. See "Proposal I--Approval of the Transaction--The
Transaction--Principal Features of the Transaction; Effects of the Transaction"
and "--The Acquired Properties."
EMPLOYMENT AGREEMENTS
In connection with the Transaction, the Company will enter into the
Employment Agreements with Duane H. Lund and Robert F. Rice. See "--Executive
Compensation."
WARRANTS
In connection with the Transaction, the Company will issue to each of AREE
and WMC Warrants to acquire up to 500,000 Common Shares upon certain terms and
conditions. See "Proposal I--Approval of the Transaction--The Transaction--
Principal Features of the Transaction; Effects of the Transaction--Issuance of
Warrants."
AREE COMMON SHARES
In connection with the Transaction, the Company will issue 105,263 AREE
Common Shares for an aggregate purchase price of $1.0 million, to be paid in
cash. See "Proposal I--Approval of the Transaction--The Transaction--Principal
Features of the Transaction; Effects of the Transaction--Issuance of AREE Common
Shares."
GUARANTEES OF CERTAIN TRUSTEES AND SHAREHOLDERS
After the consummation of the Transaction, AREE will remain as guarantor of
$2.0 million in mortgage indebtedness to be assumed by the Company with respect
to Cold Springs Office Center, and Steven B. Hoyt will remain as a guarantor of
an aggregate of approximately $3.1 million in mortgage indebtedness to be
assumed by the Company with respect to certain of the Hoyt Properties.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information concerning the ownership, as of
June 30, 1998 on a pro forma basis as if the AREE Common Shares had been issued
on such date, and on a fully diluted basis, of Common Shares of the Company by
each of the following: the Trustees; the Nominees; the Trustees, Nominees and
current executive officers of the Company as a group; the Trustees, Nominees and
proposed (post-Closing) executive officers of the Company as a group; and
persons or entities known to the Company to be beneficial owners of more than 5%
of the Company's Common Shares as of June 30, 1998, on a pro forma basis or on a
fully diluted basis. The precise number of Units to be issued to any person or
entity in connection with the consummation of the acquisition of an Acquired
Property is subject to adjustment based on the particular requirements imposed
under the relevant agreement concerning, among other things, prorations, payment
of closing costs, and assumptions or payments of existing indebtedness, as well
as the actual date on which the acquisition occurs and the potential requirement
that such person or entity be obligated to satisfy, on a post-closing basis,
such obligations imposed under the relevant agreement. Accordingly, references
below to a number of Units to be held by a particular person or entity are
estimates and are not expected to vary materially from the actual numbers. All
share numbers are provided based upon information supplied to management of the
Company by the respective individuals and members of the groups. Except as
otherwise indicated in the notes to the table, each person named in the table
has sole voting and investment power with respect to all shares shown as
beneficially owned by such person.
<TABLE>
<CAPTION>
Common Shares Common Shares Common Shares
Beneficially Owned Beneficially Owned on a Beneficially Owned on a
Name and Address as of June 30, 1998 Pro Forma Basis Fully Diluted Basis
- ------------------------------------------ ------------------------ ------------------------- -------------------------
Number (1) Percent (1) Number (2) Percent (2) Number (3) Percent (3)
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Arnold K. Leas (4)(5)(6).................. 107,866 14.7% 107,866 12.9% 1,078,454 9.2%
Steven B. Hoyt (5)(7)..................... 0 -- 0 -- 3,604,781 30.7
Paul T. Lambert (5)(8).................... 0 -- 0 -- 938,482 8.0
Lyle W. Larcheid (4)(9)................... 2,000 * 2,000 * 2,000 *
Peter Ogden (4)(9)........................ 2,000 * 2,000 * 2,000 *
Robert P. Ripp (4)(10).................... 2,620 * 2,620 * 2,620 *
Gerald Sobczak (4)(9)..................... 2,000 * 2,000 * 2,000 *
Robert F. Rice (4)(5)(11)................. 6,000 * 6,000 * 6,000 *
Gregory S. Leas (4)(5)(12)................ 6,170 * 6,170 * 6,170 *
Garret T. Nakama (4)(9)................... 4,000 * 4,000 * 4,000 *
Dale Pinkalla (4)(9)...................... 4,000 * 4,000 * 4,000 *
Duane H. Lund (5)(13)..................... 0 -- 105,263 11.2 1,844,025 15.7
Wellington Management
Corporation (5)(14).................... 79,893 11.0 79,893 9.6 1,054,590 8.9
Esor and Company (15)..................... 44,648 6.1 44,648 5.4 44,648 *
American Real Estate Equities,
LLC (5)(16)........................... 0 -- 105,263 11.2 846,439 7.2
Lambert Equities II, LLC (5)(17).......... 0 -- 0 -- 938,482 8.0
WLPT Funding, LLC (5)(18)................. 0 -- 0 -- 997,586 8.5
John Hansen (19).......................... 0 -- 0 -- 860,571 7.3
George A. Moser (20)...................... 0 -- 0 -- 2,294,118 19.5
Northwest Investor, Inc. (21)............. 0 -- 0 -- 2,271,176 19.3
Northwest Corporate Centre II and III
Limited Partnership (22)............... 0 -- 0 -- 1,075,103 9.1
All Trustees, Nominees and current
executive officers as a group (11
persons) (23).......................... 136,656 18.0 136,656 15.8 1,107,244 9.4
All Trustees, Nominees and proposed
executive officers as a group (9
persons) (24).......................... 122,486 16.4 227,749 26.7 7,368,598 62.6
</TABLE>
______________
* Less than one percent.
86
<PAGE>
(1) Based on 728,038 Common Shares outstanding as of June 30, 1998. Also
assumes exercise by only the shareholder or group named in each row of all
options and warrants for the purchase of Common Shares held by such
shareholder or group and exercisable within 60 days.
(2) Based on 833,301 Common Shares outstanding on a pro forma basis. Includes
728,038 Common Shares outstanding as of June 30, 1998 and 105,263 AREE
Common Shares to be issued in the Transaction. Also assumes exercise by
only the shareholder or group named in each row of all options and warrants
for the purchase of Common Shares held by such shareholder or group and
exercisable within 60 days.
(3) Based on 11,758,489 Common Shares outstanding on a fully diluted basis.
Includes 728,038 Common Shares outstanding as of June 30, 1998, options to
acquire 34,350 Common Shares and warrants to acquire 30,000 Common Shares,
each exercisable within 60 days, and 9,860,838 Units, 1,000,000 Warrants
and 105,263 AREE Common Shares to be issued in the Transaction. Unlike the
information presented under the column entitled "Common Shares Beneficially
Owned on a Pro Forma Basis" which includes only Common Shares, options and
warrants the information presented under those columns entitled "Common
Shares Beneficially Owned on a Fully Diluted Basis" includes all Common
Shares, options, Warrants and Units.
(4) The business address for each of the current Trustees and executive
officers of the Company is 18650 W. Corporate Drive, Suite 300, P.O. Box
0919, Brookfield, Wisconsin 53008-0919.
(5) All of these parties have entered into an agreement providing for the
election of Trustees. Each such party disclaims beneficial ownership of
Common Shares owned by each other party.
(6) Includes 19,964 Common Shares held by Mr. Leas, 605 Common Shares held by
Mr. Leas' wife, 1,404 Common Shares held by Mr. Leas and his wife as joint
tenants, options to purchase 6,000 Common Shares exercisable within 60
days, and 79,893 Common Shares, 500,000 Warrants and 470,588 Units to be
held by WMC, of which Mr. Leas is the President and Chief Executive Officer
and with respect to which Mr. Leas, members of his immediate family and
trusts for the benefit of such persons own approximately 41.8% of the
outstanding capital stock. Mr. Leas disclaims beneficial ownership of the
Common Shares held by his wife.
(7) The business address for Mr. Hoyt is 708 South 3rd Street, Suite 108,
Minneapolis, Minnesota 55415.
(8) The business address for Mr. Lambert is 4155 East Jewel, Suite 103, Denver,
Colorado 80222. Reflects 938,482 Units to be held by Lambert Equities, of
which Mr. Lambert is the controlling majority member and sole manager.
Robert L. Denton owns an approximate 8% membership interest in Lambert
Equities.
(9) Consists solely of options to purchase Common Shares exercisable within 60
days.
(10) Includes options to purchase 2,000 Common Shares exercisable within 60 days
of June 30, 1998 and 620 Common Shares held by Mr. Ripp.
(11) Includes options to purchase 5,000 Common Shares exercisable within 60 days
of June 30, 1998 and 1,000 Common Shares held by Mr. Rice.
(12) Includes options to purchase 5,000 Common Shares exercisable within 60 days
of June 30, 1998 and 1,170 Common Shares held by Mr. Leas.
(13) The business address for Mr. Lund is 300 First Avenue North, Suite 115,
Minneapolis, Minnesota 55401. Includes 997,586 Units held by WLPT
Funding, of which Mr. Lund is the 90% owner and the sole manager, and
241,176 Units, 500,000 Warrants and 105,263 Common Shares to be held by
AREE, of which Mr. Lund is the President.
(14) The business address for WMC is 18650 W. Corporate Drive, Suite 300, P.O.
Box 0919, Brookfield, Wisconsin 53008-0919. Includes 79,893 Common
Shares, 500,000 Warrants and 470,588 Units.
(15) The business address for Esor and Company is 1100 W. Wells Street,
Milwaukee, Wisconsin 53233.
(16) The business address for AREE is 300 First Avenue North, Suite 115,
Minneapolis, Minnesota 55401. Includes 105,263 Common Shares, 241,176
Units and 500,000 Warrants to be held by AREE.
(17) The business address for Lambert Equities II, LLC is 4155 East Jewel, Suite
103, Denver, Colorado 80222.
(18) The business address for WLPT Funding LLC is c/o Golden Acres Incorporated,
8400 Normandale Lake Boulevard, Suite 920, Minneapolis, Minnesota 55437.
(19) The business address for Mr. Hansen is 14116 Frontier Lane, Burnsville,
Minnesota 55337. Includes 851,965 Units to be held by Mr. Hansen and
8,606 Units to be held by Mr. Hansen's wife. Mr. Hansen disclaims
beneficial ownership of the Units to be held by his wife.
(20) The business address for Mr. Moser is 2500 West Higgins Road, Suite 400,
Hoffman Estates, Illinois 60195. Includes 537,065 Units to be held by
Northwest Corporate Centre I Limited Partnership, 1,075,103 Units to be
held by Northwest Corporate Centre II and III Limited Partnership, 437,789
Units to be held by Northwest Tech Limited Partnership and 244,161 Units to
be held by Tollway Industrial Center Limited Partnership, each of which is
a limited partnership in which Northwest Investor, Inc., a corporation in
which Mr. Moser is the sole shareholder, is the 1% sole general partner and
Northwest Partners Limited Partnership, a limited partnership in which Mr.
Moser is the sole general partner, is the 99% sole limited partner.
(21) The business address for Northwest Investor, Inc. is 2500 West Higgins
Road, Suite 400, Hoffman Estates, Illinois 60195. Includes 537,065 Units
to be held by Northwest Corporate Centre I Limited Partnership, 1,075,103
Units to be held by Northwest Corporate Centre II and III Limited
Partnership, 437,789 Units to be held by Northwest Tech Limited Partnership
and 244,161 Units to be held by Tollway Industrial Center Limited
Partnership, each of which is a limited partnership in which Northwest
Investor, Inc. is the sole general partner.
(22) The business address for Northwest Corporate Centre II and III Limited
Partnership is 2500 West Higgins Road, Suite 400, Hoffman Estates, Illinois
60195.
(23) Includes options to purchase 32,000 Common Shares exercisable within 60
days.
(24) Includes options to purchase 19,000 Common Shares exercisable within 60
days.
REGISTRATION RIGHTS
On March 5, 1998, the Company issued to Credit Suisse First Boston ("CSFB")
a Common Stock Purchase Warrant (the "CSFB Warrant") entitling CSFB to purchase
up to 30,000 Common Shares on terms and conditions as more
87
<PAGE>
fully set out in the CSFB Warrant. In connection with the issuance of the CSFB
Warrant, the Company and CSFB entered into a Registration Rights Agreement (the
"CSFB Registration Rights Agreement"), pursuant to which CSFB (or such other
holders of a majority of the shares represented by the CSFB Warrant if the same
shall have been transferred) was granted the right to require the Company to
prepare and file one or more registration statements, under certain
circumstances, with respect to the shares purchasable under the CSFB Warrant and
all other shares owned by CSFB or the then-holder(s) of the CSFB Warrant (the
"CSFB Registrable Securities"). The Company is prohibited under the CSFB
Registration Rights Agreement from selling any securities for its own account in
such a registration unless the holders of a majority of CSFB Registrable
Securities consent to such sale.
In addition, whenever the Company proposes to register any of its
securities for its own account or for sale by any other holder, the Company must
give written notice to all holders of CSFB Registrable Securities of its
intention to file such a registration statement and shall include in such
registration all such CSFB Registrable Securities requested to be included,
subject to certain conditions and priorities as more fully described in the CSFB
Registration Rights Agreement. In the event such registration is an
underwritten offering, the holders of a majority of CSFB Registrable Securities
must approve the underwriter selected by the Company (which approval shall not
be unreasonably withheld).
The Company will also grant additional registration rights in connection
with the Transaction. See "Proposal I--Approval of the Transaction--The
Transaction--Certain Additional Covenants--Master Registration Rights Agreement"
and "--Principal Features of the Transaction; Effects of the Transaction--
Issuance of AREE Common Shares."
PROPOSAL IV
ADOPTION OF THE OPTION PLAN
GENERAL
On August 12, 1998, the Board of Trustees unanimously approved the Option
Plan. The Company is submitting the Option Plan to its shareholders for
purposes of complying with certain provisions of the Code pertaining to
incentive stock options, as described below, and certain Nasdaq rules. If the
Option Plan is approved by the requisite shareholders, the Company intends to
refrain from issuing any additional options under the Current Incentive Plan.
The vote of a majority of the Common Shares represented in person or by proxy at
the Special Meeting will be required to approve the adoption of the Option Plan.
The discussion contained in this Proxy Statement is qualified in its
entirety by reference to the Option Plan, which is attached hereto as Exhibit F.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF THE
OPTION PLAN.
DESCRIPTION OF OPTION PLAN
Administration. The Option Plan is to be administered by the Share Option
Plan Administrative Committee, which will be comprised of at least two non-
employee Trustees appointed by the Board of Directors (the "Share Option
Committee"). The Share Option Committee will have the authority, subject to
approval by the Board of Trustees, to select the employees to whom awards may be
granted, to determine the terms of each award, to interpret the provisions of
the Option Plan and to make all other determinations for the administration of
the Option Plan. The Option Plan provides for the grant of "incentive stock
options," as defined under Section 422(b) of the Code, options that do not so
qualify (referred to herein as "nonstatutory options"), restricted share and
share appreciation rights ("SARs"), as determined in each individual case by the
Share Option Committee. The Board of Trustees has reserved 2,000,000 Common
Shares for issuance under the Option Plan, subject to adjustment for share
splits, share dividends or similar transactions. In general, if any award
granted under the Option Plan expires, terminates, is forfeited or is cancelled
for any reason, the shares allocable to such award may again be made subject to
an award granted under the Option Plan.
88
<PAGE>
Awards. Trustees and key policy-making employees of the Company are
eligible to receive grants under the Option Plan. Trustee options will be
granted at the fair market value of the Common Shares on the date of grant.
Employee awards may be granted subject to a vesting requirement and in any event
will become fully vested upon a merger or change of control of the Company. The
exercise price of incentive options granted under the Option Plan must at least
equal the fair market value of the Common Shares subject to the option
(determined as provided in the Option Plan) on the date the option is granted.
The exercise price of nonstatutory options and SARs will be determined by the
Share Option Committee.
An incentive option granted under the Option Plan to an employee owning
more than 10% of the combined voting power of all classes of Shares of the
Company must have an exercise price of at least 110% of the then current fair
market value of the Common Shares issuable upon exercise of the option and may
not have an exercise term of more than five years. Incentive options are also
subject to the further restriction that the aggregate fair market value
(determined as of the date of grant) of Common Shares as to which any such
incentive option first becomes exercisable in any calendar year, is limited to
$100,000. To the extent options covering more than $100,000 worth of Common
Shares first become exercisable in any one calendar year, the excess will be
nonstatutory options. For purposes of determining which, if any, options have
been granted in excess of the $100,000 limit, options will be considered to
become exercisable in the order granted.
Each Trustee and key employee eligible to participate in the Option Plan
will be notified by the Share Option Committee. The award agreement will
specify the type of award to be granted, the number of shares (if any) to which
the award relates, the terms and conditions of the award and the date granted.
In the case of an award of options, the award agreement will also specify the
price at which the Common Shares subject to the option may be purchased, the
date(s) on which the option becomes exercisable and whether the option is an
incentive option or a nonstatutory option.
The full exercise price for all Common Shares purchased upon the exercise
of options under the Option Plan may be paid by cash, personal check, personal
note, award surrender or Common Shares owned at the time of exercise, as
directed by the Share Option Committee. Incentive options granted under the
Option Plan will remain outstanding and exercisable for ten years from the date
of grant or until the expiration of 90 days (or such lesser period as the Share
Option Committee may determine) from the employee's date of termination of
employment with the Company. Nonstatutory options and SARs granted under the
Option Plan remain outstanding and exercisable for such period as the Share
Option Committee may determine.
Income Tax. With respect to incentive options, no taxable income is
recognized by the option holder for income tax purposes at the time of the grant
or exercise of an incentive option, although neither is there any income tax
deduction available to the Company as a result of such a grant or exercise. Any
gain or loss recognized by an option holder on the later disposition of Common
Shares acquired pursuant to the exercise of an incentive option generally will
be treated as capital gain or loss if such disposition does not occur prior to
one year after the date of exercise of the option, or two years after the date
the option was granted. With respect to nonstatutory options, restricted shares
or SARs, no taxable income will result to the recipient of the awards, nor will
the Company be entitled to an income tax deduction. However, upon the exercise
of nonstatutory options or SARs, or the lapse of restrictions on restricted
shares, the award holder will generally recognize ordinary income equal to the
difference between the exercise price and the fair market value of the Common
Shares acquired on the date of exercise, and the Company will be entitled to an
income tax deduction in the amount of the ordinary income recognized by the
option holder. In general, any gain or loss realized by the option holder on
the subsequent disposition of such shares will be a capital gain or loss.
Amendment and Termination. The Option Plan expires ten years after its
adoption, unless sooner terminated by the Board of Trustees. The Board of
Trustees has authority to amend the Option Plan in such manner as it deems
advisable, except that the Board of Trustees is not permitted, without
shareholder approval, to amend the Option Plan in a manner which would prevent
the grant of incentive options or increase the number of Common Shares available
for issuance under the Option Plan.
PRINCIPAL REASONS TO ADOPT THE OPTION PLAN
The Board of Trustees believes that the adoption of the Option Plan is in
the best interests of the Company in order to promote equity ownership of the
Company by Trustees and selected officers and employees of the Company, to
increase their proprietary interest in the success of the Company and to
encourage them to remain affiliated with the Company. The Board of Trustees
also believes that the adoption of the Option Plan will allow the Company to
continue to attract highly qualified individuals to serve in such capacities.
POTENTIAL CONFLICT OF INTEREST IN BOARD OF TRUSTEES' RECOMMENDATION OF ADOPTION
OF THE OPTION PLAN
Although the Company has no current plan to issue any options or other
rights under the Option Plan, because the members of the Board of Trustees are
eligible to receive options or other rights under the Option Plan, the Board of
Trustees may be considered to have an inherent conflict in their recommendation
of adoption of the Option Plan.
89
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain financial data on a consolidated
historical and pro forma basis for the Company. The financial data should be
read in conjunction with the Company's financial statements and the notes
thereto, Apple Valley Properties' combined statement of revenue and certain
expenses for the year ended December 31, 1997 and the note thereto, Feld
Properties' combined statement of revenue and certain expenses for the year
ended December 31, 1997 and the note thereto, Hoyt Properties' combined
statement of revenue and certain expenses for the year ended December 31, 1997
and the note thereto, Cold Springs Office Center's statement of revenue and
certain expenses for the year ended December 31, 1997 and the note thereto,
Stonegate Properties' combined statement of revenue and certain expenses for the
year ended December 31, 1997 and the note thereto, and Wellington Centre's
statements of revenue and certain expenses for the years ended December 31, 1997
and 1996 and the notes thereto, in each case included elsewhere in this Proxy
Statement. The consolidated historical financial data of the Company as of and
for the fiscal years ended December 31, 1997 and 1996 have been derived from and
should be read in conjunction with the audited financial statements for those
years. The financial data of the Company as of and for the six months ended
June 30, 1998 and 1997 have been derived from unaudited financial statements,
which, in the opinion of management, include all adjustments necessary for a
fair statement of the results for the unaudited interim periods. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Company
located elsewhere in this Proxy Statement.
The unaudited pro forma financial and operating data for the six months
ended June 30, 1998 and for the year ended December 31, 1997, is presented as if
the completion of the Transaction occurred as of June 30, 1998 for balance sheet
purposes and as of January 1, 1997 for purposes of the statements of operations.
The pro forma information is based upon certain assumptions that are included in
the notes to the pro forma financial statements included elsewhere in this Proxy
Statement. The pro forma information is unaudited and is not necessarily
indicative of what the financial position and results of operations of the
Company would have been as of and for the periods indicated, nor does it purport
to represent the future financial position and results of operations for future
periods.
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<PAGE>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
--------------------------------------- ---------------------------------------
Pro Forma Historical Pro Forma Historical
----------- ------------------------- ----------- -------------------------
1998 1998 1997 1997 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rental revenue........................ $ 12,382 $ 1,517 $ 1,560 $ 22,945 $ 2,981 $ 2,557
Other................................. 52 -- 193 381 199 9
----------- ----------- ----------- ----------- ----------- -----------
Total revenue......................... 12,434 1,517 1,753 23,326 3,180 2,566
----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Interest.............................. 5,362 634 761 10,998 1,398 1,339
Depreciation and
amortization....................... 2,306 294 305 4,630 606 552
Property expenses..................... 5,343 589 579 11,674 1,155 1,075
General and administrative............ 348 148 138 697 297 313
----------- ----------- ----------- ----------- ----------- -----------
Total expenses........................ 13,359 1,665 1,783 27,999 3,456 3,279
----------- ----------- ----------- ----------- ----------- -----------
(Loss) before minority interests....... (925) (148) (30) (4,673) (276) (713)
Loss allocated to minority
interests.......................... 853 -- -- 4,315 -- --
----------- ----------- ----------- ----------- ----------- -----------
Net (loss)............................. $ (72) $ (148) $ (30) $ (358) $ (276) $ (713)
=========== =========== =========== =========== =========== ===========
Net (loss) per Common Share............ $ (0.09) $ (0.20) $ (0.04) $ (0.44) $ (0.39) $ (1.07)
=========== =========== =========== =========== =========== ===========
Cash dividends/distributions
declared........................... $ 253 $ 295 $ 543 $ 571
=========== =========== =========== ===========
Cash dividends/distributions per
Common Share.......................... $ 0.350 $ 0.425 $ 0.775 $ 0.850
=========== =========== =========== ===========
BALANCE SHEET DATA (AS OF PERIOD END):
Real estate investment, net of
accumulated depreciation............... $ 212,666 $ 18,964 $ 19,411 $ 19,193 $ 21,249
Total assets............................ 214,737 19,919 21,450 19,785 21,871
Mortgages payable....................... 125,131 15,840 16,865 14,666 9,376
Total liabilities....................... 126,009 16,718 17,608 16,308 17,974
Minority interests...................... 84,672 -- -- -- --
Shareholders' equity.................... 4,056 3,201 3,842 3,477 3,897
OTHER DATA:
Cash flows provided by (used in):
Operating activities................... (a) $ 83 $ (132) (a) $ (5) $ 68
Investing activities................... (a) (41) 382 (a) 1,814 (992)
Financing activities................... (a) (188) (357) (a) (1,894) 504
Funds from operations (b)............... 1,282 122 97 (405) 118 (240)
Weighted average shares outstanding
(in thousands).......................... 828 723 697 818 713 663
PROPERTY DATA (AS OF PERIOD END):
Number of properties owned.............. 33 2 2 33 2 3
Total rentable square feet owned
(in thousands).......................... 1,888 -- -- 1,888 -- --
Total units owned....................... 376 376 376 376 376 410
</TABLE>
__________
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<PAGE>
(a) Pro forma information relating to cash flows from operating, investing and
financing activities has not been included because management believes that
the information would not be meaningful due to the number of assumptions
required in order to calculate this information.
(b) The White Paper on Funds from Operations ("FFO") approved by the Board of
Governors of NAREIT in March 1995 defines FFO as net income (loss) (computed
in accordance with generally accepted accounting principles ("GAAP")),
excluding gains (or losses) from debt restructuring and sales of properties,
plus real estate related depreciation and amortization and after all
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that FFO is helpful to investors as a measure of the financial
performance of an equity REIT because, along with the cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to incur
and service debt, to make capital expenditures and to fund other cash needs.
The Company computes FFO in accordance with standards established by NAREIT
which may not be comparable to FFO reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. FFO
does not represent cash generated from operating activities determined in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following discussion should be read in conjunction the "Selected
Financial Data," the Company's financial statements and notes thereto, Hoyt
Properties' combined statement of revenue and certain expenses for the year
ended December 31, 1997 and the notes thereto, Cold Springs Office Center's
statement of revenue and certain expenses for the year ended December 31, 1997
and the notes thereto, Feld Properties' combined statement of revenue and
certain expenses for the year ended December 31, 1997 and the notes thereto,
Stonegate Properties' combined statement of revenue and certain expenses for the
year ended December 31, 1997 and the notes thereto, Wellington Centre's
statements of revenue and certain expenses for the years ended December 31, 1997
and 1996 and the notes thereto, and Apple Valley Properties' combined statement
of revenue and certain expenses for the year ended December 31, 1997 and the
notes thereto included elsewhere in this Proxy Statement. The unaudited pro
forma presentation includes the historical results of the Company and the
effects of the Transaction. These effects are reflected in the pro forma
condensed consolidated financial statements located elsewhere in this Proxy
Statement.
RESULTS OF OPERATIONS
HISTORICAL OPERATING RESULTS OF THE COMPANY
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997.
Rental revenue decreased by approximately $44,000, or 2.8%, for the six
months ended June 30, 1998 compared to the six months ended June 30, 1997. This
decreased revenue was primarily a result of the sale of Forest Downs Apartments
on April 10, 1997. After adjusting for the sale of Forest Downs, revenues at
Lake Pointe and Maple Grove increased by approximately $30,000, or 2.0%, during
the first six months of 1998 compared to the first six months of 1997. Interest
and other income decreased by $193,000, or 99.9%, during these same periods,
primarily due to the gain on the sale of Forest Downs during the second quarter
of 1997.
Interest expense decreased by $127,000, or 16.7%, for the six months ended
June 30, 1998 compared to the six months ended June 30, 1997. The decrease is
primarily due to reduced interest as a result of the sale of Forest Downs and
the refinancing of Maple Grove. Depreciation and amortization expense decreased
by $11,000, or 3.7%, for the six
92
<PAGE>
months ended June 30, 1998 as compared to the six months ended June 30, 1997,
primarily as a result of the sale of Forest Downs.
Property, operating and maintenance and real estate taxes and insurance
expenses increased by $11,000, or 1.9%, from $578,000 for the six months ended
June 30, 1997 to $589,000 for the six months ended June 30, 1998, primarily as a
result of inflation.
General and administrative expenses increased by $10,000, or 7.2%, from
$138,000 for the six months ended June 30, 1997 to $148,000 for the six months
ended June 30, 1998, primarily as a result of increased travel with respect to
acquisitions and increased foreign corporation tax paid to the State of
Wisconsin.
As a result of the foregoing, the Company's consolidated net loss for the
period January 1, 1998 to June 30, 1998 was $148,000, or $0.20 per share, as
compared to a consolidated net loss of $29,000, or $0.04 per share, for the
period January 1, 1997 to June 30, 1997.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996.
Total revenues increased by approximately $615,000, or 24.0%, for the year
ended December 31, 1997 compared to the year ended December 31, 1996. This
increase was primarily due the gain from the sale of Forest Downs coupled with
the occupancy stabilization of Maple Grove by the middle of 1997.
Interest expense increased by $60,000, or 4.4%, for the year ended December
31, 1997 compared to the year ended December 31, 1996, primarily due to interest
on increased debt proceeds from the refinancing of Maple Grove. Depreciation
and amortization expense increased by $54,000, or 9.8%, for the year ended
December 31, 1997 compared to the year ended December 31, 1996, due primarily to
the completion of construction of the final 60 units at Maple Grove on or about
August 31, 1996.
For the year ended December 31, 1997 compared to December 31, 1996,
property, operating and maintenance and property taxes and insurance expenses
increased by $79,000, or 7.8%, primarily due to increased expenses attributable
to the completion of construction of 60 units at Maple Grove and the occupancy
stabilization of Maple Grove by the middle of 1997.
Advertising and promotion and general and administrative expenses decreased
by $15,000, or 3.8%, for the year ended December 31, 1997 compared to the year
ended December 31, 1996, primarily as a result of the occupancy stabilization at
Maple Grove by the middle of 1997.
As a result of the foregoing, the Company's consolidated net loss was
approximately $276,000, or $0.39 per share, for the year ended December 31, 1997
compared with consolidated net loss of approximately $713,000, or $1.07 per
share, for the year ended December 31, 1996.
PRO FORMA OPERATING RESULTS OF THE COMPANY
Comparison of the Six Months Ended June 30, 1998 on a Pro Forma Basis to
the Six Months Ended June 30, 1998 on a Historical Basis.
Total pro forma revenue was approximately $12.4 million for the six months
ended June 30, 1998 as compared to $1.5 million total historical revenue for the
six months ended June 30, 1998. Substantially all of the increase results from
the inclusion of pro forma revenue related to the Acquired Properties for the
six months ended June 30, 1998.
Total pro forma expenses for the six months ended June 30, 1998 were
approximately $13.4 million as compared to approximately $1.7 million total
historical expenses for the six months ended June 30, 1998. The increase was
due primarily to the inclusion of pro forma expenses related to the Acquired
Properties.
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As a result of the factors discussed above, pro forma net loss before
minority interest for the six months ended June 30, 1998 was approximately
$925,000 as compared to historical net loss before minority interest of
$148,000, and pro forma net loss of the Company was $72,000 as compared to
historical net loss of $148,000.
Comparison of the Year Ended December 31, 1997 on a Pro Forma Basis to the
Year Ended December 31, 1997 on a Historical Basis.
Total pro forma revenue was approximately $23.3 million for the year ended
December 31, 1997 as compared to $3.2 million total historical revenue for the
year ended December 31, 1997. Substantially all of the increase results from
the inclusion of pro forma revenue related to the Acquired Properties for the
year ended December 31, 1997.
Total pro forma expenses for the year ended December 31, 1997 were
approximately $28.0 million as compared to approximately $3.5 million total
historical expenses for the year ended December 31, 1997. The increase was due
primarily to the inclusion of pro forma expenses related to the Acquired
Properties.
As a result of the factors discussed above, pro forma net loss before
minority interest for the year ended December 31, 1997 was approximately $4.7
million as compared to historical net loss before minority interest of $276,000,
and pro forma net loss of the Company was $358,000 as compared to historical net
loss of $276,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations and borrowings from affiliates and lending
institutions have generally provided the primary sources of liquidity to the
Company. Historically, the Company has utilized these sources to fund operating
expenses, satisfy its debt service obligations and fund distributions to
shareholders.
In connection with the Transaction, the Lender has submitted a term sheet
to the Company summarizing the terms under which the Lender would provide the
New Credit Facility. The New Credit Facility will be a maximum $37.5 million
facility (subject to reduction depending upon the appraised value of the
Acquired Properties), which will be split into a senior tranche of $17.8
million and a mezzanine tranche of $19.7 million. The New Credit Facility will
be nonrecourse, except that the Company and the Operating Partnership will
jointly guarantee both (i) normal and customary exclusions or "carve-outs" from
the nonrecourse protections under the New Credit Facility, and (ii) the entirety
of the New Credit Facility in the event of certain to-be-defined "bad" acts by
any borrowing entity. The Senior Borrower will be a to-be-formed Delaware
limited liability company in which the sole member is a to-be-formed Delaware
limited liability company in which the sole member is the Mezzanine Borrower.
The Mezzanine Borrower will be a to-be-formed Delaware limited liability company
in which the Operating Partnership is the sole member. The senior tranche will
be secured by first mortgage liens against certain of the Acquired Properties,
and all such mortgages will be cross-defaulted and cross-collateralized. The
mezzanine tranche will be secured by a collateral assignment of the Operating
Partnership's membership interest in the Mezzanine Borrower.
The New Credit Facility will have a five-year term. Borrowings under the
senior tranche of the New Credit Facility will bear interest at a rate equal to
that of 30-day LIBOR, plus 2.00% per annum, while borrowings under the mezzanine
tranche will bear interest at a rate per annum of LIBOR plus a "Credit Spread."
During the first year of the New Credit Facility, the Credit Spread will be
7.00%; however, the Credit Spread will increase during the term of the New
Credit Facility to 8.25% in the fifth year of that term. Borrowings under the
senior tranche may not be prepaid within the first two years of the facility,
and thereafter may be prepaid subject to the payment of any applicable LIBOR
breakage cost. Borrowings under the mezzanine tranche may be prepaid at any
time, subject to a prepayment premium. If the Senior Borrower desires to sell or
refinance an Acquired Property securing the senior tranche, the Senior Borrower
may obtain a partial release of the Acquired Property from the senior tranche,
provided that the
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Senior Borrower complies with certain conditions (such as reasonable notice and
absence of default) and pays to the Lender both the prepayment premium
applicable to that portion of the senior tranche then being repaid and an
additional amount based on a defeasance formula. In the event the Mezzanine
Borrower sells an Acquired Property, then it will be required to pay to the
Lender both the prepayment premium allocable to the portion of the mezzanine
tranche being repaid and an amount calculated pursuant to the same defeasance
formula as applies to the senior tranche. The Lender will be paid customary up-
front and administrative fees in connection with the New Credit Facility.
The closing of the New Credit Facility will be dependent on the
satisfaction or waiver of conditions customary for transactions of this type,
including: (i) delivery of corporate and other documents and opinions of
counsel; (ii) the absence of material adverse changes or litigation; (iii)
provision of insurance; and (iv) payment of certain fees and expenses. There
can be no assurance that these conditions will be satisfied or that the New
Credit Facility will be consummated on the terms described above or otherwise.
See "Proposal I--The Transaction--New Credit Facility."
During 1997, the Company declared distributions totaling $0.775 per share.
On March 25, 1998, June 18, 1998 and September 23, 1998, the Company declared
distributions of $0.175 per share per declaration.
CASH FLOWS
Comparison of the Six Months Ended June 30, 1998 to the Six Months Ended
June 30, 1997.
During the six months ended June 30, 1998, the Company generated
approximately $83,000 in cash from operating activities which, together with
approximately $2.3 million in net proceeds from borrowings and approximately
$124,000 from the issuance of Common Shares, were used primarily for (i)
repayments of debt obligations aggregating approximately $2.4 million and (ii)
payment of cash dividends aggregating approximately $250,000. As a result, the
Company's cash balances decreased by approximately $146,000 to ($32,000) at June
30, 1998 from $114,000 at December 31, 1997.
Comparison of the Year Ended December 31, 1997 to the Year Ended December
31, 1996.
During the year ended December 31, 1997, the Company generated
approximately $247,000 from the issuance of Common Shares, net of the purchase
of treasury stock, which together with approximately $1.9 million in proceeds
from sale of real estate investments and approximately $13.5 million in net
proceeds from borrowings, were used primarily for (i) repayments of debt
obligations aggregating approximately $8.4 million; (ii) repayments of land
contract and business note obligations aggregating approximately $6.7 million;
(iii) payments of cash dividend aggregating approximately $564,000; (iv) the
acquisition of rental property of approximately $85,000; and (v) cash used in
operating activities of approximately $5,000. As a result, the Company's cash
balances decreased by approximately $85,000 to $114,000 at December 31, 1997
from $199,000 at December 31, 1996.
INFLATION
Inflation has not generally had a significant impact during the periods
presented on the Company and the Acquired Properties because of the relatively
low inflation rates in the markets in which they operate. Most of the Company's
tenants represent short-term leases, and most of the Acquired Properties'
tenants are contractually obligated to pay their share of operating expenses,
thereby reducing exposure to increases in such costs resulting from inflation.
FUNDS FROM OPERATIONS
The Company considers FFO to be helpful to investors as a measure of the
financial performance of an equity REIT. In accordance with NAREIT's
definition, FFO is defined as net income (loss) computed in accordance with
GAAP, excluding gains (or losses) from debt restructuring and sales of property,
plus real estate-related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities determined in accordance with GAAP and
should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash
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flow from operating activities (determined in accordance with GAAP) as a measure
of the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions. Other
REITs may not define FFO in accordance with the current NAREIT definition or may
interpret the current NAREIT definition differently from the Company.
Funds from operations on a pro forma basis for the year ended December 31,
1997 and the six months ended June 30, 1998 are summarized in the following
table (in thousands, except for share data). The pro forma computation does not
purport to be indicative of the results that would have been obtained had the
Transaction been completed as of the beginning of the periods presented or which
may be obtained in the future.
<TABLE>
<CAPTION>
Pro Forma
Year Ended Six Months
December 31, Ended June 30,
1997 1998
-------------- ----------------
<S> <C> <C>
Loss before minority interests $ (4,673) $ (925)
Deduct: Gain on sale of real estate (167) --
Add: Real estate related depreciation and
amortization 4,435 2,207
----------- -----------
Funds from operations $ (405) $ 1,282
=========== ===========
Weighted average Common Shares/Units
outstanding(1) 10,679,192 10,689,128
=========== ===========
</TABLE>
(1) Assumes exchange of all Units, calculated on a weighted average basis for
Common Shares.
PROSPECTIVE ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards (SFAS) Nos. 130, "Reporting Comprehensive
Income," and 131, "Disclosures About Segments of an Enterprise and Related
Information." Both statements are effective for the Company beginning January
1, 1998. The statements, both of which are disclosure-related only, are not
expected to materially impact the Company's financial reporting disclosures.
At its March 1998 meeting, the Emerging Issues Task Force of the FASB
reached a consensus ("EITF 97-11") that internal pre-acquisition costs of
operating properties should be expensed as incurred. The Company believes that
the adoption of EITF 97-11 will not materially impact its future operating
results.
YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
As a result of the Transaction, the Company anticipates that it will
upgrade its current information systems. The Company intends to review any and
all purchases in this regard to ensure year 2000 compliance. The Company does
not believe that the impact of the recognition of the year 2000 by its
information and operating technology systems will have a material adverse
effect on the Company's financial condition and results of operations.
There can be no assurance that there will not be any year 2000-related
operating problems or unanticipated expenditures that will arise with the
Company's computer systems and software, whether existing or newly acquired, or
that the systems of other companies on which the Company's systems rely will be
timely converted and would not have an adverse effect on the Company's
systems.
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BUSINESS AND PROPERTIES
COMPANY HISTORY
The Company is a Maryland real estate investment trust formed on March 15,
1994 under the Maryland REIT Law. The Company was formed to acquire, operate
and hold income-producing investment real estate. In October 1994, the Company
commenced a public offering of its Common Shares pursuant to a Registration
Statement on Form SB-2 (Registration No. 33-82888C), which offering was
terminated in October 1995.
On January 5, 1996, the Company acquired Lake Pointe Apartments, a 72-unit
multifamily residential property located in Schofield, Wisconsin, in exchange
for the assumption of approximately $1.86 million of indebtedness and the
issuance of 167,700 Common Shares.
On December 30, 1996, the Company completed the acquisition of Maple Grove
Apartments, a 304-unit multifamily residential property located in Madison,
Wisconsin, by purchasing the remaining 12 units thereof.
On April 10, 1997, the Company sold Forest Downs Apartments in Fitchburg,
Wisconsin for $2.0 million.
The Company's principal executive offices are located at 18650 W. Corporate
Drive, Suite 300, P.O. Box 0919, Brookfield, Wisconsin 53008-0919, and its
telephone number is 414-792-8900.
THE PROPERTIES
The Current Properties consist of two multifamily residential properties
located in Wisconsin, containing 376 apartment units. The Current Properties
contain an average unit size of 901 square feet. The average rent per unit is
$709.21 and the average rent per square foot is $0.787.
As of September 1, 1998, the Current Properties had an average occupancy
rate of 97.4%. Tenant leases are generally year-to-year and require security
deposits. The Company believes that the Current Properties provide amenities and
common facilities that create an attractive residence for tenants.
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The following table sets forth certain information relating to the Current
Properties:
<TABLE>
<CAPTION>
AVERAGE OCCUPANCY SEPT. 1, 1998 AVERAGE
PROPERTY LOCATION YEAR BUILT/ SQUARE SQUARE FEET AS OF MONTHLY RENTAL RATE PER
----------------- -----------------------
RENOVATED UNITS FOOTAGE PER UNIT SEPT. 1, 1998 UNIT SQUARE FOOT
--------- ----- ------- -------- ------------ ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Lake Pointe
Schofield, WI 1990 72 65,184 905 99% $ 601.38 $ 0.665
Maple Grove
Madison, WI 1995 304 273,698 900 97 734.75 0.816
----- -------- ----- ----- -------- --------
TOTALS OR WEIGHTED
AVERAGE........... 376 338,882 901 97.4% $ 709.21 $ 0.787
===== ======== ===== ===== ======== ========
</TABLE>
In addition to the Current Properties described above, upon Closing the
Operating Partnership will acquire the Acquired Properties as described in
Proposal I above.
MORTGAGE INDEBTEDNESS
<TABLE>
<CAPTION>
PRINCIPAL INTEREST RATE
FACE AMOUNT BALANCE AS OF AT SEPT. 1, AMORTIZATION MATURITY AMOUNT DUE AT PREPAYMENT
PROPERTY LOCATION OF MORTGAGE SEPT. 1, 1998 1998 (YEARS) DATE MATURITY PENALTY
- ----------------- ----------- ------------- ------------- ------------ ---- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Lake Pointe Yield
Schofield, WI $ 2,750,000 $ 2,741,632 7.60% 30 2/11/2028 $ 0 Maintenance
Maple Grove Yield
Madison, WI 12,900,700 12,785,743 8.095% 30 6/1/2004 11,960,225 Maintenance
----------- ------------- -------------
TOTAL............ $15,650,700 $ 15,527,375 $ 11,960,225
=========== ============= =============
</TABLE>
LEASES
The Company uses (and, with respect to the Acquired Properties, will use) a
variety of lease forms to comply with applicable state and local laws and
custom. The term of a lease varies with local market conditions; however, one-
year leases are most common for residential properties, and two- to five-year
leases are most common for non-residential properties. Generally, the leases
provide that unless the parties agree in writing to a renewal, the tenancy will
convert at the end of the lease term to a month-to-month tenancy subject to the
terms and conditions of the lease, unless either party gives the other at least
30 days prior notice of termination. All leases are terminable by the Company
for nonpayment of rent, violation of property rules and regulations and other
specified defaults.
BROKERAGE AND LEASING
WRI provides leasing services to the Current Properties. The Company
maintains at least one on-site leasing consultant at each Property. Leasing
consultants meet with prospective tenants and show models and vacant units. The
leasing consultants maintain contact with residents to determine the residents'
level of satisfaction with their unit within the Property. When the Company
deems it necessary, it may employ the services of, and pay customary fees to,
unaffiliated real estate brokers and other persons and entities who are in the
business of locating and representing prospective tenants for non-residential
properties.
COMPETITION
Numerous properties compete with the Properties in attracting tenants to
lease space, and additional properties can be expected to be built in the
markets in which the Properties are located. The number and quality of
competitive properties in a particular area will have a material effect on the
Company's ability to lease space at the Properties or at newly acquired
properties and on the rents charged. Some of these competing properties may be
newer or better located than the Properties. The Company may be competing with
other entities that have greater resources than the Company and whose managers
have more experience than the Company's officers and Trustees. Accordingly, it
is possible that the
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Company may not be able to meet its targeted level of property acquisitions and
developments due to such competition, which may have an adverse effect on the
Company's expected growth in operations.
EMPLOYEES
As of June 30, 1998, the Company had ten employees. Upon Closing, the
Company anticipates that all of its on-site employees will be transferred to the
employ of WRI.
LEGAL PROCEEDINGS
The Company is currently a party to various claims which arise in the
ordinary course of business, none of which, individually or in the aggregate,
are expected to have a material adverse effect on the business or financial
condition of the Company.
REGULATIONS AND INSURANCE
General. The Properties are subject to various laws, ordinances and
regulations, including, in the case of the residential properties, regulations
relating to recreational facilities such as swimming pools, clubhouses and other
common areas. The Company believes that each Property has the necessary permits
and approvals to operate its business.
Americans with Disabilities Act. Under the ADA, all "public
accommodations" and "commercial facilities" are required to meet certain federal
requirements related to access and use by disabled persons. Noncompliance with
the ADA could result in imposition of fines or an award of damages to private
litigants. The Company does not believe that any material changes to the
Properties are currently required by the ADA.
Fair Housing Laws. In addition to the requirements of the ADA, with
respect to the Company's residential properties, the Fair Housing Act requires
that (i) handicapped persons be allowed, at their own expense, to make any
reasonable modifications necessary for their full enjoyment of the premises, and
(ii) housing providers make reasonable accommodations in rules, policies,
practices or services necessary to afford handicapped persons "equal
opportunities to use and enjoy a dwelling."
Insurance. Management believes that the Properties are covered by adequate
fire, flood and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits. The Company maintains
comprehensive liability, all-risk property insurance coverage with respect to
the Properties with policy specifications, limits and deductibles customarily
carried for similar properties. The Company has obtained (or will have obtained
upon Closing) title insurance insuring fee title to the Properties in an
aggregate amount which the Company believes to be adequate.
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required (often regardless of knowledge or responsibility) to investigate and
remediate the effects of hazardous or toxic substances or petroleum product
releases at its properties, and may be held liable to a governmental entity or
to third parties for property damage and for investigation and remediation costs
incurred by them in connection with the contamination, which costs may be
substantial. The presence of such substances (or the failure to properly
remediate the contamination) may have a material adverse effect on the owner's
ability to borrow against, sell or rent the affected property. In addition,
certain environmental laws create liens on contaminated sites in favor of the
government for damages and costs it incurs in connection with the contamination.
Certain federal, state and local laws and regulations govern the removal,
encapsulation or disturbance of hazardous substances, including ACMs, when such
substances are released or in the event of construction, remodeling, renovation
or demolition of a building. Those laws may impose liability for release of
ACMs and may provide for third
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parties to seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released
hazardous substances, including ACMs.
Phase I environmental assessments have been obtained for each of the
Properties. The purpose of the Phase I assessment is to identify potential
sources of contamination for which a company may be responsible and to assess
the status of environmental regulatory compliance. The Phase I environmental
assessments have not revealed any environmental liability that the Company
believes would have a material adverse effect on the Company's business, assets
or results of operations, nor is the Company aware of any such material
environmental liability. Nevertheless, it is possible that the Phase I
environmental assessments relating to any one of the Properties have not
revealed all environmental liabilities or that there are material environmental
liabilities of which the Company is unaware. Moreover, there can be no
assurance that (i) future laws, ordinances or regulations will not impose
material environmental liability, or (ii) the current environmental condition of
the Properties will not be affected by tenants, the conditions of land or
operations in the vicinity of such Properties (such as the presence of
underground storage tanks) or by properties of third parties unrelated to the
Company.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a description of certain investment, financing and
conflict of interest policies of the Company. These policies have been adopted
by the Board of Trustees and may be amended or revised from time to time without
the approval of the Company's shareholders, except that changes in certain
policies with respect to conflicts of interest must be consistent with certain
legal requirements.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The Company's
investment objectives are to increase cash flow and to achieve long-term capital
appreciation through increases in the value of the Company's portfolio of
properties and its operations. In addition, where prudent and possible, the
Company will seek to upgrade and improve the existing Properties and any newly
acquired properties. While the Company's business currently is focused on
residential properties, the Company anticipates upon Closing that it will focus
on office, light industrial and retail properties as well as residential
properties. The Company's policy is to acquire and develop assets primarily for
generation of current income and long-term value appreciation; however, where
appropriate, the Company will sell certain of its properties.
The Company expects to pursue its investment objectives through the direct
and indirect ownership of properties and the ownership of interests in other
entities. The Company focuses on properties in those markets where the Company
currently has operations and in new markets targeted by management. The Company
anticipates that newly acquired properties will be located in the United States.
However, future investments, including the activities described below, will not
be limited to any geographic area or to a specified percentage of the Company's
assets. The Company currently intends to invest primarily in existing improved
properties but may, if market conditions warrant, invest in development projects
as well. The Company intends to engage in such future investment and
development activities in a manner which is consistent with the maintenance of
its status as a REIT for federal income tax purposes.
Investments in Real Estate Mortgages. The Company currently emphasizes
equity real estate investment in residential properties, and upon Closing will
emphasize equity real estate investment in office, light industrial and retail
properties as well as residential properties. The Company does not currently
intend to invest in mortgages, deeds of trust or other such interests.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the percentage of ownership
limitations and gross income tests necessary for REIT qualification, the Company
also may invest in the securities of entities engaged in real estate activities
or securities of other issuers, including for the purpose of exercising control
over such entities. The Company may acquire all or substantially all of the
securities or assets of other REITs or similar entities, and the Company may
enter into joint ventures or partnerships for the purpose of obtaining interests
in a particular property, in each case where such activities would be consistent
with the Company's investment policies. In any event, the Company does not
intend that its investment in securities will require it to register as an
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"investment company" under the Investment Company Act of 1940, and the Company
would intend to divest securities before any such registration would be
required.
FINANCING POLICIES
The Company presently intends to maintain a ratio of debt-to-total market
capitalization (i.e., total debt of the Company and the Operating Partnership as
a percentage of the market value of issued and outstanding Common Shares and
Units plus total debt) of approximately 65% or less. This policy differs from
traditional conventional mortgage debt-to-equity ratios, which are asset-based
ratios. Upon consummation of the Transaction, debt will constitute
approximately 58% of the total market capitalization of the Company based on the
$8.50 per share closing price of Common Shares as of October 6, 1998. The
Company may, however, from time to time reevaluate this policy and decrease or
increase such ratio accordingly in light of then-current economic conditions,
relative costs to the Company of debt and equity capital, market values of the
Properties, growth and acquisition opportunities and other factors. There is no
limit on the ratio of debt-to-total market capitalization, and, consequently,
the Company may in the future become highly leveraged. To the extent that the
Board of Trustees of the Company determines to obtain additional capital, the
Company may issue debt or equity securities, or cause the Operating Partnership
to issue additional Units, or retain earnings (subject to provisions in the
Code), requiring distributions of income to maintain REIT status), or a
combination of these methods. As long as the Operating Partnership is in
existence, the proceeds of all equity capital raised by the Company will be
contributed to the Operating Partnership in exchange for additional interests in
the Operating Partnership, which will dilute the ownership interest of any other
holders of Units.
To the extent that the Board of Trustees determines to obtain debt
financing in addition to the mortgage debt encumbering the Properties and the
New Credit Facility, the Company intends to do so generally through mortgages on
its properties and lines of credit; however, the Company may also issue debt
securities in the future. Such indebtedness may be full or limited recourse,
nonrecourse, unsecured, secured or cross-collateralized and may contain cross-
default provisions. The Company does not have a policy limiting the number or
amount of mortgages that may be placed on any particular property, but mortgage
financing instruments usually limit additional indebtedness on such properties.
In the future, the Company may seek to extend, expand, reduce or renew the New
Credit Facility, or obtain new credit facilities or lines of credit, subject to
its general policy on debt capitalization, for the purpose of making
acquisitions, capital improvements, expansions or developments, providing
working capital to the Company or meeting the taxable income distribution
requirements for REITs under the Code if the Company has taxable income without
receipt of cash sufficient to enable the Company to meet such distribution
requirements.
CONFLICT OF INTEREST POLICIES
Bylaw Provisions. The Bylaws of the Company contain a provision that the
Company will not enter into any of the following transactions unless the Company
believes it is in its best interest, the terms are, at the time of the
transaction and under the circumstances then prevailing, fair and reasonable to
the Company, and the approval of a majority of the disinterested Trustees has
been obtained: (i) acquire from or sell to any Trustee, officer or employee of
the Company, any corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise in which a Trustee, officer or employee of the
Company owns more than a one percent interest or any affiliate of any of the
foregoing, any of the assets or other property of the Company, except for the
acquisition directly or indirectly of certain properties or interests therein,
directly or indirectly, through entities in which it owns an interest in
connection with the initial public offering of Common Shares by the Company or
pursuant to agreements entered into in connection with such offering, which
properties shall be as described in the prospectus relating to such initial
public offering; (ii) make any loan to or borrow from any of the foregoing
persons; or (iii) engage in any other transaction with any of the foregoing
persons.
Declaration of Trust Provisions. The Company's Declaration, as it would be
amended by the Articles of Amendment and Restatement, will provide that an
agreement or transaction between the Company and any of its Trustees or between
the Company and any other entity in which any Trustee is a trustee or director
or has a material financial interest is not void or voidable solely by reason of
such relationship if either (i) the existence thereof is disclosed or known by
(a) the Board of Trustees and the transaction is approved by a majority of the
disinterested Trustees or (b) the
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shareholders entitled to vote and the transaction is approved by a majority of
the votes cast by disinterested shareholders entitled to vote, or (ii) the
transaction is fair and reasonable to the Company.
Maryland Law Provisions. Under Maryland common law, a Trustee would be
obligated to offer to the Company a business opportunity (with certain limited
exceptions) which comes to him and which the Company could reasonably be
expected to develop or acquire.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Shares are listed on Nasdaq under the symbol "WLPT".
As of October 6, 1998, there were 532 holders of record of the Company's Common
Shares and no holders of record of the Company's Preferred Shares.
The following chart shows the high and low sale prices for a Common Share
of the Company on a quarterly basis for 1996 and 1997 and for the first two
quarters of 1998:
<TABLE>
<CAPTION>
Cash Dividends Declared
Quarter High Low Per Common Share
------- ---- --- ----------------
<S> <C> <C> <C>
First Quarter 1996 * * $0.2125
Second Quarter 1996 $ 10.75 $9.625 $0.2125
Third Quarter 1996 $ 10.75 $ 9.25 $0.2125
Fourth Quarter 1996 $ 10.50 $ 9.25 $0.2125
First Quarter 1997 $10.1875 $ 7.25 $0.2125
Second Quarter 1997 $ 9.50 $ 7.25 $0.2125
Third Quarter 1997 $ 9.25 $ 7.25 $0.1750
Fourth Quarter 1997 $ 9.125 $7.125 $0.1750
First Quarter 1998 $ 8.875 $ 6.25 $0.1750
Second Quarter 1998 $ 16.75 $ 7.25 $0.1750
Third Quarter 1998 $ 10.75 $ 8.75 $0.1750
Fourth Quarter 1998
(through October 7) $ 9.50 $ 8.50 N/A
</TABLE>
__________
* The Common Shares were not listed on Nasdaq until the second quarter of
1996, and no active trading of the Common Shares occurred prior to such
time.
OTHER MATTERS
Shareholder proposals intended to be presented at the 1999 Annual Meeting
of Shareholders must be received by the Secretary of the Company no later than
March 26, 1999, in order to be considered for inclusion in the proxy statement
and on the proxy card that will be solicited by the Board of Trustees in
connection with the 1999 Annual Meeting of Shareholders.
In addition, the Bylaws of the Company provide that in order for a
shareholder to nominate a candidate for election as a Trustee at an annual
meeting or propose business for consideration at such annual meeting, notice
must generally be given to the Secretary of the Company not more than 90 days
nor less than 60 days prior to the first anniversary of the preceding year's
annual meeting. The fact that the Company may not insist upon compliance with
these requirements should not be construed as a waiver by the Company of its
right to do so at any time in the future.
102
<PAGE>
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, YOUR VOTE IS IMPORTANT TO THE
COMPANY. PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD TODAY.
76
103
<PAGE>
WELLINGTON PROPERTIES TRUST
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
. Introduction to Pro Forma Condensed Consolidated Financial Information F-3
. Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1998 F-4
. Pro Forma Condensed Consolidated Statements of Operations for the Year
Ended December 31, 1997 and the Six-Month Period Ended June 30, 1998 F-5
. Notes and Management's Assumptions to Unaudited Pro Forma Condensed
Consolidated Financial Statements F-7
II. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
. Report of Independent Certified Public Accountants F-11
. Consolidated Balance Sheet at December 31, 1997 F-12
. Consolidated Statements of Operations for the Years Ended December 31,
1997 and December 31, 1996 F-13
. Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997 and December 31, 1996 F-14
. Consolidated Statements of Cash Flows for the Years Ended December 31,
1997 and December 31, 1996 F-16
. Notes to Consolidated Financial Statements F-18
. Unaudited Consolidated Balance Sheets at June 30, 1998 and June 30, 1997 F-23
. Unaudited Consolidated Statements of Operations for the Six Months Ended
June 30, 1998 and June 30, 1997 F-24
. Unaudited Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and June 30, 1997 F-25
. Notes to Consolidated Financial Statements F-26
III. HOYT PROPERTIES
. Report of Independent Certified Public Accountants F-30
. Combined Statements of Revenue and Certain Expenses for the Year Ended
December 31, 1997, and the Six Months Ended June 30, 1998 (Unaudited) F-31
. Notes to Combined Statements of Revenue and Certain Expenses F-32
IV. COLD SPRINGS OFFICE CENTER
. Report of Independent Certified Public Accountants F-34
. Statements of Revenue and Certain Expenses for the Year Ended
December 31, 1997, and the Six Months Ended June 30, 1998 (Unaudited) F-35
. Notes to Statements of Revenue and Certain Expenses F-36
V. FELD PROPERTIES
. Report of Independent Certified Public Accountants F-37
. Combined Statements of Revenue and Certain Expenses for the Year Ended
December 31, 1997, and the Six Months Ended June 30, 1998 (Unaudited) F-38
. Notes to Combined Statements of Revenue and Certain Expenses F-39
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
VI. STONEGATE PROPERTIES
. Report of Independent Certified Public Accountants F-41
. Combined Statements of Revenue and Certain Expenses for the Year Ended
December 31, 1997, and the Six Months Ended June 30, 1998 (Unaudited) F-42
. Notes to Combined Statements of Revenue and Certain Expenses F-43
VII. WELLINGTON CENTRE
. Report of Independent Certified Public Accountants F-44
. Statements of Revenue and Certain Expenses for the Years Ended
December 31, 1996 and 1997, and the Six Months Ended June 30, 1998 (Unaudited) F-45
. Notes to Statements of Revenue and Certain Expenses F-46
VIII. APPLE VALLEY PROPERTIES
. Report of Independent Certified Public Accountants F-47
. Combined Statements of Revenue and Certain Expenses for the Year Ended
December 31, 1997, and the Six Months Ended June 30, 1998 (Unaudited) F-48
. Notes to Combined Statements of Revenue and Certain Expenses F-49
</TABLE>
F-2
<PAGE>
WELLINGTON PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following sets forth the unaudited pro forma condensed consolidated
balance sheet of Wellington Properties Trust (the "Company") and its
consolidated affiliates, including Wellington Properties Investments, L.P. (the
"Operating Partnership") as of June 30, 1998, and the unaudited pro forma
condensed consolidated statements of operations for the year ended December 31,
1997 and the six-month period ended June 30, 1998 of the Company.
The pro forma condensed consolidated financial information is presented as
if the following transactions had been consummated on June 30, 1998 for balance
sheet purposes, and as of January 1, 1997 for purposes of
the statements of operations:
. The Company will become the sole general partner of and obtain its
partnership interest in the Operating Partnership. Through its general
partnership interest, the Company will control the Operating Partnership and
will present consolidated financial statements for the Company and its
affiliates, including the Operating Partnership.
. The Operating Partnership will acquire from certain persons and
entities, pursuant to the Master Contribution Agreement with American Real
Estate Equities, LLC ("AREE"), interests in 20 office and 10 light industrial
properties (the "AREE Acquired Properties") in exchange for: (a) the issuance by
the Operating Partnership of 9,390,250 partnership units ("Units") (convertible,
under certain circumstances, on a one-for-one basis such that one Unit is
convertible into one Common Share, as defined below) to AREE and certain other
persons and entities; (b) the assumption of debt aggregating $64,444,000; and
(c) the payment of $31,192,000 in cash. The Operating Partnership will also
acquire from Wellington Management Corporation ("WMC"), pursuant to the WMC
Contribution Agreement, interests in one office property (the "WMC Acquired
Property" and, collectively with the AREE Acquired Properties, the "Acquired
Properties") in exchange for: (a) the issuance by the Operating Partnership of
470,588 Units (convertible, under certain circumstances, on a one-for-one basis
such that one Unit is convertible into one Common Share) to WMC; (b) the
assumption of debt aggregating $7,347,000; and (c) the payment of $2,403,000 in
cash. The foregoing is referred to herein as the "Transaction."
. The Company and its consolidated affiliates will close on a $37.5
million, five-year term credit facility (the "New Credit Facility").
. In connection with the Transaction, the Company is expected to issue
105,263 common shares of beneficial interest (the "Common Shares") to AREE, or
representatives thereof, in exchange for $1,000,000 in cash.
. In connection with the Transaction, the Company will issue warrants
(the "Warrants") for 500,000 Common Shares each (i) to AREE, or representatives
thereof, and (ii) to WMC.
. Simultaneous with the Transaction, WMC will receive a termination fee
and the advisory agreement between the Company and WMC will be terminated.
. The Company will receive 105,263 Units from the Operating Partnership
in exchange for contributing $1,000,000 in cash.
This pro forma condensed consolidated financial information should be read
in conjunction with the historical financial statements of the Company and those
of the Hoyt Properties, the Cold Springs Office Center, the Feld Properties, the
Stonegate Properties, Wellington Centre and the Apple Valley Properties, which
are included elsewhere herein. In management's opinion, all adjustments
necessary to reflect the effects of the transactions to be consummated have been
made. This pro forma condensed consolidated financial information is unaudited
and is not necessarily indicative of what the actual financial position would
have been at June 30, 1998, nor does it purport to represent the future
financial position and the results of operations of the Company.
F-3
<PAGE>
WELLINGTON PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Acquisition of Acquisition of Closing of New
AREE Acquired WMC Acquired Credit Facility
Historical Properties Property Pro Forma
Consolidated Pro Forma Pro Forma Adjustments
(A) Adjustments(B) Adjustments(C) (D)
<S> <C> <C> <C> <C>
ASSETS
Net investments in real estate $ 18,964 $ 178,955 $ 14,747 $ --
Cash and cash equivalents (32) (35,018) (2,683) 36,925
Deferred costs, net 630 325 -- 575
Other assets 357 -- -- --
--------- --------- --------- ---------
Total assets $ 19,919 $ 144,262 $ 12,064 $ 37,500
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 15,840 $ 64,444 $ 7,347 $ 37,500
Other liabilities 878 -- -- --
--------- --------- --------- ---------
Total liabilities 16,718 64,444 7,347 $ 37,500
--------- --------- --------- ---------
Minority interests -- 79,063 3,962 --
Shareholders' equity
Common shares of beneficial interest 7 -- -- --
Additional paid in capital 6,382 -- -- --
Share warrants -- 755 755 --
Accumulated deficit (3,188) -- -- --
--------- --------- --------- ---------
Total shareholders' equity 3,201 755 755 --
--------- --------- --------- ---------
Total liabilities and shareholders' equity $ 19,919 $ 144,262 $ 12,064 $ 37,500
========= ========= ========= =========
<CAPTION>
Issuance of
Common Shares Adjustment to
Pro Forma Minority Pro Forma
Adjustments(E) Interests(F) Consolidated
<S> <C> <C> <C>
ASSETS
Net investments in real estate $ -- $ -- $ 212,666
Cash and cash equivalents 992 -- 184
Deferred costs, net -- -- 1,530
Other assets -- -- 357
--------- --------- ---------
Total assets $ 992 $ -- $ 214,737
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ -- $ -- $ 125,131
Other liabilities -- -- 878
--------- --------- ---------
Total liabilities -- -- $ 126,009
--------- --------- ---------
Minority interests -- 1,647 84,672
Shareholders' equity
Common shares of beneficial interest 1 -- 8
Additional paid in capital 991 (1,647) 5,726
Share warrants -- -- 1,510
Accumulated deficit -- -- (3,188)
--------- --------- ---------
Total shareholders' equity 992 (1,647) 4,056
--------- --------- ---------
Total liabilities and shareholders' equity $ 992 $ -- $ 214,737
========= ========= =========
</TABLE>
See accompanying notes to pro forma financial statements
F-4
<PAGE>
WELLINGTON PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Historical
Historical AREE Acquired WMC Acquired Pro Forma Pro Forma
Consolidated(A) Properties(B) Property(C) Adjustments Consolidated
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental revenue $ 2,981 $ 18,261 $ 1,703 $ -- $ 22,945
Other 199 179 3 -- 381
---------- ---------- ---------- ---------- ----------
Total revenue 3,180 18,440 1,706 -- 23,326
========== ========== ========== ========== ==========
EXPENSES:
Property operating 1,155 9,823 696 -- 11,674
General and administrative 297 -- -- 400 (D) 697
Interest expense 1,398 -- -- 9,600 (E) 10,998
Depreciation and amortization 606 -- -- 4,024 (F) 4,630
---------- ---------- ---------- ---------- ----------
Total expenses 3,456 9,823 696 14,024 27,999
---------- ---------- ---------- ---------- ----------
Income (loss) before minority interests (276) 8,617 1,010 (14,024) (4,673)
Minority interests in (income) loss -- -- -- 4,315 (G) 4,315
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (276) $ 8,617 $ 1,010 $ (9,709) $ (358)
========== ========== ========== ========== ==========
Net income (loss) per share: Basic and diluted $ (0.39) $ (0.44)
========== ==========
Weighted average number of shares 713,091 818,354
========== ==========
</TABLE>
See accompanying notes to pro forma financial statements
F-5
<PAGE>
WELLINGTON PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Historical Historical
Historical AREE Acquired WMC Acquired Pro Forma Pro Forma
Consolidated(A) Properties(B) Property(C) Adjustments Consolidated
<S> <C> <C> <C> <C> <C>
REVENUE:
Rental revenue $ 1,517 $ 9,974 $ 891 $ -- $ 12,382
Other -- 51 1 -- 52
--------- -------- -------- -------- ---------
Total revenue 1,517 10,025 892 -- 12,434
========= ======== ======== ======== =========
EXPENSES:
Property operating 589 4,381 373 -- 5,343
General and administrative 148 -- -- 200 (D) 348
Interest expense 634 -- -- 4,728 (E) 5,362
Depreciation and amortization 294 -- -- 2,012 (F) 2,306
--------- -------- -------- -------- ---------
Total expenses 1,665 4,381 373 6,940 13,359
--------- -------- -------- -------- ---------
Income (loss) before minority interests (148) 5,644 519 (6,940) (925)
Minority interests in (income) loss -- -- -- 853 (G) 853
--------- -------- -------- -------- ---------
Net income (loss) $ (148) $ 5,644 $ 519 $ (6,087) $ (72)
========= ======== ======== ======== =========
Net income (loss) per share: Basic and diluted $ (0.20) $ (0.09)
========= =========
Weighted average number of shares 723,027 828,290
========= =========
</TABLE>
See accompanying notes to pro forma financial statements
F-6
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES AND MANAGEMENTS ASSUMPTIONS TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION:
Wellington Properties Trust (the "Company") is a self-administered Maryland real
estate investment trust. As of June 30, 1998, the Company's portfolio included
376 apartment units in two residential properties leased for residential
purposes. In connection with the Transaction, the Company will become the sole
general partner of and will hold an approximately 1% interest in the Operating
Partnership formed to acquire and hold the Acquired Properties. The Operating
Partnership will issue 9,966,101 Units of which 105,263 Units are expected to be
issued to the Company. Because the Company controls the Operating Partnership,
the Company will consolidate the assets of the Operating Partnership with the
Company.
These pro forma condensed consolidated financial statements should be read in
conjunction with the historical financial statements and notes thereto of the
Company, the Hoyt Properties, the Cold Springs Office Center, the Feld
Properties, the Stonegate Properties, the Wellington Centre and the Apple Valley
Properties, which are included elsewhere herein. In management's opinion, all
adjustments necessary to reflect the effects of acquisitions of the Acquired
Properties by the Company have been made.
2. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET:
(A) Reflects the historical consolidated balance sheet of the Company as of
June 30, 1998.
(B) Reflects the contribution of the AREE Acquired Properties in exchange for:
(i) issuance of 9,390,250 Units at a value of $8.50 per Unit ($79,817)
(based on the range of trading prices of $8.50 to $8.875 per share for ten
days prior to announcement), net of associated costs of $754; (ii) issuance
of ten year warrants to purchase 500,000 Common Shares at exercise prices
between $8.50 and $14.75 per share based on an average of $1.51 per warrant
value (based on a modified Black Scholes calculation) ($755); (iii)
assumption of debt aggregating $64,444; and (iv) utilization of cash of
$35,018, including payment of costs associated with the acquisition and
debt assumption of $2,747 and $325, respectively. The AREE Acquired
Properties will be recorded at purchase price plus direct costs of
acquisition using purchase accounting principles. The allocation of the
total value will be as follows:
<TABLE>
<CAPTION>
Costs, Including
Purchase Price Value of Warrants Total Percentage
-------------- ----------------- ----- ----------
<S> <C> <C> <C> <C>
Hoyt Properties $ 78,297 $ 1,488 $ 79,785 46.9%
Cold Springs Office Center 12,886 151 13,037 6.4
Feld Properties 21,020 379 21,399 9.3
Stonegate Properties 47,250 1,032 48,282 23.0
Apple Valley Properties 16,000 452 16,452 8.6
------------ -------- --------- ------
$ 175,453 $ 3,502 $ 178,955 94.2%
============ ======== ========= ======
</TABLE>
(C) Reflects the contribution of the WMC Acquired Property in exchange for (i)
issuance of 470,588 Units at a value of $8.50 per Unit ($4,000) (based on
the range of trading prices of $8.50 to $8.875 per share for ten days prior
to announcement), net of associated costs of $38; (ii) issuance of ten year
warrants to purchase 500,000 Common Shares at exercise prices between $8.50
and $14.75 per share based on an average of $1.51 per warrant value (based
on a modified Black Scholes calculation) ($755); (iii) assumption of debt
aggregating $7,347; and (iv) utilization of loan proceeds from the New
Credit Facility of $2,683, including payment of costs associated with the
acquisition of $242. The WMC Acquired Property will be recorded at purchase
price plus direct costs of acquisition using purchase accounting
principles.
(D) Reflects the proceeds from the New Credit Facility of $37,500, net of
deferred financing fees of $575.
(E) Reflects the issuance of 105,263 Common Shares, $0.01 par value, in
exchange for $1,000 in cash, net of associated costs of $8.
(F) Reflects the adjustment to minority interests as a result of the
Transaction. Upon closing of the Transaction, the Company will receive
105,263 Units and will hold an approximately 1% interest in the Operating
Partnership. The calculation of minority interests is as follows:
<TABLE>
<CAPTION>
Company
Historical Transaction (1) Consolidated
<S> <C> <C> <C> <C>
Minority interests $ -- $84,672 99.0% $84,672
Total shareholder's equity 3,201 855 1.0 4,056
------ -------- ----- -------
Total minority interests and
shareholders' equity $3,201 $85,527 100.0% $88,728
====== ======= ===== =======
</TABLE>
(1) Reflects the impact of all effects of the Transaction to minority interests
and total shareholders' equity.
F-7
<PAGE>
3. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS:
(A) Reflects the historical consolidated operations of the Company.
(B) Reflects the combined historical operations of the AREE Acquired
Properties as follows:
For the Year Ended December 31, 1997
- ------------------------------------
<TABLE>
<CAPTION>
Hoyt Cold Springs Feld Stonegate Apply Valley
Properties Office Center Properties Properties Properties
Historical Historical Historical Historical Historical Combined
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Rental revenue $5,561 $1,559 $2,238 $6,227 $2,676 $18,261
Other 123 -- 2 43 11 179
------ ------ ------ ------ ------ -------
Total revenue 5,684 1,559 2,240 6,270 2,687 18,440
Expenses
Property operating 3,048 621 1,224 3,646 1,284 9,823
Interest expense -- -- -- -- -- --
Depreciation and
amortization -- -- -- -- -- --
------ ------ ------ ------ ------ -------
Total expenses 3,048 621 1,224 3,646 1,284 9,823
------ ------ ------ ------ ------ -------
Income (loss) before $2,636 $ 938 $1,016 $2,624 $1,403 $ 8,617
minority interests ====== ====== ====== ====== ====== =======
</TABLE>
For the Six-Month Period Ended June 30, 1998
- --------------------------------------------
<TABLE>
<CAPTION>
Hoyt Cold Springs Feld Stonegate Apply Valley
Properties Office Center Properties Properties Properties
Historical Historical Historical Historical Historical Combined
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Rental revenue $3,630 $766 $1,184 $3,074 $1,320 $ 9,974
Other 46 -- -- -- 5 51
------ ---- ------ ------ ------ -------
Total revenue 3,676 766 1,184 3,074 1,325 10,025
Expenses
Property operating 1,502 318 617 1,306 638 4,381
Interest expense -- -- -- -- -- --
Depreciation and
amortization -- -- -- -- -- --
------ ---- ------ ------ ------ -------
Total expenses 1,502 318 617 1,306 638 4,381
------ ---- ------ ------ ------ -------
Income (loss) before
minority interests $2,174 $448 $ 567 $1,768 $ 687 $ 5,644
====== ==== ====== ====== ====== =======
</TABLE>
(C) Reflects the historical operations of the WMC Acquired Property.
(D) Reflects additional general and administrative costs expected to be
incurred as a result of the Transaction. Such costs are expected to have a
continuing impact on the Company.
(E) Reflects the increase in interest expense resulting from:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTH PERIOD
DECEMBER 31, 1997 ENDED JUNE 30, 1998
----------------- -------------------
<S> <C> <C>
. The New Credit Facility (which debt bears interest at a rate equal to
30 day LIBOR plus 2.00% per annum on the senior tranche and plus 7.00%
per annum on the mezzanine tranche) assuming a 30 day LIBOR rate of
5.375%
$3,751 $1,859
. The debt assumed in connection with the Transaction which debt bears
interest at an average rate of 8.15% per annum 5,849 2,869
------- ------
$9,600 $4,728
======= ======
</TABLE>
(F) Reflects the increase in depreciation and amortization resulting from:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTH PERIOD
DECEMBER 31, 1997 ENDED JUNE 30, 1998
----------------- -------------------
<S> <C> <C>
. Depreciation of buildings acquired over a 40-year useful life
(allocating 20% to land and 80% to depreciable basis) $3,874 $1,937
. Amortization of deferred financing fees related to debt assumed in
connection with the Transaction 35 18
. Amortization of deferred financing fees related to the New Credit
Facility 115 57
------- ------
$4,024 $2,012
======= ======
</TABLE>
(G) Minority interests in income (loss) have been reflected, on a pro forma
basis, in accordance with the Operating Partnership Agreement.
Consolidated income or loss is allocated between the Company and the
remaining partners pari passu based upon total weighted average Common
Shares and Units. The adjustments to record the income (loss) effect of
the minority interests share of income (loss) in the pro forma statements
of operations were computed as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTH PERIOD
DECEMBER 31, 1997 ENDED JUNE 30, 1998
----------------- -------------------
<S> <C> <C>
Loss before minority interests $(4,673) $(925)
Pro forma minority share
9,860,838 Units for the year ended December 31, 1997 and
the six month period ended June 30, 1998
(4,315) (853)
------- -----
Net loss allocated to Common Shareholders
818,354 Common Shares for the year ended December 31,
1997 and 828,290 Common Shares for the six months ended
June 30, 1998
$ (358) $ (72)
======= =====
</TABLE>
(H) Simultaneously with the Transaction, WMC, an affiliate of the Company, will
receive a termination fee and the advisory agreement between the Company
and WMC will be terminated. The fee will be calculated as: (i) 1% of the
aggregate value of the Acquired Properties up to $150,000 plus (ii) 0.25%
of the aggregate value of the Acquired Properties in excess of $150,000.
The Company will record the effect of this fee upon closing as a
nonrecurring charge of approximately $1,594. Such adjustment has been
omitted from the pro forma condensed consolidated statement of operations
for the year ended December 31, 1997, as the events are not expected to
have a continuing impact on the Company.
F-8
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
WELLINGTON PROPERTIES TRUST
We have audited the accompanying consolidated balance sheet of Wellington
Properties Trust and Subsidiary as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1997 and 1996. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion of these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Wellington
Properties Trust and Subsidiary as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Fond du Lac, Wisconsin
February 19, 1998
(except for Notes E and F, as to which the date is March 6, 1998)
F-9
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
RENTAL PROPERTY AT COST (NOTES A2, B, C, D AND E)
LAND AND LAND IMPROVEMENTS....................................................... $ 2,793,582
BUILDINGS........................................................................ 16,674,817
APPLIANCES AND EQUIPMENT......................................................... 838,325
-----------
20,306,724
ACCUMULATED DEPRECIATION......................................................... (1,113,573)
-----------
19,193,151
CASH............................................................................. 113,945
RENT RECEIVABLE.................................................................. 19,945
PREPAID EXPENSES................................................................. 36,483
PROPERTY TAX AND OTHER ESCROW.................................................... 204,404
ORGANIZATION COSTS AND LOAN FEES, NET OF ACCUMULATED AMORTIZATION OF $154,657
(NOTE A3)....................................................................... 217,029
-----------
TOTAL ASSETS..................................................................... $19,784,957
===========
LIABILITIES AND EQUITY
LINE OF CREDIT (NOTE E).......................................................... $ 800,000
MORTGAGE NOTES PAYABLE (NOTES C AND D)........................................... 14,666,255
ACCOUNTS PAYABLE
TRADE......................................................................... 40,538
RELATED PARTY................................................................. 19,373
-----------
59,911
-----------
TENANT SECURITY DEPOSITS......................................................... 121,460
DEFERRED RENTAL REVENUE.......................................................... 90,996
ACCRUED LIABILITIES
PROPERTY TAXES................................................................ 324,540
INTEREST...................................................................... 106,712
OTHER......................................................................... 13,066
-----------
444,318
-----------
CASH DIVIDENDS DECLARED............................................................ 124,571
-----------
16,307,511
STOCKHOLDERS' EQUITY
COMMON STOCK AUTHORIZED, 100,070,000 SHARES OF $.01 PAR VALUE; ISSUED, 714,833
SHARES.......................................................................... 7,148
PREFERRED STOCK AUTHORIZED, 500,000 SHARES OF $.01 PAR VALUE; NO SHARES ISSUED
OR OUTSTANDING.................................................................. --
ADDITIONAL PAID-IN CAPITAL....................................................... 6,286,053
ACCUMULATED DEFICIT.............................................................. (2,787,991)
-----------
3,505,210
LESS COST OF 3,000 SHARES OF COMMON STOCK IN TREASURY............................ 27,764
-----------
3,477,446
-----------
TOTAL LIABILITIES AND EQUITY..................................................... $19,784,957
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES (NOTE A4)
RENTAL INCOME.............................................. $2,980,800 $2,556,938
GAIN ON SALE OF RENTAL PROPERTY............................ 166,753 --
INTEREST INCOME AND OTHER.................................. 33,443 9,176
---------- ----------
3,180,996 2,566,114
EXPENSES
PROPERTY, OPERATING AND MAINTENANCE........................ 656,591 611,544
ADVERTISING AND PROMOTION.................................. 68,491 66,823
PROPERTY TAXES AND INSURANCE............................... 430,057 396,497
DEPRECIATION AND AMORTIZATION.............................. 606,388 552,412
INTEREST EXPENSE........................................... 1,398,457 1,338,919
GENERAL AND ADMINISTRATIVE................................. 296,591 312,857
---------- ----------
3,456,575 3,279,052
---------- ----------
NET LOSS..................................................... $ (275,579) $ (712,938)
========== ==========
LOSS PER COMMON SHARE
NET LOSS................................................... $(.39) $(1.07)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (NOTE A6) 713,091 663,247
</TABLE>
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
EXCESS OF PURCHASE PRICE
ADDITIONAL OVER AFFILIATE'S
COMMON PREFERRED PAID-IN BASIS IN PROPERTY
STOCK STOCK CAPITAL ACQUIRED
------- -------- --------- -------------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996............ $4,830 $ -- $4,007,760 $ (152,615)
CASH DIVIDENDS DECLARED............... -- -- -- --
ISSUANCE OF COMMON STOCK IN
CONNECTION WITH PUBLIC OFFERING,
LESS SYNDICATION COSTS OF $11,619.... 346 -- 340,323 --
ISSUANCE OF 167,166 SHARES OF COMMON
STOCK IN CONNECTION WITH LAKE POINTE
PURCHASE (NOTE B).................... 1,672 -- 1,669,988 --
COST OF 682 SHARES OF COMMON STOCK
ACQUIRED FOR TREASURY................ -- -- -- --
NET LOSS.............................. -- -- -- --
------ ------ ---------- ---------
BALANCE AT DECEMBER 31, 1996.......... $6,848 $ -- $6,018,071 $(152,615)
====== ======= ========== =========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED TREASURY
DEFICIT STOCK TOTAL
---------- ------------ ---------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996.................... $ (684,957) $ -- $3,175,018
CASH DIVIDENDS DECLARED....................... (571,035) -- (571,035)
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
PUBLIC OFFERING, LESS SYNDICATION COSTS OF
$11,619...................................... -- -- 340,669
ISSUANCE OF 167,166 SHARES OF COMMON STOCK IN
CONNECTION WITH LAKE POINTE PURCHASE (NOTE B) -- -- 1,671,660
COST OF 682 SHARES OF COMMON STOCK ACQUIRED
FOR TREASURY................................. -- (6,818) (6,818)
NET LOSS...................................... (712,938) -- (712,938)
------------- --------- ----------
BALANCE AT DECEMBER 31, 1996.................. $(1,968,930) $ (6,818) $3,896,556
============= ========= ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-12
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -- CONTINUED
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
EXCESS OF PURCHASE
ADDITIONAL PRICE OVER AFFILIATE'S
COMMON PREFERRED PAID-IN BASIS IN PROPERTY
STOCK STOCK CAPITAL ACQUIRED
----- ----- ------- -----------------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997...............
$6,848 $ -- $6,018,071 (152,615)
CASH DIVIDENDS DECLARED.................. -- -- -- --
ISSUANCE OF COMMON STOCK IN
CONNECTION WITH DIVIDEND REINVESTMENT... 307 -- 274,793 --
RELEASE OF THE EXCESS OF PURCHASE
PRICE OVER AFFILIATE'S BASIS IN
PROPERTY ACQUIRED DUE TO FOREST
DOWNS SALE.............................. -- -- -- 152,615
RETIREMENT OF 682 SHARES OF COMMON
STOCK IN TREASURY....................... (7) -- (6,811) --
COST OF 3,000 SHARES OF COMMON STOCK
ACQUIRED FOR TREASURY................... -- -- -- --
NET LOSS................................. -- -- -- --
------ ------- ---------- ---------
BALANCE AT DECEMBER 31, 1997............. $7,148 $ -- $6,286,053 $ --
====== ======= ========== =========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED TREASURY
DEFICIT STOCK TOTAL
------------- ---------- -----------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1997.................... $(1,968,930) $ (6,818) $3,896,556
CASH DIVIDENDS DECLARED....................... (543,482) -- (543,482)
ISSUANCE OF COMMON STOCK IN CONNECTION WITH
DIVIDEND REINVESTMENT........................ -- -- 275,100
RELEASE OF THE EXCESS OF PURCHASE PRICE OVER
AFFILIATE'S BASIS IN PROPERTY ACQUIRED DUE
TO FOREST DOWNS SALE......................... -- -- 152,615
RETIREMENT OF 682 SHARES OF COMMON STOCK IN
TREASURY..................................... -- 6,818 --
COST OF 3,000 SHARES OF COMMON STOCK ACQUIRED
FOR TREASURY................................. -- (27,764) (27,764)
NET LOSS...................................... (275,579) -- (275,579)
----------- ---------- ----------
BALANCE AT DECEMBER 31, 1997.................. $(2,787,991) $(27,764) $3,477,446
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-13
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS................................................... $ (275,579) $(712,938)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION.............................. 606,388 552,412
GAIN ON SALE OF RENTAL PROPERTY............................ (166,753) --
INCREASE IN RENT RECEIVABLE................................ (11,460) (1,944)
(INCREASE) DECREASE IN PREPAID EXPENSES.................... (30,047) 3,319
(INCREASE) DECREASE IN PROPERTY TAX AND OTHER ESCROW....... 147,137 (102,485)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE:
TRADE................................................... (26,441) 40,634
RELATED PARTY........................................... (178,782) 46,450
INCREASE (DECREASE) IN TENANT SECURITY DEPOSITS............ (9,470) 44,925
INCREASE (DECREASE) IN DEFERRED RENTAL REVENUE............. (4,591) 60,911
INCREASE (DECREASE) IN ACCRUED LIABILITIES................. (55,582) 137,253
----------- ---------
270,399 781,475
----------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... (5,180) 68,537
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF RENTAL PROPERTY...................... 1,898,962 --
ACQUISITION OF RENTAL PROPERTY............................. (84,548) (992,389)
----------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........ 1,814,414 (992,389)
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM MORTGAGE NOTES............................... 12,900,700 --
PROCEEDS FROM LINE OF CREDIT............................... 815,270 784,729
REPAYMENTS ON MORTGAGE NOTES PAYABLE....................... (7,610,011) (31,664)
REPAYMENTS ON LINE OF CREDIT............................... (800,000) --
REPAYMENTS ON LAND CONTRACT AND BUSINESS NOTE OBLIGATIONS.. (6,676,911) --
PAYMENT OF LOAN FEES....................................... (205,958) (54,830)
ISSUANCE OF COMMON STOCK................................... 275,100 340,669
CASH DIVIDENDS PAID - COMMON STOCK......................... (564,421) (528,172)
PURCHASE OF TREASURY STOCK................................. (27,764) (6,818)
----------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........ $(1,893,995) $ 503,914
----------- ---------
</TABLE>
F-14
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
NET DECREASE IN CASH......................................... $ (84,761) $ (419,938)
CASH AT BEGINNING OF YEAR.................................... 198,706 618,644
---------- ----------
CASH AT END OF YEAR.......................................... $ 113,945 $ 198,706
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
INTEREST................................................ $1,509,569 $1,201,856
</TABLE>
The accompanying notes are an integral part of this statement.
Supplemental non-cash investing and financing activities:
On January 5, 1996, Wellington Properties Trust purchased an apartment complex
from Wellington Realty Income Limited Partnership 90-1 for $3,600,000.
Wellington Properties Trust assumed the mortgage note payable on the property of
$1,856,760 and issued 167,166 shares of common stock of the Trust to Wellington
Realty Income Limited Partnership 90-1 for a $1,671,660 reduction in the cash
amount due.
In connection with the 1995 purchase of a 304-unit apartment complex from Monson
Construction Company, 60 of the units were completed at an additional purchase
price of $3,487,470 in 1996. Pursuant to this transaction, Wellington
Properties Trust entered into business note agreements with Monson Construction
Company, the seller, totaling $3,487,470.
The Trust has dividends payable of $124,571 and $145,510 as of December 31, 1997
and 1996, respectively.
F-15
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Wellington Properties Trust (Trust) is a real estate investment trust organized
under the laws of the State of Maryland. It was formed on March 15, 1994 to
acquire, develop, own and operate investment real estate. The Trust currently
owns one 72-unit apartment complex located in Schofield, Wisconsin (Lake
Pointe), and through its wholly-owned subsidiary Maple Grove Apartment Homes,
Inc., one 304-unit apartment complex located in Madison, Wisconsin (Maple
Grove). It is the intention of the Trust to continue to seek properties for
future acquisitions.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows:
1. Principles of Consolidation
The consolidated financial statements include all the accounts of Wellington
Properties Trust and its wholly-owned subsidiary, Maple Grove Apartment Homes,
Inc. All intercompany accounts and transactions have been eliminated in the
preparation of the consolidated financial statements.
2. Rental Property
Rental property is recorded at cost, less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets for financial reporting purposes. The Complexes use a 40-
year estimated life for buildings and a seven-year estimated life for appliances
and equipment. Expenditures for ordinary maintenance and repairs are expensed
to operations as incurred and significant renovations and improvements that
improve and/or extend the useful life of the assets are capitalized and
depreciated over their estimated useful life. A combination of straight-line
and accelerated methods is used for income tax purposes.
3. Organization Costs and Loan Fees
The costs incurred in connection with the formation of the Trust are being
amortized on a straight-line basis over a period of fifteen years.
Costs incurred in obtaining and securing financing for a mortgage note payable
are being amortized over 5 years using the straight-line method.
4. Revenue Recognition
Rental income attributable to leases is recorded when due from tenants and
interest income is recorded on an accrual basis.
F-16
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
5. Income Taxes
The Trust has made an election to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended, commencing with its
taxable year ending December 31, 1995. As a REIT, the Trust generally will not
be subject to Federal income tax if it distributes at least 95% of its REIT
taxable income (excluding capital gains) to its shareholders.
6. Loss Per Share
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding for the period.
7. Financial Instruments
The carrying amount of financial instruments at December 31, 1997 approximates
fair value.
NOTE B - RELATED PARTY TRANSACTIONS
Acquisition of Lake Pointe
On January 5, 1996, Wellington Properties Trust purchased the apartment complex
from a related party, Wellington Realty Income Limited Partnership 90-1, for
$3,600,000.
The Trust assumed the mortgage note payable on the property of $1,856,760 (note
D), and issued 167,166 shares of common stock of the Trust to Wellington Realty
Income Limited Partnership 90-1 for a $1,671,660 reduction in the cash amount
due.
Management Fees
The Trust has entered into a Property Management Agreement with WMC Realty,
Inc., a wholly-owned subsidiary of WMC, to serve as the Property manager of
properties owned by the Trust and its wholly-owned subsidiary. The Property
Manager will manage the day to day operations of properties owned by the Trust
and its wholly-owned subsidiary, and will receive a management fee equal to 3.5%
and 5% of the gross rental receipts collected in connection with the operation
of Maple Grove and Lake Pointe properties, respectively. Management fees for
the years ended December 31, 1997 and 1996 were $122,391 and $125,074,
respectively.
Advisor Fees
On August 2, 1994, the Trust contracted to retain WMC to serve as Advisor to the
Trust. In payment for these services, the Advisor receives a fee equal to 5% of
the gross proceeds of the public stock offering. Advisor fees for the years
ended December 31, 1997 and 1996 were $0 and $8,251, respectively. In addition,
the Advisor is entitled to receive an Incentive Advisory Fee equal to 10% of the
realized gain with respect to each sale or refinancing of property owned by the
Trust.
In the event a property is sold at a loss, no incentive advisory fees will be
paid until the amount of the loss has been offset by gains from other sales.
Incentive advisory fees for the years ended December 31, 1997 and 1996 were
$18,265 and $0, respectively.
F-17
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
In addition, the Advisor is entitled to recover certain expenses including
travel, legal, accounting, and insurance. These expenses totaled $114,133 and
$70,012 for the years ended December 31, 1997 and 1996, respectively. Fees for
services, such as legal and accounting, provided by the Advisors' employees, in
the opinion of the Advisor, may not exceed fees that would have been charged by
independent third parties. The initial term of the agreement ended on December
31, 1995 and is renewed automatically each year. The agreement may be
terminated without cause, by either party, on 60 days written notice and by the
Trust for cause immediately upon written notice.
Commission
Wellington Investment Services Corporation (WISC), a wholly-owned subsidiary of
WMC, is entitled to receive a commission of 5% of the proceeds of the common
stock of the Trust that it sells. Commissions paid to WISC for the years ended
December 31, 1997 and 1996 were $0 and $8,225, respectively.
NOTE C - ACQUISITION OF MAPLE GROVE
The 304-unit complex, located in Madison, Wisconsin, was acquired in four
separate transactions dated May 1, 1995, June 30, 1995, October 2, 1995 and
December 30, 1996.
The total purchase price was $12,953,713. Pursuant to this acquisition, the
Trust entered into a mortgage note agreement for $6,250,000. The Trust also
entered into two land contracts with Monson Construction Company, the seller,
for $1,692,000 and $1,650,947.
During 1996, 60 of the above units were completed at an additional purchase
price of $3,487,470.
Pursuant to this transaction, the Trust entered into business note agreements
with Monson Construction Company, the seller, totaling $3,487,470.
During 1997, the above mortgage note, land contracts and business note
agreements were refinanced with a mortgage note through American Property
Financing, Inc.
F-18
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE D - MORTGAGE NOTES PAYABLE
Long-term debt consists of the following at December 31, 1997:
<TABLE>
<S> <C>
8.095% mortgage note payable to American Property Financing, Inc. in monthly
installments of $95,517 including interest; final balloon payment due June
1, 2004; collateralized by the Maple Grove Apartment Complex and an
assignment of rents and security agreement................................... $12,848,890
Mortgage note payable to Marshall and Ilsley Bank in monthly installments of
$13,770 including interest; final balloon payment due July 1, 2003;
collateralized by the Lake Pointe Apartment Complex and an assignment of
rents agreement.............................................................. 1,817,365
-----------
14,666,255
Less current maturities...................................................... 133,136
-----------
$14,533,119
===========
</TABLE>
Aggregate maturities on mortgage notes payable after December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998...................... $ 133,136
1999...................... 144,266
2000...................... 156,327
2001...................... 169,397
2002...................... 183,560
Thereafter................ 13,879,569
-----------
$14,666,255
===========
</TABLE>
The Lake Pointe Apartment Complex mortgage note payable interest rate is fixed
at 7.87% until July 1, 1998, at which time it may be adjusted semi-annually to
3% over the monthly average cost of funds for SAIF insured institutions from the
Federal Home Loan Bank of Chicago 7th District, but never more than 12% nor less
than 6%.
NOTE E - LINE OF CREDIT
During 1996, the Trust obtained a line of credit for $1,000,000 with Milwaukee
Western Bank.
Interest-only payments are due monthly with an interest rate of .5% above the
bank's reference rate (effective rate at December 31, 1997 of 9%). At December
31, 1997, the outstanding balance was $800,000. Milwaukee Western Bank renewed
$300,000 of the outstanding balance and extended the due date to December 31,
1998. The line of credit is collateralized by a second mortgage on the Lake
Pointe Apartment Complex and the guarantee of WMC. The remaining $500,000 was
paid off pursuant to a line of credit facility entered into between the Trust
and the Credit Suisse First Boston Mortgage Capital LLC (note F).
F-19
<PAGE>
WELLINGTON PROPERTIES TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE F - SUBSEQUENT EVENTS
On February 16, 1998, the Trust entered into a contract to purchase a 144-unit
apartment complex from an unrelated party, for $3,850,000. The purchase price
is to be paid by the issuance of shares of the Trust in an amount up to $300,000
with the balance payable in cash. The complex, known as Park Forest Apartments,
is located in Des Moines, Iowa. The closing date of the transaction is expected
to occur on or before June 1, 1998 and is contingent, among other things, on the
Trust obtaining a firm loan commitment.
On March 5, 1998, the Trust entered into a non-revolving line of credit facility
(the "Facility") with Credit Suisse First Boston Mortgage Capital LLC (CSFB).
The interest rate for the Facility will be equal to the one-month LIBOR rate,
reset monthly, plus 325 basis points. Interest will be payable monthly on the
actual amount outstanding of the Facility. Principal payments on the Facility
will be made on a monthly basis with the maturity date of the Facility being
March 2000. Extensions of the Facility maturity date of up to six months may be
made if certain conditions have been met.
On March 6, 1998, in connection with the facility entered into between the Trust
and CSFB, a permanent mortgage loan (mortgage) was entered into to pay off the
Lake Pointe Apartment Complex mortgage held by Marshall & Ilsley Bank. Payments
on the mortgage with CSFB will be made on a monthly basis and will include
interest at a rate equal to the yield on a 10-year U.S. Treasury security plus
185 basis points. The mortgage will be due on April 2028.
The Facility and mortgage is collateralized by, among other things, guarantees
from the Trust, a first mortgage lien on Lake Point Apartment Complex and any
other properties purchased with proceeds of the Facility and an assignment of
leases and rents on the Lake Pointe Apartment Complex and each property financed
using the Facility.
The total amount available through the Facility and mortgage is $17,000,000.
F-20
<PAGE>
<TABLE>
<CAPTION>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
RENTAL PROPERTY AT COST
LAND....................................................... $ 2,793,582 $ 2,775,878
BUILDING................................................... 16,674,817 16,674,817
APPLIANCES AND EQUIPMENT................................... 879,131 804,777
----------- -----------
20,347,530 20,255,472
ACCUMULATED DEPRECIATION................................... (1,383,807) (844,164)
----------- -----------
NET PROPERTY AND EQUIPMENT.............................. 18,963,723 19,411,308
CASH......................................................... (31,652) 91,363
PREPAID EXPENSES............................................. 340,028 161,103
LAND CONTRACT RECEIVABLE..................................... 0 1,500,000
OTHER........................................................ 16,802 34,825
ORGANIZATION COSTS AND LOAN FEES NET OF ACCUMULATED
AMORTIZATION................................................ 629,670 250,997
----------- -----------
954,848 2,038,288
TOTAL ASSETS................................................. $19,918,571 $21,449,596
=========== ===========
LIABILITIES AND EQUITY
MORTGAGE NOTE PAYABLE........................................ $15,840,075 $16,865,209
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES..................... 689,837 601,167
ACCOUNTS PAYABLE RELATED PARTY.............................. 61,256 17,955
TENANT SECURITY DEPOSITS..................................... 126,768 123,546
----------- -----------
TOTAL LIABILITIES............................................ 16,717,936 17,607,877
EQUITY
COMMON STOCK 100,070,000 AUTHORIZED 728,038 SHARES ISSUED
AND OUTSTANDING, RESPECTIVELY; PAR VALUE $0.01............ 7,311 6,991
PREFERRED STOCK 500,000 SHARES AUTHORIZED; NO SHARES
ISSUED OR OUTSTANDING; PAR VALUE $0.01.................... 0 0
ADDITIONAL PAID-IN CAPITAL................................. 6,382,413 6,126,979
ACCUMULATED DEFICIT........................................ (3,189,089) (2,292,251)
----------- -----------
3,200,635 3,841,719
----------- -----------
TOTAL LIABILITIES AND EQUITY................................. $19,918,571 $21,449,596
=========== ===========
</TABLE>
(SEE ACCOMPANYING NOTES)
F-21
<PAGE>
<TABLE>
<CAPTION>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
REVENUES
<S> <C> <C>
RENTAL INCOME.............................................. $1,516,511 $1,560,380
INTEREST INCOME AND OTHER.................................. 273 192,908
---------- ----------
TOTAL REVENUE.............................................. 1,516,784 1,753,288
EXPENSES
PROPERTY OPERATING AND MAINTENANCE......................... 370,123 359,531
REAL ESTATE TAXES AND INSURANCE............................ 219,290 219,066
DEPRECIATION AND AMORTIZATION.............................. 293,879 305,131
INTEREST EXPENSE........................................... 633,928 760,782
GENERAL AND ADMINISTRATIVE................................. 147,745 138,032
---------- ----------
TOTAL EXPENSES............................................. 1,664,965 1,782,542
---------- ----------
NET OPERATING INCOME/(LOSS)................................ $ (148,181) $ (29,254)
========== ==========
LOSS PER COMMON SHARE:
NET LOSS................................................... ($0.20) ($0.04)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING....... 723,027 696,642
</TABLE>
(SEE ACCOMPANYING NOTES)
F-22
<PAGE>
<TABLE>
<CAPTION>
WELLINGTON PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD FROM JANUARY 1 THROUGH JUNE 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
NET LOSS................................................... $ (148,181) $ (29,254)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
GAIN ON SALE.......................................... 0 (182,649)
DEPRECIATION AND AMORTIZATION......................... 293,879 305,131
CHANGES IN ASSETS AND LIABILITIES NET OF EFFECT OF
ASSETS AND LIABILITIES ASSUMED:
PREPAID EXPENSES................................... (95,998) 163,667
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES........... (13,423) (194,093)
ACCOUNTS PAYABLE - RELATED PARTY................... 41,883 (187,573)
TENANT SECURITY DEPOSITS........................... 5,308 (7,384)
----------- ------------
231,649 (102,901)
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 83,468 (132,155)
CASH FLOWS USED BY INVESTING ACTIVITIES:
PROCEEDS ON SALE OF ASSETS................................. 0 1,917,227
LAND CONTRACT RECEIVABLE................................... 0 (1,500,000)
APPLIANCE AND EQUIPMENT ACQUISITION........................ (40,806) (35,665)
----------- ------------
(40,806) 381,562
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENTS ON MORTGAGE NOTE PAYABLE........................ (2,376,180) (13,544,546)
PROCEEDS FROM MORTGAGE NOTE PAYABLE........................ 2,750,000 13,364,469
ISSUANCE OF COMMON STOCK................................... 124,287 115,870
DIVIDENDS PAID............................................. (250,081) (292,543)
LOAN FEES.................................................. (436,285) 0
----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... (188,259) (356,750)
----------- ------------
NET INCREASE IN CASH.................................... (145,597) (107,343)
CASH AT BEGINNING OF PERIOD.................................. 113,945 198,706
----------- ------------
CASH AT END OF PERIOD........................................ $ (31,652) $ 91,363
=========== ============
</TABLE>
(SEE ACCOMPANYING NOTES)
F-23
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE A - GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Wellington Properties Trust (Trust) is a real estate investment trust organized
in the State of Maryland. It was formed on March 15, 1994 to acquire, develop,
own and operate investment real estate. The Trust's year end is December 31.
During the quarter covered by this report, the Trust owned a 72-unit apartment
complex in Schofield, Wisconsin acquired on January 5, 1996 ("Lake Pointe") and
a property in Madison, Wisconsin with 304 apartments ("Maple Grove")
(collectively, the "Properties"). The Trust has two contracts pending to
purchase 144 units and 156 units in Des Moines, Iowa. The closing is expected
to occur in September 1998. It is the intention of the Trust to continue to
seek well located properties for future acquisitions.
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows:
1. Rental Property
Rental property is recorded at cost, less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. The Properties use a 40-year estimated life for buildings
and a ten-year estimated life for appliances and equipment. Expenditures for
ordinary maintenance and repairs are expensed to operations as incurred and
significant renovations and improvements that improve and/or extend the useful
life of the asset are capitalized and depreciated over their estimated useful
life. Initial direct leasing costs are expensed as incurred and such expense
approximates the deferral and amortization of initial direct leasing costs over
the lease terms.
2. Organization Costs
The costs incurred in connection with the formation of the Trust are being
amortized on a straight-line basis over a period of 15 years.
3. Financial Investments
Financial investments consisting of cash and mortgage notes payable are recorded
at cost, which approximates fair market value.
4. Revenue Recognition
Rental income attributable to leases is recorded when due from tenants and
interest income is recorded on an accrual basis.
5. Income Taxes
The Trust made an election to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended, commencing with its taxable
year ending December 31, 1995. The Trust qualifies for taxation as a REIT, and
as such generally will not be subject to Federal income tax if it distributes at
least 95% of its REIT taxable income (excluding capital gains) to its
shareholders.
6. Loss Per Share
F-24
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
Net loss per share is computed based on the weighted average number of shares of
common stock outstanding for the period.
NOTE B - RELATED PARTY TRANSACTIONS
Acquisition of Forest Downs
Forest Downs was acquired by Wellington Management Corporation on May 19, 1993,
as an operating property. On March 31, 1994, Wellington Management Corporation
sold Forest Downs to the Trust at a cost of $1,890,000. On April 10, 1997, the
Trust sold Forest Downs for $2,000,000.
Arnold K. Leas, who was the sole stockholder of the Trust prior to the stock
offering discussed in Note E and is President and Chairman of the Board of
Trustees of the Trust and is the President/CEO and a Director of Wellington
Management Corporation (WMC). WMC Realty Inc. (Realty) and Wellington
Investment Services Corp. (WISC) are wholly-owned subsidiaries of Wellington
Management Corporation.
Due to the common control, the Trust's basis in Forest Downs was the same as
WMC's basis. The historical cost basis of the assets purchased from WMC,
including accumulated depreciation of $40,055, are reflected on the balance
sheet of the Trust. The $152,615 excess of the purchase price over WMC's basis
has been recorded as a reduction of stockholders' equity.
Acquisition of Lake Pointe
On January 5, 1996, Wellington Properties Trust purchased the apartment complex
from a related party, Wellington Realty Income Limited Partnership 90-1, for
$3,600,000.
The Trust assumed the mortgage note payable on the property of $1,856,760 (note
C), and issued 167,166 shares of common stock of the Trust to Wellington Realty
Income Limited Partnership 90-1 for a $1,671,660 reduction in the cash amount
due.
Issuance of Stock
WMC was issued 70,000 shares of common stock of the Trust. In consideration
thereof, WMC has: 1) assigned, to the Trust, its rights in a certain
Acquisition property Contract related to the purchase of a 292-unit apartment
complex, known as Maple Grove, located in Madison, Wisconsin; 2) assigned, to
the Trust, its rights in a certain Option Agreement (which rights have expired);
and 3) agreed to reduce its note receivable from the Trust, by $300,000.
Management Fees
The Trust has entered into a Property Management Agreement with Realty to serve
as the Property Manager of properties owned by the Trust. The Property Manager
will manage the day to day operations of properties owned by the Trust, and will
receive a management fee equal to 5% of the gross rental receipts collected in
connection with the operation of each property. Management fees for the period
January 1, 1998 through June 30, 1998 were $74,514.32.
Advisor Fees
On August 2, 1994, the Trust contracted to retain WMC to serve as Advisor to the
Trust. In payment for these services, the Advisor receives a fee equal to 5% of
the gross proceeds of the public stock offering, which terminated October 1995.
No advisor fees have been paid during 1997 or 1998.
F-25
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
In addition, the Advisor is entitled to receive an Incentive Advisory Fee equal
to 10% of the realized gain with respect to each sale or refinancing of property
owned by the Trust. In the event a property is sold at a loss, no Incentive
Advisory Fees will be paid until the amount of the loss has been offset by gains
from other sales. In addition, the Advisor is entitled to recover certain
expenses including travel, legal, accounting, and insurance. Fees for services,
such as legal and accounting, provided by the Advisor's employees, in the
opinion of the Advisor, may not exceed fees that would have been charged by
independent third parties. The initial term of the agreement ended on December
31, 1995 and was renewed automatically each year. The agreement may be
terminated without cause, by either party, on 60 days written notice and by the
Trust for cause immediately upon written notice.
Commission
WISC is entitled to receive a commission of 5% of the proceeds of the common
stock of the Trust that it sells. Commissions paid to WISC for the year ended
December 31, 1995 were $179,720.25 and for the period January 1, 1996 through
December 31, 1996 were $8,224.96. No Commissions have been paid in 1997 or
1998.
NOTE C - MORTGAGE NOTES PAYABLE AND OTHER FINANCING
Forest Downs
The mortgage note payable at December 31, 1994 was collateralized by Forest
Downs and an assignment of rents agreement. The interest rate was fixed at 8%
until June 1, 1998, at which time it may be adjusted semi-annually to 3% over
the monthly average cost of funds for SAIF insurance institutions from the
Federal Home Loan Bank of Chicago 7th District, but never more than 12% nor less
than 6%.
Maple Grove
The mortgage payable with respect to Maple Grove is collateralized by Maple
Grove and an assignment of rents. The interest rate is fixed at 8.095%.
Payments are due in monthly installments of principal and interest of $95,516.53
with a final Balloon payment due June 1, 2004.
Lake Pointe
As of March 30, 1998, Wellington Properties Trust was liable on a mortgage note
payable of $2,750,000. The note requires monthly payments of $19,417.06
including interest at 7.6%. The mortgage is due March 2008 and is secured by
the rental property and an assignment of rents.
The aggregate maturities on the mortgage note payable for the five years and
thereafter following December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Lake Maple Total
Pointe Grove
<S> <C> <C> <C>
1998.................. $ 15,488.08 $ 110,106.41 $ 125,594.49
1999.................. 23,110.97 119,357.77 142,468.74
2000.................. 24,956.04 129,386.45 154,342.49
2001.................. 26,948.43 140,257.76 167,206.19
2002.................. 29,099.88 152,042.49 181,142.37
thereafter............ 2,630,396.60 12,197,738.86 14,828,135.46
------------- -------------- --------------
$2,750,000.00 $12,848,889.74 $15,598,889.74
============= ============== ==============
</TABLE>
F-26
<PAGE>
WELLINGTON PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
Line of Credit
During 1996, the Trust obtained a line of credit for $300,000 with Milwaukee
Western Bank. Interest-only payments are due monthly with the principal due on
December 31, 1998. The interest rate is at .5% above the bank's reference rate
(effective rate at June 30, 1998 of 9%). At June 30, 1998, the outstanding
balance was $300,000. The line of credit is collateralized by the guarantee of
WMC.
NOTE D - COMMITMENTS
None
NOTE E - COMMON STOCK
As of June 30, 1998 there were 728,038 Common Shares outstanding.
NOTE F - SUBSEQUENT EVENTS
On February 16, 1998 the Company entered into a contract to purchase Park Forest
Apartments in Des Moines, Iowa ("Park Forest") for $3,850,000. Park Forest is a
144-unit apartment community. The contract provided that the transaction would
close on June 30, 1998 but was amended to allow for closing on September 30,
1998. In consideration for the extension of the closing date the Company agreed
to deposit an additional $40,000 of earnest money and increased the purchase
price to $3,880,000. The Company did not have sufficient cash available to make
the additional earnest money deposit and therefore borrowed $40,000 from
American Real Estate Equities, LLC ("AREE") pursuant to a promissory note dated
August 5, 1998. The note bears interest at 9% per annum and matures on December
31, 1998. Interest accrues until the maturity date.
On June 4, 1998 the Company entered into an agreement in principle with AREE to
acquire a portfolio of properties to be defined and agreed to by the parties.
The minimum value of such portfolio is to be $150,000,000. The Company has
agreed to form an Operating Partnership and to fund a portion of the purchase
price with OP Units convertible to Common Stock.
F-27
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
WELLINGTON PROPERTIES TRUST
We have audited the accompanying combined statement of revenue and certain
expenses of Hoyt Properties, to be acquired by Wellington Properties Trust
(Trust), for the year ended December 31, 1997. This statement of revenue and
certain expenses is the responsibility of its management. Our responsibility is
to express an opinion on this statement of revenue and certain expenses based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenue and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of revenue and certain expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenue and certain expenses of Hoyt
Properties was prepared for the purposes of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Schedule 14A of Wellington Properties Trust and excludes material amounts,
described in note A to the combined statement of revenue and certain expenses,
that would not be comparable to those resulting from the proposed future
operations of the property.
In our opinion, the statement of revenue and certain expenses referred to above
presents fairly, in all material respects, the combined revenue and certain
expenses of Hoyt Properties for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Fond du Lac, Wisconsin
July 24, 1998
F-28
<PAGE>
HOYT PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
For the For the six-month
year ended period ended
December 31, June 30,
1997 1998
----------------------- -----------------------
(Audited) (Unaudited)
<S> <C> <C>
Revenue:
Rental................................................................... $5,561,649 $3,629,459
Interest................................................................. 110,370 36,234
Other.................................................................... 12,247 9,828
----------------------- -----------------------
5,684,266 3,675,521
Certain Expenses:
Property operating and maintenance....................................... 1,241,161 534,400
Real estate taxes and insurance.......................................... 1,178,212 626,483
Utilities................................................................ 365,041 191,677
Management fees.......................................................... 263,466 149,332
----------------------- -----------------------
3,047,880 1,501,892
----------------------- -----------------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $2,636,386 $2,173,629
======================= =======================
</TABLE>
The accompanying note is an integral part of this statement.
F-29
<PAGE>
HOYT PROPERTIES
NOTE TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
- -------
The Hoyt Properties include the following:
<TABLE>
<CAPTION>
NAME OF PROPERTY TYPE OF RENTAL LOCATION SQUARE FOOTAGE
---------------- -------------- --------- ---------------
<S> <C> <C> <C>
Cirrus Aircraft Facility Commercial Duluth, MN 138,000
ISD 196 Building Commercial Minneapolis, MN 13,374
300 First Avenue North Commercial Minneapolis, MN 72,132
Bloomington Business Plaza Commercial Minneapolis, MN 121,063
Pillsbury Business Center Commercial Minneapolis, MN 42,460
Burnsville Bluffs II Commercial Minneapolis, MN 45,040
Nicollet Business Campus 6 Commercial Minneapolis, MN 50,291
Nicollet Business Campus 7 Commercial Minneapolis, MN 118,400
Thresher Square West Commercial Minneapolis, MN 55,824
Thresher Square East Commercial Minneapolis, MN 63,448
7300 Boone Commercial Minneapolis, MN 50,000
321 West 83rd Street Commercial Minneapolis, MN 83,733
Plymouth Technology Center 1 Commercial Minneapolis, MN 26,186
</TABLE>
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
1. BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain expenses is not
representative of the actual operations for the year presented as certain
expenses have been excluded because they may not be comparable to the
expenses expected to be incurred in the proposed future operations of Hoyt
Properties. Expenses excluded consist of depreciation and amortization,
interest, professional fees and other administrative costs not directly
related to the future operations of Hoyt Properties. After reasonable
inquiry, the Trust is not aware of any material factors that would cause
reported financial information not to be necessarily indicative of future
operating results.
F-30
<PAGE>
HOYT PROPERTIES
NOTE TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
The Hoyt Properties have various management agreements with an affiliated
management company to maintain the properties and otherwise manage the
operations of the commercial properties. Management fees are based on 5%
of gross receipts.
2. REVENUE RECOGNITION
Rental revenue attributable to leases is recorded when due from tenants.
3. These properties are to be acquired by the operating partnership of
Wellington Properties Trust through the combination of acquisition and
contribution agreements for approximately $78.3 million plus closing costs.
F-31
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
WELLINGTON PROPERTIES TRUST
We have audited the accompanying statement of revenue and certain expenses of
Cold Springs Office Center, to be acquired by Wellington Properties Trust
(Trust), for the year ended December 31, 1997. This statement of revenue and
certain expenses is the responsibility of its management. Our responsibility is
to express an opinion on this statement of revenue and certain expenses based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenue and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of revenue and certain expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying statement of revenue and certain expenses of Cold Springs
Office Center was prepared for the purposes of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Schedule 14A of Wellington Properties Trust and excludes material amounts,
described in note A to the statement of revenue and certain expenses, that would
not be comparable to those resulting from the proposed future operations of the
property.
In our opinion, the statement of revenue and certain expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
Cold Springs Office Center for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Fond du Lac, Wisconsin
August 20, 1998
F-32
<PAGE>
COLD SPRINGS OFFICE CENTER
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
For the For the six-month
year ended period ended
December 31, June 30,
1997 1998
----------------------- -----------------------
(Audited) (Unaudited)
<S> <C> <C>
Revenue:
Rental................................................................... $1,558,851 $765,870
Other.................................................................... 37 156
----------------------- -----------------------
1,558,888 766,026
Certain Expenses:
Property operating and maintenance....................................... 217,957 114,918
Real estate taxes and insurance.......................................... 245,260 126,357
Utilities................................................................ 80,363 38,041
Management fees.......................................................... 77,438 38,208
----------------------- -----------------------
621,018 317,524
----------------------- -----------------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $937,870 $448,502
======================= =======================
</TABLE>
The accompanying note is an integral part of this statement.
F-33
<PAGE>
COLD SPRINGS OFFICE CENTER
NOTE TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
- -------
<TABLE>
<CAPTION>
NAME OF PROPERTY TYPE OF RENTAL LOCATION SQUARE FOOTAGE
---------------- --------------- ---------- --------------
<S> <C> <C> <C>
Cold Springs Office Center Commercial St. Cloud, MN 77,533
</TABLE>
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
1. BASIS OF PRESENTATION
The accompanying statement of revenue and certain expenses is not
representative of the actual operations for the year presented as certain
expenses have been excluded because they may not be comparable to the
expenses expected to be incurred in the proposed future operations of Cold
Springs Office Center. Expenses excluded consist of depreciation and
amortization, interest, professional fees and other administrative costs
not directly related to the future operations of Cold Springs Office
Center. After reasonable inquiry, the Trust is not aware of any material
factors that would cause reported financial information not to be
necessarily indicative of future operating results.
The Cold Springs Office Center has a management agreement with an
affiliated management company to maintain the property and otherwise manage
the operations of the commercial property. Management fees are based on 5%
of gross receipts.
2. REVENUE RECOGNITION
Rental revenue attributable to leases is recorded when due from tenants.
3. This property is to be acquired by the operating partnership of Wellington
Properties Trust through the combination of acquisition and contribution
agreements for approximately $12.7 million plus closing costs.
F-34
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
WELLINGTON PROPERTIES TRUST
We have audited the accompanying combined statement of revenue and certain
expenses of Feld Properties, to be acquired by Wellington Properties Trust
(Trust), for the year ended December 31, 1997. This statement of revenue and
certain expenses is the responsibility of its management. Our responsibility is
to express an opinion on this statement of revenue and certain expenses based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenue and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of revenue and certain expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenue and certain expenses of Feld
Properties was prepared for the purposes of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Schedule 14A of Wellington Properties Trust and excludes material amounts,
described in note A to the combined statement of revenue and certain expenses,
that would not be comparable to those resulting from the proposed future
operations of the property.
In our opinion, the statement of revenue and certain expenses referred to above
presents fairly, in all material respects, the combined revenue and certain
expenses of Feld Properties for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Fond du Lac, Wisconsin
July 16, 1998
F-35
<PAGE>
FELD PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
For the For the six-month
year ended period ended
December 31, 1997 June 30, 1998
----------------------- -----------------------
(Audited) (Unaudited)
<S> <C> <C>
Revenue:
Rental................................................................... $2,237,892 $1,183,953
Other.................................................................... 1,994 232
----------------------- -----------------------
2,239,886 1,184,185
Certain Expenses:
Property operating and maintenance....................................... 279,368 207,177
Real estate taxes and insurance.......................................... 263,516 140,742
Payroll and payroll taxes................................................ 285,619 73,610
Utilities................................................................ 149,370 72,432
Management fees.......................................................... 245,760 123,300
----------------------- -----------------------
1,223,633 617,261
----------------------- -----------------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $1,016,253 $566,924
======================= =======================
</TABLE>
The accompanying note is an integral part of this statement.
F-36
<PAGE>
FELD PROPERTIES
NOTE TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
- -------
The Feld Properties include the following:
<TABLE>
<CAPTION>
NAME OF PROPERTY TYPE OF RENTAL LOCATION SQUARE FOOTAGE
------------------ --------------- -------- --------------
<S> <C> <C> <C>
Edwin R. Feld & Associates -
300 North Madison Commercial Green Bay, WI 61,633
Feld Limited Partnership
PBC I Commercial Green Bay, WI 14,149
PBC II Commercial Green Bay, WI 19,998
PBC III Commercial Green Bay, WI 4,361
PBC IV Commercial Green Bay, WI 13,243
524 South Monroe Commercial Green Bay, WI 5,548
Columbus Office Building Commercial Green Bay, WI 21,079
727-735 East Walnut Commercial Green Bay, WI 9,146
3000 Riverside Drive Commercial Green Bay, WI 10,538
225 South Monroe Commercial Green Bay, WI 8,951
I 43 Commercial Green Bay, WI 19,200
</TABLE>
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
1. BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain expenses is not
representative of the actual operations for the year presented as certain
expenses have been excluded because they may not be comparable to the
expenses expected to be incurred in the proposed future operations of Feld
Properties. Expenses excluded consist of depreciation and amortization,
interest, professional fees and other administrative costs not directly
related to the future operations of Feld Properties. After reasonable
inquiry, the Trust is not aware of any material factors that would cause
reported financial information not to be necessarily indicative of future
operating results.
F-37
<PAGE>
FELD PROPERTIES
NOTE TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997
The Feld Properties have various management agreements with an affiliated
management company to maintain the properties and otherwise manage the
operations of the commercial properties. Management fees are $16,500 per
month in 1997.
2. REVENUE RECOGNITION
Rental revenue attributable to leases is recorded when due from tenants.
3. These properties are to be acquired by the operating partnership of
Wellington Properties Trust through the combination of acquisition and
contribution agreements for approximately $21.0 million plus closing costs.
F-38
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
WELLINGTON PROPERTIES TRUST
We have audited the accompanying combined statement of revenue and certain
expenses of Stonegate Properties, to be acquired by Wellington Properties Trust
(Trust), for the year ended December 31, 1997. This statement of revenue and
certain expenses is the responsibility of its management. Our responsibility is
to express an opinion on this statement of revenue and certain expenses based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenue and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of revenue and certain expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenue and certain expenses of Stonegate
Properties was prepared for the purposes of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Schedule 14A of Wellington Properties Trust and excludes material amounts,
described in note A to the combined statement of revenue and certain expenses,
that would not be comparable to those resulting from the proposed future
operations of the property.
In our opinion, the statement of revenue and certain expenses referred to above
presents fairly, in all material respects, the combined revenue and certain
expenses of Stonegate Properties for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Fond du Lac, Wisconsin
July 27, 1998
F-39
<PAGE>
STONEGATE PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
For the For the six-month
year ended period ended
December 31, 1997 June 30, 1998
----------------------- -----------------------
(Audited) (Unaudited)
<S> <C> <C>
Revenue:
Rental................................................................... $ 6,227,243 $ 3,074,069
Other.................................................................... 42,863 --
----------------------- -----------------------
6,270,106 3,074,069
Certain Expenses:
Property operating and maintenance....................................... 861,676 105,101
Real estate taxes and insurance.......................................... 1,939,026 969,731
Utilities................................................................ 127,826 50,153
Management fees.......................................................... 717,878 181,532
----------------------- -----------------------
3,646,406 1,306,517
----------------------- -----------------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $ 2,623,700 $ 1,767,552
======================= =======================
</TABLE>
The accompanying note is an integral part of this statement.
F-40
<PAGE>
STONEGATE PROPERTIES
NOTE TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
- -------
The Stonegate Properties include the following:
<TABLE>
<CAPTION>
Name of Property Type of Rental Location Square Footage
---------------- -------------- -------- --------------
<S> <C> <C> <C>
Tollway Industrial Center Commercial Hoffman Estates, IL 73,887
Northwest Corporate Centre - Phase I Commercial Hoffman Estates, IL 87,271
Northwest Tech Centre Commercial Hoffman Estates, IL 71,139
Northwest Corporate Centre - Phase II & III Commercial Hoffman Estates, IL 174,750
</TABLE>
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
1. BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain expenses is not
representative of the actual operations for the year presented as certain
expenses have been excluded because they may not be comparable to the
expenses expected to be incurred in the proposed future operations of
Stonegate Properties. Expenses excluded consist of depreciation and
amortization, interest, professional fees and other administrative costs
not directly related to the future operations of Stonegate Properties.
After reasonable inquiry, the Trust is not aware of any material factors
that would cause reported financial information not to be necessarily
indicative of future operating results.
The Stonegate Properties have various management agreements with an
affiliated management company to maintain the properties and otherwise
manage the operations of the commercial properties. Management fees are
based on a variable percentage of gross receipts.
2. REVENUE RECOGNITION
Rental revenue attributable to leases is recorded when due from tenants.
3. These properties are to be acquired by the operating partnership of
Wellington Properties Trust through the combination of acquisition and
contribution agreements for approximately $47.3 million plus closing costs.
F-41
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
WELLINGTON PROPERTIES TRUST
We have audited the accompanying combined statement of revenue and certain
expenses of Wellington Centre, to be acquired by Wellington Properties Trust
(Trust), for the years ended December 31, 1997 and 1996. These statements of
revenue and certain expenses is the responsibility of its management. Our
responsibility is to express an opinion on this statement of revenue and certain
expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statements of revenue and certain expenses are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of revenue and
certain expenses. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the statements of revenue and certain expenses. We
believe that our audits provide a reasonable basis for our opinion.
The accompanying combined statements of revenue and certain expenses of
Wellington Centre were prepared for the purposes of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Schedule 14A of Wellington Properties Trust and exclude material amounts,
described in note A to the statements of revenue and certain expenses, that
would not be comparable to those resulting from the proposed future operations
of the property.
In our opinion, the statements of revenue and certain expenses referred to above
present fairly, in all material respects, the combined revenue and certain
expenses of Wellington Centre for the years ended December 31, 1997 and 1996, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Fond du Lac, Wisconsin
July 13, 1998
F-42
<PAGE>
WELLINGTON CENTRE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
For the year ended For the six-month
------------------------ ------------------------ period ended
December 31, 1996 December 31, 1997 June 30, 1998
------------------------ ------------------------ ------------------------
(Audited) (Unaudited)
Revenue:
<S> <C> <C> <C>
Rental.................. $ 1,341,290 $1,703,006 $891,465
Other................... 23,507 3,342 699
------------------------ ------------------------ ------------------------
1,364,797 1,706,348 892,164
Certain Expenses:
Property operating
and maintenance....... 227,743 259,345 158,579
Real estate taxes
and insurance......... 174,421 198,941 88,084
Utilities............... 122,209 136,108 72,512
Management fees......... 91,069 102,175 53,485
------------------------ ------------------------ ------------------------
615,442 696,569 372,660
------------------------ ------------------------ ------------------------
REVENUE IN EXCESS
OF CERTAIN EXPENSES $ 749,355 $1,009,779 $519,504
======================== ======================== ========================
</TABLE>
The accompanying note is an integral part of this statement.
F-43
<PAGE>
WELLINGTON CENTRE
NOTE TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
- -------
Wellington Centre, affiliated through common ownership with Wellington
Properties Trust, is a commercial rental property located in Milwaukee, WI
consisting of 95,300 square feet. The property was acquired by Wellington
Centre Company, LLC in February 1996 and revenue and certain expenses are
included from that date.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
1. BASIS OF PRESENTATION
The accompanying statements of revenue and certain expenses are not
representative of the actual operations for the years presented as certain
expenses have been excluded because they may not be comparable to the
expenses expected to be incurred in the proposed future operations of
Wellington Centre. Expenses excluded consist of depreciation and
amortization, interest, professional fees and other administrative costs
not directly related to the future operations of Wellington Centre. After
reasonable inquiry, the Trust is not aware of any material factors that
would cause reported financial information not to be necessarily indicative
of future operating results.
The property has a management agreement with an affiliated management
company to maintain the property and otherwise manage the operations of the
commercial property. Management fees are based on 6% of gross receipts.
2. REVENUE RECOGNITION
Rental revenue attributable to leases is recorded when due from tenants.
3. This property is to be acquired by the operating partnership of Wellington
Properties Trust through the combination of acquisition and contribution
agreements for approximately $13.8 million plus closing costs.
F-44
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Trustees
WELLINGTON PROPERTIES TRUST
We have audited the accompanying combined statement of revenue and certain
expenses of Apple Valley Properties, to be acquired by Wellington Properties
Trust (Trust), for the year ended December 31, 1997. This statement of revenue
and certain expenses is the responsibility of its management. Our
responsibility is to express an opinion on this statement of revenue and certain
expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue and certain expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of revenue and certain
expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of revenue and certain expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenue and certain expenses of Apple
Valley Properties was prepared for the purposes of complying with the rules and
regulations of the Securities and Exchange Commission for inclusion in the
Schedule 14A of Wellington Properties Trust and excludes material amounts,
described in note A to the combined statement of revenue and certain expenses,
that would not be comparable to those resulting from the proposed future
operations of the property.
In our opinion, the statement of revenue and certain expenses referred to above
presents fairly, in all material respects, the combined revenue and certain
expenses of Apple Valley Properties for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Fond du Lac, Wisconsin
July 21, 1998
F-45
<PAGE>
APPLE VALLEY PROPERTIES
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
For the For the six-month
year ended period ended
December 31, 1997 June 30, 1998
----------------------- ----------------------
(Audited) (Unaudited)
<S> <C> <C>
Revenue:
Rental................................................................... $2,675,575 $1,320,337
Other.................................................................... 10,819 4,747
----------------------- -----------------------
2,686,394 1,325,084
Certain Expenses:
Property operating and maintenance....................................... 364,459 200,352
Real estate taxes and insurance.......................................... 555,289 269,750
Utilities................................................................ 256,390 110,006
Management fees.......................................................... 107,450 57,600
----------------------- -----------------------
1,283,588 637,708
----------------------- -----------------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $1,402,806 $ 687,376
======================= =======================
</TABLE>
The accompanying note is an integral part of this statement.
F-46
<PAGE>
APPLE VALLEY PROPERTIES
NOTE TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
- -------
Apple Valley Properties includes the following:
<TABLE>
<CAPTION>
NAME OF PROPERTY TYPE OF RENTAL LOCATION SQUARE FOOTAGE
---------------- -------------- -------- --------------
<S> <C> <C> <C>
Burnsville Financial Center Partnership Commercial Burnsville, MN 47,203
Apple Valley Commons I Commercial Apple Valley, MN 58,668
Apple Valley Commons II Commercial Apple Valley, MN 62,377
</TABLE>
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
1. BASIS OF PRESENTATION
The accompanying combined statement of revenue and certain expenses is not
representative of the actual operations for the year presented as certain
expenses have been excluded because they may not be comparable to the
expenses expected to be incurred in the proposed future operations of Apple
Valley Properties. Expenses excluded consist of depreciation and
amortization, interest, professional fees and other administrative costs
not directly related to the future operations of Apple Valley Properties.
After reasonable inquiry, the Trust is not aware of any material factors
that would cause reported financial information not to be necessarily
indicative of future operating results.
The Apple Valley Properties have various management agreements with an
affiliated management company to maintain the properties and otherwise
manage the operations of the commercial properties. Management fees are
based on 4% of gross receipts.
2. REVENUE RECOGNITION
Rental revenue attributable to leases is recorded when due from tenants.
3. These properties are to be acquired by the operating partnership of
Wellington Properties Trust through the combination of acquisition and
contribution agreements for approximately $16.0 million plus closing costs.
F-47
<PAGE>
EXHIBIT A
_________
AMENDED AND RESTATED
CONTRIBUTION AGREEMENT
Between
WELLINGTON PROPERTIES TRUST
WELLINGTON PROPERTIES INVESTMENTS, L.P.
AMERICAN REAL ESTATE EQUITIES, LLC
AND THE OTHER LP UNIT RECIPIENTS REFLECTED ON THE SIGNATURE PAGE HERETO
Dated as of August 31, 1998
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THE SECURITIES REFERENCED HEREIN HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL
RISK OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE>
THIS AMENDED AND RESTATED CONTRIBUTION AGREEMENT (this "Agreement") is made
and entered into as of this 31st day of August, 1998 (the "CONTRACT DATE"), by
and between American Real Estate Equities, LLC, a Delaware limited liability
company ("CONTRIBUTOR"), Wellington Properties Investments, L.P., a Delaware
limited partnership (the "OPERATING PARTNERSHIP"), Wellington Properties Trust,
a Maryland real estate investment trust ("ACQUIROR") and the parties identified
on the signature page hereto as "LP UNIT RECIPIENTS."
1. CONTRIBUTION.
------------
1.1. CONTRACTS. Contributor agrees to contribute and assign, to the
---------
Operating Partnership as contemplated by SECTION 2.4 below, and Acquiror agrees
to cause the Operating Partnership to accept and assume from Contributor, on the
terms and conditions set forth in this Agreement, all of Contributor's right,
title and interest in, to and under the certain real estate purchase and sale
contracts and those certain contribution agreements identified on EXHIBIT A
(collectively, the "PHASE I CONTRACTS"). In addition, Contributor agrees to
contribute and assign to the Operating Partnership, and Acquiror agrees to cause
the Operating Partnership to accept and assume from Contributor, such additional
real estate purchase and sale contracts and contribution agreements added from
time to time (the "PHASE II CONTRACTS") and identified on EXHIBIT-A-1 (pursuant
to SECTION 1.3 below). Except as set forth in SECTION 3.1 notwithstanding
anything to the contrary herein, the parties hereto do not currently contemplate
that there will be any Phase II Contracts.
1.2. PROPERTIES. Each of the Phase I Contracts provides, and each of
----------
the Phase II contracts will provide, the respective contract vendee thereunder
with the right to acquire, pursuant to the terms and conditions of the Phase I
Contracts or the Phase II Contracts, as the case may be, certain improved real
properties, which properties include those certain buildings (the "BUILDINGS"),
each containing that number of net rentable square feet, as specified on EXHIBIT
A attached hereto. The Buildings are leased to Tenants (as defined below). Each
of the Buildings is commonly known by the respective street address in the
cities, counties and states described on EXHIBIT A attached hereto. For
purposes of this Agreement the term, "PROJECTS," shall be deemed to mean,
collectively (but only if and to the extent that any or all of the following are
to be conveyed pursuant to the express terms of the Phase I Contracts or the
Phase II Contracts, as the case may be): (i) all of the parcels of land
(collectively, the "LAND") that are the subject of the Phase I Contracts or the
Phase II Contracts, as the case may be, together with all rights, easements and
interests appurtenant thereto, including, but not limited to, any streets or
other public ways adjacent to said Land and any water or mineral rights owned
by, or leased to, the owner of such land; (ii) all improvements located on the
Land, including, but not limited to, the Buildings, and all other structures,
systems, and utilities associated with, and utilized, by the owner thereof, in
the ownership and operation of the Buildings (all such improvements being
collectively referred to herein as the "IMPROVEMENTS"); (iii) all personal
property owned by each respective owner of the Land and the Buildings and either
(A) located on or in the Land or Improvements, or (B) used in connection with
the operation and maintenance of the Project, excluding personal property owned
by Tenants (collectively, the "PERSONAL PROPERTY"), including, without
1
<PAGE>
limitation, all fixtures and other built-in improvements and equipment necessary
to operate the Projects; (iv) all building materials, supplies, hardware,
carpeting and other inventory owned by each respective owner of the Land and the
Buildings and maintained in connection with each such owner's ownership and
operation of the Land and/or Improvements and not owned by Tenants; (v) all
trademarks, tradenames, development rights and entitlements and other intangible
property used or useful in connection with the foregoing (collectively, the
"INTANGIBLE PERSONAL PROPERTY"); and (vi) the respective interest of each owner
of the Land and the Buildings in all leases and other agreements to occupy, or
concerning the occupancy of, all or any portion of either or both of the Land
and the Improvements, which leases and other occupancy agreements are in effect
on the Contract Date or into which the respective owner of the Land and the
Improvements in question enters prior to Phase I Closing (as defined below) or
the Phase II Closing (as defined below), as the case may be (collectively, the
"LEASES").
1.3. ADDITION OR DELETION OF CONTRACTS. Contributor and Acquiror may
---------------------------------
from time to time, in their mutual and reasonable discretion, add or delete real
estate purchase and sale contracts and contribution agreements to or from the
set of Phase I Contracts or Phase II Contracts, as the case may be, by executing
a so-called "Memorandum of Change" (a "MEMORANDUM") stating that Contributor and
Acquiror desire to add or delete such contracts to or from the set of Phase I
Contracts or Phase II Contracts, as the case may be, pursuant to this SECTION
1.3. Such Memorandum shall state the date as of which such Phase I Contracts or
Phase II Contracts, as the case may be, are deemed to have been added to, or
deleted from (as the case may be) EXHIBIT A or EXHIBIT A-1, as the case may be,
and such Memorandum shall contain a revised set of exhibits and schedules
corresponding to the exhibits and schedules attached to this Agreement
(reflecting appropriate corrections and clarifications to correspond to the
additions or deletions, as the case may be, of Phase I Contracts or Phase II
Contracts, as the case may be), which revised exhibits and schedules shall
supersede those exhibits and schedules attached to this Agreement and to any
prior Memorandum. Such schedules and exhibits shall include (i) on Exhibit A
thereto, the written agreements to be added as Phase I Contracts and Phase II
Contracts, as the case may be (together with all other Phase I Contracts and
Phase II Contracts), and omit from EXHIBIT A or EXHIBIT A-1, as the case may be,
any written agreements to be deleted from the set of Phase I Contracts or Phase
II Contracts, as the case may be, and (ii) all other exhibits and schedules with
relevant changes to reflect the addition or deletion of certain Phase I
Contracts or Phase II Contracts, as the case may be. All representations,
warranties and covenants made by Contributor, pursuant to the express terms of
this Agreement and with respect to any Projects and Phase I or Phase II
Contracts, as the case may be, incorporated herein pursuant to a Memorandum
shall be deemed to have been first made as of the date of such Memorandum. All
representations, warranties and covenants made by Contributor, pursuant to the
express terms of this Agreement and with respect to any Project or Phase I
Contract or Phase II Contract, as the case may be, deleted from this Agreement
pursuant to a Memorandum shall be deemed never to have been made. From and
after the date of such Memorandum, the terms "Projects", "Phase I Contracts" and
"Phase II Contracts," as the case may be, shall include only those Projects and
Phase I Contracts or Phase II Contracts contained on the revised EXHIBIT A and
revised EXHIBIT A-1 attached to such Memorandum.
2
<PAGE>
2. CONTRIBUTION CONSIDERATION; LP UNITS; TAX MATTERS.
-------------------------------------------------
2.1. PHASE I CONTRIBUTION CONSIDERATION. Acquiror shall cause the
----------------------------------
Operating Partnership to pay to Contributor, as consideration for Contributor's
assignment of all of the Phase I Contracts (the "PHASE I CONTRIBUTION
CONSIDERATION"), consideration consisting of that number of LP Units (as defined
below) or common shares of beneficial interest of the Acquiror ("SHARES") having
an aggregate value, calculated as provided in SECTION 2.3.2 below, equal to (the
"PHASE I TOTAL AMOUNT"): (A) $14,822,863; minus (B) any applicable prorations
-----
described in SECTION 11 ("PRORATIONS") and credited, as of the Phase I Closing
Date (as defined below), to or on behalf of Acquiror; plus (C) any applicable
----
Prorations credited, as of the Phase II Closing Date, to Contributor; minus (D)
-----
any other adjustments described in this Agreement ("ADJUSTMENTS") occurring on
or prior to the Phase I Closing Date in favor of Acquiror; and plus (E) any
----
Adjustments occurring on or prior to the Phase I Closing Date in favor of the
Contributor. Contributor shall have the right to designate the portion of the
Phase I Contribution Agreement payable in LP Units and the portion payable in
Shares. If the above-described calculation of Phase I Contribution
Consideration would result in a fractional number of LP Units or Shares to be
delivered to Contributor, Acquiror shall round that fraction up or down, as the
case may be, to the nearest whole number of LP Units or Shares. Provided that
all applicable conditions precedent to Acquiror's obligations to close as set
forth in this Agreement (collectively, "ACQUIROR'S CONDITIONS PRECEDENT") have
been satisfied and fulfilled, or waived in writing by Acquiror, the Phase I
Contribution Consideration shall be paid to Contributor at the Phase I Closing
pursuant to SECTION 2.3 below.
2.2. PHASE II CONTRIBUTION CONSIDERATION. Acquiror shall cause the
-----------------------------------
Operating Partnership to pay to Contributor, as consideration for Contributor's
assignment of all of the Phase II Contracts (the "PHASE II CONTRIBUTION
CONSIDERATION"), consideration consisting of that number of LP Units or Shares
having an aggregate value, calculated as provided in SECTION 2.3.2 below, equal
to (the "PHASE II TOTAL AMOUNT"): (A) any applicable Prorations credited, as of
the Phase II Closing Date, to Contributor; minus (B) any applicable Prorations
-----
and credited, as of the Phase II Closing Date (as defined below), to or on
behalf of Acquiror; minus (C) any other Adjustments occurring on or prior to the
-----
Phase II Closing Date in favor of Acquiror; and plus (D) any Adjustments
----
occurring on or prior to the Phase II Closing Date in favor of the Contributor.
Contributor shall have the right to designate the portion of the Phase II
Contribution Agreement payable in LP Units and the portion payable in Shares.
If the above-described calculation of Phase II Contribution Consideration would
result in a fractional number of LP Units to be delivered to Contributor,
Acquiror shall round that fraction up or down, as the case may be, to the
nearest whole number of LP Units or Shares. Provided that all applicable
Acquiror's Conditions Precedent have been satisfied and fulfilled, or waived in
writing by Acquiror, the Phase II Contribution Consideration shall be paid to
Contributor at the Phase II Closing pursuant to SECTION 2.3 below.
3
<PAGE>
2.3. LP UNITS.
--------
2.3.1. Each of the Phase I and the Phase II Total Amount shall be
paid, as determined by Contributor, by Acquiror's delivery of (i) partnership
units (the "LP UNITS") in Acquiror, which partnership units may be "preferred,"
"common," or a combination of the two classes, as mutually and reasonably agreed
by Contributor, Acquiror and the Operating Partnership, and as provided in the
Partnership Agreement, as defined below or (ii) Shares. The Total Amount and
the allocation thereof shall be set forth in the LP Unit/Share Schedule (as
defined below). The LP Units will be redeemable, at no cost, for Shares, for
cash, or a combination thereof, in accordance with the redemption procedures to
be described in the Partnership Agreement. Contributor acknowledges that the LP
Units will not be certificated and that, therefore, the issuance of the LP Units
shall be evidenced by the execution and delivery of an amendment (the
"AMENDMENT") to the Partnership Agreement, which amendment shall be executed and
delivered by Acquiror at the Phase I Closing or the Phase II Closing, as the
case may be. The Shares shall be certificated.
2.3.2. For purposes of determining the number of Shares and LP
Units (whether "preferred" or "common," or a combination of the two) to be
delivered in satisfaction of payment of the Phase I Total Amount or the Phase II
Total Amount, as the case may be, the Phase I Total Amount or the Phase II Total
Amount, as the case may be, shall be divided by a "Unit/Share Price," which
shall be $8.50 per LP Unit or Share.
2.3.3. Contributor shall deliver to Acquiror, and shall cause its
direct and indirect partners, shareholders and members, as the case may be
("INTEREST HOLDERS"), to deliver to Acquiror, or to any other party designated
by Acquiror, a completed questionnaire and representation letter providing,
among other things, information concerning Contributor's, each Interest
Holder's, and each LP Unit Recipient's status as an accredited investor
("ACCREDITED INVESTOR"), as such term is defined in Regulation D promulgated
under the Securities Act of 1933 (as amended, the "SECURITIES ACT"), as amended,
and shall provide or cause to be provided to Acquiror, or to any other party
designated by Acquiror, such other information and documentation as may
reasonably be requested by Acquiror in furtherance of the issuance of the LP
Units as contemplated hereby. Notwithstanding anything contained in this
Agreement to the contrary, in the event that, in the reasonable opinion of
Acquiror, based on advice of its securities counsel, (x) any such person or
entity providing Investor Materials (as hereinafter defined) is not considered
an Accredited Investor, (y) the proposed issuance of LP Units and/or Shares
hereunder might not qualify for the exemption from the registration requirements
of Section 5 of the Securities Act, or (z) the proposed issuance of LP Units
and/or Shares hereunder would violate any applicable federal or state securities
laws, rules or regulations, or agreements to which the Operating Partnership or
Acquiror is or becomes privy, or any tax-related or other legal rules,
agreements or constraints applicable to the Operating Partnership or Acquiror
shall so advise Contributor, in writing (the "REGULATORY VIOLATION NOTICE"). In
the event a Regulatory Violation Notice is delivered, this Agreement shall
terminate, and no party shall have any further liability hereunder except (i) as
otherwise expressly set forth in this Agreement and (ii) to the extent a breach
of this Agreement gives rise to, or becomes the basis for, the Regulatory
Violation Notice.
4
<PAGE>
2.3.4. Contributor and each LP Unit Recipient hereby covenants
and agrees that it shall deliver and shall cause each of its Interest Holders to
deliver to Acquiror, or to any other party designated by Acquiror, any
documentation that may be required under the Partnership Agreement or any
charter document of Acquiror, and such other information and documentation as
may reasonably be requested by Acquiror, at such time as any LP Units are
redeemed for Shares ("CONVERSION SHARES"). The provisions of this SECTION 2.3.4
shall survive the Phase I Closing or the Phase II Closing, as the case may be
indefinitely and shall not merge into any of the conveyancing documents
delivered at the Phase I Closing or the Phase II Closing, as the case may be.
2.3.5. The parties acknowledge that Contributor intends to treat
the assignment of the Phase I Contracts and Phase II Contracts in exchange for
LP Units (the "EXCHANGE") as a tax-free partnership contribution pursuant to
Section 721 of the Internal Revenue Code of 1986, as amended (the "CODE").
Acquiror shall cooperate, and shall cause the Operating Partnership to
cooperate, in all reasonable respects with Contributor to effectuate such
Exchange. The provisions of this SECTION 2.3.5 shall survive the Phase I Closing
and the Phase II Closing, indefinitely and shall not merge into any conveyancing
documents delivered at the Phase I Closing or the Phase II Closing, as the case
may be.
2.4. CERTAIN INFORMATIONAL MATERIALS. For purposes hereof, the term
-------------------------------
"PARTNERSHIP AGREEMENT" shall mean the Operating Partnership's Limited
Partnership Agreement to be entered into at or prior to the Phase I Closing, in
form and substance mutually and reasonably satisfactory to Acquiror and
Contributor. Contributor and the LP Unit Recipients hereby acknowledge and
agree that the ownership of LP Units by them and their rights and obligations as
limited partners of the Operating Partnership (including, without limitation,
its right to transfer, encumber, pledge and exchange LP Units) shall be subject
to all of the express limitations, terms, provisions and restrictions set forth
in this Agreement and in the Partnership Agreement. In that regard, Contributor
and each LP Unit Recipient hereby covenants and agrees that, at the Phase I
Closing and the Phase II Closing, it shall execute any and all documentation
reasonably required by Acquiror and the Operating Partnership to formally
memorialize the foregoing (collectively, the "PARTNERSHIP AGREEMENT ADOPTION
MATERIALS"). Contributor and each LP Unit Recipient acknowledges that it has
received and reviewed, at the Contract Date (to the extent such materials exist
as of the Contract Date) and prior to the Phase I Closing Date, the following:
(i) the Acquiror's Annual Report on Form 10-K SB for the year ended December 31,
1997 (the "10-K"); (ii) Acquiror's Notice of Annual Meeting of Shareholders and
Proxy Statement in connection with Acquiror's 1998 Annual Meeting of
Shareholders; (iii) documents filed with the United States Securities and
Exchange Commission subsequent to the 10-K; and (iv) the Partnership Agreement.
Contributor and each LP Unit Recipient acknowledges that, prior to the Phase I
Closing Date, it: (x) has had an opportunity to conduct a due diligence review
of the affairs of Acquiror; and (y) has been afforded the opportunity to ask
questions of, and receive additional information from, Acquiror regarding
Acquiror.
2.5. LOCK-UP PERIOD. Except as otherwise specifically provided below
--------------
in this SECTION 2.5, Contributor and each LP Unit Recipient agrees that for two
years following
5
<PAGE>
the Phase I Closing or the Phase II Closing, as the case may be (the "LOCK-UP
PERIOD"), Contributor and each LP Unit Recipient may not, in any way or to any
extent, redeem (pursuant to the Partnership Agreement or otherwise), sell,
transfer or otherwise convey any or all of the LP Units or Shares delivered to
Contributor or any LP Unit Recipient in connection with this transaction and, if
applicable, any Conversion Shares. Except as otherwise specifically provided
below in this SECTION 2.5, Contributor and each LP Unit Recipient agrees that
for one year following the Phase I Closing or the Phase II Closing, as the case
may be (the "CONVERSION LOCK-UP PERIOD"), Contributor and each LP Unit Recipient
may not convert to Conversion Shares any or all of the LP Units or Shares
delivered to Contributor or such LP Unit Recipient in connection with this
transaction. Notwithstanding the preceding limitations: (i) during the Lock-Up
Period, Contributor and each LP Unit Recipient may pledge, grant a security
interest in, or otherwise encumber the Shares or the LP Units in accordance with
the terms of the Partnership Agreement and Acquiror shall take, and shall cause
the Operating Partnership to take, all reasonable actions required to
accommodate such pledge, grant of security interest or encumbrance, but at no
out-of-pocket expense to Acquiror; (ii) during the Lock-Up Period, Contributor
may transfer the LP units or the Shares to its members, provided that such
members remain subject to the transfer restrictions contained herein. The
provisions of this SECTION 2.5 shall survive the Phase I Closing and the Phase
II Closing for the duration of the Lockup Period and shall not merge into any of
the conveyancing documents delivered at either the Phase I Closing or the Phase
II Closing, as the case may be.
2.6. TRANSFER REQUIREMENTS. Contributor may only sell, transfer,
---------------------
assign, pledge or encumber, or otherwise convey any or all of the Shares or the
LP Units delivered to Contributor and, if applicable, any Conversion Shares, in
strict compliance with this Agreement, the Partnership Agreement, the charter
documents of Acquiror, the registration and other provisions of the Securities
Act (and the rules promulgated thereunder), any state securities laws, the rules
of the National Association of Securities Dealers Automated Quotation System
("NASDAQ") and the Registration Rights Agreement (as defined below), in each
case as may be applicable. The provisions of this SECTION 2.6 shall survive the
Phase I Closing and the Phase II Closing, indefinitely and shall not merge into
any of the conveyancing documents delivered at the Phase I Closing or the Phase
II Closing, as the case may be.
2.7. VOLUME RESTRICTION. From and after the expiration of the Lock-Up
------------------
Period, the aggregate amount of Shares that the Contributor may sell (i) during
any 10-trading day period shall not exceed 20% of the average of the daily
trading volume of the Shares (as reported in The Wall Street Journal, Midwest
Edition) for the 30 trading days immediately preceding the date on which the
first sale of Shares during any such 10-day period occurs and (ii) during any
calendar year shall not exceed one-third of the aggregate of the Shares and the
Conversion Shares issuable upon redemption of the aggregate amount of LP Units
issued to such Contributor at Closing or the Phase II Closing, as the case may
be. The provisions of this SECTION 2.7 shall survive the Phase I Closing and
the Phase II Closing, indefinitely and shall not merge into any of the
conveyancing documents delivered at the Phase I Closing or the Phase II Closing,
as the case may be.
6
<PAGE>
2.8. REGISTRATION RIGHTS. At the Phase I Closing and the Phase II
-------------------
Closing, as the case may be, Acquiror shall enter into a registration rights
agreement (each, the "REGISTRATION RIGHTS AGREEMENT"), granting Contributor the
right to cause Acquiror to register the Conversion Shares pursuant to Section 6
of the Securities Act, in form and substance reasonably acceptable to Acquiror
and Contributor.
3. CLOSING.
-------
3.1. PHASE I CLOSING. The contribution of the Phase I Contracts and
---------------
delivery of LP Units and Shares contemplated in connection therewith shall be
consummated at a closing (the "PHASE I CLOSING") to take place at the offices of
Barack Ferrazzano Kirschbaum Perlman & Nagelberg, 333 West Wacker Drive, Suite
2700, Chicago, Illinois 60606. The Closing shall occur on the date (the "PHASE I
CLOSING DATE"): (i) that is five days after satisfaction of all Acquiror's
Conditions Precedent and all Contributor's Conditions Precedent for the Phase I
Closing, at 9:30 a.m. Chicago time, or (ii) at such earlier time and at such
other place as the parties may mutually and reasonably agree upon in writing,
but (iii) no later than December 31, 1998. The Phase I Closing shall be
effective as of 12:01 a.m. Chicago time on the Phase I Closing Date. If all of
Acquiror's Conditions Precedent for the contribution of a portion of the Phase I
Contracts (the "INITIAL CONTRACTS") are satisfied before those for the remainder
of the Phase I Contracts, the Initial Contracts shall be deemed to be "Phase I
Contracts" and the remainder of the Phase I Contracts shall be deemed to be
"Phase II Contracts."
3.2. PHASE II CLOSING. The contribution of the Phase II Contracts and
----------------
delivery of LP Units and Shares contemplated in connection therewith shall be
consummated at a closing (the "PHASE II CLOSING") to take place at the offices
of Barack Ferrazzano Kirschbaum Perlman & Nagelberg, 333 West Wacker Drive,
Suite 2700, Chicago, Illinois 60606. The Closing shall occur on the date (the
"PHASE II CLOSING DATE"): (i) that is five days after satisfaction of all
Acquiror's Conditions Precedent and all Contributor's Conditions Precedent for
the Phase II Closing, at 9:30 a.m. Chicago time or, (ii) at such earlier time
and at such other place as the parties may mutually and reasonably agree upon in
writing. The Phase II Closing shall be effective as of 12:01 a.m. Chicago time
on the Phase II Closing Date.
3.3. TERMINATION. If the Phase I Closing has not occurred by December
-----------
31, 1998, each of Acquiror and Contributor may terminate this Agreement by
written notice to the other, and no party shall have any further liability to
any other party under this Agreement, except that all parties hereto shall
remain liable under SECTION 17 for any breach of their representations,
warranties or covenants under this Agreement prior to such termination.
4. CONTRIBUTOR'S DELIVERIES. To the extent in Contributor's possession,
------------------------
Contributor shall make available to Acquiror, from and after the Contract Date,
at reasonable times and upon reasonable notice, all documents, contracts, books
and records and other information, including without limitation, environmental
and engineering reports (collectively, "CONTRIBUTOR'S DELIVERIES"), pertinent to
the transaction that is the subject of this Agreement, including, but not
limited to, the documents and other written materials actually delivered to
7
<PAGE>
Contributor pursuant to the requirements of the Phase I Contracts or the Phase
II Contracts, as the case may be.
5. REPRESENTATIONS AND WARRANTIES.
------------------------------
5.1. CONTRIBUTOR. Contributor represents and warrants to Acquiror that
-----------
the following matters are true as of the Contract Date and shall be true as of
the Phase I Closing Date or the Phase II Closing Date, as the case may be:
5.1.1. PROJECTS.
--------
5.1.1.1. DESCRIPTIVE INFORMATION. To Contributor's knowledge, the
-----------------------
descriptive information concerning the Projects set forth in SECTION 1 and in
all exhibits referred to in SECTION 1 is complete, accurate, true and correct,
in all material respects.
5.1.1.2. TITLE. To Contributor's knowledge, the contract vendors
-----
(collectively, the "VENDORS") under the Phase I Contracts and the Phase II
Contracts are the legal fee simple titleholders of the Projects and, other than
with respect to exceptions permitted under the Phase I Contracts or the Phase II
Contracts, as the case may be, have or will at the Phase I Closing or the Phase
II Closing, as the case may be, have, good, marketable and insurable title to
the Projects, free and clear of all mortgages and security interests, leases,
agreements and tenancies (other than the Leases), licenses, claims, options,
options to purchase, liens, covenants, conditions, restrictions, rights-of-way,
easements, judgments and other matters affecting title to the Projects.
5.1.1.3. CONTRIBUTOR'S DELIVERIES. To Contributor's knowledge, all
------------------------
of Contributor's Deliveries and all other items delivered by Contributor
pursuant to this Agreement are true, accurate, correct and complete in all
material respects, and fairly present the information set forth in a manner that
is not materially misleading. To Contributor's knowledge, the copies of all
documents and other agreements delivered or furnished and made available by
Contributor to Acquiror pursuant to this Agreement include all of and the only
Leases and other written agreements relating to or affecting the ownership and
operation of the Projects, there being no "side" or other written agreements in
force or effect, to which the Projects are subject.
5.1.1.4. DEFAULTS. To Contributor's knowledge, the Vendors are not
--------
in default under any of the documents, recorded or unrecorded, referred to in
the title commitments with respect to the Projects delivered as part of
Contributor's Deliveries, nor does Contributor have any knowledge of the
delivery to such Vendors of any written notice alleging the existence of any
such default. To Contributor's knowledge, no Vendor is in default under any of
the contracts (the "CONTRACTS") or the governmental approvals (the "GOVERNMENTAL
APPROVALS") that are included among the Contributor's Deliveries, nor does
Contributor have any knowledge of any written notice alleging the existence of
any such default.
8
<PAGE>
5.1.1.5. CONTRACTS. To Contributor's knowledge, there are no
---------
contracts of any kind relating to the management, leasing, operation,
maintenance or repair of any Project, except as specifically identified in, or
in writing delivered to Contributor pursuant to the express terms of, the Phase
I Contracts or the Phase II Contracts, as the case may be. To Contributor's
knowledge, the Vendors have performed all material obligations required to be
performed by them under all, and are not in default under any, of those
Contracts to which reference is made in the preceding sentence. Except as
specifically disclosed in, or in writing delivered to Contributor pursuant to
the express terms of, the Phase I Contracts or the Phase II Contracts, as the
case may be, to Contributor's knowledge, all the Contracts may, by the express
terms thereof (i) be assigned to Acquiror, by notice to such effect to the
appropriate contract party, without penalty or other payment by the Vendor or
Acquiror and (ii) be terminated without penalty or other payment by the Vendor
(or its assignee, including Acquiror, or successor) upon no more than 30 days'
prior notice.
5.1.1.6. PHYSICAL CONDITION. To Contributor's knowledge, based on
------------------
all (if any) written reports and documents delivered to Contributor by the
Vendors, there is no existing patent or latent structural or other physical
defect or deficiency in the condition of any of the Projects, or any component
or portion thereof, that would or could impair or impose costs upon the use,
occupancy or operation of such Project, and that has not been fully corrected.
To Contributor's knowledge, based on all (if any) written reports and documents
delivered to Contributor by the Vendors, there is no defect or deficiency in the
Improvements, the structural elements thereof, the mechanical systems
(including, without limitation, all HVAC System, plumbing, electrical, elevator,
security, utility and sprinkler systems) therein, or the roof of any Building,
nor has Contributor knowledge of the delivery to the Vendors of any written
notice from any Tenant or any other party alleging the existence of any such
defect or deficiency.
5.1.1.7. IMPROVEMENTS. To Contributor's knowledge, the Improvements
------------
were completed and installed in accordance with all (if any) plans and
specifications that are Contributor's Deliveries, which were approved by all
Governmental Authorities having jurisdiction thereover, and do not violate any
governmental laws, ordinances, rules or regulations.
5.1.1.8. EMPLOYEES. To Contributor's knowledge, (i) none of the
---------
Vendors' employees at the Projects is employed pursuant to a written agreement,
and all employees may be terminated at will. To Contributor's knowledge, (ii)
none of the Vendors' employees at the Projects is a union employee, (iii) no
Vendor nor any affiliate thereof is a party to, nor are the Projects subject to,
any collective bargaining or other agreement or understanding with any labor
union, and (iv) no Vendor nor any affiliate thereof is privy to or involved in
any labor or union controversy or other interaction of any kind.
5.1.1.9. COMPLIANCE WITH LAWS AND CODES. Contributor has no
------------------------------
knowledge of the delivery to the Vendors of any written notice alleging that the
Projects, and the use and operation of any or all of them, are (or the use and
operation of any component, portion or area of any Project is) not in full
compliance with all applicable municipal and other
9
<PAGE>
governmental laws, ordinances, regulations, codes, licenses, permits and
authorizations, nor does Contributor have any knowledge of the delivery to the
Vendors of any written notice from any Governmental Authority (as defined
below), alleging that there are not presently and validly in effect all
licenses, permits and other authorizations necessary (including, without
limitation, certificates of occupancy) for the use, occupancy and operation of
the Projects as they are presently being operated, whether required of the
Vendor or any Tenant. Without limiting the foregoing, Contributor has no
knowledge of the delivery to the Vendors of any written notice alleging that the
Projects do not fully comply with all applicable requirements of the Americans
With Disabilities Act of 1990 (42 U.S.C.A. (S)12101 et seq.). To Contributor's
knowledge, the Projects are zoned by the municipality in which they are located
so as to permit the uses and structures thereon, in a manner that accommodates
and is fully compatible with the Building and Improvements as they presently
exist. To Contributor's knowledge, except as specifically disclosed in, or in
writing delivered to Contributor pursuant to the express requirements of, the
Phase I Contracts or the Phase II Contracts, as the case may be, no Project
constitutes a non-conforming use or non-conforming structure under applicable
present zoning laws. To Contributor's knowledge, except as specifically
disclosed in, or in writing delivered to Contributor pursuant to the express
requirements of, the Phase I Contracts or the Phase II Contracts, as the case
may be, no zoning, subdivision, environmental, Hazardous Material (as defined
below), building code, health, fire, safety or other law, order or regulation
is, or on the Phase I Closing or the Phase II Closing, as the case may be, will
be, violated by the continued maintenance, operation or use of any Improvements
or parking areas in the Projects, and Contributor has no knowledge of the
delivery to the Vendors of any written notice of any such violation from any
Governmental Authority having jurisdiction over the Projects. To Contributor's
knowledge, except as specifically disclosed in, or in writing delivered to
Contributor pursuant to the express requirements of, the Phase I Contracts or
the Phase II Contracts, as the case may be, all driveway entrances and exits to
each Project are permanent, and no special access or other permits are required
to maintain same. To Contributor's knowledge, except as specifically disclosed
in, or in writing delivered to Contributor pursuant to the express requirements
of, the Phase I Contracts or the Phase II Contracts, as the case may be, all
existing streets and other improvements, including water lines, sewer lines,
sidewalks, curbing and streets at each Project have been paid for and either
enter such Project through adjoining public streets; or, if any or all of such
items enter through private lands, do so in accordance with valid, irrevocable
easements running with the ownership of such Project.
5.1.1.10. LITIGATION. To Contributor's knowledge, except as
----------
specifically disclosed in, or in writing delivered to Contributor pursuant to
the express requirements of, the Phase I Contracts or the Phase II Contracts, as
the case may be, there are no pending or threatened judicial, municipal or
administrative proceedings affecting any Project or in which a Vendor is a party
or will be a party by reason of Vendor's being a party to any Phase I Contract
or Phase II Contract, as the case may be, including, without limitation,
proceedings for or involving collections, condemnation, eminent domain, alleged
building code or environmental or zoning violations, or personal injuries or
property damage alleged to have occurred on any Project or by reason of the
condition, use of, or operations on, such Project. To Contributor's knowledge,
except as specifically disclosed in, or in writing delivered to
10
<PAGE>
Contributor pursuant to the express requirements of, the Phase I Contracts or
the Phase II Contracts, as the case may be, no attachments, execution
proceedings, assignments for the benefit of creditors, insolvency, bankruptcy,
reorganization or other proceedings are pending or threatened against the
Vendors.
5.1.1.11. INSURANCE. To Contributor's knowledge, based on the
---------
documentation delivered by the Vendors pursuant to the express requirements of
the Phase I Contracts or the Phase II Contracts, as the case may be, the Vendors
now have in force commercially reasonable levels of property, liability and
business interruption insurance relating to the Projects. Contributor has no
knowledge of the delivery to the Vendors of any written notice from any
insurance carrier concerning, nor does Contributor have any knowledge of, any
defects or inadequacies in the Projects that, if not corrected, would result in
termination of insurance coverage or increase in the normal and customary cost
thereof.
5.1.1.12. FINANCIAL INFORMATION. To Contributor's knowledge, all
---------------------
income, expense and operating statements ("OPERATING STATEMENTS") delivered to
Contributor by the Vendors, and by Contributor to Acquiror, as part of
Contributor's Deliveries, and all other books and records delivered to
Contributor by the Vendors, and by Contributor to Acquiror, as part of
Contributor's Deliveries (the "RECORDS"), are complete, accurate, true and
correct, in all material respects; have been compiled in accordance with
generally accepted accounting principles; and accurately set forth the results
of the operation of the Projects for the periods covered. To Contributor's
knowledge, there has been no material adverse change in the financial condition
or operation of the Projects since the period covered by the Operating
Statements.
5.1.1.13. RE-ZONING. Contributor has no knowledge of the delivery to
---------
the Vendors of any written notice of any pending or threatened proceeding for
the rezoning of any Project or any portion thereof, or for the taking of any
other action by governmental authorities that would have an adverse or material
impact on the value of any Project or use thereof.
5.1.1.14. PERSONAL PROPERTY. To Contributor's knowledge, the Personal
-----------------
Property is all of the personal property owned by the Vendors and used in (or
necessary for) the operation of the Projects and all such Personal Property is
in good and operable condition and repair, and free of material defects.
5.1.1.15. REAL ESTATE TAXES. Contributor's Deliveries include all (if
-----------------
any) copies of the most recent real estate "TAX BILL(S)" for (and the only real
estate tax bills applicable to) the Projects and delivered to Contributor by the
Vendors. Except as specifically set forth in, or disclosed in writing delivered
to Contributor pursuant to the express requirements of, the Phase I Contracts or
the Phase II Contracts, as the case may be, Contributor has no knowledge of any
proposed increase in the assessed valuation or rate of taxation of any or all of
the Projects from that reflected in the most recent Tax Bills. Except as
specifically set forth in, or disclosed in writing delivered to Contributor
pursuant to the express requirements of, the Phase I Contracts or the Phase II
Contracts, as the case may be, to
11
<PAGE>
Contributor's knowledge, there is not now pending, and Contributor agrees that
it will not, without the prior written consent of Acquiror, permit the Vendors
to institute, prior to the Phase I Closing or the Phase II Closing, as the case
may be, any proceeding or application for a reduction in the real estate tax
assessment of any of the Projects or any other relief for any tax year (subject
to the requirements of the Phase I Contracts or the Phase II Contracts, as the
case may be, that the Vendors seek Contributor's consent for such purpose).
Except as specifically set forth in, or disclosed in writing delivered to
Contributor pursuant to the express requirements of, the Phase I Contracts or
the Phase II Contracts, as the case may be, to Contributor's knowledge, there
are no outstanding agreements with attorneys or consultants with respect to the
Tax Bills that will be binding on Acquiror or the Operating Partnership or any
of the Projects after the Phase I Closing or the Phase II Closing, as the case
may be. Except as specifically set forth in, or disclosed in writing delivered
to Contributor pursuant to the express requirements of, the Phase I Contracts or
the Phase II Contracts, as the case may be, to Contributor's knowledge, other
than the amounts disclosed by the Tax Bills, no other real estate taxes have
been, or will be, assessed against the Projects, or any portion thereof, in
respect of the year 1998 or any prior year, and no special assessments of any
kind (special, bond or otherwise) are or have been levied against the Projects,
or any portion thereof, that are outstanding or unpaid. To Contributor's
knowledge, each Vendor has paid all real estate taxes presently due and owing
with respect to the Projects.
5.1.1.16. UNITED STATES PERSON. Contributor is a "United States
--------------------
Person" within the meaning of Section 1445(f)(3) of the Code, as amended, and,
if required, shall execute and deliver an "Entity Transferor" certification at
the Phase I Closing and the Phase II Closing.
5.1.1.17. EXISTING MORTGAGES. Contributor shall seek from each Vendor
------------------
and deliver to Acquiror, as soon as is reasonably possible under the
circumstances, a true, correct and complete schedule of those mortgage(s) or
trust deed(s) ("EXISTING MORTGAGES") presently encumbering the Projects or any
portion thereof (the "SECTION 5.1.1.17 SCHEDULE"). To Contributor's knowledge,
each Vendor has complied with the terms of, and all notices or correspondence
received from the holder of, the promissory notes evidencing the loans (the
"EXISTING LOANS") secured by the Existing Mortgages (the "EXISTING NOTES"), the
Existing Mortgages, and all other documents securing the Existing Notes
(collectively, with the Existing Loans and the Existing Notes, the "EXISTING
LOAN DOCUMENTS"). To Contributor's knowledge, each Vendor has paid, on a timely
basis, all sums due under the Existing Notes, Existing Mortgages and Existing
Loan Documents, when and as due. To Contributor's knowledge, the Existing Notes
and Existing Mortgages are in full force and effect, and Contributor has no
knowledge of the delivery to the Vendors of any written notice alleging that any
Vendor is in default thereunder.
5.1.1.18. COMDEMNATION. Contributor has no knowledge of any pending
------------
or contemplated condemnation or other governmental taking proceedings affecting
all or any part of any or all of the Projects.
12
<PAGE>
5.1.2. PHASE I CONTRACTS.
-----------------
5.1.2.1. DESCRIPTIVE INFORMATION. The descriptive information
-----------------------
concerning the Phase I Contracts or the Phase II Contracts, as the case may be,
set forth in SECTION 1 and in all exhibits referred to in SECTION 1 is complete,
accurate, true and correct, in all material respects. Contributor has delivered
to Acquiror (or will deliver to Acquiror, promptly upon the execution thereof)
true, accurate and complete copies of the Phase I Contracts or the Phase II
Contracts, as the case may be.
5.1.2.2. DEFAULTS UNDER PHASE I CONTRACTS AND PHASE II CONTRACTS.
-------------------------------------------------------
Contributor has not received any written notice alleging that it is in default
under any of the Phase I Contracts or the Phase II Contracts, as the case may
be, nor, to Contributor's knowledge, has any such default occurred. To
Contributor's knowledge, no Vendor under any Phase I Contract or Phase II
Contract, as the case may be, is in default thereunder. Contributor has no
knowledge of any facts which, with the passage of time or the giving of notice,
or both, would result in either Contributor or any other party under any of the
Phase I Contracts or the Phase II Contracts, as the case may be, being in
default thereunder. To Contributor's knowledge, no party under any of the Phase
I Contracts or the Phase II Contracts, as the case may be, has waived a default
thereunder by any other party.
5.1.2.3. AGREEMENTS RELATING TO PHASE I CONTRACTS AND PHASE II
-----------------------------------------------------
CONTRACTS. There are no written agreements between Contributor and the other
- ---------
parties to the Phase I Contracts or the Phase II Contracts, as the case may be,
other than the Phase I Contracts or the Phase II Contracts, as the case may be.
5.1.2.4. LIABILITIES UNDER PHASE I CONTRACTS AND PHASE II CONTRACTS.
----------------------------------------------------------
Except for earnest money deposits by Contributor described in the Phase I
Contracts or the Phase II Contracts, as the case may be, no amounts required to
be paid under the Phase I Contracts or the Phase II Contracts, as the case may
be, have been prepaid by any party under the Phase I Contracts or the Phase II
Contracts, as the case may be. Contributor has no liability under the Phase I
Contracts or the Phase II Contracts, as the case may be, except as expressly and
specifically set forth therein.
5.1.2.5. ASSIGNABILITY OF PHASE I CONTRACTS AND PHASE II CONTRACTS.
---------------------------------------------------------
All of the Phase I Contracts or the Phase II Contracts, as the case may be, are
assignable to Acquiror in accordance with their respective terms, without
consent of the Vendor.
5.1.2.6. CONTRIBUTOR'S INTEREST IN PHASE I CONTRACTS AND PHASE II
--------------------------------------------------------
CONTRACTS. Contributor's interest in the Phase I Contracts or the Phase II
- ---------
Contracts, as the case may be, is not subject to any liens, security interests
or other encumbrances, nor has Contributor assigned any part of its interest
thereunder.
5.1.2.7. LITIGATION. There are no pending or (to Contributor's
----------
knowledge) threatened judicial, municipal or administrative proceedings
affecting any Phase I Contract or Phase II Contract, as the case may be, or in
which Contributor is, or will be, a
13
<PAGE>
party by reason of Contributor's being a party to any Phase I Contract or Phase
II Contract, as the case may be. In the event any proceeding of the character
described in this SECTION 5.1.2.7 is initiated or threatened against Contributor
prior to Phase I Closing or the Phase II Closing, as the case may be, such
occurrence shall constitute a default by Contributor hereunder, and Contributor
shall promptly advise Acquiror thereof in writing.
5.1.3. AUTHORITY. The execution, delivery and performance of this
---------
Agreement by Contributor has been duly authorized by Contributor and this
Agreement is binding on Contributor and enforceable against it in accordance
with its terms. No consent of any creditor, investor, partner, shareholder,
tenant-in-common, judicial or administrative body, Governmental Authority, or
other governmental body or agency, or other party to such execution, delivery
and performance by Contributor is required. Neither the execution of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in a breach of, default under, or acceleration of, any agreement to which
Contributor is a party or by which Contributor, the Projects (to Contributor's
knowledge) or the Phase I Contracts or the Phase II Contracts, as the case may
be, are bound; or (ii) violate any restriction, court order, agreement or other
legal obligation to which any one or more of Contributor, and any of the
Projects (to Contributor's knowledge) or the Phase I Contracts or the Phase II
Contracts, as the case may be, are subject.
5.1.4. INVESTMENT REPRESENTATION. Contributor represents that its
-------------------------
LP Units and Shares are being acquired by it with the present intention of
holding such LP Units and Shares for purposes of investment, and not with a view
towards sale or any other distribution. Contributor recognizes that it may be
required to bear the economic risk of an investment in the LP Units and Shares
for an indefinite period of time. Contributor is an Accredited Investor.
Contributor has such knowledge and experience in financial and business matters
so as to be fully capable of evaluating the merits and risks of an investment in
the LP Units and Shares. Contributor has been furnished with the informational
materials described in SECTION 2.4 (collectively, the "INFORMATIONAL
MATERIALS"), and has read and reviewed the Informational Materials and
understands the contents thereof. Contributor has been afforded the opportunity
to ask questions of those persons they consider appropriate and to obtain any
additional information they desire in respect of the LP Units and Shares and the
business, operations, conditions (financial and otherwise) and current prospects
of Acquiror and the Operating Partnership. Contributor has consulted their own
financial, legal and tax advisors with respect to the economic, legal and tax
consequences of delivery of the LP Units and Shares and has not relied on the
Informational Materials, Acquiror, the Operating Partnership or any of their
officers, trustees, affiliates or professional advisors for such advice as to
such consequences. Contributor is domiciled in the State of Minnesota.
5.1.5. INTERESTS. No member of Contributor (or any member or
---------
partner of a member of Contributor) has pledged or otherwise encumbered its
respective interest in Contributor.
14
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5.2. ACQUIROR. Acquiror represents and warrants to Contributor that the
--------
following matters are true as of the Contract Date and shall be true as of the
Phase I Closing Date and the Phase II Closing Date, as applicable:
5.2.1. TAX STATUS. The Operating Partnership has been formed to be
----------
classified as a partnership or a publicly traded partnership taxable as a
partnership for federal income tax purposes and not an association taxable as a
corporation or a publicly traded partnership taxable as a corporation. Acquiror
is a real estate investment trust under Sections 856 through 860 of the Code and
is in compliance with all of the requirements therefor under such sections of
the Code, and the transactions contemplated hereby, including the formation of
the Operating Partnership, shall not affect the status of the Acquiror as a real
estate investment trust under the Code.
5.2.2. ACQUIROR AUTHORITY. Acquiror's execution and delivery of
------------------
this Agreement and the consummation of the transaction described herein will
have been duly authorized by all appropriate actions and proceedings. Acquiror
is a real estate investment trust duly authorized and validly existing, and in
good standing, under Maryland law, and the person(s) signing this Agreement on
behalf of Acquiror has the power and authority to enter into and perform this
Agreement in accordance with its terms; and at the Phase I Closing or the Phase
II Closing, as the case may be. No consents of third parties are required in
connection with Acquiror's execution, delivery and performance of this
Agreement, other than the consent of at least 51% of Acquiror's shareholders.
5.2.3. EXISTING PROPERTIES. Acquiror is the 100% shareholder in two
-------------------
Qualified REIT Subsidiaries (each, a "QRS") which own in fee simple the
properties (the "EXISTING PROPERTIES") identified as "Existing Properties" on
EXHIBIT A. The Existing Properties, including operating statements and
information about any financing relating thereto, are fully and accurately
described in Acquiror's 10-K.
5.2.4. QUALIFICATION. Acquiror is qualified to do business in all
-------------
states in which it is required to be so qualified in order to own and manage the
Existing Properties and the Projects.
5.2.5. INFORMATIONAL MATERIALS. The Informational Materials
-----------------------
completely and accurately describe the business, operations and other material
facts about of Acquiror.
5.2.6. NO MATERIAL ADVERSE CHANGE. Since March 31, 1998, no change
--------------------------
has occurred that would have a material adverse effect on either Acquiror or the
Existing Properties or that would have the effect of materially diluting the
value of the Shares.
5.2.7. TERMINATION OF EXISTING FEE AGREEMENTS. As of the Phase I
--------------------------------------
Closing, Acquiror shall have no obligation to pay advisory or other brokerage
fees to WMC Realty, Inc. ("WRI"), Wellington Management Corporation ("WMC") or
any other party; shall have terminated any agreement containing any such
obligation; and shall have paid no fee or incurred no liability in connection
with the termination of any such agreements prior to the
15
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Phase I Closing, except as permitted by that certain Contribution Agreement (the
"WMC CONTRIBUTION AGREEMENT") between WMC and the Operating Partnership of even
date herewith.
The representations and warranties made in this Agreement by Contributor and
Acquiror shall be deemed remade by Contributor or Acquiror, as the case may be,
as of the Phase I Closing or the Phase II Closing, as the case may be, with the
same force and effect as if, in fact, specifically remade at that time. Except
for the representations and warranties made by Contributor that are contained in
SECTION 7.2, which shall survive the Phase I Closing or the Phase II Closing, as
the case may be, for a period of two years, all representations and warranties
made in this Agreement by Contributor or Acquiror shall survive the Phase I
Closing or the Phase II Closing, as the case may be, for a period of one year.
As used in this Agreement with respect to any representation or warranty, the
"knowledge" of Contributor refers to the actual knowledge of each and all of
Duane Lund, Paul Lambert and Steve Hoyt, without any duty of inquiry or
investigation.
6. PRE-CLOSING COVENANTS.
---------------------
6.1. CONTRIBUTOR.
-----------
6.1.1. PROJECTS.
--------
6.1.1.1. NEW LEASES. To the extent Contributor's consent is
----------
required pursuant to any Phase I Contract or Phase II Contract, as the case may
be, prior to the Phase I Closing or the Phase II Closing, as the case may be,
Contributor shall not consent to any Vendor amending any Lease in any economic
or other material respect or executing any new lease, license, or other
agreement affecting the ownership or operation of all or any portion of the
Projects or for personal property, equipment, or vehicles, without Acquiror's
prior written approval (which approval shall automatically be deemed given if
not disapproved, in writing, within 5 business days following Contributor's
written request for approval or such lesser time period as Contributor may have
for such approval under the applicable Phase I Contract or Phase II Contract, as
the case may be).
6.1.1.2. NEW CONTRACTS. To the extent Contributor's consent is
-------------
required pursuant to any Phase I Contract or Phase II Contract, as the case may
be, prior to the Phase I Closing or the Phase II Closing, as the case may be,
Contributor shall not consent to any Vendor entering into any contract with
respect to the ownership and operation of all or any portion of any or all of
the Projects that will survive the Phase I Closing or the Phase II Closing, as
the case may be, or that would otherwise affect the use, operation or enjoyment
of any or all of the Projects, without Acquiror's prior written approval (which
approval shall automatically be deemed given if not disapproved, in writing,
within 5 business days following Contributor's written request for approval or
such lesser time period as Contributor may have for such approval under the
applicable Phase I Contract or Phase II Contract, as the case may be), except
for service contracts entered into in the ordinary course of business that are
terminable, without penalty, on not more than 60 days' notice, for which no
consent shall be required.
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6.1.1.3. OPERATION OF PROJECTS. To the extent Contributor's
---------------------
consent is required pursuant to any Phase I Contract or Phase II Contract, as
the case may be, prior to the Phase I Closing or the Phase II Closing, as the
case may be, Contributor shall not consent to any Vendor (a) operating or
managing the Projects in any manner other than that which is in effect on the
Contract Date; (b) failing to maintain present services (including, but not
limited to, pest control); (c) failing to maintain the Projects as they were
maintained on the Contract Date; (d) not keeping on hand sufficient materials,
supplies, equipment and other Personal Property for the efficient operation and
management of the Projects in the same manner as exists on the Contract Date; or
(e) not performing, prior to delinquency, all of such Vendor's obligations under
the Leases, Contracts, Governmental Approvals and other agreements relating to
the Projects or in any way not in accordance with applicable laws, ordinances,
rules and regulations affecting the Projects.
6.1.2. PHASE I CONTRACTS. Unless otherwise consented to by
-----------------
Acquiror in writing (with such consent not to be unreasonably withheld):
6.1.2.1. KEEP IN EFFECT. After the Contract Date and prior to
----------
the Phase I Closing or the Phase II Closing, as the case may be, Contributor
shall comply with its obligations under the Phase I Contracts and shall not
terminate any of the Phase I Contracts or the Phase II Contracts, as the case
may be.
6.1.2.2. NO MODIFICATION. After the Contract Date and prior to
---------------
The Phase I Closing or the Phase II Closing, as the case may be, Contributor
shall not modify, amend or grant any waivers or consents pursuant to the Phase I
Contracts or the Phase II Contracts, as the case may be.
6.1.2.3. PRE-CLOSING EXPENSES. Contributor has paid or will
--------------------
pay in full, prior to the Phase I Closing or the Phase II Closing, as the case
may be, all amounts due to the Contract Vendors under the Phase I Contracts or
the Phase II Contracts, as the case may be, relating to the period prior to the
Phase I Closing or the Phase II Closing, as the case may be.
6.1.2.4. NO ASSIGNMENT. After the Contract Date and prior to
-------------
the Phase I Closing or the Phase II Closing, as the case may be, Contributor
shall not assign, alienate, lien, encumber or otherwise transfer all or any part
of any or all of the Phase I Contracts or the Phase II Contracts, as the case
may be, or any interest in any or all of them.
6.1.2.5. INTERIM ACTIONS. After the Contract Date and prior to
---------------
the Phase I Closing or the Phase II Closing, as the case may be, Contributor
shall deliver to Acquiror copies of all written notices and other written
material received by Contributor pursuant to the terms of the Phase I Contracts
or the Phase II Contracts, as the case may be. After the Contract Date and prior
to the Phase I Closing or the Phase II Closing, as the case may be, all of the
Contributors and Acquiror shall reasonably cooperate in determining the
substance of all written communications between Contributor and the other
parties under any Phase I Contract or any Phase II Contract, as the case may be,
including, without limitation, making title objections, deleting from the
transaction any properties that are the subject of such
17
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of any such Phase I Contract or Phase II Contract, as the case may be, or
terminating any Phase I Contracts or Phase II Contracts, as the case may be.
Acquiror shall be deemed to have waived any default by Contributor under any
representation, warranty or covenant made in this Agreement if and to the extent
that such default results from any joint action by Acquiror and Contributor
pursuant to this SECTION 6.1.2.5.
6.1.3. CHANGE IN CONDITIONS. Contributor shall promptly
--------------------
notify Acquiror of any change in any condition with respect to any or all of the
Projects, Phase I Contracts or Phase II Contracts, as the case may be, or of the
occurrence of any event or circumstance that makes any representation or
warranty of Contributor to Acquiror under this Agreement untrue or misleading in
any material respect, or any covenant of Acquiror under this Agreement incapable
or less likely of being performed in any material respect, it being understood
that Contributor's obligation to provide notice to Acquiror under this SECTION
6.1.3 shall in no way relieve Contributor of any liability for a breach by
Contributor of any of its representations, warranties or covenants under this
Agreement.
6.1.4. PREDICATES TO CLOSING DELIVERIES. Contributor shall
--------------------------------
take all actions reasonably necessary to allow Contributor to make its closing
deliveries pursuant to SECTION 10.1.
6.2. ACQUIROR.
--------
6.2.1. EXISTING PROPERTIES. After the Contract Date and prior
-------------------
to the Phase I Closing or the Phase II Closing, as the case may be, Acquiror
shall not cause or permit a QRS to sell, encumber or otherwise dispose of the
Existing Properties. Acquiror shall cause each QRS to operate the Existing
Properties in a manner consistent with such operations on the Contract Date.
6.2.2. ACQUISITION OF PROPERTIES BY ACQUIROR. Acquiror shall
-------------------------------------
not acquire, or enter into any contract or other agreement to acquire, any
material real property without the advance written consent of Contributor, which
consent shall not be unreasonably withheld or delayed. In connection with any
such acquisition for which Contributor grants such consent, Acquiror shall enter
into a consent agreement with Contributor pursuant to which Contributor grants
such consent and Acquiror makes all of those representations, warranties and
covenants with respect to the property being acquired as Contributor makes
hereunder with respect to the Projects, the Phase I Contracts and the Phase II
Contracts, as the case may be.
6.2.3. CHANGE IN CONDITIONS. Acquiror shall promptly notify
--------------------
Contributor of any change in any condition with respect to any or all of the
Existing Properties or of the occurrence of any event or circumstance that makes
any representation or warranty of Acquiror to Contributor under this Agreement
untrue or misleading, or any covenant of Acquiror or the Operating Partnership
under this Agreement incapable or less likely of being performed, it being
understood that Acquiror's and the Operating Partnership's obligation to provide
notice to Contributor under this SECTION 6.2.2 shall in no way relieve Acquiror
or the
18
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Operating Partnership of any liability for a breach by Contributor of any of its
representations, warranties or covenants under this Agreement.
6.2.4. INFORMATIONAL MATERIALS. Acquiror shall provide
-----------------------
Contributor with copies of the Informational Materials at least five business
days prior to the Phase I Closing.
6.2.5. EXCLUSIVITY. Prior to any termination of this
-----------
Agreement, Acquiror shall not, without the written consent of AREE, solicit,
entertain or accept any formal or informal offers from any other entities to
merge or to consummate any other transaction involving all or substantially all
of the shares or assets of Acquiror any of the QRSs.
6.2.6. PREDICATES TO CLOSING DELIVERIES. Acquiror shall take
--------------------------------
all actions reasonably necessary to allow Contributor to make its closing
deliveries pursuant to SECTION 10.2.
7. ENVIRONMENTAL WARRANTIES AND AGREEMENTS.
---------------------------------------
7.1. DEFINITIONS. Unless the context otherwise requires:
-----------
7.1.1. "ENVIRONMENTAL LAW" or "ENVIRONMENTAL LAWS" shall mean
all applicable past, present or future federal, state and local statutes,
regulations, directives, ordinances, rules, court orders, decrees, arbitration
awards and the common law, which pertain to environmental matters, contamination
of any type whatsoever or health and safety matters, as such have been amended,
modified or supplemented from time to time (including all present and future
amendments thereto and re-authorizations thereof). Environmental Laws include,
without limitation, those relating to: (a) the manufacture, processing, use,
distribution, treatment, storage, disposal, generation or transportation of
Hazardous Materials; (b) air, soil, surface, subsurface, groundwater or noise
pollution; (c) Releases; (d) protection of wildlife, endangered species,
wetlands or natural resources; (e) Tanks; (f) health and safety of employees and
other persons; and (g) notification requirements relating to the foregoing.
Without limiting the above, Environmental Law also includes the following: (i)
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. (S)(S) 9601 et seq.), as amended ("CERCLA"); (ii) the Solid Waste
-- ---
Disposal Act, as amended by the Resource Conservation and Recovery Act (42
U.S.C. (S)(S) 6901 et seq.), as amended ("RCRA"); (iii) the Emergency Planning
-- ---
and Community Right to Know Act of 1986 (42 U.S.C. (S)(S) 11001 et seq.), as
-- ---
amended; (iv) the Clean Air Act (42 U.S.C. (S)(S) 7401 et seq.), as amended; (v)
-- ---
the Clean Water Act (33 U.S.C. (S)1251 et seq.), as amended; (vi) the Toxic
-- ---
Substances Control Act (15 U.S.C. (S) 2601 et seq.), as amended; (vii) the
-- ---
Hazardous Materials Transportation Act (49 U.S.C. (S)(S) 1801 et seq.), as
-- ---
amended; (viii) the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
(S) 136 et seq.), as amended; (ix) the Federal Safe Drinking Water Act (42
-- ---
U.S.C. (S) 300f et seq.), as amended; (x) the Federal Radon and Indoor Air
-- ---
Quality Research Act (42 U.S.C. (S) 7401 note, et seq.); (xi) the Occupational
-- ---
Safety and Health Act (29 U.S.C. (S) 651 et seq.), as amended; (xii) any state,
-- ---
county, municipal or local statutes, laws or ordinances similar or analogous to
(including counterparts of) any of the
19
<PAGE>
statutes listed above; and (xiii) any rules, regulations, directives, orders or
the like adopted pursuant to or implementing any of the above.
7.1.2. "ENVIRONMENTAL PERMIT" or "ENVIRONMENTAL PERMITS" shall
mean licenses, certificates, permits, directives, requirements, registrations,
government approvals, agreements, authorizations, and consents which are
required under or are issued pursuant to an Environmental Law or are otherwise
required by Governmental Authorities.
7.1.3. "GOVERNMENTAL AUTHORITY" or "GOVERNMENTAL AUTHORITIES"
shall mean any agency, commission, department or body of any municipal,
township, county, local, state or Federal governmental or quasi-governmental
regulatory unit, entity or authority having jurisdiction or authority over all
or any portion of the Projects or the management, operation, use or improvement
thereof.
7.1.4. "HAZARDOUS CONDITION" or "HAZARDOUS CONDITIONS" refers
to the existence or presence of any Hazardous Materials on, in, under, or at,
the Projects (including air, soil and groundwater) or any portion of any of
them.
7.1.5. "HAZARDOUS MATERIAL" or "HAZARDOUS MATERIALS" shall
mean:
(a) any chemical, pollutant, contaminant, pesticide, petroleum or
petroleum product or by product, radioactive substance, solid
waste (hazardous or extremely hazardous), special, dangerous or
toxic waste, substance, chemical or material regulated, listed,
limited or prohibited under any Environmental Law, including
without limitation: (i) friable or damaged asbestos, asbestos-
containing material, presumed asbestos-containing material,
polychlorinated biphenyls ("PCBS"), solvents and waste oil; (ii)
any "hazardous substance" as defined under CERCLA; and (iii) any
"hazardous waste" as defined under RCRA; and
(b) even if not prohibited, listed, limited or regulated by an
Environmental Law, all pollutants, contaminants, hazardous,
dangerous or toxic chemical materials, wastes or any other
substances, including without limitation, any industrial process
or pollution control waste (whether or not hazardous within the
meaning of RCRA) which could pose a hazard to the environment, or
the health and safety of any person or impair the use or value of
any portion of the Projects.
7.1.6. "RELEASE" means any spill, discharge, leak, migration,
emission, escape, injection, dumping or other release or threatened release of
any Hazardous Material into the environment, whether or not notification or
reporting to any Governmental Authority was or is required. Release includes,
without limitation, historical releases and the meaning of Release as defined
under CERCLA.
7.1.7. "QUALIFIED CONSULTING FIRM" shall mean a first-class
nationally or regionally recognized environmental engineering and/or consulting
firm.
20
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7.1.8. "TANK" or "TANKS" means above-ground and underground
storage tanks, vessels and related equipment, including appurtenant pipes, lines
and fixtures, containing or previously containing any Hazardous Material or
fraction thereof.
7.2. WARRANTIES. Contributor hereby represents and warrants as follows
----------
with respect to each Project as of the Contract Date and as of the Phase I
Closing or the Phase II Closing, as the case may be:
7.2.1. Contributor has made available or delivered to Acquiror
originals (or true, complete and accurate copies) of all (if any) of the
following documents, if and to the extent such documents are in Contributor's
possession:
(a) All approvals, plans, specifications, test
borings, percolation tests, engineering studies, surveys or other
environmental data concerning the Projects;
(b) All permits (including Environmental Permits),
approvals, registrations, Tank registration and/or closure
documentation, certificates, applications, notices, orders,
directives, legal pleadings, correspondence or other documents of
any nature that Contributor, any tenant of Contributor, any of
Contributor's predecessors-in-title or any tenant of
Contributor's predecessors-in-title have submitted to, or
received from, any Governmental Authority regarding the Projects
and their use, compliance or non-compliance with Environmental
Laws; and
(c) The results of any investigation of any of the
Projects including, but not limited to, Phase I or Phase II site
assessments, asbestos inspection and/or removal reports, tests or
investigations of soil or other substrate air, groundwater,
surface water, or the building interior, and any testing or
investigation results relating to the removal or abandonment of
any Tanks from the Projects.
7.2.2. To Contributor's knowledge, the Project has been and
continues to be owned and operated in full compliance with all Environmental
Laws and Environmental Permits.
7.2.3. To Contributor's knowledge, there are no pending: (i)
claims, complaints, notices, correspondence or requests for information received
by the Vendors with respect to any violation or alleged violation of any
Environmental Law or Environmental Permit or with respect to any corrective or
remedial action for or cleanup of the Project or any portion thereof; and (ii)
written correspondence, claims, complaints, notices, or requests for information
from or to the applicable Vendor regarding any actual, potential or alleged
liability or obligation under or violation of any Environmental Law or
Environmental Permit with respect to the Project or any portion thereof.
21
<PAGE>
7.2.4. To Contributor's knowledge, there have been no Releases
of a Hazardous Material on, in, under or at the Project or any portion thereof.
7.2.5. To Contributor's knowledge, none of the Projects are
listed, proposed or nominated for listing on the National Priorities List
pursuant to CERCLA, the Comprehensive Environmental Response and Liability
Information System or on any other similar list of sites under analogous state
laws.
7.2.6. Except as specifically disclosed in, or disclosed in
writing delivered to Contributor pursuant to the express requirements of, the
Phase I Contracts or the Phase II Contracts, as the case may be, to
Contributor's knowledge, there are no Tanks at, on or under any or all of the
Projects; no Vendor has removed, closed or abandoned any Tanks at the Project;
and any and all Tanks that have heretofore been removed from or closed at the
Projects have been removed or closed in accordance with all Environmental Laws.
7.2.7. To Contributor's knowledge, there are no PCBs or
friable or damaged asbestos at the Project.
7.2.8. To Contributor's knowledge, there has been no storage,
treatment, disposal, generation, transportation or Release of any Hazardous
Materials by any Vendor or its predecessors in interest, or by any other person
or entity for which a Vendor is or may be held responsible, on, in, under or at
the Project (or any portion thereof) in violation of, or which could give rise
to any claim, obligation or liability under, Environmental Laws.
8. ADDITIONAL CONDITIONS PRECEDENT TO CLOSING.
------------------------------------------
8.1. ACQUIROR'S CONDITIONS PRECEDENT. In addition to the other
-------------------------------
conditions enumerated in this Agreement, the following shall be additional
conditions precedent ("CONDITIONS PRECEDENT") to Acquiror's obligation to close
hereunder:
8.1.1. PROJECTS.
--------
8.1.1.1. TITLE INSURANCE. A title insurance company mutually and
---------------
reasonably selected by Acquiror and Contributor (the "TITLE COMPANY") shall be
irrevocably committed to issue a title insurance policy to Acquiror for each
Project pursuant to the terms and conditions of the relevant Phase I Contract or
Phase II Contract, as the case may be.
8.1.1.2. PHYSICAL CONDITION. The physical condition of each
------------------
Project shall be substantially the same on the Phase I Closing Date, or the
Phase II Closing Date, as the case may be, as on the Contract Date, reasonable
wear and tear excepted, unless the alteration of said physical condition is the
result of damage covered by the casualty provisions of the applicable Phase I
Contract or Phase II Contract, as the case may be.
8.1.1.3. PENDING ACTIONS. At the Phase I Closing or the Phase
---------------
II Closing, as the case may be, there shall be no administrative agency,
litigation or governmental proceeding of any kind whatsoever, pending or
threatened, that, after the Phase I
22
<PAGE>
Closing or the Phase II Closing, as the case may be, would, in Acquiror's sole,
but reasonable, discretion, materially and adversely affect the value or
marketability of any Project or the Projects as a whole, or the ability of
Acquiror to operate any or all of the Projects in the manner it is (they are)
being operated on the Contract Date.
8.1.1.4. REAL ESTATE TAXES. As of the Phase I Closing or the
-----------------
Phase II Closing, as the case may be, there shall have been no actual or pending
reassessment to materially increase the value of any Project for the purpose of
calculating real estate taxes or any increase in the real estate tax rate
applicable to any Project.
8.1.1.5. ZONING. On the Phase I Closing or the Phase II
------
Closing, as the case may be, no proceedings shall be pending or threatened that
could or would involve the material change, redesignation, redefinition or other
modification of the zoning classifications of (or any building, environmental,
or code requirements applicable to) any or all of the Projects, or any portion
thereof, or any property adjacent to any Project.
8.1.1.6. FLOOD INSURANCE. As of the Phase I Closing or the
---------------
Phase II Closing, as the case may be, if any Project is located in a flood
plain, Acquiror shall have obtained flood plain insurance in form and substance
acceptable to Acquiror.
8.1.1.7. UTILITIES. On the Phase I Closing or the Phase II
---------
Closing, as the case may be, no moratorium or proceeding shall be pending or
threatened materially affecting the availability, at regular rates and
connection fees, of sewer, water, electric, gas, telephone or other services or
utilities servicing the Projects.
8.1.1.8. ASSUMED INDEBTEDNESS. Except as is otherwise mutually
--------------------
and reasonably agreed by Acquiror and Contributor, Acquiror shall have been
provided with a pay-off letter (the "PAY-OFF LETTER") issued by each mortgagee
holding an Existing Mortgage securing any Assumed Indebtedness, setting forth
the amount of principal and interest outstanding on the Phase I Closing or the
Phase II Closing, as the case may be. Acquiror shall also have been provided
with a statement of account from each other creditor holding any Assumed
Indebtedness, setting forth the amount necessary to retire such Assumed
Indebtedness, which such statement(s) of account shall also constitute Pay-Off
Letters for purposes of this Agreement.
8.1.2. CONTRACTS. Each Phase I Contract or Phase II Contract,
---------
as the case may be, is in full force and effect in accordance with its terms,
unless it has been terminated in accordance with the provisions of SECTION
6.1.2.
8.1.3. BANKRUPTCY. As of the Phase I Closing or the Phase II
----------
Closing, as the case may be, no Contributor, no Project and no Phase I Contract
or Phase II Contract, as the case may be, is the subject of any bankruptcy
proceeding for which approval of this transaction has not been given and issued
by the applicable bankruptcy court.
8.1.4. REPRESENTATIONS AND WARRANTIES TRUE. The
-----------------------------------
representations and warranties of Contributor contained in this Agreement shall
be true and correct as of the Phase
23
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I Closing or the Phase II Closing, as the case may be, in all respects, as
though such representations and warranties were made on such date.
8.1.5. COVENANTS PERFORMED. All covenants of Contributor
-------------------
required to be performed on or prior to the Phase I Closing or the Phase II
Closing, as the case may be, shall have been performed, in all material
respects.
8.2. CONTRIBUTOR'S ADDITIONAL CONDITIONS PRECEDENT. The following
---------------------------------------------
shall be additional Conditions Precedent to Contributor's obligation to close
hereunder:
8.2.1. REPRESENTATIONS AND WARRANTIES. The representations
------------------------------
and warranties of Acquiror contained in this Agreement shall be true and correct
as of the Phase I Closing or the Phase II Closing, as the case may be, in all
respects, as though such representations and warranties were made on such date.
8.2.2. COVENANTS. All covenants of Acquiror and the Operating
---------
Partnership required to be performed on or prior to the Phase I Closing or the
Phase II Closing, as the case may be, shall have been performed, in all material
respects.
8.2.3. DIRECTORS' AND OFFICERS' INSURANCE. Acquiror shall
----------------------------------
have obtained directors' and officers' insurance covering all directors and
officers of Acquiror (including those elected at or immediately following the
Phase I Closing), the coverage of which is reasonably satisfactory to
Contributor.
8.3. MUTUAL CONDITIONS PRECEDENT. The following shall be additional
---------------------------
Conditions Precedent to the obligations of each of Contributor and Acquiror to
close hereunder:
8.3.1. FINANCING. As of the Phase I Closing, the Operating
---------
Partnership shall have entered into, and consummated the loan transaction
contemplated under the terms of, one or more agreements with one or more
institutional lenders (collectively, "LENDER") to provide acquisition and
working capital financing to the Operating Partnership on terms reasonably and
mutually acceptable to Contributor and Acquiror.
8.3.2. MANAGEMENT AGREEMENTS. As of the Phase I Closing, the
---------------------
Operating Partnership shall have entered into agreements with each of WMC
Realty, Inc. and a management company controlled by Steven B. Hoyt to provide
management services to the Operating Partnership on terms reasonably and
mutually acceptable to Contributor and Acquiror and in geographic regions
mutually and reasonably determined by Acquiror and Contributor.
8.3.3. OPTIONS. As of the Phase I Closing, Acquiror shall have
-------
executed documentation to implement those certain equity-based compensation
plans (including, but not limited to, a share option plan) that Acquiror and
Contributor mutually and reasonably determine are appropriate in connection with
the compensation of Acquiror's senior
24
<PAGE>
management, members of its board of directors, and any other parties to whom
Acquiror and Contributor wish to grant such benefits, all as may be permissible
pursuant to applicable law.
8.3.4. LOAN ASSUMPTIONS. If and to the extent that Acquiror
----------------
and Contributor mutually and reasonably determine that the Operating Partnership
shall actually assume (rather than pay off) one or more of the loans
constituting Assumed Indebtedness and secured by liens encumbering any of the
Projects, then the Operating Partnership shall enter into loan assumption
documentation with the relevant underlying lender, the form and substance of
which documentation shall be reasonably and mutually acceptable to Contributor
and Acquiror.
8.3.5. DRIP. As of the Phase I Closing, Acquiror shall have
----
amended (and restated, if applicable) its existing "Dividend Reinvestment Plan"
in a manner mutually and reasonably acceptable to Acquiror and Contributor.
8.3.6. SHAREHOLDER APPROVAL. All requisite shareholder
--------------------
approvals of Acquiror shall have been obtained at a special meeting of
shareholders. Contributor shall have approved, in its reasonable discretion, all
proxy materials distributed to Acquiror's shareholders in connection with such
special meeting.
8.3.7. AMENDED DECLARATION OF TRUST. As of the Phase I Closing,
----------------------------
an amended and restated Declaration of Trust of Acquiror, in form and substance
reasonably and mutually acceptable to Contributor and Acquiror, shall have been
filed with the State of Maryland Department of Assessments and Taxation.
8.3.8. FORM OF DOCUMENTS. The form and substance of all
-----------------
documents required to be agreed upon by Contributor and Acquiror pursuant to
this Agreement shall have been agreed upon.
9. LEASES-CONDITIONS PRECEDENT AND WARRANTIES WITH RESPECT THERETO.
---------------------------------------------------------------
9.1. WARRANTIES AS TO LEASES. With respect to each of the tenants
-----------------------
listed on any rent roll ("RENT ROLL") received by Contributor from a Vendor and
provided to Acquiror by Contributor as part of Contributor's Deliveries, and any
other tenants leasing space in any or all of the Projects as of the Phase I
Closing or the Phase II Closing, as the case may be (collectively, the
"TENANTS"), Contributor represents and warrants to Acquiror that, to its
knowledge, as of the Contract Date and as of the Phase I Closing or the Phase II
Closing, as the case may be, and except as set forth specifically in, or
delivered to Contributor, in writing and pursuant to the express requirements
of, the Phase I Contracts or the Phase II Contracts, as the case may be, the
following are true in all material respects:
9.1.1. Each of the Leases is in full force and effect. Each
Tenant is legally required to pay all sums and perform all obligations set forth
in the Leases, without concessions, abatements, offsets or other bases for
relief or adjustment.
25
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9.1.2. All obligations of the lessor under the Leases that
accrue to the Phase I Closing or the Phase II Closing, as the case may be, have
been performed, including, but not limited to, all required tenant improvements,
cash or other inducements, rent abatements or moratoria, installations and
construction (for which payment in full has been made in all cases), and each
Tenant has unconditionally accepted lessor's performance of such obligations.
The transaction described herein will not result in a default or an event that,
with the giving of notice or the passing of time, or both, will result in a
default by the landlord under any Lease. No Tenant has asserted (in writing) any
offsets, defenses or claims available against rent payable by it or other
performance or obligations otherwise due from it under any Lease. The lessor
under each Lease has no obligation to perform any tenant improvement for any
Tenant other than as set forth in the Leases.
9.1.3. No Tenant is in default under or is in arrears in the
payment of any sums or in the performance of any obligations required of it
under its Lease. No Tenant has prepaid any rent or other charges for more than
one month in advance.
9.1.4. Contributor has no reason to believe that any Tenant is,
or may become, unable or unwilling to perform any or all of its obligations
under its Lease, whether for financial or legal reasons or otherwise.
9.1.5. No guarantor(s) of any Lease has been released or
discharged, partially or fully, voluntarily or involuntarily, or by operation of
law, from any obligation under or in connection with any Lease or any
transaction related thereto.
9.1.6. There are no brokers' commissions, finders' fees, or
other charges payable or to become payable to any third party on behalf of the
lessor as a result of or in connection with any Lease or any transaction related
thereto, including, but not limited to, any exercised or unexercised option(s)
to expand or renew.
9.1.7. No Tenant or any other party has asserted (in writing)
any claim (other than for customary refund at the expiration of a Lease) to all
or any part of any security deposit. Other than as set forth in the Rent Roll,
under no Lease has the lessor applied any security deposit proceeds for its own
benefit with respect to any current Tenant;
9.2. ESTOPPEL CERTIFICATES FROM TENANTS. It shall be a Mutual
----------------------------------
Condition Precedent that the Vendors obtain and deliver to Contributor, and
Contributor deliver to the Operating Partnership, on or prior to the Phase I
Closing or the Phase II Closing, as the case may be, all those tenants' estoppel
certificates (collectively, the "ESTOPPEL CERTIFICATE") and estoppel
certificates from Vendors, as the case may be, required pursuant to the express
requirements of the Phase I Contracts or the Phase II Contracts, as the case may
be.
10. CLOSING DELIVERIES.
------------------
10.1. CONTRIBUTOR'S. At the Phase I Closing or the Phase II Closing,
-------------
as the case may be (or such other times as may be specified below), Contributor
shall deliver or cause
26
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to be delivered to Acquiror the following, in form and substance reasonable
acceptable to Acquiror and its counsel:
10.1.1. CONTRACTS.
---------
10.1.1.1. ASSIGNMENT OF CONTRACTS. An assignment, executed
-----------------------
by Contributor and the Operating Partnership, to the Operating Partnership of
Contributor's right, title and interest in and to the Phase I Contracts or the
Phase II Contracts, as the case may be, with (i) the agreement of Contributor to
indemnify, protect, defend and hold the Operating Partnership harmless from and
against any and all claims, damages, losses, suits, proceedings, costs and
expenses (including, but not limited to, reasonable attorneys' fees) arising in
connection with the Phase I Contracts or the Phase II Contracts, as the case may
be, and relating to the period of time prior to the Phase I Closing or the Phase
II Closing, as the case may be, and (ii) the corresponding agreement of the
Operating Partnership to indemnify, protect, defend and hold Contributor
harmless for claims arising in connection with the Phase I Contracts or the
Phase II Contracts, as the case may be, and relating to the period of time from
and after the Phase I Closing or the Phase II Closing, as the case may be
("ASSIGNMENT OF CONTRACTS").
10.1.1.2. ORIGINAL PROJECT CONTRACT DOCUMENTS. To the extent not
-----------------------------------
previously delivered to Acquiror, originals of the Phase I Contracts or the
Phase II Contracts, as the case may be, and all documents and correspondence
delivered by Vendors to Contributor pursuant thereto.
10.1.1.3. LETTERS TO SELLERS. Letters ("SELLER LETTERS")
------------------
executed by Contributor, addressed to all the other parties under the Phase I
Contracts or the Phase II Contracts, as the case may be (with the return receipt
addressed to Robert Rice at the address of Acquiror) informing such Sellers that
the Phase I Contracts or the Phase II Contracts, as the case may be, have been
assigned by Contributor to Acquiror, in the form reasonably required by
Acquiror.
10.1.2. CLOSING STATEMENT. A closing statement conforming to
-----------------
the proration and other relevant provisions of this Agreement (for the Phase I
Closing, the "Phase I Closing Statement" and for the Phase II Closing, the
"Phase II Closing Statement") duly executed by Contributor.
10.1.3. REGISTRATION RIGHTS AGREEMENT. The Registration Rights
-----------------------------
Agreement, dated as of the Phase I Closing Date or the Phase II Closing Date, as
the case may be, and duly executed by Contributor and the LP Unit Recipients.
10.1.4. PARTNERSHIP AGREEMENT DOCUMENTS. The Partnership Adoption
-------------------------------
Materials, duly executed by Contributor, each of such documents to be duly
executed by Contributor (except for the Amendment, which is executed by Acquiror
only).
27
<PAGE>
10.1.5. LP UNIT/SHARE SCHEDULE. A schedule (the "LP UNIT/SHARE
----------------------
SCHEDULE") showing the number of LP Units and Shares Contributor and each LP
Unit Recipient has elected to receive pursuant to SECTION 2, duly executed by
Contributor.
10.1.6. CLOSING CERTIFICATE. A certificate, signed by Contributor
-------------------
and the LP Unit Recipients, certifying to Acquiror that the representations and
warranties of Contributor and the LP Unit Recipients contained in this Agreement
are true and correct, in all material respects, as of the Phase I Closing or the
Phase II Closing, as the case may be, and that all covenants required to be
performed by Contributor and the LP Unit Recipients prior to the Phase I Closing
or the Phase II Closing, as the case may be, have been performed, in all
material respects.
10.1.7. SHAREHOLDERS AGREEMENT. A Shareholders' Agreement (the
----------------------
"SHAREHOLDERS AGREEMENT") executed by Contributor and the LP Unit Recipients, in
their capacities as shareholders of Acquiror, in form and substance mutually and
reasonably acceptable to Contributor and Acquiror.
10.1.8. OTHER. Such other documents and instruments as may
-----
reasonably be required by Acquiror and the LP Unit Recipients (including,
without limitation, those of the Contributor's Deliveries in Contributor's
possession or control that have not previously been delivered to Acquiror), its
(or its underwriters' or lenders') counsel or the Title Company and that may be
necessary to consummate the transaction that is the subject of this Agreement
and to otherwise give effect to the agreements of the parties hereto.
10.2. ACQUIROR'S. At the Phase I Closing or the Phase II Closing, as
----------
the case may be (or such other times as may be specified below), Acquiror shall
deliver or cause to be delivered to Contributor the following, in form and
substance reasonably acceptable to Contributor and its counsel:
10.2.1. REGISTRATION CERTIFICATE. A certificate from Acquiror's
------------------------
transfer agent, attesting to the registration of the LP Units in the books and
records of the Operating Partnership.
10.2.2. PARTNERSHIP AGREEMENT. A copy of the Partnership
---------------------
Agreement, duly certified by the secretary of Acquiror as true, complete and
correct.
10.2.3. JOINDER. A joinder executed by the Operating Partnership,
-------
pursuant to which the Operating Partnership joins in and agrees to be bound by
this Agreement as a party thereto and agrees to perform its obligations under
this Agreement.
10.2.4. AMENDMENT. The Amendment, duly executed by Acquiror.
---------
10.2.5. ORGANIZATIONAL DOCUMENTS. (i) A copy certified by the
------------------------
State of Maryland Department of Assessments and Taxation of the Amended and
Restated Declaration of Trust of Acquiror (as contemplated by SECTION 8.3.7
above) and a certified good standing certificate for Acquiror from the State of
Maryland; (ii) a copy certified by the Secretary of
28
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State of the State of Delaware of (x) the certificate of limited partnership of
the Operating Partnership and (y) a good standing certificate of the Operating
Partnership; (iii) a certified good standing certificate for the Operating
Partnership (and, if required in the reasonable determination of Contributor,
for Acquiror) from the Secretary of the States in which the Projects are
located; and (iv) a copy, certified by the secretary of Acquiror, of the
resolution of Acquiror's board of trustees, authorizing the transactions
described herein.
10.2.6. ASSIGNMENT OF CONTRACTS. An Assignment of Phase I
-----------------------
Contracts or the Phase II Contracts, as the case may be, duly executed by
Acquiror.
10.2.7. CLOSING STATEMENT. A Phase I Closing Statement or a
-----------------
Phase II Closing Statement, as the case may be, duly executed by Acquiror and
Operating Partnership.
10.2.8. REGISTRATION RIGHTS AGREEMENT. The Registration Rights
-----------------------------
Agreement, duly executed by Acquiror.
10.2.9. LP UNIT/SHARE SCHEDULE. The LP Unit/Share Schedule,
----------------------
duly executed by Acquiror.
10.2.10. SELLER LETTERS. The Seller Letters, duly executed by
--------------
Acquiror.
10.2.11. ACQUIROR RESOLUTIONS. Evidence that the board of
--------------------
trustees of Acquiror is composed of seven trustees, who shall have been elected
for staggered three-year terms, who shall be Arnold Leas, Paul Lambert, Steve
Hoyt, and four other persons mutually and reasonably acceptable to Acquiror and
Contributor, with Arnold Leas being the chairman of the board of directors.
Evidence that Duane Lund has been elected as the Chief Executive Officer of
Acquiror and that Robert Rice has been elected as the President of Acquiror and
evidence of the election of such other officers as have been mutually and
reasonably approved by Contributor and Acquiror.
10.2.12. REIT SHAREHOLDER APPROVAL. Evidence that the
-------------------------
shareholders of Acquiror have approved the transactions contemplated hereby and
those contemplated by the applicable proxy materials delivered to such
shareholders.
10.2.13. EMPLOYMENT AGREEMENTS. Employment Agreements between
---------------------
Acquiror and each of Duane Lund and Robert Rice, executed by Acquiror, in forms
reasonably acceptable to both Contributor and Acquiror.
10.2.14. TERMINATION OF EXISTING FEE AGREEMENTS. Evidence that
--------------------------------------
Acquiror has terminated all existing agreements with WRI and WMC (except those
limited to providing management of the Existing Properties) have been
terminated.
10.2.15. WARRANTS. At the Phase I Closing, warrants to purchase
--------
500,000 Shares, which warrants shall have a 10 year term, shall be exercised at
any time and
29
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from time to time after the first anniversary of the Phase I Closing, shall be
freely transferable, and shall contain anti-dilution provisions and registration
rights.
10.2.16. SHAREHOLDERS AGREEMENT. The Shareholders Agreement
----------------------
executed by Acquiror, Arnold Leas, Gregory Leas, Robert Rice, WMC and all other
entities controlled by such persons which hold Shares of Acquiror, in form and
substance mutually and reasonably acceptable to Contributor and Acquiror.
10.2.17. CLOSING CERTIFICATE. A certificate, signed by Acquiror
-------------------
and the Operating Partnership, certifying to Contributor that the
representations and warranties of Contributor and the Operating Partnership
contained in this Agreement are true and correct as of the Phase I Closing or
the Phase II Closing, as the case may be, and that all covenants required to be
performed by Contributor and the Operating Partnership prior to the Phase I
Closing or the Phase II Closing, as the case may be, have been performed.
10.2.18. OTHER. Such other documents and instruments as may
-----
reasonably be required by Contributor, its counsel or the Title Company and that
are necessary to consummate the transaction which is the subject of this
Agreement and to otherwise effect the agreements of the parties hereto.
11. PRORATIONS AND ADJUSTMENTS. The following shall be prorated and
--------------------------
adjusted between Contributor and Acquiror as of the Phase I Closing Date or the
Phase II Closing Date, as the case may be, except as otherwise specified:
11.1. Contributor shall receive a credit for the amount of earnest
money deposits made pursuant to its Phase I Contracts or the Phase II Contracts,
as the case may be. There shall be no other prorations with respect to the Phase
I Contracts or the Phase II Contracts, as the case may be.
11.2. All prorations with respect to the acquisition of the Projects
pursuant to the Phase I Contracts or the Phase II Contracts, as the case may be,
shall occur as specified in the Phase I Contracts or the Phase II Contracts, as
the case may be.
In the event of a discrepancy between the Phase I Closing Statement or the Phase
II Closing Statement, as the case may be, and the prorations described above,
the Phase I Closing Statement or the Phase II Closing Statement, as the case may
be, shall govern. Distributions in respect of the LP Units acquired by the
Contributor shall begin to accrue from and after the Phase I Closing or the
Phase II Closing, as the case may be (notwithstanding the fact that such date
may not be the applicable record date under the Partnership Agreement), and the
amount of distributions paid or to be paid to the Contributor for any quarter
shall be prorated accordingly. The terms of this SECTION 11 shall survive the
Phase I Closing or the Phase II Closing, as the case may be, indefinitely and
shall not merge into any conveyancing documents delivered at Phase I Closing or
the Phase II Closing, as the case may be.
12. BROKERAGE. Each party hereto represents and warrants to the other that
---------
it has dealt with no brokers or finders in connection with this transaction and
that no broker,
30
<PAGE>
finder or other party is entitled to a commission, finder's fee or other similar
compensation as a result hereof. Contributor hereby indemnifies, protects and
defends and holds Acquiror harmless from and against all losses, claims, costs,
expenses, damages (including, but not limited to, attorneys' fees of counsel
selected by Acquiror) resulting or arising from the claims of any broker, finder
or other such party, claiming by, through or under the acts or agreements of
Contributor. Acquiror hereby indemnifies, defends and holds Contributor harmless
from and against all losses, claims, costs, expenses, damages (including, but
not limited to, attorneys' fees of counsel selected by Contributor) resulting or
arising from the claims of any broker, finder or other such party claiming by,
through or under acts or agreements of Acquiror. The obligations of this SECTION
12 shall survive any termination of this Agreement and the Phase I Closing or
the Phase II Closing, as the case may be, indefinitely, and shall not be merged
into any of the conveyancing documents delivered at the Phase I Closing or the
Phase II Closing, as the case may be.
13. CONTRIBUTION EXPENSES.
---------------------
13.1. At each Closing, the Operating Partnership shall reimburse
Contributor for all costs incurred by it with respect to the transaction
contemplated by this Agreement (and not previously reimbursed from the Account
Proceeds, as defined below) including, but not limited to, earnest money
deposits, third party consultants' fees and expenses, loan fees, underwriting
fees, legal fees, accounting fees, due diligence expenses, closing costs and
travel expenses (collectively, "TRANSACTION COSTS"). From and after the Phase I
Closing, the Operating Partnership shall be responsible for, and shall pay, all
unpaid Transaction Costs. In the event, however, that no Closing occurs on or
before December 31, 1998, Contributor, rather than Acquiror or the Operating
Partnership, shall be responsible for the payment of all Transaction Costs,
except that Acquiror shall remain solely responsible for the legal fees due to
the Reinhart Boerner firm in Milwaukee.
13.2. In connection with the transactions contemplated hereby,
Contributor shall purchase (at or prior to the Phase I Closing), and Acquiror
agrees to sell to Contributor, $1,000,000 of Shares (at a price per share of
$9.50). Acquiror warrants that neither Contributor nor Acquiror shall be
obligated to pay any fee to WMC or otherwise in connection with such purchase of
Shares. Acquiror shall contribute the proceeds (the "ACCOUNT PROCEEDS") of such
purchase of Shares (that is, $1,000,000) to the Operating Partnership in
exchange for units. The Operating Partnership shall deposit the Account Proceeds
into a segregated account. All actions with respect to such account
(withdrawals or otherwise) shall require the signatures of both Robert Rice and
Duane Lund, and such Account Proceeds shall be utilized to pay Transaction
Costs. In the event the Phase I Closing has not occurred by December 31, 1998,
then on January 4, 1999, Acquiror shall have the right to call all such Shares
from Contributor in consideration of a payment to Contributor in the amount of
$1,000,000.
14. TERMINATION FEE. The Phase I Contribution Consideration shall be
---------------
reduced by an amount equal to the Phase I Termination Fee (as defined in the WMC
Contribution Agreement). The Phase II Contribution Consideration shall be
reduced by an
31
<PAGE>
amount equal to the Phase II Termination Fee (as defined in the WMC Contribution
Consideration).
15. BREAKUP FEE. The parties acknowledge that Contributor has advanced to
-----------
Acquiror a $240,000 "BREAKUP FEE." In the event the Phase I Closing does not
occur on or before December 31, 1998 or this Agreement is otherwise mutually
terminated by Acquiror and Contributor prior to that date, $200,000 of the
Breakup Fee may be retained by Acquiror as a "break-up" fee and shall serve as
liquidated damages, and the remaining $40,000 of the Breakup Fee shall be
promptly returned to Contributor. At the Phase I Closing, Acquiror shall return
the entire Breakup Fee to Contributor.
16. LP UNIT RECIPIENTS. The parties hereto acknowledge and agree that
------------------
Contributor shall distribute certain LP Units which it may receive at either the
Phase I Closing or the Phase II Closing to the LP Unit Recipients, all of which
are members of Contributor.
16.1. Contributor hereby directs Acquiror to cause the Operating
Partnership to deliver to Contributor, at Closing, LP Units issued in the names
of and for distribution to Contributor and those LP Unit recipients set forth on
EXHIBIT B attached hereto. Each such person shall receive that number of LP
Units (subject to appropriate rounding to eliminate fractional LP Units) as
shall be set forth on EXHIBIT B; provided, however, that in the event the
Closing Statement sets forth and contains information with respect to the
breakdown of the Total LP Unit Amount among the Contributor and the LP Unit
Recipients that differs from that reflected on EXHIBIT B, the Closing Statement
shall be controlling in all such respects.
16.2. With respect to the provisions of Sections 2.6, 2.7, 2.8, 5.1.3,
5.1.4, 11 and 19.3 each LP Unit Recipient shall be bound by the representations,
warranties and covenants of Contributor that are applicable to the LP Unit
Recipients (as if references to Contributor were references to the LP Unit
Recipients), the LP Units or the Conversion Shares and shall receive the benefit
of representations, warranties and covenants of Acquiror with respect to
Contributor (as if references to Contributor were references to the LP Unit
Recipients), the LP Units or the Conversion Shares.
17. DEFAULT.
-------
17.1. REMEDIES. If representations and warranties of a party hereto
--------
(a "DEFAULTING PARTY") contained herein shall not be true and correct on the
Contract Date or on the Phase I Closing Date or the Phase II Closing Date, as
the case may be, or if such party fails to perform any of the covenants and
agreements contained herein to be performed by such party (including the
obligation to close), any other party hereto (a "NON-DEFAULTING PARTY") may
elect: (x) in the event the Phase I Closing or the Phasing II Closing, as the
case may be, has not occurred, either to (i) terminate all Non-Defaulting
Parties' obligations under this Agreement by written notice to all other
parties, in which event all Non-Defaulting Parties shall retain all rights and
remedies available to them, or (ii) if no Non-Defaulting Parties have elected
(i), to close, in which event any Non-Defaulting Parties may file an action for
either or both of specific performance and damages to compel Defaulting Parties,
as the case may be, to cure all or any of such default(s), in whole or in part,
whereupon the Non-Defaulting Parties
32
<PAGE>
shall be entitled to adjust the Phase I Contribution Consideration or the Phase
II Contribution Consideration, as the case may be, to reflect the cost of such
action and cure, and all reasonable expenses incurred by the Non-Defaulting
Parties in connection therewith, including, but not limited to, attorneys' fees
of the Non-Defaulting Parties' counsel; or (y) in the event the Phase I Closing
or the Phase II Closing, as the case may be, has occurred, to pursue whatever
remedies they may have at law or in equity. Notwithstanding anything to the
contrary herein and in addition to any other remedies of the Non-Defaulting
Parties, the Non-Defaulting Parties shall be entitled to recover actual (but not
consequential) damages suffered thereby by reason of any Defaulting Party's
defaults hereunder and/or any delay occasioned thereby. The remedies set forth
in this SECTION 17.1 and shall be the parties' sole and exclusive remedies for
defaults hereunder.
17.2. LIMITS ON MONETARY LIABILITY. Notwithstanding anything to the
----------------------------
contrary in this Agreement, the maximum aggregate monetary liability that may be
imposed on each of Contributor, Acquiror and each LP Unit Recipient under this
Agreement is $500,000, per party.
17.3. NO MERGER; SURVIVAL. No representation, warranty or covenant
-------------------
made in this Agreement shall be merged into any of the conveyancing documents
delivered at the Phase I Closing or the Phase II Closing, as the case may be,
but each shall survive for the periods of time specified in this Agreement.
Except as may otherwise be specifically provided in this Agreement, any party
shall have the right to claim a breach of the covenants set forth in SECTION 6,
and any other covenant set forth in this Agreement that specifically obligates
either or both of them on a pre-closing basis only, at any time after the Phase
I Closing or the Phase II Closing, as the case may be. Nothing contained in the
immediately preceding sentence shall limit the remedies that may be available to
any party in the event another party breaches a post-closing covenant set forth
in this Agreement.
17.4. LITIGATION EXPENSES. In the event of litigation between the
-------------------
parties with respect to any Project, any Phase I Contract or Phase II Contract,
as the case may be, this Agreement, the performance of their respective
obligations hereunder or the effect of a termination under this Agreement, the
losing party shall pay all costs and expenses incurred by the prevailing party
in connection with such litigation, including, but not limited to, reasonable
attorneys' fees of counsel selected by the prevailing party. The parties hereby
further acknowledge and agree that in the event of litigation between them, as
contemplated above, and the resolution of that litigation through compromise,
settlement, or partial judgment, the court before which such litigation is
initially brought shall have the right to allocate responsibility, between the
parties thereto, for all costs and expenses (including, but not limited to,
attorneys' reasonable fees) incurred by both Contributor and Acquiror in the
pursuit of that litigation resolved through compromise, settlement or partial
judgment. Notwithstanding any provision of this Agreement to the contrary, the
obligations of the parties under this SECTION 17.4 shall survive termination of
this Agreement and the Phase I Closing or the Phase II Closing, as the case may
be, if applicable, and shall not be merged into any of the conveyancing
documents delivered at Phase I Closing or the Phase II Closing, as the case may
be.
33
<PAGE>
18. NOTICES. Any notice, demand or request which may be permitted, required
-------
or desired to be given in connection therewith shall be given in writing and
directed to Contributor and Acquiror as follows:
Contributor: American Real Estate Equities, LLC
c/o Hoyt Properties
708 South 3rd Street, Suite 108
Minneapolis, MN 55415
Attn: Duane H. Lund
Acquiror: Wellington Properties Trust
18650 W. Corporate Drive
Suite 300
Brookfield, WI 53045
Attn: Arnold Leas
With a copy to
its attorneys: Barack Ferrazzano Kirschbaum
Perlman & Nagelberg
West Wacker Drive, Suite 2700, Illinois
60606: Suzanne Bessette-Smith, Esq. and
Douglas W. Anderson, Esq.
Fax: (312)984-3150
Notices shall be deemed properly delivered and received when and if either (i)
personally delivered, including via facsimile; or (ii) on the first business day
after deposit with a commercial overnight courier for delivery on the next
business day. Any party may change its address for delivery of notices by
properly notifying the others pursuant to this SECTION 18.
19. MISCELLANEOUS.
-------------
19.1. SUCCESSORS AND ASSIGNS. The terms, conditions and covenants of
----------------------
this Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective nominees, successors, beneficiaries and assigns;
provided, however, no direct or indirect conveyance, assignment or transfer of
any interest whatsoever of, in or to any or all of the Phase I Contracts or the
Phase II Contracts, as the case may be, or of this Agreement shall be made by
Contributor or Acquiror during the term of this Agreement, except for the
joinder of the Operating Partnership as contemplated in SECTION 10.2.3 above.
19.2. BENEFIT. This Agreement is for the benefit only of the parties
-------
hereto and their nominees, successors, beneficiaries and assignees as permitted
in SECTION 19.1 above and no other person or entity shall be entitled to rely
hereon, receive any benefit herefrom or enforce against any party hereto any
provision hereof.
34
<PAGE>
19.3. FURTHER ASSURANCES. All actions required to be taken pursuant
------------------
to this Agreement to effectuate the transaction contemplated herein shall be
taken promptly and in good faith by Contributor or Acquiror, as the case may be.
Contributor and Acquiror shall use their reasonable, diligent and good faith
efforts, and shall reasonably cooperate with and assist the other in its
efforts, to obtain or cause to be obtained, any and all consents and approvals
of third parties (including, but not limited to, governmental authorities) that
may be necessary in connection with the transaction contemplated hereby.
Contributor, the Operating Partnership and Acquiror agree to (i) furnish with,
or cause to be furnished to, the other party such documents or further
assurances, and (ii) perform, or cause to be performed, such undertakings as the
other party may reasonably request at any time in connection with (x) the
transaction contemplated by, and (y) the respective obligations of Contributor,
the Operating Partnership, and Acquiror, as the case may be, set forth in, this
Agreement.
19.4. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
understanding between the parties with respect to the transaction contemplated
herein, and all prior or contemporaneous oral agreements, understandings,
representations and statements, and all prior written agreements,
understandings, letters of intent and proposals (including certain Memoranda of
Understanding between Contributor and Acquiror) are merged into this Agreement.
This Agreement amends and restates in its entirety that certain Contribution
Agreement (the "ORIGINAL CONTRIBUTION AGREEMENT") between the parties hereto and
certain parties identified therein as "LP Unit Recipients" dated July 6, 1998.
Neither this Agreement nor any provisions hereof may be waived, modified,
amended, discharged or terminated except by an instrument in writing signed by
the party against which the enforcement of such waiver, modification, amendment,
discharge or termination is sought, and then only to the extent set forth in
such instrument.
19.5. TIME OF THE ESSENCE. Time is of the essence of this Agreement.
-------------------
If any date herein set forth for the performance of any obligations by
Contributor, Acquiror or the Operating Partnership or for the delivery of any
instrument or notice as herein provided should be on a Saturday, Sunday or legal
holiday, the compliance with such obligations or delivery shall be deemed
acceptable on the next business day following such Saturday, Sunday or legal
holiday. As used herein, the term "LEGAL HOLIDAY" means any state or federal
holiday for which financial institutions or post offices are generally closed in
the State of Wisconsin for observance thereof.
19.6. CONDITIONS PRECEDENT. The waiver of any particular Condition
--------------------
Precedent shall not constitute the waiver of any other.
19.7. CONSTRUCTION. This Agreement shall not be construed more
------------
strictly against one party than against the other merely by virtue of the fact
that it may have been prepared by counsel for one of the parties, it being
recognized that both Contributor and Acquiror have contributed substantially and
materially to the preparation of this Agreement. The headings of various
Sections in this Agreement are for convenience only, and are not to be utilized
in construing the content or meaning of the substantive provisions hereof.
References to Contributor shall be deemed to be references to the Contributor of
particular Projects or
35
<PAGE>
Phase I Contracts or the Phase II Contracts, as the case may be, in the context
of provisions relating to Projects or Phase I Contracts or the Phase II
Contracts, as the case may be.
19.8. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Wisconsin.
19.9. PARTIAL INVALIDITY. The provisions hereof shall be deemed
------------------
independent and severable, and the invalidity or partial invalidity or
enforceability of any one provision shall not affect the validity of
enforceability of any other provision hereof.
19.10. WAIVER OF CONDITIONS PRECEDENT. Acquiror and Contributor shall
------------------------------
each have the right, in its sole and absolute discretion, to waive any Condition
Precedent for its benefit contained in this Agreement.
19.11. CERTAIN SECURITIES MATTERS. No sale of Shares or LP Units is
--------------------------
intended by the parties by virtue of their execution of this Agreement. Any
sale of Shares or LP Units referred to in this Agreement will occur, if at all,
upon the Phase I Closing or Phase II Closing, as the case may be.
19.12. COUNTERPARTS. This Agreement may be executed in any number of
------------
identical counterparts, any of which may contain the signatures of less than all
parties, and all of which together shall constitute a single agreement.
19.13. CALCULATION OF TIME PERIODS. Notwithstanding anything to the
---------------------------
contrary contained in this Agreement, any period of time provided for in this
Agreement that is intended to expire on or prior to the Phase I Closing or the
Phase II Closing, as the case may be, but that would extend beyond the Phase I
Closing or the Phase II Closing, as the case may be, if permitted to run its
full term, shall be deemed to expire upon the Phase I Closing or the Phase II
Closing, as the case may be.
[The remainder of this page intentionally left blank]
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
CONTRIBUTOR:
AMERICAN REAL ESTATE EQUITIES, LLC, a
Delaware limited liability company
By: /s/ Duane H. Lund
--------------------------
Name: Duane H. Lund
Title: President
ACQUIROR:
WELLINGTON PROPERTIES TRUST, a
Maryland real estate investment trust
By: /s/ Arnold K. Leas
--------------------------
Name: Arnold K. Leas
Title: President
OPERATING PARTNERSHIP:
WELLINGTON PROPERTIES INVESTMENTS,
L.P., a Delaware limited partnership
By: Wellington Properties Trust, a
Maryland real estate investment trust
By: /s/ Arnold K. Leas
--------------------------
Name: Arnold K. Leas
Title: President
LP UNIT RECIPIENTS:
WLPT FUNDING, LLC, a Delaware limited
liability company
By: /s/ Duane H. Lund
--------------------------
Name: Duane H. Lund
Title: Manager
S-1
<PAGE>
LAMBERT EQUITIES II, LLC, a Delaware
limited liability company
By: /s/ Paul T. Lambert
--------------------------
Name: Paul T. Lambert
Title: Managing Member
/s/ Steven B. Hoyt
------------------------------------
STEVEN B. HOYT
As "LP Unit Recipients" under the Original Contribution Agreement, the
undersigned consent and agree to the amendment and restatement of the Original
Contribution Agreement
/s/ Duane H. Lund
-------------------------
Duane H. Lund
/s/ Paul T. Lambert
-------------------------
Paul T. Lambert
/s/ Steven B. Hoyt
-------------------------
Steven B. Hoyt
S-2
<PAGE>
SCHEDULE OF EXHIBITS
A The Phase I Contracts and Existing Properties
A-1 The Phase II Contracts
B LP Unit Distribution
<PAGE>
LIST OF SCHEDULES
5.1.1.17 Existing Mortgages*
* This schedule has been intentionally omitted and will be
provided to any shareholder of the Company upon written
request to: Wellington Properties Trust, 18650 W.
Corporate Drive, Suite 300, P.O. Box 0919, Brookfield,
Wisconsin 53008-0919.
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CONTRIBUTION
----------------------------------------------------
AGREEMENT BETWEEN
-----------------
WELLINGTON PROPERTIES TRUST
---------------------------
WELLINGTON PROPERTIES INVESTMENTS, L.P.
---------------------------------------
AMERICAN REAL ESTATE EQUITIES, LLC
----------------------------------
AND THE OTHER LP UNIT RECIPIENTS REFLECTED ON
---------------------------------------------
THE SIGNATURE PAGE HERETO
-------------------------
This First Amendment to Amended and Restated Contribution Agreement (this
"First Amendment") is made and entered into as of this 12th day of October, 1998
(the "Amendment Date"), by and between American Real Estate Equities, LLC, a
Delaware limited liability company ("Contributor"), Wellington Properties
Investments, L.P., a Delaware limited partnership (the "Operating Partnership"),
Wellington Properties Trust, a Maryland real estate investment trust
("Acquiror") and the parties identified on the signature page hereto as "LP Unit
Recipients."
RECITALS
--------
WHEREAS, on August 31, 1998, Contributor, the Operating Partnership,
Acquiror and the LP Unit Recipients entered into that certain Amended and
Restated Contribution Agreement (the "Contribution Agreement"); and
WHEREAS, Section 1.1 of the Contribution Agreement provides that the
Contributor shall contribute and assign, to the Operating Partnership, and the
Acquiror agrees to cause the Operating Partnership to accept and assume from
Contributor, all of Contributor's right, title and interest in, to and under
those certain Phase I Contracts (as defined in Section 1.1 of the Contribution
Agreement). Among the Phase I Contracts is a certain Purchase Agreement, dated
February 24, 1998, by and between Hospitality Associates, Inc., as purchaser,
and Rock Properties, as seller ("Seller"), which Purchase Agreement was
subsequently amended on numerous occasions, and, ultimately, the right, title
and interest of Hospitality Associates, Inc. was assigned to Contributor
(collectively, the "Cold Springs Contract"). The Project (as defined in Section
1.2 of the Contribution Agreement) that is the subject of the Cold Springs
Contract is commonly known as 4150 Second Street South, St. Cloud, Minnesota,
and is improved with a Building (as also defined in Section 1.2 of the
Contribution Agreement) containing approximately 77,533 square feet (the "Cold
Springs Project").
WHEREAS, Contributor assigned its entire right, title and interest in, to
and under the Cold Springs Contract to CSC of Minnesota, LLC, a Delaware limited
liability company ("CSC"), in which limited liability company Contributor is the
sole member.
WHEREAS, on or about October 9, 1998, CSC consummated the acquisition of
the Cold Springs Project, pursuant to the terms and provisions of the Cold
Springs Contract.
<PAGE>
WHEREAS, Contributor and Acquiror acknowledge and agree that the
Contribution Agreement does not contemplate the contribution and assignment of
any interests, other than those held by Contributor under the Phase I Contracts
and the Phase II Contracts (as defined in Section 1.1 of the Contribution
Agreement).
WHEREAS, Contributor desires to contribute and assign, to the Operating
Partnership, 100% of Contributor's membership interest in CSC, and Acquiror
desires to cause the Operating Partnership to accept such contribution and
assignment of Contributor's membership interest in CSC.
NOW, THEREFORE, in consideration of the terms and provisions of this First
Amendment, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Contributor, the Operating
Partnership, Acquiror and the LP Unit Recipients hereby agree to modify and
amend the Contribution Agreement, as set forth below in further detail so as to
provide for Contributor's contribution and assignment, to the Operating
Partnership, of Contributor's entire membership interest in CSC.
1. Defined Terms. If and to the extent that capitalized terms are utilized in
this First Amendment, but not separately defined herein, each of such
capitalized terms shall be deemed to have the same meaning as is ascribed
to it in the Contribution Agreement.
2. Contribution. Contributor agrees to contribute, assign, transfer and
convey to the Operating Partnership, and Acquiror agrees to cause the
Operating Partnership to accept and assume from Contributor, for the
Contribution Consideration and on the terms and conditions set forth in the
Contribution Agreement and this First Amendment, all of Contributor's
right, title and interest in and to (i) CSC, including, but not limited to,
the right to receive, for the period subsequent to the contribution
hereunder, distributions of money, profits, losses and other assets from
CSC; and (ii) the Cold Springs Project (collectively, the "Contributed
Interests"). For purposes of this First Amendment, the Cold Springs Project
shall be deemed to include, on a collective basis the following, but only
if and to the extent that CSC acquired the following pursuant to the terms
and provisions of the Cold Springs Contract: (a) the parcel of land that is
the subject of the Cold Springs Contract (the "Cold Springs Land"),
together with all rights, easements and interests appurtenant thereto,
including, but not limited to, any streets or other public ways adjacent to
said Cold Springs Land and any water or mineral rights owned by, or leased
to, CSC; (b) all improvements located on the Cold Springs Land, including,
but not limited to, the Building, and all other structures, systems, and
utilities associated with, and utilized by, CSC in the ownership and
operating of the Building (all such improvements being collectively
referred to herein as the "Cold Springs Improvements"); (c) all personal
property owned by CSC and either (A) located on or in the Cold Springs Land
or Cold Springs Improvements, or (B) used in connection with the operation
and maintenance of the Cold Springs Project, excluding personal property
owned by Tenants (collectively, the "Cold Springs Personal Property"),
including, without limitation, all fixtures and other
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<PAGE>
built-in improvements and equipment necessary to operate the Cold Springs
Project and all (if any) personal property conveyed to CSC pursuant to the
Cold Springs Contract; (d) all building materials, supplies, hardware,
carpeting and other inventory owned by CSC and maintained in connection
with CSC's ownership and operating of the Cold Springs Land and/or Cold
Springs Improvements and not owned by Tenants (collectively, the "Cold
Springs Inventory"); (e) all trademarks, tradenames, development rights and
entitlements and other intangible property used or useful in connection
with the foregoing (collectively, the "Cold Springs Intangible Personal
Property"); and (f) CSC's interest in all leases and other agreements to
occupy, or concerning the occupancy of, all or any portion of the Cold
Springs Land and/or Cold Springs Improvements in effect on the Amendment
Date or into which CSC enters prior to Closing (collectively, the "Cold
Springs Leases").
3. Contributor's Deliveries. To the extent in the possession of either or
both of Contributor and CSC, Contributor shall make available to Acquiror,
at all reasonable times and upon reasonable notice, all documents,
contracts, information, records and exhibits pertinent to the acquisition,
ownership and management of the Cold Springs Project, it being understood
that all such documents, contracts, information, records and exhibits shall
not have been prepared by either of Contributor or CSC, but rather, shall
have been acquired from the Seller.
4. Closing. The consummation of the contribution and assignment of the
Contributed Interests from Contributor to the Operating Partnership shall
occur on the Phase I Closing Date.
5. Title and Survey Matters.
a) Title Commitments. Promptly after the Amendment Date, Contributor
shall cause to be delivered to Acquiror a commitment, dated after the
Amendment Date, issued by Commercial Partners Title, LLC, as agent for
Lawyers Title Insurance Corporation (the "Title Company"), for an
owner's title insurance policy (the "Title Policy"), ALTA Owner's
Policy Form B-1992 with respect to the Cold Springs Project, together
with copies of all recorded documents evidencing title exceptions
raised in Schedule B of the title commitment. The title commitment
shall show fee simple title to the Project in CSC, free and clear of
all liens, claims and encumbrances except for the following items (the
"Permitted Exceptions"): (i) those matters that may be approved by
Acquiror prior to the Phase I Closing Date (it being understood,
however, that Acquiror shall accept title to the Cold Springs Project
in the same condition as CSC was required to accept under the Cold
Springs Contract); and (ii) the rights of Tenants as tenants under the
Cold Springs Leases. It shall be an Acquiror's Condition Precedent
that the Title Policy (or "marked-up" title commitments) shall be in
the form described in this Section 5(a) and have all standard and
general printed exceptions deleted so as to afford full "extended form
coverage" (to the extent available in the applicable jurisdiction),
and, if and to the extent
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<PAGE>
allowable or available in the applicable jurisdiction, shall further
include an owner's comprehensive endorsement, ALTA Zoning Endorsement
No. 3.1 (including parking); an endorsement certifying that the bills
for the real estate taxes pertaining to the Cold Springs Land and Cold
Springs Improvements do not include taxes pertaining to any other real
estate; an access endorsement; a contiguity endorsement, if
applicable; a subdivision or plat act endorsement; a survey
endorsement; a Fairway endorsement; a creditors' rights endorsement;
and a non-imputation endorsement. As an Acquiror's Condition
Precedent, the commitment shall be later-dated to cover the Phase I
Closing and the delivery of the Contributed Interests by Contributor,
as the sole member of the LLC, consisting of 100% of the outstanding
membership interests of CSC, and the Title Company shall deliver the
Title Policy (or "marked-up" title commitment) to Acquiror
concurrently with the Closing.
b) Survey. Promptly after the Amendment Date, Contributor shall deliver
to Acquiror a copy of the survey of the Cold Springs Project that CSC
obtained pursuant to the terms of the Cold Springs Contract (the
"Survey").
c) Defects and Cure. The items described in this Section 5 are
collectively referred to as "Title Evidence." If the Title Evidence
discloses matters other than the Permitted Exceptions and such other
matters are not acceptable to Acquiror in its reasonable discretion
(collectively, the "Defects"), and have not been waived pursuant to
the terms of this Section 5, Contributor shall, pursuant to the terms
of this Section 5, cause such Defects to be cured and removed from the
Title Evidence prior to Closing.
6. Representations and Warranties.
a) Contributor. Contributor represents and warrants to Acquiror that the
following matters are true as of the Amendment Date and shall be true
as of the Phase I Closing Date, and covenants as follows:
i) Title. CSC is a single asset limited liability company, the sole
asset of which is the Cold Springs Project. CSC is the legal fee
simple titleholder of the Cold Springs Project and, other than
with respect to the Permitted Exceptions, has or will at the
Phase I Closing have, good, marketable and insurable title to the
Cold Springs Project, free and clear of all mortgages and
security interests, leases, agreements and tenancies (other than
the Cold Springs Leases), licenses, claims, options, options to
purchase, liens, covenants, conditions, restrictions, rights-of-
way, easements, judgments and other matters affecting title to
the Cold Springs Project.
ii) Defaults. To Contributor's knowledge, neither Contributor nor
CSC is in default under any of the documents, recorded or
unrecorded, referred
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<PAGE>
to in the title commitment, nor has Contributor or CSC received
any written notice alleging the existence of any such default.
iii) Contracts. To Contributor's knowledge, each of Contributor and
CSC has performed all material obligations required to be
performed by it under all, and, to Contributor's knowledge, is
not in default under any, contracts of any kind relating to the
management, leasing, operation, maintenance or repair of the Cold
Springs Project ("Cold Springs Contracts"). To Contributor's
knowledge, all the Cold Springs Contracts may, by the express
terms thereof (i) be assigned to Acquiror, by notice to such
effect to the appropriate contract party, without penalty or
other payment by Contributor, CSC or Acquiror and (ii) be
terminated without penalty or other payment by Contributor or CSC
(or its assignee, including Acquiror, or successor) upon no more
than 30 days' prior notice.
iv) Physical Condition. To Contributor's knowledge, based solely on
reports and documents delivered to CSC by the Seller, pursuant to
the requirements of the Cold Springs Contract, there is no
existing patent or latent structural or other physical defect or
deficiency in the condition of the Cold Springs Project, or any
component or portion thereof, that would or could impair or
impose material costs upon the use, occupancy or operation of the
Cold Springs Project, and that has not been fully corrected. To
Contributor's knowledge, based solely on reports and documents
delivered to CSC by the Seller, pursuant to the requirements of
the Cold Springs Contract, there is no material defect or
deficiency in the Cold Springs Improvements, the structural
elements thereof, the mechanical systems (including, without
limitation, all HVAC System, plumbing, electrical, elevator,
security, utility and sprinkler systems) therein, or the roof of
the Building, nor, to Contributor's knowledge, has Contributor or
CSC received any written notice from any Tenant or any other
party alleging the existence of any such defect or deficiency.
v) Utilities. To Contributor's knowledge, all water, sewer, gas,
electric, telephone, drainage and other utility equipment,
facilities and services required by law or necessary for the
operation of the Cold Springs Project as it is now being
operated, and as required for operation of the Building, are
installed and connected pursuant to valid permits, are adequate
to service the Cold Springs Project, and are in good operating
condition. To Contributor's knowledge, no fact or condition
exists that would or could result in the termination or
impairment of the furnishing of service to the Cold Springs
Project of water, sewer, gas, electric, telephone, drainage or
other such utility services.
5
<PAGE>
vi) Employees. CSC has no, and has never had any, employees or
independent consultants whatsoever. Neither CSC nor, to
Contributor's knowledge, the Cold Springs Project is subject to
any collective bargaining or other agreement or understanding
with any labor union, and CSC is not privy to or involved in any
labor or union controversy or other interaction of any kind.
vii) Compliance with Laws and Codes. Contributor has no knowledge of
the delivery to Contributor or CSC of any written notice
alleging, and Contributor has no knowledge that the Cold Springs
Project, and the use and operation of the Cold Springs Project,
is not (or the use and operation of any component, portion or
area of the Cold Springs Project is not) in compliance with all
applicable municipal and other governmental laws, ordinances,
regulations, codes, licenses, permits and authorizations. To
Contributor's knowledge, there are presently and validly in
effect all licenses, permits and other authorizations necessary
(including, without limitation, certificates of occupancy) for
the use, occupancy and operation of the Cold Springs Project as
it is presently being operated, whether required of Contributor,
CSC or any Tenant. To Contributor's knowledge, the Cold Springs
Project does not constitute a non-conforming use or non-
conforming structure under applicable present zoning laws. To
Contributor's knowledge, no zoning, subdivision, environmental,
hazardous material, building code, health, fire, safety or other
law, order or regulation is, or on the Phase I Closing Date will
be, violated by the continued maintenance, operation or use of
any Cold Springs Improvements or parking areas in the Cold
Springs Project, and neither Contributor nor CSC has received
any written notice alleging the existence of any such violation
from any Governmental Authority having jurisdiction over the
Cold Springs Project. To Contributor's knowledge, all driveway
entrances and exits to the Cold Springs Project are permanent,
and no special access or other permits are required to maintain
same. To Contributor's knowledge, all existing streets and other
improvements, including water lines, sewer lines, sidewalks,
curbing and streets, at the Cold Springs Project have been paid
for and either enter the Cold Springs Project through adjoining
public streets, or, if they enter through private lands, do so
in accordance with valid, irrevocable easements running with the
ownership of the Cold Springs Project.
viii) Litigation. To Contributor's knowledge, neither Contributor nor
CSC has been served with a summons and complaint for any pending
or (nor, to Contributor's knowledge, is there any threatened),
judicial, municipal or administrative proceedings affecting the
Cold Springs Project or ownership of the Contributed Interests,
or in which CSC is or will be a party by reason of CSC's
ownership or operation of the Cold Springs
6
<PAGE>
Project or Contributor's ownership of the Contributed Interests
or any portion thereof, or in which CSC is or will be a party
for any reason, including, without limitation, proceedings for
or involving collections, condemnation, eminent domain, alleged
building code or environmental or zoning violations, or personal
injuries or property damage alleged to have occurred on the Cold
Springs Project or by reason of the condition, use of, or
operations on, the Cold Springs Project. To Contributor's
knowledge, no attachments, execution proceedings, assignments
for the benefit of creditors, insolvency, bankruptcy,
reorganization or other proceedings are pending against
Contributor, the Contributed Interests or CSC, or to
Contributor's knowledge, threatened against Contributor, the
Contributed Interests or CSC.
ix) Insurance. To Contributor's knowledge, CSC now has in force
commercially reasonable levels of property, liability and
business interruption insurance relating to the Cold Springs
Project. Contributor has no knowledge of, and neither
Contributor nor CSC has received any written notice from any
insurance carrier alleging the existence of, any defects or
inadequacies in the Cold Springs Project that, if not corrected,
would result in termination of insurance coverage or increase in
the normal and customary cost thereof.
x) Re-Zoning. To Contributor's knowledge, there is not now pending
(nor is there threatened) any proceeding for the rezoning of the
Cold Springs Project or any portion thereof, or for the taking
of any other action by governmental authorities that would have
an adverse or impact on the value of the Cold Springs Project or
use thereof.
xi) Real Estate Taxes. Neither Contributor nor CSC has received
written notice of, nor does either of them have any actual
knowledge of any proposed increase in the assessed valuation or
rate of taxation of the Cold Springs Project from that reflected
in the most recent tax bills. To Contributor's knowledge, there
is not now pending, and Contributor agrees that neither it nor
CSC will, without the prior written consent of Acquiror (which
consent shall not be unreasonably withheld or delayed),
institute prior to the Phase I Closing Date, any proceeding or
application for a reduction in the real estate tax assessment of
the Cold Springs Project or any other relief for any tax year.
To Contributor's knowledge, all real estate taxes presently due
and owing with respect to the Cold Springs Project have been
paid prior to their delinquency.
xii) United States Person. CSC is a "United States Person" within
the meaning of Section 1445(f)(3) of the Code, as amended, and
shall execute and deliver an "Entity Transferor" certification
at Closing.
7
<PAGE>
xiii) Existing Mortgage(s). Contributor has advised Acquiror that CSC
procured financing in order to acquire the Cold Springs Project
and such financing is secured by a first mortgage lien
encumbering the Cold Springs Project (the "Existing Mortgage").
To Contributor's knowledge, each of Contributor and CSC has
complied with the terms of, and all notices or correspondence
received from the holder of, the promissory note evidencing the
loan (the "Existing Loan") secured by the Existing Mortgage (the
"Existing Note"), the Existing Mortgage, and all other documents
securing the Existing Note (collectively, with the Existing Loan
and the Existing Note, the "Existing Loan Documents").
Contributor or CSC has paid all sums due under the Existing Loan
Documents. To Contributor's knowledge, the Existing Note and
Existing Mortgage are in full force and effect. To Contributor's
knowledge, neither Contributor nor CSC is in default under the
Existing Loan Documents, nor has there occurred any event which,
with the giving of notice and/or the passage of time, would
constitute a default by Contributor or CSC thereunder or under
any of the Existing Loan Documents.
xiv) Condemnation. Contributor has no knowledge, of pending or
contemplated condemnation or other governmental taking
proceedings affecting all or any part of the Cold Springs
Project.
xv) Easements and Other Agreements. Contributor has no knowledge,
and neither Contributor nor CSC has received any written notice
alleging, that either Contributor or CSC is in default in
complying with the terms and provisions of any of the covenants,
conditions, restrictions, rights-of-way or easements
constituting one or more of the Permitted Exceptions.
xvi) Title to Interests. (a) Contributor is the sole legal and
beneficial holder of the Contributed Interests; (b) Contributor
has good and marketable title to the Contributed Interests free
and clear of any charges, claims, rights or options to purchase,
liens, pledges, encumbrances, security interests or restrictions
whatsoever; (c) Contributor has the full and unrestricted right
to exercise any and all powers granted to it pursuant to the
certificate of limited liability company of CSC, the operating
agreement of CSC and all other organizational documents of CSC
pursuant to which CSC is organized or authorized to do business
(collectively, the "Organizational Documents"); (d) Contributor
has the right to transfer absolute ownership of the Contributed
Interests to Acquiror or the Operating Partnership, as the case
may be; (e) Contributor is not in default of its obligations to
CSC pursuant to the Organizational Documents; (f) all of the
Contributed Interests have been fully paid and are non-
assessable; and (g) Contributor has no legal
8
<PAGE>
obligation, absolute or contingent, to any other person or
entity to sell, transfer, convey, assign or otherwise dispose
of the Contributed Interests or to enter into any agreement
with respect thereto.
xvii) Ownership of the LLC. As of the Phase I Closing Date,
Contributor will own 100% of the outstanding membership
interests in CSC and no person other than Contributor (and,
upon the Phase I Closing, Acquiror or the Operating
Partnership) shall have any right, claim or interest in the
profits and losses of CSC. Upon the Phase I Closing,
Contributor shall convey 100% of its limited liability company
membership interests in CSC to Acquiror and Acquiror (or the
Operating Partnership) will receive from Contributor 100% of
the limited liability company membership interests in CSC.
xviii) Tax-Related Issues. CSC has filed or caused to be filed in a
timely manner (within any applicable extension periods) all
tax, information or other returns required to be filed by the
Code or by applicable state, or local tax laws (collectively,
"Tax Returns"). Such Tax Returns are true, correct and complete
in all material respects, and all federal, state or local
income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, unemployment,
disability, personal property, sales, use, transfer,
registration, estimated, or other tax of any kind whatsoever,
including any interest, penalty or other addition thereto,
whether disputed or not (collectively, "Taxes") due, and Taxes
due in respect of any person for which CSC had an obligation to
withhold and/or otherwise pay over Taxes, have been timely paid
in full or will be timely paid in full by the due date thereof
(and whether or not shown on a Tax Return). With respect to any
taxable year for which a statute of limitations (or similar
provision) has not yet run, none of the Tax Returns of CSC has
been audited by a government or taxing authority, nor is any
such audit or other proceeding in process, pending, or
threatened, in writing, with respect to Taxes (or the
collection of Taxes) of CSC, and CSC has not received written
notice that it has not filed a Tax Return or not paid Taxes
required to be filed, withheld, or paid by it. CSC has
disclosed on its federal income tax returns all positions taken
therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662. No claim has
ever been made by an authority in a jurisdiction where CSC does
not file Tax Returns that it is or may be subject to taxation
by that jurisdiction.
xix) Organizational Documents and Financial Statements. Contributor
has delivered true, accurate and complete copies of (i) the
Organizational Documents; and (ii) any and all balance sheets,
operating statements, tax returns and other comparable filings
and records relating to receipts and
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expenditures by CSC, the net income or loss of CSC, allocation
of profits and losses among members of CSC, distributions to
members of CSC, capital contributions of members of CSC, and
other comparable records (collectively, "Financial
Statements"), all of which have been compiled in accordance
with generally accepted accounting principles consistently
applied and accurately set forth the results of operations of
CSC. The Financial Statements accurately set forth the
allocation of profit and loss between members of CSC and
distributions to and from members of CSC and there has been no
material adverse change in the financial condition of CSC since
the date of the last Financial Statement.
xx) Liabilities and Obligations. CSC has no liabilities or
obligations (whether absolute, accrued, contingent or
otherwise) of any nature whatsoever, except for the Existing
Note and Mortgage and except for liabilities and obligations
that are expressly set forth in the Financial Statements and
accrued and reserved against as therein set forth. No existing
member or former member of CSC has made any loans to CSC nor
has any existing member or former member of CSC received any
loan from CSC, which will not be paid in full and finally and
irrevocably released and discharged on or prior to the Phase I
Closing. No existing member or former member of CSC is entitled
to receive any pay out, earn out, option fee or comparable
incentive or "earn out" feature in connection with the
transactions contemplated hereby, whether pursuant to the
Organizational Documents or any other formal or informal
agreement, arrangement or understanding between any member (or
any former member of CSC) and CSC, which will remain in effect
subsequent to the Phase I Closing. Upon the assignment of the
Contributed Interests to Acquiror or the Operating Partnership,
as the case may be, pursuant to this First Amendment, Acquiror
or the Operating Partnership, as the case may be, shall be
legally and beneficially vested with good and indefeasible
title to such Contributed Interests, free and clear of any and
all liens, claims, charges, restrictions and/or encumbrances.
7. Pre-Closing Covenants. Contributor hereby covenants with Acquiror as
follows:
a) New Leases. Prior to the Phase I Closing, Contributor shall, and shall
cause CSC to, neither amend any Cold Springs Lease in any economic or
other material respect nor execute any new lease, license, or other
agreement affecting the ownership or operation of any portion of the
Cold Springs Project or for personal property, equipment, or vehicles,
without Acquiror's prior written approval (which approval shall
automatically be deemed given if not disapproved, in writing, within
five business days following Contributor's written request for
approval).
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b) New Contracts. Prior to the Phase I Closing, Contributor shall, and
shall cause CSC to, not enter into any contract with respect to the
ownership and operation of all or any portion of the Cold Springs
Project that will survive the Phase I Closing, or that would otherwise
affect the use, operation or enjoyment of the Cold Springs Project,
without Acquiror's prior written approval (which approval shall
automatically be deemed given if not disapproved, in writing, within
five business days following Contributor's written request for
approval), except for service contracts entered into in the ordinary
course of business that are terminable, without penalty, on not more
than 60 days' notice, for which no consent shall be required.
c) Operation of Project. Prior to the Phase I Closing, Contributor
shall, and shall cause CSC to, operate and manage the Cold Springs
Project in the same manner as in effect on the Amendment Date,
maintaining present services (including, but not limited to, pest
control), and shall maintain the Cold Springs Project in good repair
and working order; shall keep on hand sufficient materials, supplies,
equipment and other personal property for the efficient operation and
management of the Cold Springs Project in the same manner as in effect
on the Amendment Date; and shall perform, when due, all of
Contributor's and CSC's obligations under the Cold Springs Leases, and
other agreements relating to the Cold Springs Project and otherwise in
accordance with applicable laws, ordinances, rules and regulations
affecting the Cold Springs Project. Except as otherwise specifically
provided herein, the Cold Springs Project shall be, at the Phase I
Closing, in substantially the same condition it is in on the Amendment
Date, reasonable wear and tear and casualty excepted. None of the Cold
Springs Personal Property, fixtures or Cold Springs Inventory shall be
removed from the Cold Springs Project, unless replaced by personal
property, fixtures or inventory of equal or greater utility and value.
d) Pre-Closing Expenses. Contributor or CSC has paid or will pay in
full, prior to the Phase I Closing, all bills and invoices for labor,
goods, material and services of any kind relating to the Cold Springs
Project and utility charges, if and to the extent that such charges
relate to the period of CSC's ownership of the Cold Springs Project.
e) No Assignment. After the Amendment Date and prior to the Phase I
Closing, Contributor shall not, and Contributor shall cause CSC to
not, assign, alienate, lien, encumber or otherwise transfer all or any
part of the Cold Springs Project or any interest in it.
f) Change in Conditions. Contributor shall promptly notify Acquiror of
any change in any condition with respect to CSC or the Cold Springs
Project or of the occurrence of any event or circumstance that makes
any representation or warranty of Contributor to Acquiror under this
First Amendment untrue or
11
<PAGE>
misleading, in any material respect, or any covenant of Acquiror under
this First Amendment incapable or less likely of being performed, in
any material respect.
g) No Change to Organizational Documents. From the date of this First
Amendment through and including the Phase I Closing Date, neither
Contributor nor CSC shall amend or alter its Organization Documents,
unless otherwise required hereunder to effectuate the transactions
contemplated hereby, provided such amendment is consented to in
writing by Acquiror (which consent shall not be unreasonably withheld
or delayed).
8. Additional Conditions Precedent to Closing.
a) Loan Assumption. At the Phase I Closing, Contributor shall deliver
from the secured party pursuant to the Existing Loan Documents: (i) a
written consent ("Lender's Consent") to the acquisition by, and sale,
transfer, conveyance and assignment to Acquiror or the Operating
Partnership of, 100% of the limited liability membership interests of
CSC, and (ii) an estoppel certificate (the "Loan Estoppel") made for
the benefit of Acquiror and the Operating Partnership, certifying as
to: the absence of any default by CSC pursuant to the Existing Loan
Documents; the outstanding principal balance of the Existing Note and
any accrued and unpaid interest thereon; the monthly principal and/or
interest due under the Existing Note; the maturity date of the
Existing Note; any escrow requirements pursuant to the Existing Loan
Documents; any and all fees applicable to either the assumption of the
Existing Loan Documents by Acquiror or the acquisition by, and sale,
transfer, conveyance and assignment to, Acquiror or the Operating
Partnership of 100% of the limited liability company membership
interests in CSC, and such other matters as Acquiror may reasonably
require.
9. Estoppel Certificates from Tenants. It shall be an Acquiror's Condition
Precedent that Contributor shall have obtained and delivered to Acquiror,
on or prior to the Phase I Closing Date, a tenant's estoppel certificate
(the "Estoppel Certificate"), dated no earlier than 60 days prior to the
Phase I Closing Date, from at least 80% (by square footage) of the Tenants
at the Cold Springs Project. If Contributor fails to obtain an Estoppel
Certificate from any Tenant, Acquiror's sole remedy shall be to either (i)
terminate the Contribution Agreement because of non-satisfaction of an
Acquiror's Condition Precedent; or (ii) proceed to close and accept
Contributor's own Estoppel Certificate with respect to each Cold Springs
Lease and tenancy for which Contributor fails to procure an Estoppel
Certificate from the relevant Tenant (and any Estoppel Certificate so
executed by Contributor shall also be tailored, in a manner mutually and
reasonably acceptable to Acquiror and Contributor, to reflect its issuance
by Contributor, rather than the Tenant in question).
10. Closing Deliveries.
12
<PAGE>
a) Contributor's. At the Phase I Closing (or such other times as may be
specified below), Contributor shall deliver or cause to be delivered
to Acquiror the following, in form and substance reasonably acceptable
to Acquiror and its counsel:
i) Contributed Interests.
a) Assignments of Membership Interests. An "Assignment of
Membership Interests," duly executed by Contributor, such
that the Contributed Interests are conveyed to Acquiror or
the Operating Partnership, free and clear of all liens,
claims and encumbrances.
b) Consent, Confirmation and Agreement. A "Certificate of
Consent, Confirmation and Agreement" duly executed by
Contributor, whereby Contributor (x) releases and forever
discharges CSC from any and all claims, demands, causes of
actions, damages or rights Contributor may have against CSC,
whether in its capacity as a former member of CSC or
otherwise; (y) consents, as a member of CSC, to the sale,
transfer, conveyance and assignment of all of the
Contributed Interests in CSC to Acquiror or the Operating
Partnership; and (z) consents to the resignation of the
existing general partner(s) or manager(s), as the case may
be, of CSC and the appointment of a successor general
partner designated by Acquiror on or prior to the Phase I
Closing.
ii) Cold Springs Project.
a) Leases. Originals (to the extent in CSC's possession) of
all of the Cold Springs Leases.
b) Keys. Keys (to the extent in CSC's possession) to all locks
located at the Cold Springs Project.
c) Affidavit of Title and ALTA Statement. An Affidavit of
Title (or comparable document) as required by the Title
Company in the state in which the Cold Springs Project is
located as a condition to the deletion of the general
exceptions of Schedule B, Section 2 of each Title Policy,
executed by CSC and, if required, Contributor and in form
and substance reasonably acceptable to the Title Company and
to Acquiror.
d) Letters to Tenants. Letters executed by the Contributor,
and, if applicable, its management agent, and Acquiror,
addressed to all
13
<PAGE>
Tenants, in the form reasonably and mutually agreed to by
Acquiror and Contributor.
e) Title Policy. The Title Policy (or "marked-up" title
commitment) issued by the Title Company, dated as of the
Phase I Closing Date, in accordance with the requirements of
Section 5 (it being understood that Contributor will provide
any certificates or undertakings required in order to induce
the Title Company to insure over any "gap" period resulting
from any delay in recording of documents or later-dating the
title insurance file).
f) Plans and Specifications. All (if any) plans and
specifications relating to the Cold Springs Project in
Contributor's possession.
g) Entity Transfer Certificate. Entity transfer certification
confirming that CSC is a "United States Person" within the
meaning of Section 1445 of the Internal Revenue Code of
1986, as amended.
h) Rent Roll. A rent roll, prepared as of the Phase I Closing
Date, certified by Contributor to be true, complete and
correct, in all material respects, through the Phase I
Closing Date.
i) Loan Assumption Documents. The Lender's Consent and the
Loan Estoppel, each as described in Section 8.
11. Conflict. In the event of a conflict between the terms and provisions of
the Contribution Agreement and this First Amendment, the terms and
provisions of this First Amendment shall control in all events.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
on the date first above written.
CONTRIBUTOR:
AMERICAN REAL ESTATE EQUITIES, LLC, a Delaware
limited liability company
By: /s/ Duane H. Lund
--------------------------------------------
Name: Duane H. Lund
Title: President
ACQUIROR:
WELLINGTON PROPERTIES TRUST, a Maryland real
estate investment trust
By: /s/ Robert F. Rice
--------------------------------------------
Name: Robert F. Rice
Title: Executive Vice President
OPERATING PARTNERSHIP:
WELLINGTON PROPERTIES INVESTMENTS, L.P., a
Delaware limited partnership
By: Wellington Properties Trust, a Maryland real
estate investment trust
By: /s/ Robert F. Rice
--------------------------------------------
Name: Robert F. Rice
Title: Executive Vice President
LP UNIT RECIPIENTS:
WLPT FUNDING, LLC, a Delaware limited liability
company
By: /s/ Duane H. Lund
--------------------------------------------
Name: Duane H. Lund
Title: Manager
15
<PAGE>
LAMBERT EQUITIES II, LLC, a Delaware limited
liability company
By: /s/ Paul T. Lambert
--------------------------------------------
Name: Paul T. Lambert
Title: Managing Member
/s/ Steven B. Hoyt
-------------------------------------------------
Steven B. Hoyt
16
<PAGE>
EXHIBIT A
The Phase I Contracts
<TABLE>
<CAPTION>
PROJECT CONTRACT STREET ADDRESS CITY/STATE COUNTY SQUARE
- ------- -------- -------------- ---------- ------ ------
CONTRACT FOOTAGE/
- -------- --------
NO. ACREAGE
--- -------
<S> <C> <C> <C> <C> <C>
1 HOYT PROPERTIES(1) 879,951
Signed August 26, 1998
2 COLD SPRINGS CENTER 4150 2nd St. S St. Cloud, MN Stearns 77,533
Signed August 6, 1998 by and
between Rock Properties, a
Minnesota general partnership
and American Real Estate Equities,
LLC, a Delaware limited liability
company
3 FELD PORTFOLIO 300 North Madison St Green Bay, WI Brown 70,018
Signed August 7, 1998 by and 916-926 Willard Drive Green Bay, WI Brown 44,402
between Edwin R. Feld & 2321 San Luis Place Green Bay, WI Brown 11,747
Associates, a Wisconsin 727/735 Walnut Street Green Bay, WI Brown 10,655
general partnership and Golden 414 East Walnut Street Green Bay, WI Brown 25,357
Acres, Inc. 225 Monroe South Green Bay, WI Brown 15,907
3000 Riverside Drive Green Bay, WI Brown 12,839
2990 Voyager Drive Green Bay, WI Brown 19,200
4 STONEGATE PORTFOLIO
Signed August 26, 1998 by and
between Wellington Properties
Trust, a Maryland real estate
investment trust and American Real
Estate Equities, LLC, a Delaware
limited liability company with
Stonegate Properties
Northwest Corporate Centre I 100-400 Higgins Road Hoffman Estates, IL Cook 87,271
Limited Partnership
Northwest Corporate Centre II and III 500-800 Higgins Road Hoffman Estates, IL Cook 87,200
Limited Partnership
Northwest Corporate Centre II and III 900-1200 Hassel Road Hoffman Estates, IL Cook 87,550
Limited Partnership
Northwest Tech Limited Partnership 1500 Tech Center Hoffman Estates, IL Cook 71,139
Tollway Industrial Center Limited 2200 N. Stonington Avenue Hoffman Estates, IL Cook 37,423
Partnership
Tollway Industrial Center Limited 2400 West Hassel Road Hoffman Estates, IL Cook 35,317
Partnership
5 APPLE VALLEY PORTFOLIO (2) 168,873
Signed August 17, 1998
(1) See attached Exhibit A to Hoyt's contract
(2) See attached Exhibit A to Apple Valley contract
TOTAL SQUARE FOOTAGE/ACREAGE 1,742,382
</TABLE>
EXISTING PROPERTIES
<TABLE>
<CAPTION>
SQUARE
FOOTAGE/
STREET ADDRESS CITY/STATE COUNTY ACREAGE
-------------- ---------- ------ -------
<S> <C> <C> <C>
1100 Grand Avenue Schofield, WI Marathon 65,184
3019 Maple Valley Drive Madison, WI Dane 273,698
TOTAL SQUARE FOOTAGE/ACREAGE: 338,882
</TABLE>
<PAGE>
EXHIBIT A-HOYT PORTFOLIO
THE PROJECTS
<TABLE>
<CAPTION>
SQUARE
------
PROJECT FOORTAGE/
---------
NUMBER CONTRIBUTOR STREET ADDRESS CITY/STATE COUNTY ACREAGE
- ------ ----------- -------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
1 Ailcron LLC Cirrus Industries Duluth , MN St. Louis 138,000
2 Cedar Investments Phillsbury Business Center Bloomington, MN Hennepin 42,460
3 Burnsville Bluffs Limited Partnership Burnsville Bluffs II Burnsville, MN Dakota 45,040
4 Cliff Six, Inc. Nicollet Business VI Burnsville, MN Dakota 50,291
5 Bluffs West Partnership Nicollet Business VII Burnsville, MN Dakota 118,400
6 Steven B. Hoyt 7300 Boone Brooklyn Park, MN Hennepin 50,000
7 Thresher Square Partnership (west); Thresher Square East/West Minneapolis, MN Hennepin 119,272
Thresher Square Limited Partnership (east)
8 Steven B. Hoyt 2030 Cliff Road Eagan, MN Dakota 13,374
9 Complast, Inc. Complast Building Bloomington, MN Hennepin 83,733
10 Park Associates Bloomington Business Ctr Bloomington, MN Hennepin 121,063
11 300 First LLC 300 North First Avenue Minneapolis, MN Hennepin 72,132
12 Plymouth Partners II Plymouth Tech Center I Plymouth, MN Hennepin 26,186
TOTAL SQUARE FOOTAGE/ACREAGE: 879,951
</TABLE>
EXHIBIT A-APPLE VALLEY PORTFOLIO
THE PROJECTS
<TABLE>
<CAPTION>
SQUARE
------
PROJECT FOOTAGE/
-------
NUMBER CONTRIBUTOR STREET ADDRESS CITY/STATE COUNTY ACREAGE
- ------ ----------- -------------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
1 AV Development Company 7300 West 147th Street Apple Valley,MN Dakota 58,668
2 Burnsville Financial Center Partnership 14300 Nicollet Court Burnsville, MN Dakota 47,203
3 AV Commans II, LLP 15024 Glazier Avenue Apple Valley, MN Dakota 63,002
TOTAL SQUARE FOOTAGE/ACREAGE: 168,873
</TABLE>
<PAGE>
EXHIBIT A-1
-----------
THE PHASE II CONTRACTS
----------------------
None.
<PAGE>
EXHIBIT B
LP UNIT DISTRIBUTION
RECIPIENT LP UNITS
- --------- --------
Contributor 241,176
WLPT Funding, LLC 477,677*
Lambert Equities II, LLC 418,573
Steve Hoyt 418,573
* Includes LP Units paid by Contributor to WLPT Funding, LLC as reimbursement
for expenses.
B-1
<PAGE>
EXHIBIT B
---------
CONTRIBUTION AGREEMENT
Between
WELLINGTON PROPERTIES INVESTMENTS, L.P.
And
WELLINGTON MANAGEMENT CORPORATION
Dated as of August 31, 1998
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE
MERITS AND RISKS INVOLVED. THE SECURITIES REFERENCED HEREIN HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISK OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
<PAGE>
THIS CONTRIBUTION AGREEMENT (this "AGREEMENT") is made and entered into as
of this 31st day of August, 1998 (the "CONTRACT DATE"), by and among Wellington
Management Corporation, a Wisconsin corporation ("CONTRIBUTOR"), and Wellington
Properties Investments, L.P., a Delaware limited partnership ("ACQUIROR" or
"UPREIT").
RECITALS
--------
A. Wellington Properties Trust, a Maryland real estate investment trust
(the "REIT"), is the sole general partner of Acquiror.
B. Contributor owns or has the right to acquire 100% of the outstanding
membership interests in Wellington Centre Company, LLC, a Wisconsin limited
liability company (the "LLC").
C. The LLC owns fee title to the Project (as defined below).
D. Contributor desires to contribute 100% of the outstanding membership
interests to Acquiror in exchange for the Contribution Consideration (defined
below), all on the terms and subject to the conditions contained in this
Agreement.
1. CONTRIBUTION. Contributor agrees to contribute, assign, transfer and
------------
convey to Acquiror, and Acquiror agrees to accept and assume from Contributor,
for the Contribution Consideration and on the terms and conditions set forth in
this Agreement, all of Contributor's right, title and interest in and to (i) the
LLC including, but not limited to, the right to receive, for the period
subsequent to the contribution hereunder, distributions of money, profits,
losses and other assets from the LLC, and (ii) the Project (as defined below),
commonly known as Wellington Centre, 18650 W. Corporate Drive, Brookfield,
Wisconsin 53045, which includes a 3-story office building (the "BUILDING"),
containing 95,367 net rentable square feet (collectively, the "CONTRIBUTED
INTERESTS"). For purposes of this Agreement, the term "PROJECT" shall be deemed
to mean, collectively: (i) the parcel of land described on EXHIBIT B attached
hereto (the "LAND"), together with all rights, easements and interests
appurtenant thereto, including, but not limited to, any streets or other public
ways adjacent to said Land and any water or mineral rights owned by, or leased
to, the LLC; (ii) all improvements located on the Land, including, but not
limited to, the Building, and all other structures, systems, and utilities
associated with, and utilized by, the LLC in the ownership and operation of the
Building (all such improvements being collectively referred to herein as the
"IMPROVEMENTS"); (iii) all personal property owned by the LLC and either (A)
located on or in the Land or Improvements, or (B) used in connection with the
operation and maintenance of the Project, excluding personal property owned by
Tenants (as defined below) (collectively, the "PERSONAL PROPERTY"), including,
without limitation, all fixtures and other built-in improvements and equipment
necessary to operate the Project and all (if any) personal property listed on
EXHIBIT C attached hereto; (iv) all building materials, supplies, hardware,
carpeting and other inventory owned by the LLC and maintained in connection with
the LLC's ownership and operation of the Land and/or Improvements and not owned
by Tenants (collectively, the "INVENTORY"); (v) all trademarks, tradenames,
development rights and entitlements and other intangible property used or useful
in connection with the foregoing
1
<PAGE>
(collectively, the "INTANGIBLE PERSONAL PROPERTY"); and (vi) the LLC's interest
in all leases and other agreements to occupy, or concerning the occupancy of,
all or any portion of the Land and/or Improvements in effect on the Contract
Date or into which the LLC enters prior to Closing (as defined below)
[collectively, the "LEASES"].
2. CONTRIBUTION CONSIDERATION; LP UNITS; TAX MATTERS.
-------------------------------------------------
2.1. GENERAL. Acquiror may, in its sole and absolute discretion,
-------
direct Contributor to convey all or some of the Contributed Interests to one or
more Affiliates (as defined below) of the REIT or the UPREIT.
2.2. CONTRIBUTION CONSIDERATION. The consideration to be paid to
--------------------------
Contributor by Acquiror for all of the Contributed Interests shall consist of
the amount (the "CONTRIBUTION CONSIDERATION") calculated in accordance with this
SECTION 2.2. Acquiror shall pay Contributor cash in the amount of $2,403,382
(the "CASH AMOUNT"). The amount in excess of the Cash Amount to be paid to
Contributor by Acquiror, as determined by this SECTION 2.2 shall be paid in LP
Units (as defined below). The portion of the Contribution Consideration paid in
LP Units is herein referred to as the "TOTAL LP UNIT AMOUNT." For purposes of
this SECTION 2.2, Contribution Consideration shall be calculated as follows: (A)
the "ALLOCATED AMOUNT" assigned to the Project, as provided on EXHIBIT D
attached hereto, subject to the next succeeding sentence; minus (B) the sum of
-----
the "ASSUMED INDEBTEDNESS" with respect to the Project, as provided on EXHIBIT D
attached hereto, subject to the next succeeding sentence; minus (C)
-----
Contributor's Closing Costs (as defined in SECTION 14) paid by Acquiror; minus
-----
(D) any prorations described in SECTION 13 ("PRORATIONS") and credited, as of
the Closing Date (as defined below), to Acquiror; plus (E) any Prorations
----
credited, as of the Closing Date, to Contributor; minus (F) any other
-----
adjustments described in this Agreement ("ADJUSTMENTS") occurring on or prior to
the Closing Date in favor of Acquiror; and plus (G) any Adjustments occurring on
----
or prior to the Closing Date in favor of the Contributor. The parties agree
that, in the event the Closing Statement (as defined below) includes information
that differs from that reflected on EXHIBIT D with respect to the Allocated
Amount and Assumed Indebtedness, all such information included within the
Closing Statement shall be controlling in all such respects. If the above-
described calculation of Contribution Consideration would result in a fractional
number of LP Units to be delivered to Contributor, the UPREIT shall round that
fraction up or down, as the case may be, to the nearest whole number of LP
Units. The Project shall be subject to the corresponding items of Assumed
Indebtedness. Provided that all conditions precedent to Acquiror's obligations
to close as set forth in this Agreement (collectively, "ACQUIROR'S CONDITIONS
PRECEDENT") have been satisfied and fulfilled, or waived in writing by Acquiror,
the Contribution Consideration shall be paid to Contributor at Closing pursuant
to SECTION 2.3.
2.3. LP UNITS.
--------
2.3.1. The Total LP Unit Amount shall be paid by the UPREIT's
delivery of Common Units (as that term will be defined in the Partnership
Agreement, as defined below) in the UPREIT (the "LP UNITS"). The Total LP Unit
Amount and the
2
<PAGE>
allocation thereof shall be set forth in the LP Unit Schedule (as defined
below). The LP Units shall be redeemable for common shares of beneficial
interest of the REIT ("SHARES") or cash (or a combination thereof) in accordance
with the redemption procedures described in the Partnership Agreement.
Contributor acknowledges that the LP Units are not certificated and that,
therefore, the issuance of the LP Units shall be evidenced by the execution and
delivery of an addendum to the Partnership Agreement, which addendum shall be
executed and delivered by the REIT at Closing (the "ADDENDUM").
2.3.2. [INTENTIONALLY OMITTED.]
2.3.3. For purposes of determining the number of LP Units to be
delivered in satisfaction of payment of the Total LP Unit Amount, the Total LP
Unit Amount shall be divided by a "UNIT PRICE," which shall be $8.50 per LP
Unit.
2.3.4. Contributor has delivered to Acquiror, or to any other
party designated by Acquiror, a completed questionnaire (in substantially the
form set forth in EXHIBIT F attached hereto, the "ACCREDITED INVESTOR
QUESTIONNAIRE") providing, among other things, information concerning
Contributor's status as an accredited investor ("ACCREDITED INVESTOR"), as such
term is defined in Regulation D promulgated under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), and shall provide or cause to be provided to
Acquiror, or to any other party designated by Acquiror, such other information
and documentation as may reasonably be requested by Acquiror in furtherance of
the issuance of the LP Units as contemplated hereby. Notwithstanding anything
contained in this Agreement to the contrary, in the event that, in the
reasonable opinion of Acquiror, based on advice of its securities counsel, (x)
any such person or entity providing an Accredited Investor Questionnaire is not
considered an Accredited Investor, (y) the proposed issuance of LP Units
hereunder might not qualify for the exemption from the registration requirements
of Section 5 of the Securities Act, or (z) the proposed issuance of LP Units
hereunder would violate any applicable federal or state securities laws, rules
or regulations, or agreements to which any or all of the REIT and the UPREIT is
privy, or any tax-related or other legal rules, agreements or constraints
applicable to either or both of the REIT and the UPREIT shall so advise
Contributor, in writing (the "REGULATORY VIOLATION NOTICE"). In the event a
Regulatory Violation Notice is delivered, this Agreement shall terminate, and no
party shall have any further liability hereunder except (i) as otherwise
expressly set forth in this Agreement and (ii) to the extent a breach of this
Agreement gives rise to, or becomes the basis for, the Regulatory Violation
Notice.
2.3.5. Contributor hereby covenants and agrees that it shall
deliver to the UPREIT, or to any other party designated by the UPREIT, any
documentation that may be required under the Partnership Agreement or any
charter document of the REIT, and such other information and documentation as
may reasonably be requested by the UPREIT, at such time as any LP Units are
redeemed for Shares ("CONVERSION SHARES"). The preceding covenant shall survive
the Closing indefinitely and shall not merge into any of the conveyancing
documents delivered at Closing.
3
<PAGE>
2.3.6. The parties acknowledge that Contributor intends to treat
the transfer of the Contributed Interests in exchange for LP Units (the
"EXCHANGE") as a tax-free partnership contribution pursuant to Section 721 of
the Internal Revenue Code of 1986, as amended (the "CODE"). Acquiror and the
REIT shall cooperate in all reasonable respects with Contributor to effectuate
such Exchange; provided, however, that:
(a) The Closing shall not be extended or delayed by reason of such
Exchange, unless Acquiror has breached its obligations to
Contributor under this Agreement.
(b) Subject to Acquiror's and the REIT's respective performance and
fulfillment in all material respects of the express covenants and
conditions contained in this Agreement, neither Acquiror or the
REIT warrant, nor shall either of them be responsible for, the
federal, state or local tax consequences to Contributor, or any
or all of the Shareholders of Contributor, resulting from either
(i) the transactions contemplated by this Agreement or (ii) the
allocation, if any, of losses and liabilities of the UPREIT to
Contributor under the Partnership Agreement, the Code or Treasury
Regulations promulgated under the Code.
The provisions of this SECTION 2.3.6 shall survive the Closing and shall not
merge into any conveyancing documents delivered at Closing.
2.4. PARTNERSHIP AGREEMENT. For purposes hereof, the term "PARTNERSHIP
---------------------
AGREEMENT" shall mean the UPREIT's Limited Partnership Agreement to be entered
into prior to the Closing. Promptly after the execution of the Partnership
Agreement, Acquiror shall deliver to Contributor a true and complete copy of the
fully-executed Partnership Agreement, together with information regarding an
investment in the UPREIT (collectively, with the Partnership Agreement, the
"INFORMATION STATEMENT") whereupon Contributor shall have five business days in
which to review the Information Statement for purposes of determining to make an
investment in the UPREIT ("REVIEW PERIOD"). In the event that Contributor fails
to advise Acquiror, in writing and prior to the expiration of the Review Period,
of Contributor's determination not to invest in the UPREIT, then Contributor
shall automatically be deemed to have irrevocably determined to make an
investment in the UPREIT pursuant to the terms and subject to the conditions set
forth herein and shall thereupon deliver to Acquiror an executed subscription
agreement for the acquisition of LP Units in the form included in the
Information Statement. If Contributor advises Acquiror, in writing and prior to
the expiration of the Review Period, that Contributor determines not to make an
investment in the UPREIT, then this Agreement shall thereupon terminate and
neither party shall have any further obligations under this Agreement, except as
otherwise specifically provided herein.
2.5. INFORMATIONAL MATERIALS. Contributor hereby acknowledges and
-----------------------
agrees that the ownership of LP Units by it and its rights and obligations as a
limited partner of the UPREIT (including, without limitation, its right to
transfer, encumber, pledge and exchange LP Units) shall be subject to all of the
express limitations, terms, provisions and restrictions
4
<PAGE>
set forth in this Agreement and in the Partnership Agreement. In that regard,
Contributor hereby covenants and agrees that, at Closing, it shall execute any
and all documentation reasonably required by the REIT and the UPREIT to formally
memorialize the foregoing (collectively, the "PARTNERSHIP AGREEMENT ADOPTION
MATERIALS"). Contributor acknowledges that it has received and reviewed, at or
prior to the Contract Date, the following: (i) the Prospectus dated October 20,
1994 (the "PROSPECTUS"), which Prospectus describes the risk factors associated
with an equity investment in the REIT; (ii) the REIT's Annual Report on Form 10-
K SB for the year ended December 31, 1997 (the "10-K"); (iii) the REIT's Notice
of Annual Meeting of Shareholders and Proxy Statement in connection with
Acquiror's 1998 Annual Meeting of Shareholders; (iv) the REIT's Quarterly
Reports on Form 10-QSB for the quarters ended March 31, 1998 and June 30, 1998;
and (v) a General Disclosure Schedule. Contributor acknowledges that, prior to
the Closing Date, it: (x) has had an opportunity to obtain and review each
document incorporated by reference into any of the materials listed in the
previous sentence or in the Information Statement; (y) has had an opportunity to
conduct a due diligence review of the affairs of Acquiror; and (z) has been
afforded the opportunity to ask questions of, and receive additional information
from, the REIT and the UPREIT regarding the REIT and the UPREIT.
2.6. LOCK-UP PERIOD. Contributor agrees that for two years (the
--------------
"LOCK-UP PERIOD") following the Closing, the LP Unit Recipients may not, in any
way or to any extent, redeem (pursuant to the Partnership Agreement or
otherwise), sell, transfer, assign, pledge or encumber, or otherwise convey any
or all of the LP Units issued to Contributor in connection with this transaction
and, if applicable, any Conversion Shares. Notwithstanding the preceding
limitations: during the Lock-Up Period, Contributor may pledge, grant a
security interest in, or otherwise encumber the Shares or the LP Units in
accordance with the terms of the Partnership Agreement and Acquiror shall take
all reasonable actions required to accommodate such pledge, grant of security
interest or encumbrance, but at no out-of-pocket expense to Acquiror. The
provisions of this SECTION 2.6 shall survive the Closing for the length of the
Lock-Up Period and shall not merge into any of the conveyancing documents
delivered at Closing.
2.7. TRANSFER REQUIREMENTS. After the Lock-Up Period, Contributor may
---------------------
only sell, transfer, assign, pledge or encumber, or otherwise convey any or all
of the LP Units issued to Contributor and, if applicable, any Conversion Shares,
in strict compliance with this Agreement, the Partnership Agreement, the charter
documents of the REIT, the registration and other provisions of the Securities
Act (and the rules promulgated thereunder), any state securities laws, the rules
of the NASDAQ and the Registration Rights Agreement (as hereinafter defined), in
each case as may be applicable. The provisions of this SECTION 2.7 shall
survive the Closing indefinitely and shall not merge into any of the
conveyancing documents delivered at Closing.
2.8. VOLUME RESTRICTION. From and after the expiration of the Lock-Up
------------------
Period, the aggregate amount of Shares that Contributor may sell (i) during any
10-trading day period shall not exceed 20% of the average of the daily trading
volume of the Shares (as reported in The Wall Street Journal, Midwest Edition)
for the 30 trading days immediately
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preceding the date on which the first sale of Shares during any such 10-day
period occurs and (ii) during any calendar year shall not exceed one-third of
the Conversion Shares issuable upon redemption of the aggregate amount of LP
Units issued to Contributor at Closing. The provisions of this SECTION 2.8 shall
survive the Closing indefinitely and shall not merge into any of the
conveyancing documents delivered at Closing.
2.9. REGISTRATION RIGHTS. At Closing, Acquiror shall cause the REIT
-------------------
to enter into a registration rights agreement (the "REGISTRATION RIGHTS
AGREEMENT"), granting Contributor the right, upon reasonable notice, to have its
Conversion Shares registered under the Securities Act in connection with any
other such registration undertaken by the REIT.
2.10. PARTNERSHIP LIABILITIES AND SALES OF PROJECT.
--------------------------------------------
2.10.1. Subject to the last sentence of this SECTION 2.10.1 and
the provisions of SECTION 2.10.2 hereof, for a period of two years following the
Closing Date (the "NON-TAXABLE DISPOSITION PERIOD"), the REIT and the UPREIT
shall use their good faith, reasonable and diligent efforts:
(a) To cause any sale or other voluntary disposition (other than
through a deed in lieu of foreclosure; a foreclosure action; an
act of eminent domain; or the exercise of a purchase option,
right of first refusal option or similar option by a Tenant) of
the Project (and all assets received in exchange for the
Project in which the REIT or the UPREIT has an adjusted tax
basis substituted from that of the Project) to qualify for non-
recognition of gain under the Code (for example, by means of
exchanges contemplated under Code Sections 351, 354, 355, 368,
721, 1031 or 1033), in the manner as the Code provides from
time to time (the "NON-RECOGNITION CODE PROVISIONS"); provided,
however, that the foregoing shall not require the REIT and the
UPREIT, in their sole and absolute discretion, to sell, or
otherwise dispose of, or prevent the REIT and the UPREIT, in
their sole and absolute discretion, from selling or otherwise
disposing of, the Project in a transaction that would result in
a loss for federal income tax purposes;
(b) To avoid a distribution of property that would cause
Contributor to recognize income or gain pursuant to the
provisions of either or both of Code Sections 704(c)(1)(B) and
737.
In all events, the Non-Taxable Disposition Period shall terminate with respect
to SECTION 2.10.1(A); provided, however, that the provisions of SECTION
2.10.1(A) hereof shall automatically be rendered null and void and shall be of
no further force or effect, as of the occurrence of an amendment or other
material revision to Code Section 1031 or the Treasury Regulations promulgated
thereunder, which amendment or revision materially and, with respect to the REIT
and the UPREIT, adversely alters the mechanics for implementing (and/or the tax-
treatment of) "like-kind" exchanges of real estate pursuant to such provisions.
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2.10.2. Notwithstanding the provisions of SECTION 2.10.1, the
obligation of either or both of the REIT and the UPREIT to undertake those
activities set forth in SECTIONS 2.10.1 hereof shall, in all events, be subject
to, and otherwise interpreted consistent with, the REIT's fiduciary and
statutory obligations to all partners (both present and future) in the UPREIT,
and to its shareholders, both present and future. Further, for purposes of this
SECTION 2.10 and except as otherwise provided in SECTION 2.11.
The provisions of this SECTION 2.10 shall survive the Closing and shall not
merge into any of the conveyancing documents delivered at Closing.
2.11. NOTICE OF CERTAIN TRANSACTIONS.
------------------------------
2.11.1. In the event, on or before the second anniversary of
the Closing Date, either of the following (each, a "TAX-RELATED EVENT") is, in
the reasonable opinion of either or both of the UPREIT and the REIT, likely to
occur: (A) a post-Closing sale of the Project; or (B) an attempt by the UPREIT
to effect a transfer of the Project as permitted by SECTION 2.10.1(A) above
occurs, but the terms of Section 1031 of the Code or the regulations promulgated
thereunder have changed such that the mechanics for implementing a tax-deferred
exchange of real estate are materially and adversely altered (whether with
respect to the timing required to identify and close upon an exchange property
or otherwise) from those mechanics in place as of the Contract Date, and, in any
case, provided that the obligations of the REIT and the UPREIT under SECTION
2.10 shall not have otherwise terminated by the terms of such Section, then the
UPREIT shall give written notice of such Tax-Related Event (a "TAX-RELATED
NOTICE") to Contributor as soon as practicable after the occurrence of such
event becomes reasonably likely, or, if later, on the date on which the UPREIT
is, in the reasonable judgment of its securities counsel, legally permitted,
under applicable federal and state securities laws and regulations, and the
rules and regulations of the NASDAQ, to disseminate such Tax-Related Notice to
Contributor.
2.11.2. After delivering a Tax-Related Notice to Contributor,
the UPREIT and the REIT, and their respective independent accountants, attorneys
and other representatives and advisors, shall cooperate with Contributor in
order to consider strategies proposed by Contributor (it being understood that
neither the REIT nor the UPREIT shall have any obligation whatsoever to propose
any such strategies), on behalf of Contributor, which strategies are designed or
intended to defer or mitigate any recognition of gain under the Code by
Contributor or any shareholder of Contributor (any such gain recognition being
referred to herein as an "ADVERSE TAX CONSEQUENCE") that may result from a Tax-
Related Event, whether such strategies involve Contributor on a basis
independent of the REIT and the UPREIT, or in conjunction with the REIT or the
UPREIT. Each party shall pay its own fees and expenses incurred in connection
with the procedure delineated in this SECTION 2.11.2. In no event shall either
the REIT or the UPREIT be required to incur any expense (other than the cost of
professional fees and expenses and administrative expenses incurred in complying
with this SECTION 2.11) in connection its cooperation under this SECTION 2.11,
nor shall any transaction duly approved by the board of trustees of the REIT
that results in a Tax-Related Event be required to be suspended, postponed,
impeded or otherwise adversely affected by virtue of any
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potential Adverse Tax Consequence. The provisions of this SECTION 2.11 shall
survive the Closing and shall not merge into any of the conveyancing documents
delivered at Closing.
3. CLOSING. The payment of the Cash Amount and the contribution and
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delivery of LP Units contemplated herein shall be consummated at a closing
("CLOSING") to take place at the offices of Barack Ferrazzano Kirschbaum Perlman
& Nagelberg, 333 West Wacker Drive, Suite 2700, Chicago, Illinois 60606, on the
basis of a "New-York style" closing with a representative of the Title Company
(as defined below) in attendance. The Closing shall occur on September 29,
1998, at 9:30 a.m. Chicago time or at such later time (but in no event later
than December 31, 1998) and at such other place as the parties may agree upon in
writing (the "CLOSING DATE"). The Closing shall be effective as of 12:01 a.m.
Milwaukee time on the Closing Date. Notwithstanding the foregoing, the risk of
loss of all or any portion of any or all of the Project shall be borne by
Contributor up to and including the actual time of the Closing, and thereafter
by Acquiror, subject to the terms and conditions of SECTION 15 below.
4. CONTRIBUTOR'S DELIVERIES. To the extent in Contributor's possession or
------------------------
control, Contributor shall continue to make available to Acquiror, from and
after the Contract Date, at reasonable times and upon reasonable notice, all
documents, contracts, information, Records (as defined below) and exhibits
pertinent to the transaction that is the subject of this Agreement, including,
but not limited to, delivery to Acquiror of the documents listed as
"CONTRIBUTOR'S DELIVERIES" on EXHIBIT H attached hereto.
5. INSPECTION PERIOD.
-----------------
5.1. BASIC PROJECT INSPECTION. At all times prior to Closing,
------------------------
including times following the "INSPECTION PERIOD" (which Inspection Period is
defined to be the period from the Contract Date through and including the date
that is 45 days after the Contract Date), Acquiror, its agents and
representatives shall be entitled to conduct a "BASIC PROJECT INSPECTION," which
will include the rights to: (i) enter upon the Land and Improvements, on
reasonable notice to Contributor, to perform inspections and tests of the
Project, including, but not limited to, inspection, evaluation and testing of
the heating, ventilation and air-conditioning systems and all components thereof
(collectively, the "HVAC SYSTEM"), all structural and mechanical systems within
the Improvements, including, but not limited to, sprinkler systems, power lines
and panels, air lines and compressors, automatic doors, tanks, pumps, plumbing,
equipment, vehicles, Personal Property, roofs and parking lots; (ii) examine and
copy any and all books, records, tax returns, correspondence, financial data,
leases, and all other documents and matters, public or private, maintained by
Contributor or its agents, relating to receipts and expenditures pertaining to
the Project for the three most recent full calendar years and the current
calendar year and all contracts, rental agreements and all other documents and
matters, public or private, maintained by Contributor or its agents, relating to
operations of the Project and the LLC (collectively, the "RECORDS"); (iii) make
investigations with regard to zoning, environmental (including, but not limited
to, an environmental "Assessment" as specified in SECTION 5.5), building, code,
regulatory and other legal or governmental requirements; (iv) make or obtain
market studies and real estate tax analyses; and (v) interview Tenants with
respect to their current and prospective occupancies.
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5.2. PROVISION OF INFORMATION TO OTHERS. In addition, Contributor
----------------------------------
shall provide (and shall reasonably cooperate in so providing) Acquiror with
copies of, or access to, such factual information as may be reasonably requested
by Acquiror, and in the possession or control of Contributor, to enable the REIT
to issue (after Closing) one or more press releases concerning the transaction
that is the subject of this Agreement, to file a Current Report on Form 8-K (as
specified on EXHIBIT I attached hereto), if, as and when such filing may be
required by the Securities and Exchange Commission ("SEC") and to make any other
filings that may be required by any Governmental Authority (as defined below).
The obligation of Contributor to cooperate in providing Acquiror with such
information for the REIT to file its Current Report on Form 8-K shall survive
the Closing indefinitely and shall not be merged into any of the conveyancing
documents delivered at Closing. Without limitation of the foregoing, Acquiror
or its designated independent or other accountants may audit the Operating
Statements (as defined in EXHIBIT H attached hereto), and Contributor shall
supply such documentation as Acquiror or its accountants may reasonably request
in order to complete such audit.
5.3. TERMINATION RIGHT. If Acquiror, in its sole and absolute
-----------------
discretion, determines that the results of any inspection, test or examination
do not meet Acquiror's (or its underwriters', investment bankers', lenders',
ratings agencies' or investors') criteria for the purchase, financing or
operation of the Project in the manner contemplated by Acquiror, including, but
not limited to, if any inspection, test or examination reveals the presence of a
Hazardous Condition (as defined below), in or upon the Project, or the existence
of any USTs (as defined below) on, or under, the Land, or any deficiency or code
violation with respect to any aspect of the Project, or if the information
disclosed does not otherwise meet Acquiror's investment criteria or underwriting
for any reason whatsoever, or if Acquiror, in its sole and absolute discretion,
otherwise determines that the Project is unsatisfactory to it, then subject to
SECTION 5.7, Acquiror may terminate this Agreement by written notice to
Contributor (the "TERMINATION NOTICE"), given not later than the last day of the
Inspection Period (the "APPROVAL DATE"). Upon such termination, this Agreement
shall terminate, and neither party shall have any further liability to the other
under this Agreement, except as otherwise provided herein.
5.4. ADEQUATE CONSIDERATION. The parties hereto acknowledge that
----------------------
Acquiror may expend material sums of money in reliance on Contributor's
obligations under this Agreement, in connection with negotiating and executing
this Agreement, conducting the inspections contemplated by this SECTION 5 and
preparing for Closing, and that Acquiror would not have entered into this
Agreement without the availability of an Inspection Period. The parties
therefore agree that adequate consideration exists to support Contributor's
obligations hereunder, even before expiration of the Inspection Period.
Notwithstanding anything to the contrary contained in this Agreement, the effect
of any representations, warranties or undertakings made by Contributor in this
Agreement shall not be diminished, abrogated, or compromised by the Basic
Project Inspection, any Assessment or Additional Assessment (each as defined
below), or other inspections, tests or investigations made by Acquiror.
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5.5. ENVIRONMENTAL ASSESSMENT. During the Inspection Period, Acquiror
------------------------
or Acquiror's agent(s) shall have the right to employ one or more environmental
consultants or other professional(s) to perform or complete a so-called "Phase
I" environmental inspection and assessment (the "ASSESSMENT") of the Project,
and Contributor acknowledges and consents to such Assessment, to the full extent
contemplated under ASTM Document E 1527, which describes the "Phase I
Environmental Site Assessment Process." Acquiror and its consultants shall also
have the right to undertake or complete a technical review of all documentation,
reports, plans, studies and information in possession or control of Contributor,
or its past or present environmental consultants, concerning or in any way
related to the environmental condition of the Project. In order to facilitate
the Assessment and technical review, Contributor shall extend its full
cooperation (but without out-of-pocket expense to Contributor) to Acquiror and
its environmental consultants, including, without limitation, providing access
to all files and fully and completely answering all questions. The Assessment
shall evaluate the present and past uses of the Project, and the presence on,
in, under or at the Land (and on land sufficiently proximate to the Project as
to pose the risk of migration, or other adverse effect on the Project) of any
Hazardous Materials. In the event that (i) the results of the Assessment or
technical review are inconclusive, or (ii) the results of the Assessment or
technical review reveal material environmental matters unacceptable to Acquiror,
in its sole judgment, then Acquiror, at its sole option, shall have an
"ADDITIONAL PERIOD" of up to thirty days following the Inspection Period, to
allow for and accommodate additional required inspections and tests (the
"ADDITIONAL ASSESSMENT"), whether involving an ASTM "Phase II" evaluation or
otherwise. Such Additional Period, if applicable, shall automatically and
concomitantly extend the original Inspection Period, Approval Date and Closing
Date, on a day-to-day basis, for all relevant purposes hereunder.
5.6. DAMAGE DURING INSPECTION. Acquiror hereby covenants and agrees
------------------------
that it shall cause all studies, investigations and inspections (including, but
not limited to, the Assessment and Additional Assessment, if any), performed at
the Project pursuant to this SECTION 5 to be performed in a manner that does not
materially or unreasonably disturb or disrupt the tenancies or business
operations of any of the Project's Tenants. In the event that, as a result of
Acquiror's exercise of its rights under SECTIONS 5.1 and 5.5, physical damage
occurs to the Project, then Acquiror shall promptly repair such damage, at
Acquiror's sole cost and expense, so as to return the Project to substantially
the same condition as exists immediately prior to the commencement of the
Assessment or Additional Assessment, as the case may be. Acquiror hereby
indemnifies, protects, defends and holds each Contributor harmless from and
against any and all losses, damages, claims, causes of action, judgments,
damages, costs and expenses that such Contributor actually suffers or incurs as
a direct result of any physical damage caused to, in, or at the Project during
the course of, or as a result of, any or all of the studies, investigations and
inspections (including, but not limited to, the Assessment and Additional
Assessment, if any), that Acquiror elects to perform (or causes to be performed)
pursuant to this SECTION 5. The provisions of this SECTION 5.6 shall survive
the Closing and shall not merge into any instrument of conveyance delivered at
Closing.
5.7. TENANT INTERVIEWS. Contributor and Acquiror acknowledge that,
-----------------
notwithstanding any contrary term of SECTION 22.12, Acquiror shall have the
right to conduct
10
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Tenant interviews during the Inspection Period, and the disclosure of the
existence of this Agreement to the Tenants shall not constitute a breach of the
above restriction. Acquiror shall also have the right to issue a press release
upon the consummation of the transactions described in this Agreement.
6. TITLE AND SURVEY MATTERS.
------------------------
6.1. TITLE COMMITMENTS. Within 10 days after the Contract Date,
-----------------
Contributor shall cause to be delivered to Acquiror a commitment, dated after
the Contract Date, issued by Commercial Partners Title, LLC, as agent for
Lawyers Title Insurance Corporation (the "TITLE COMPANY"), for an owner's title
insurance policy (the "TITLE POLICY"), ALTA Owner's Policy Form B-1992 with
respect to the Project, together with legible and complete copies of all
recorded documents evidencing title exceptions raised in Schedule B of the title
commitment. The title commitment should reflect the full amount of the
Allocated Amount for the Project, show fee simple title to the Project in
Contributor, free and clear of all liens, claims and encumbrances except for the
following items (the "PERMITTED EXCEPTIONS"): (i) those matters that may be
approved by Acquiror during the Inspection Period; and (ii) the rights of
Tenants as tenants under the Leases. It shall be an Acquiror's Condition
Precedent that the Title Policies (or "marked-up" title commitments) shall be in
the form described in this SECTION 6.1 and have all standard and general printed
exceptions deleted so as to afford full "extended form coverage" (to the extent
available in the applicable jurisdiction), and, if and to the extent allowable
or available in the applicable jurisdiction, shall further include an owner's
comprehensive endorsement, ALTA Zoning Endorsement No. 3.1 (including parking);
an endorsement certifying that the bills for the real estate taxes pertaining to
the Land and Improvements do not include taxes pertaining to any other real
estate; an access endorsement; a contiguity endorsement, if applicable; a
subdivision or plat act endorsement; a survey endorsement; a Fairway
endorsement; a creditors' rights endorsement; and a non-imputation endorsement.
As an Acquiror's Condition Precedent, the commitment shall be later-dated to
cover the Closing and the delivery of the Contributed Interests by all of the
members of the LLC, consisting of 100% of the outstanding membership interests
of the LLC, and the Title Company shall deliver the Title Policy (or "marked-up"
title commitment) to Acquiror concurrently with the Closing.
6.2. SURVEY. Within 30 days after the Contract Date, Contributor
------
shall deliver to Acquiror, at Contributor's sole cost and expense, an as-built,
spotted survey of the Project (the "SURVEY"), prepared by a surveyor(s) duly
registered in the state in which the surveyed Project is located, and certified
by said surveyor with the form of certification attached hereto as EXHIBIT K.
The Survey shall be dated as of a date on or after the Contract Date, and
certified to Acquiror, the REIT, Acquiror's designated lender(s), if any, and
the Title Company. The Survey shall depict any and all encroachments of the
Improvements onto adjoining properties, any and all encroachments of adjacent
improvements onto the Project, easements, set-back lines and rights-of-way. The
Survey shall comply with any requirements imposed by the Title Company as a
condition to the removal of the survey exception from the standard printed
exceptions in Schedule B of the title commitment. The Survey shall state the
legal description of the Land, the square footage of the Land and each Building,
the number
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and location of all legal parking spaces on each parcel of Land, and shall
further state whether any parcel of Land is located in an area designated by an
agency of the United States as being subject to flood hazards or flood risks.
6.3. DEFECTS AND CURE. The items described in this SECTION 6 are
----------------
collectively referred to as "TITLE EVIDENCE." If the Title Evidence discloses
matters not acceptable to Acquiror in its sole and absolute discretion
(collectively, the "DEFECTS"), and that have not been waived pursuant to the
terms of this SECTION 6, Contributor shall, pursuant to the terms of this
SECTION 6.3, cause such Defects to be cured and removed from the Title Evidence
prior to Closing, subject, however, to the following limitations on
Contributor's obligations:
6.3.1. MANDATORY CURE ITEMS. Contributor shall render title to
--------------------
the Project free of the following Defects (the "MANDATORY CURE ITEMS"): (A)
liens, mortgages, deed of trust or trust deed securing obligations of either
Contributor or the LLC (except those liens securing any Assumed Indebtedness),
whether described in the title commitment, or first arising or first disclosed
by the Title Company to Contributor and Acquiror after the date of the Title
Evidence, and whether or not specified by Acquiror in any notice called for by
this SECTION 6; (B) any lien or claim not set forth on EXHIBIT J arising as a
result of, or due to, or because of, any willful or intentional act or negligent
omission of Contributor or the LLC, and whether or not specified by Acquiror in
any notice called for by this SECTION 6; (C) any mechanics lien to which
Acquiror objects in any notice delivered in accordance with this SECTION 6, or
that first arises or is first disclosed by the Title Company to Contributor and
Acquiror after the date of the title commitment, and that is based upon a
written agreement between either (1) the claimant (a "LIEN CLAIMANT") and either
of Contributor or the LLC, or a duly authorized agent of Contributor or the LLC,
or (2) the Lien Claimant and any other contractor, supplier or materialman with
which Contributor, the LLC, or either of its duly authorized agents has a
written agreement; (D) judgment liens against any or all of Contributor, the LLC
and the Project; and (E) delinquent tax and assessment liens.
6.3.2. CURE OF MANDATORY CURE ITEMS. As an Acquiror's Condition
----------------------------
Precedent, such Mandatory Cure Items shall, at Contributor's expense, be cured
and removed by Contributor from the Title Evidence prior to Closing (or insured
over by the Title Company, in form and substance reasonably satisfactory to
Acquiror). If, prior to Closing, Contributor fails to so cure all Mandatory
Cure Items, or if Contributor fails to cause all Mandatory Cure Items to be
insured over by the Title Company (to Acquiror's reasonable satisfaction), then
Acquiror may either (y) terminate this Agreement by written notice to
Contributor, in which event this Agreement shall terminate and neither party
shall have any further liability to the other party hereunder, except as
otherwise expressly provided herein; or (z) proceed to close by deducting from
the Contribution Consideration the amount necessary to cure such Mandatory Cure
Items (if such Mandatory Cure Items are of a liquidated nature and an
ascertainable monetary amount, or can be endorsed over by the Title Company by
the payment or deposit in escrow of a liquidated and ascertainable amount)
and/or cause the Title Company to insure and/or endorse over such Mandatory Cure
Items, provided that the terms of such insurance and/or endorsements are
reasonably satisfactory to Acquiror. If Acquiror fails to make an affirmative
election of (y) or (z) above prior to Closing, then Acquiror shall be
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conclusively deemed to have accepted title to the Project, subject to the
Mandatory Defects in question.
6.3.3. OTHER DEFECTS. Subject to SECTION 6.3.4, Contributor shall
-------------
render title to the Project free of the following Defects ("OTHER DEFECTS") that
are either (a) not a Mandatory Cure Item or (b) not a Defect about which
Contributor notifies Acquiror in writing at least five business days prior to
the expiration of the Inspection Period that it shall not be obligated to cure,
Contributor shall be required to use good faith, reasonable and diligent efforts
to render title to the Project free of such Other Defects prior to Closing.
6.3.4. CURE OF OTHER DEFECTS. Notwithstanding anything to the
---------------------
contrary contained in this Agreement, Contributor shall not have any obligation
to spend more than $50,000 in its good faith, reasonable and diligent efforts to
cure any or all Other Defects encumbering or affecting the Project. If, prior
to Closing, Contributor fails to so cure all Other Defects, or if Contributor
fails to cause all Other Defects to be insured over by the Title Company (in
form and substance reasonably satisfactory to Acquiror), then Acquiror may
either (A) terminate this Agreement by written notice to Contributor, in which
event neither party shall have any further liability to the other party
hereunder, except as otherwise provided herein; or (B) elect to close, subject
to the Other Defects, in which event Acquiror may deduct from and reduce the
Contribution Consideration by the amount required to cure or insure over the
Other Defects, subject, however, to the above specified monetary limitation. If
Acquiror fails to make an affirmative election of (A) or (B) above prior to
Closing, then Acquiror shall be conclusively deemed to have accepted title to
the Project, subject to the Other Defects in question.
7. REPRESENTATIONS AND WARRANTIES.
------------------------------
7.1. CONTRIBUTOR. Except as otherwise set forth on SCHEDULE 7.1,
-----------
Contributor represents and warrants to Acquiror that the following matters are
true as of the Contract Date and shall be true as of the Closing Date, and
covenants as follows:
7.1.1. PROJECT.
-------
7.1.1.1. DESCRIPTIVE INFORMATION. To Contributor's
-----------------------
knowledge, the descriptive information concerning the Project set forth in
SECTION 1 and in all exhibits referred to in SECTION 1 is complete, accurate,
true and correct, in all material respects.
7.1.1.2. TITLE. The LLC is a single asset limited
-----
liability company, the sole asset of which is the Project. The LLC is the legal
fee simple titleholder of the Project and, other than with respect to the
Permitted Exceptions, has or will at Closing have, good, marketable and
insurable title to the Project, free and clear of all mortgages and security
interests, leases, agreements and tenancies (other than the Leases), licenses,
claims, options, options to purchase, liens, covenants, conditions,
restrictions, rights-of-way, easements, judgments and other matters affecting
title to the Project.
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7.1.1.3. CONTRIBUTOR'S DELIVERIES. To Contributor's
------------------------
knowledge, all of Contributor's Deliveries listed on EXHIBIT H attached hereto
and all other items delivered by Contributor pursuant to this Agreement,
including, without limitation, those required pursuant to SECTION 4, are true,
accurate, correct and complete in all material respects, and fairly present the
information set forth in a manner that is not materially misleading. To
Contributor's knowledge, the copies of all documents and other agreements
delivered or furnished and made available by Contributor to Acquiror pursuant to
this Agreement include all of and the only Leases and other written agreements
relating to or affecting the ownership and operation of the Project, there being
no "side" or other agreements in force or effect, to which either Contributor or
the LLC is a party or to which the Project is subject.
7.1.1.4. DEFAULTS. To its knowledge, neither Contributor
--------
nor the LLC is in default under any of the documents, recorded or unrecorded,
referred to in the title commitment, nor has Contributor or the LLC received any
written notice alleging the existence of any such default. To its knowledge,
neither Contributor nor the LLC is in default under any of the Major Repair
Contracts, Contracts or Governmental Approvals (as such terms are defined in
EXHIBIT H attached hereto), nor does Contributor have any knowledge of any
written notice alleging the existence of any such default.
7.1.1.5. CONTRACTS. To Contributor's knowledge, each of
---------
Contributor and the LLC has performed all material obligations required to be
performed by it under all, and, to its knowledge, is not in default under any,
contracts of any kind relating to the management, leasing, operation,
maintenance or repair of the Project ("CONTRACTS"). To Contributor's knowledge,
all the Contracts may, by the express terms thereof (i) be assigned to Acquiror,
by notice to such effect to the appropriate contract party, without penalty or
other payment by Contributor, the LLC or Acquiror and (ii) be terminated without
penalty or other payment by Contributor or the LLC (or its assignee, including
Acquiror, or successor) upon no more than 30 days' prior notice.
7.1.1.6. PHYSICAL CONDITION. To Contributor's knowledge,
------------------
there is no existing patent or latent structural or other physical defect or
deficiency in the condition of the Project, or any component or portion thereof,
that would or could impair or impose material costs upon the use, occupancy or
operation of the Project, and that has not been fully corrected. To
Contributor's knowledge, there is no material defect or deficiency in the
Improvements, the structural elements thereof, the mechanical systems
(including, without limitation, all HVAC System, plumbing, electrical, elevator,
security, utility and sprinkler systems) therein, or the roof of any Building,
nor, to Contributor's knowledge, has Contributor or the LLC received any written
notice from any Tenant or any other party alleging the existence of any such
defect or deficiency.
7.1.1.7. UTILITIES. To Contributor's knowledge, all water,
---------
sewer, gas, electric, telephone, drainage and other utility equipment,
facilities and services required by law or necessary for the operation of the
Project as it is now being operated, and as required for operation of the
Buildings, are installed and connected pursuant to valid
14
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permits, are adequate to service the Project, and are in good operating
condition. To Contributor's knowledge, no fact or condition exists that would or
could result in the termination or impairment of the furnishing of service to
the Project of water, sewer, gas, electric, telephone, drainage or other such
utility services. Contributor or the LLC has paid all amounts owing for utility
services as of the most recent billing period (except to the extent that Tenants
are directly billed for such services).
7.1.1.8. IMPROVEMENTS. To Contributor's knowledge, the
------------
Improvements were completed and installed in accordance with the Plans (as
defined in EXHIBIT H attached hereto), which were approved by all Governmental
Authorities having jurisdiction thereover, and do not violate any governmental
laws, ordinances, rules or regulations.
7.1.1.9. EMPLOYEES. To Contributor's knowledge, the LLC
---------
has no and has never had any employees or independent consultants whatsoever.
To Contributor's knowledge, neither the LLC nor the Project is subject to any
collective bargaining or other agreement or understanding with any labor union,
and the LLC is not privy to or involved in any labor or union controversy or
other interaction of any kind.
7.1.1.10. COMPLIANCE WITH LAWS AND CODES. Contributor has
------------------------------
no knowledge of the delivery to Contributor or the LLC of any written notice
alleging, and Contributor has no knowledge that the Project, and the use and
operation of the Project, is not (or the use and operation of any component,
portion or area of the Project is not) in compliance with all applicable
municipal and other governmental laws, ordinances, regulations, codes, licenses,
permits and authorizations. To Contributor's knowledge, there are presently and
validly in effect all licenses, permits and other authorizations necessary
(including, without limitation, certificates of occupancy) for the use,
occupancy and operation of the Project as it is presently being operated,
whether required of Contributor, the LLC or any Tenant. To Contributor's
knowledge, the Project does not constitute a non-conforming use or non-
conforming structure under applicable present zoning laws. To Contributor's
knowledge, no zoning, subdivision, environmental, Hazardous Material (as defined
below), building code, health, fire, safety or other law, order or regulation
is, or on the Closing Date will be, violated by the continued maintenance,
operation or use of any Improvements or parking areas in the Project, and
neither Contributor nor the LLC has received any written notice alleging the
existence of any such violation from any Governmental Authority having
jurisdiction over the Project. To Contributor's knowledge, all driveway
entrances and exits to the Project are permanent, and no special access or other
permits are required to maintain same. To Contributor's knowledge, all existing
streets and other improvements, including water lines, sewer lines, sidewalks,
curbing and streets, at the Project have been paid for and either enter the
Project through adjoining public streets, or, if they enter through private
lands, do so in accordance with valid, irrevocable easements running with the
ownership of the Project.
7.1.1.11. LITIGATION. To Contributor's knowledge, neither
----------
Contributor nor the LLC has been served with a summons and complaint for any
pending or
15
<PAGE>
(nor, to Contributor's knowledge, is there any threatened), judicial,
municipal or administrative proceedings affecting the Project or ownership of
the Contributed Interests or in which Contributor is or will be a party by
reason of Contributor's ownership or operation of the Project or ownership of
the Contributed Interests or any portion thereof or in which the LLC is or will
be a party for any reason, including, without limitation, proceedings for or
involving collections, condemnation, eminent domain, alleged building code or
environmental or zoning violations, or personal injuries or property damage
alleged to have occurred on the Project or by reason of the condition, use of,
or operations on, the Project. To Contributor's knowledge, no attachments,
execution proceedings, assignments for the benefit of creditors, insolvency,
bankruptcy, reorganization or other proceedings are pending against Contributor,
the Contributed Interests or the LLC, or to Contributor's knowledge, threatened
against Contributor, the Contributed Interests or the LLC.
7.1.1.12. INSURANCE. To Contributor's knowledge, the LLC now has in
---------
force commercially reasonable levels of property, liability and business
interruption insurance relating to the Project. Contributor has no knowledge of,
and neither Contributor nor the LLC has received any written notice from any
insurance carrier alleging the existence of, any defects or inadequacies in the
Project that, if not corrected, would result in termination of insurance
coverage or increase in the normal and customary cost thereof.
7.1.1.13. FINANCIAL INFORMATION. To Contributor's knowledge, all
---------------------
Operating Statements (as defined in EXHIBIT H attached hereto) delivered by
Contributor, and all of Contributor's Records, are complete, accurate, true and
correct, in all material respects; all of the foregoing have been compiled in
accordance with generally accepted accounting principles; and accurately set
forth, in all material respects, the results of the operation of the Project for
the periods covered. To Contributor's knowledge, there has been no material
adverse change in the financial condition or operation of the Project since the
period covered by the Operating Statements.
7.1.1.14. RE-ZONING. To Contributor's knowledge, there is not now
---------
pending (nor is there threatened) any proceeding for the rezoning of the Project
or any portion thereof, or for the taking of any other action by governmental
authorities that would have an adverse or impact on the value of the Project or
use thereof.
7.1.1.15. PERSONAL PROPERTY. To Contributor's knowledge, the
-----------------
Personal Property listed in EXHIBIT C attached hereto is all of the personal
property owned by the LLC and used in (or necessary for) the operation of the
Project. To Contributor's knowledge, all such Personal Property is in good and
operable condition and repair, and free of material defects.
7.1.1.16. REAL ESTATE TAXES. True and complete copies of the most
-----------------
recent real estate "TAX BILL(S)" for (and the only real estate tax bills
applicable to) the Project have been delivered to Acquiror. Neither Contributor
nor the LLC has received written notice of, nor does either of them have any
knowledge of any proposed increase in the assessed valuation or rate of taxation
of the Project from that reflected in the most recent Tax
16
<PAGE>
Bills. To Contributor's knowledge, there is not now pending, and Contributor
agrees that neither it nor the LLC will, without the prior written consent of
Acquiror (which consent shall not be unreasonably withheld or delayed),
institute prior to the Closing Date, any proceeding or application for a
reduction in the real estate tax assessment of the Project or any other relief
for any tax year. To Contributor's knowledge, there are no outstanding
agreements with attorneys or consultants with respect to the Tax Bills that will
be binding on Acquiror or the LLC or the Project after the Closing. Other than
the amounts disclosed by the Tax Bills, to Contributor's knowledge, no other
real estate taxes have been, or will be, assessed against the Project, or any
portion thereof, in respect of the year 1998 or any prior year, and no special
assessments of any kind (special, bond or otherwise) are or have been levied
against the Project, or any portion thereof, that are outstanding or unpaid,
and, to Contributor's knowledge, none will be levied prior to Closing. To
Contributor's knowledge, Contributor or the LLC has paid all real estate taxes
presently due and owing with respect to the Project.
7.1.1.17. UNITED STATES PERSON. Contributor is a "United States
--------------------
Person" within the meaning of Section 1445(f)(3) of the Code, as amended, and
shall execute and deliver an "Entity Transferor" certification at Closing.
7.1.1.18. EXISTING MORTGAGE(S). EXHIBIT D attached hereto sets forth
--------------------
a true, correct and complete schedule of those mortgage(s) or trust deed(s)
("EXISTING MORTGAGES") presently encumbering the Project or any portion thereof.
To Contributor's knowledge, each of Contributor and the LLC has complied with
the terms of, and all notices or correspondence received from the holder of, the
promissory notes evidencing the loans (the "EXISTING LOANS") secured by the
Existing Mortgages (the "EXISTING NOTES"), the Existing Mortgages, and all other
documents securing the Existing Notes (collectively, with the Existing Loans and
the Existing Notes, the "EXISTING LOAN DOCUMENTS"). Contributor or the LLC has
paid all sums due under the Existing Notes, Existing Mortgages and Existing Loan
Documents. To Contributor's knowledge, the Existing Notes and Existing Mortgages
are in full force and effect. To Contributor's knowledge, neither Contributor
nor the LLC is in default under the Existing Loan Documents, nor has there not
occurred any event which, with the giving of notice and/or the passage of time,
or both, would constitute a default by Contributor or the LLC thereunder or
under any of the Existing Loan Documents. The Existing Notes may prepaid or
assumed without payment of any fee, penalty or additional interest charge.
7.1.1.19. CONDEMNATION. Contributor has no knowledge of pending or
------------
contemplated condemnation or other governmental taking proceedings affecting all
or any part of the Project.
7.1.1.20. EASEMENTS AND OTHER AGREEMENTS. Contributor has no
------------------------------
knowledge, and neither Contributor nor the LLC has received any written notice
alleging, that either Contributor or the LLC is in default in complying with the
terms and provisions of any of the covenants, conditions, restrictions, rights-
of-way or easements constituting one or more of the Permitted Exceptions.
17
<PAGE>
7.1.1.21. CERTAIN ASSOCIATIONS. SCHEDULE 7.1 attached hereto
--------------------
includes and reflects the only associations (or similar entities) that are
charged with enforcing any or all of the terms, covenants, restrictions and
other matters contained in any recorded document with respect to the Project to
which Contributor, the LLC or any of the Tenants has paid any money during the
12-month period preceding the Closing Date, and the amount of money so paid and
the reason for such payment.
7.1.1.22. HOLDING PERIODS; USE; CAPITAL EXPENDITURES. For
------------------------------------------
purposes of Code Sections 1223 and 857, the LLC has held the Project for no less
than four years prior to the Closing Date. During the four-year period preceding
the Closing Date, the LLC held the Project exclusively for the production of
rental income and never held the Project primarily for sale in the ordinary
course of the LLC's trade or business. If, at any time or from time to time
during the four-year period preceding the Closing Date, the LLC has made capital
expenditures with respect to the Project, and such expenditures are includible
in the adjusted tax basis of the Project for federal income tax purposes, then
the aggregate amount of all such capital expenditures made during that four-year
period are less than the amount that is 30% of the Allocated Amount.
7.1.2. INVESTMENT REPRESENTATION. Contributor represents that its
-------------------------
LP Units are being acquired by it with the present intention of holding such LP
Units for purposes of investment, and not with a view towards sale or any other
distribution. Contributor recognizes that it may be required to bear the
economic risk of an investment in the LP Units for an indefinite period of time.
Contributor is an Accredited Investor. Contributor has such knowledge and
experience in financial and business matters so as to be fully capable of
evaluating the merits and risks of an investment in the LP Units. No LP Units
will be issued, delivered or distributed to any person or entity who either (i)
is a resident of the State of California or New York or (ii) is other than an
Accredited Investor with respect to whom there has been delivered to Acquiror
satisfactory Accredited Investor Questionnaires confirming the status of such
person or entity as an Accredited Investor. Contributor has been furnished with
the informational materials described in SECTIONS 2.4 and 2.5 (collectively, the
"INFORMATIONAL MATERIALS"), and has read and reviewed the Informational
Materials and understands the contents thereof. Contributor has been afforded
the opportunity to ask questions of those persons it considers appropriate and
to obtain any additional information it desires in respect of the LP Units and
the business, operations, conditions (financial and otherwise) and current
prospects of Acquiror and the REIT. Contributor has consulted its own
financial, legal and tax advisors with respect to the economic, legal and tax
consequences of delivery of the LP Units and has not relied on the Informational
Materials, Acquiror, the REIT or any of their officers, trustees, affiliates or
professional advisors for such advice as to such consequences. Contributor does
not require the consent of any of its shareholders in order to consummate the
transactions contemplated by this Agreement, including, without limitation, to
amend any charter or other governing document of Contributor, and no shareholder
of Contributor has been solicited to approve the transactions contemplated by
this Agreement. Contributor has its principal place of business in the State of
Wisconsin.
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<PAGE>
7.1.3. TITLE TO INTERESTS. (a) Contributor is the sole legal and
------------------
beneficial holder of the Contributed Interests; (b) Contributor has good and
marketable title to the Contributed Interests free and clear of any charges,
claims, rights or options to purchase, liens, pledges, encumbrances, security
interests or restrictions whatsoever; (c) Contributor has the full and
unrestricted right to exercise any and all powers granted to it pursuant to the
certificate of limited liability company of the LLC, the operating agreement of
the LLC and all other organizational documents of the LLC pursuant to which the
LLC is organized or authorized to do business (collectively, the "ORGANIZATIONAL
DOCUMENTS"); (d) Contributor has the right to transfer absolute ownership of the
Contributed Interests to UPREIT or an Affiliate, as the case may be; (e)
Contributor is not in default of its obligations to the LLC pursuant to the
Organizational Documents; (f) all of the Contributed Interests have been fully
paid and are non-assessable; and (g) Contributor has no legal obligation,
absolute or contingent, to any other person or entity to sell, transfer, convey,
assign or otherwise dispose of the Contributed Interests or to enter into any
agreement with respect thereto.
7.1.4. OWNERSHIP OF THE LLC. As of the Closing Date, Contributor will
--------------------
own 100% of the outstanding membership interests in the LLC and no person other
than Contributor (and, upon Closing, Acquiror or an Affiliate) shall have any
right, claim or interest in the profits and losses of the LLC. Upon Closing,
Contributor shall have conveyed 100% of its limited liability company membership
interests in the LLC to Acquiror and Acquiror (or an Affiliate) will receive
from Contributor collectively 100% of the limited liability company membership
interests in the LLC.
7.1.5. TAX-RELATED ISSUES. The LLC has filed or caused to be filed in a
------------------
timely manner (within any applicable extension periods) all tax, information or
other returns required to be filed by the Code or by applicable state, or local
tax laws (collectively, "TAX RETURNS"). Such Tax Returns are true, correct and
complete in all material respects, and all federal, state or local income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, unemployment, disability, personal property, sales, use, transfer,
registration, estimated, or other tax of any kind whatsoever, including any
interest, penalty or other addition thereto, whether disputed or not,
(collectively, "TAXES") due, and Taxes due in respect of any person for which
the LLC had an obligation to withhold and/or otherwise pay over Taxes, have been
timely paid in full or will be timely paid in full by the due date thereof (and
whether or not shown on a Tax Return). With respect to any taxable year for
which a statute of limitations (or similar provision) has not yet run, none of
the Tax Returns of the LLC has been audited by a government or taxing authority,
nor is any such audit or other proceeding in process, pending, or threatened, in
writing, with respect to Taxes (or the collection of Taxes) of the LLC , and the
LLC has not received written notice that it has not filed a Tax Return or not
paid Taxes required to be filed, withheld, or paid by it. The LLC has disclosed
on its federal income tax returns all positions taken therein that could give
rise to a substantial understatement penalty within the meaning of Code Section
6662. No claim has ever been made by an authority in a jurisdiction where the
LLC does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction .
19
<PAGE>
7.1.6. AUTHORITY. The execution and delivery of this Agreement by
---------
Contributor and the performance of this Agreement by Contributor has been duly
authorized by Contributor, and this Agreement is binding on Contributor and
enforceable against it in accordance with its terms. No consent of any
creditor, investor, partner, shareholder, tenant-in-common, judicial or
administrative body, Governmental Authority, or other governmental body or
agency, or other party to such execution, delivery and performance by
Contributor is required. Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in a breach
of, default under, or acceleration of, any agreement to which Contributor is a
party or by which Contributor, the Project (to Contributor's knowledge) or the
LLC is bound; or (ii) violate any restriction, court order, agreement or other
legal obligation to which any of Contributor, the LLC or the Project (to
Contributor's knowledge) is subject.
7.1.7. BULK SALES. The contribution of the Contributed Interests by
----------
Contributor to Acquiror hereunder and the consummation of the other transactions
contemplated by this Agreement are not subject to, and does not subject Acquiror
to, any liability for income tax, retail sales tax or bulk sales obligation
under applicable Wisconsin law.
7.1.8. ORGANIZATIONAL DOCUMENTS AND FINANCIAL STATEMENTS.
-------------------------------------------------
Contributor has delivered true, accurate and complete copies of (i) the
Organizational Documents; and (ii) any and all balance sheets, operating
statements, tax returns and other comparable filings and records relating to
receipts and expenditures by the LLC, the net income or loss of the LLC,
allocation of profits and losses among members of the LLC, distributions to
members of the LLC, capital contributions of members of the LLC, and other
comparable records (collectively, "FINANCIAL STATEMENTS"), all of which have
been compiled in accordance with generally accepted accounting principles
consistently applied and accurately set forth the results of operations of the
LLC. The Financial Statements accurately set forth the allocation of profit and
loss between members of the LLC and distributions to and from members of the LLC
and there has been no material adverse change in the financial condition of the
LLC since the date of the last Financial Statement.
7.1.9. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE
---------------------------
7.1.9, the LLC has no liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature whatsoever, except for liabilities and
obligations that are expressly set forth in the Financial Statements and accrued
and reserved against as therein set forth. To Contributor's knowledge, SCHEDULE
7.1.9 contains a reasonable estimate by Contributor of the maximum amount which
may be payable with respect to liabilities which are not fixed. No existing
member or former member of the LLC has made any loans to the LLC nor has any
existing member or former member of the LLC received any loan from the LLC,
which will not be paid in full and finally and irrevocably released and
discharged on or prior to Closing. No existing member or former member of the
LLC is entitled to receive any pay out, earn out, option fee or comparable
incentive or "earn out" feature in connection with the transactions contemplated
hereby, whether pursuant to the Organizational Documents or any other formal or
informal agreement, arrangement or understanding between any member (or any
former
20
<PAGE>
member of the LLC) and the LLC, which will remain in effect subsequent to
Closing. Upon the assignment of the Contributed Interests to Acquiror or an
Affiliate, as the case may be, pursuant to this Agreement, Acquiror or the
Affiliate, as the case may be, shall be legally and beneficially vested with
good and indefeasible title to such Contributed Interests, free and clear of any
and all liens, claims, charges, restrictions and/or encumbrances.
7.1.10. CONTROL OF RECORDS. The Contributor's Deliveries, including,
------------------
but not limited to, the Financial Statements, with respect to the LLC and the
Project (i) are in the possession and control of Contributor and (ii) have been
maintained within the possession and control of Contributor since the inception
of the ownership of the Project by the LLC.
7.2. ACQUIROR. Acquiror represents and warrants to Contributor that the
--------
following matters are true as of the Contract Date and shall be true as of the
Closing Date:
7.2.1. TAX STATUS. Acquiror will be formed to be classified as a
----------
partnership or a publicly traded partnership taxable as a partnership for
federal income tax purposes and not an association taxable as a corporation or a
publicly traded partnership taxable as a corporation. The REIT is a real estate
investment trust under Sections 856 through 860 of the Code and is in compliance
with all of the requirements therefor under such sections of the Code, and the
transactions contemplated hereby, including the formation of the Acquiror, shall
not affect the status of the REIT as a real estate investment trust under the
Code.
7.2.2. ACQUIROR AUTHORITY. Acquiror's execution and delivery of
------------------
this Agreement and the consummation of the transaction described herein will
have been duly authorized by all appropriate actions and proceedings. Acquiror
is a limited partnership duly authorized and validly existing, and in good
standing, under Delaware law, and the person(s) signing this Agreement on behalf
of Acquiror has the power and authority to enter into and perform this Agreement
in accordance with its terms; and at the Closing. No consents of third parties
are required in connection with Acquiror's execution, delivery and performance
of this Agreement, other than the consent of at least 51% of the REIT's
shareholders.
7.2.3. EXISTING PROPERTIES. The REIT is the 100% shareholder in two
-------------------
Qualified REIT Subsidiaries (each, a "QRS") which own in fee simple the
properties (the "EXISTING PROPERTIES"). The Existing Properties, including
operating statements and information about any financing relating thereto, are
fully and accurately described in the REIT's 10-K.
7.2.4. QUALIFICATION. The REIT is qualified to do business in all
-------------
states in which it is required to be so qualified in order to own and manage the
Existing Properties. Acquiror is qualified to do business in all states in
which it is required to be so qualified in order to own and manage the Project.
7.2.5. INFORMATIONAL MATERIALS. The Informational Materials
-----------------------
completely and accurately describe the business, operations and other material
facts about the REIT.
21
<PAGE>
7.2.6. NO MATERIAL ADVERSE CHANGE. Since March 31, 1998, no change
--------------------------
has occurred that would have a material adverse effect on either the REIT or the
Existing Properties.
7.2.7. TERMINATION OF EXISTING FEE AGREEMENTS. At Closing, neither
--------------------------------------
the REIT nor Acquiror shall have any obligation to pay advisory or other
brokerage fees to WMC Realty, Inc. ("WRI"), Contributor or any other party; the
REIT shall have terminated any agreement containing any such obligation; and the
REIT shall have paid no fee or incurred no liability in connection with the
termination of any such agreements prior to Closing, except as provided in
SECTION 18 below.
The representations and warranties made in this Agreement by Contributor and
Acquiror shall be deemed remade by Contributor or Acquiror, as the case may be,
as of the Closing Date with the same force and effect as if, in fact,
specifically remade at that time. Except for the representations and warranties
made by Contributor that are contained in SECTION 9.2, which shall survive the
Closing for a period of two years, all representations and warranties made in
this Agreement by Contributor or Acquiror shall survive the Closing for a period
of one year. As used in this Agreement with respect to any representation or
warranty, the "knowledge" of Contributor refers to the actual knowledge of
Arnold Leas and Robert Rice (the "EXECUTIVES"), without duty of inquiry or
investigation. Without limiting the foregoing, if Acquiror is specifically
notified in any written reports delivered to Acquiror by Contributor, or in the
professional written reports and studies prepared for Acquiror as part of the
Basic Project Inspection of the untruth of any representation or warranty made
by Contributor hereunder, and Acquiror nevertheless elects to close under this
Agreement, then Acquiror shall be deemed to have waived the breach in question
and shall not assert any post-Closing claim against Contributor with respect to
that breach. Such waiver shall not limit Acquiror's right to refuse to close
based on Contributor's breach of a representation and warranty under
circumstances other than as set forth above.
8. PRE-CLOSING COVENANTS.
---------------------
8.1. CONTRIBUTOR. Contributor hereby covenants with Acquiror as
-----------
follows:
8.1.1. NEW LEASES. Prior to Closing, Contributor shall, and
----------
shall cause the LLC to, neither amend any Lease in any economic or other
material respect nor execute any new lease, license, or other agreement
affecting the ownership or operation of any portion of the Project or for
personal property, equipment, or vehicles, without Acquiror's prior written
approval (which approval shall automatically be deemed given if not disapproved,
in writing, within five business days following Contributor's written request
for approval) .
8.1.2. NEW CONTRACTS. Prior to Closing, Contributor shall, and
-------------
shall cause the LLC to, not enter into any contract with respect to the
ownership and operation of all or any portion of the Project that will survive
the Closing, or that would otherwise affect the use, operation or enjoyment of
the Project, without Acquiror's prior written approval (which approval shall
automatically be deemed given if not disapproved, in writing, within five
business days following Contributor's written request for approval), except for
service
22
<PAGE>
contracts entered into in the ordinary course of business that are terminable,
without penalty, on not more than 60 days' notice, for which no consent shall be
required.
8.1.3. INSURANCE. The insurance policies described in SECTION
---------
7.1.1.12 above shall remain continuously in force through and including the
Closing Date.
8.1.4. OPERATION OF PROJECT. Prior to Closing, Contributor
--------------------
shall, and shall cause the LLC to, operate and manage the Project in the same
manner as in effect on the Contract Date, maintaining present services
(including, but not limited to, pest control), and shall maintain the Project in
good repair and working order; shall keep on hand sufficient materials,
supplies, equipment and other Personal Property for the efficient operation and
management of the Project in the same manner as in effect on the Contract Date;
and shall perform, when due, all of Contributor's and the LLC's obligations
under the Leases, Contracts, Governmental Approvals and other agreements
relating to the Project and otherwise in accordance with applicable laws,
ordinances, rules and regulations affecting the Project. Except as otherwise
specifically provided herein, the Project shall be at Closing in substantially
the same condition it is in on the Contract Date, reasonable wear and tear and
casualty excepted. None of the Personal Property, fixtures or Inventory shall be
removed from the Project, unless replaced by personal property, fixtures or
inventory of equal or greater utility and value.
8.1.5. PRE-CLOSING EXPENSES. Contributor or the LLC has paid
--------------------
or will pay in full, prior to Closing, all bills and invoices for labor, goods,
material and services of any kind relating to the Project and utility charges,
relating to the period prior to Closing. Except as the parties may otherwise
agree herein, any alterations, installations, decorations and other work
required to be performed under any and all agreements affecting the Project will
be completed and paid for in full by the Closing.
8.1.6. NO ASSIGNMENT. After the Contract Date and prior to
-------------
Closing, Contributor shall not, and Contributor shall cause the LLC to not,
assign, alienate, lien, encumber or otherwise transfer all or any part of the
Project or any interest in any or all of them.
8.1.7. CHANGE IN CONDITIONS. Contributor shall promptly notify
--------------------
Acquiror of any change in any condition with respect to the LLC or the Project
or of the occurrence of any event or circumstance that makes any representation
or warranty of Contributor to Acquiror under this Agreement untrue or
misleading, in any material respect, or any covenant of Acquiror under this
Agreement incapable or less likely of being performed, in any material respect,
it being understood that Contributor's obligation to provide notice to Acquiror
under this SECTION 8.1.7 shall in no way relieve Contributor of any liability
for a breach by Contributor of any of its representations, warranties or
covenants under this Agreement.
8.1.8. CURE OF VIOLATIONS. In addition to Contributor's
------------------
obligations under SECTION 9, on or before the Closing Date, Contributor shall
cure (or escrow sufficient funds at Closing with the Title Company to cure) (i)
all violation(s) of law, code, ordinance or
23
<PAGE>
regulation that are the subject of any written notice issued (after the
expiration of the Inspection Period) by a Governmental Authority with respect to
the Project, and (ii) legal deficiencies discovered at or in the Project or in
the LLC or the Organizational Documents before the Closing. Notwithstanding the
foregoing, however, the maximum amount that Contributor shall be obligated to
expend for the cure of such violations at the Project is $10,000.00; provided,
however, that there shall be no monetary limit with respect to curing legal
deficiencies with respect to the LLC or the Organizational Documents.
8.1.9. NO CHANGE TO ORGANIZATIONAL DOCUMENTS. From the
-------------------------------------
Contract Date through and including the Closing Date, except as contemplated by
SECTION 8.1.8, neither Contributor nor the LLC shall amend or alter its
Organization Documents, unless otherwise required hereunder to effectuate the
transactions contemplated hereby, provided such amendment is consented to in
writing by Acquiror (which consent shall not be unreasonably withheld or
delayed).
Except as may otherwise be specifically provided in this Agreement, Acquiror
shall have the right to claim a breach of the covenants set forth in this
SECTION 8, and any other covenant of Contributor set forth in this Agreement
that specifically obligates it on a pre-Closing basis only, at any time prior to
the first anniversary of the Closing. Nothing contained in the immediately
preceding sentence shall limit the remedies that may be available to Acquiror in
the event that Contributor breaches a post-closing covenant set forth in this
Agreement. No covenant made in this Agreement shall be merged into any of the
conveyancing documents delivered at Closing.
8.1.10. PREDICATES TO CLOSING DELIVERIES. Contributor shall
--------------------------------
take all actions reasonably necessary to allow Contributor to make its Closing
Deliveries pursuant to SECTION 12.1.
9. ENVIRONMENTAL WARRANTIES AND AGREEMENTS.
---------------------------------------
9.1. DEFINITIONS. Unless the context otherwise requires:
-----------
9.1.1. "ENVIRONMENTAL LAW" or "ENVIRONMENTAL LAWS" shall mean
all applicable past, present or future federal, state and local statutes,
regulations, directives, ordinances, rules, court orders, decrees, arbitration
awards and the common law, which pertain to environmental matters, contamination
of any type whatsoever or health and safety matters, as such have been amended,
modified or supplemented from time to time (including all present and future
amendments thereto and re-authorizations thereof). Environmental Laws include,
without limitation, those relating to: (a) the manufacture, processing, use,
distribution, treatment, storage, disposal, generation or transportation of
Hazardous Materials; (b) air, soil, surface, subsurface, groundwater or noise
pollution; (c) Releases; (d) protection of wildlife, endangered species,
wetlands or natural resources; (e) Tanks; (f) health and safety of employees and
other persons; and (g) notification requirements relating to the foregoing.
Without limiting the above, Environmental Law also includes the following: (i)
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. (S)(S) 9601 et seq.), as amended ("CERCLA"); (ii) the Solid Waste
-- ---
Disposal Act, as amended by the
24
<PAGE>
Resource Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.), as
-- ---
amended ("RCRA"); (iii) the Emergency Planning and Community Right to Know Act
of 1986 (42 U.S.C. (S)(S) 11001 et seq.), as amended; (iv) the Clean Air Act (42
-- ---
U.S.C. (S)(S) 7401 et seq.), as amended; (v) the Clean Water Act (33 U.S.C.
-- ---
(S)1251 et seq.), as amended; (vi) the Toxic Substances Control Act (15 U.S.C.
-- ---
(S) 2601 et seq.), as amended; (vii) the Hazardous Materials Transportation Act
-- ---
(49 U.S.C. (S)(S) 1801 et seq.), as amended; (viii) the Federal Insecticide,
-- ---
Fungicide and Rodenticide Act (7 U.S.C. (S) 136 et seq.), as amended; (ix) the
-- ---
Federal Safe Drinking Water Act (42 U.S.C. (S) 300f et seq.), as amended; (x)
-- ---
the Federal Radon and Indoor Air Quality Research Act (42 U.S.C. (S) 7401 note,
et seq.); (xi) the Occupational Safety and Health Act (29 U.S.C. (S) 651 et
- -- --- --
seq.), as amended; (xii) any state, county, municipal or local statutes, laws or
- ---
ordinances similar or analogous to (including counterparts of) any of the
statutes listed above; and (xiii) any rules, regulations, directives, orders or
the like adopted pursuant to or implementing any of the above.
9.1.2. "ENVIRONMENTAL PERMIT" or "ENVIRONMENTAL PERMITS" shall
mean licenses, certificates, permits, directives, requirements, registrations,
government approvals, agreements, authorizations, and consents which are
required under or are issued pursuant to an Environmental Law or are otherwise
required by Governmental Authorities.
9.1.3. "GOVERNMENTAL AUTHORITY" or "GOVERNMENTAL AUTHORITIES"
shall mean any agency, commission, department or body of any municipal,
township, county, local, state or Federal governmental or quasi-governmental
regulatory unit, entity or authority having jurisdiction or authority over all
or any portion of the Project or the management, operation, use or improvement
thereof.
9.1.4. "HAZARDOUS CONDITION" or "HAZARDOUS CONDITIONS" refers to
the existence or presence of any Hazardous Materials on, in, under, or at, the
Project (including air, soil and groundwater) or any portion of it.
9.1.5. "HAZARDOUS MATERIAL" or "HAZARDOUS MATERIALS" shall mean:
(a) any chemical, pollutant, contaminant, pesticide, petroleum or
petroleum product or by product, radioactive substance, solid
waste (hazardous or extremely hazardous), special, dangerous or
toxic waste, substance, chemical or material regulated, listed,
limited or prohibited under any Environmental Law, including
without limitation: (i) friable or damaged asbestos, asbestos-
containing material, presumed asbestos-containing material,
polychlorinated biphenyls ("PCBS"), solvents and waste oil; (ii)
any "hazardous substance" as defined under CERCLA; and (iii) any
"hazardous waste" as defined under RCRA; and
(b) even if not prohibited, listed, limited or regulated by an
Environmental Law, all pollutants, contaminants, hazardous,
dangerous or toxic chemical materials, wastes or any other
substances, including without limitation, any industrial process
or pollution control waste (whether or
25
<PAGE>
not hazardous within the meaning of RCRA) which could pose a
hazard to the environment, or the health and safety of any person
or impair the use or value of any portion of the Project.
9.1.6. "RELEASE" means any spill, discharge, leak, migration,
emission, escape, injection, dumping or other release or threatened release of
any Hazardous Material into the environment, whether or not notification or
reporting to any Governmental Authority was or is required. Release includes,
without limitation, historical releases and the meaning of Release as defined
under CERCLA.
9.1.7. "QUALIFIED CONSULTING FIRM" shall mean a first-class
nationally or regionally recognized environmental engineering and/or consulting
firm.
9.1.8. "TANK" or "TANKS" means above-ground and underground
storage tanks, vessels and related equipment, including appurtenant pipes, lines
and fixtures, containing or previously containing any Hazardous Material or
fraction thereof.
9.2. WARRANTIES. Contributor hereby represents and as follows with
----------
respect to the Project as of the Contract Date and as of the Closing Date:
9.2.1. Contributor has made available or delivered to Acquiror
originals (or true, complete and accurate copies) of all of the following
documents, to the extent they are in Contributor's or the LLC's possession or
custody:
(a) All approvals, plans, specifications, test borings, percolation
tests, engineering studies, survey or other environmental data
concerning the Project;
(b) All permits (including Environmental Permits), approvals,
registrations, Tank registration and/or closure documentation,
certificates, applications, notices, orders, directives, legal
pleadings, correspondence or other documents of any nature that
Contributor, the LLC, any Tenant, any of the LLC's predecessors-
in-title or any tenant of the LLC's predecessors-in-title have
submitted to, or received from, any Governmental Authority
regarding the Project and their use, compliance or non-compliance
with Environmental Laws; and
(c) The results of any investigation of the Project including, but
not limited to, Phase I or Phase II site assessments, asbestos
inspection and/or removal reports, tests or investigations of
soil or other substrate air, groundwater, surface water, or the
building interior, and any testing or investigation results
relating to the removal or abandonment of any Tanks from the
Project.
26
<PAGE>
9.2.2. To Contributor's knowledge, the Project has been and
continues to be owned and operated in full compliance with all Environmental
Laws and Environmental Permits.
9.2.3. To Contributor's knowledge, there are no pending or
threatened: (i) claims, complaints, notices, correspondence or requests for
information received by either Contributor or the LLC with respect to any
violation or alleged violation of any Environmental Law or Environmental Permit
or with respect to any corrective or remedial action for or cleanup of the
Project or any portion thereof; and (ii) written correspondence, claims,
complaints, notices, or requests for information from or to either Contributor
or the LLC regarding any actual, potential or alleged liability or obligation
under or violation of any Environmental Law or Environmental Permit with respect
to the Project or any portion thereof.
9.2.4. To Contributor's knowledge, there have been no Releases
and, to Contributor's knowledge, there has not been a threatened Release of a
Hazardous Material on, in, under or at the Project or any portion thereof.
9.2.5. To Contributor's knowledge, the Project is not listed,
proposed or nominated for listing on the National Priorities List pursuant to
CERCLA, the Comprehensive Environmental Response and Liability Information
System or on any other similar list of sites under analogous state laws.
9.2.6. Except as listed and described on SCHEDULE 9.2.6, to
Contributor's knowledge, there are no Tanks at, on or under the Project. To
Contributor's knowledge, neither Contributor nor the LLC removed, closed or
abandoned any Tanks at the Project, and Contributor has no knowledge of the
existence, abandonment, closure or removal of Tanks at the Project. To
Contributor's knowledge, any and all Tanks that have heretofore been removed
from or closed at the Project have been removed or closed in accordance with all
Environmental Laws.
9.2.7. To Contributor's knowledge, there are no PCBs or friable
or damaged asbestos at the Project.
9.2.8. To Contributor's knowledge, there has been no storage,
treatment, disposal, generation, transportation or Release of any Hazardous
Materials by either Contributor or the LLC, on, in, under or at the Project (or
any portion thereof) in violation of, or which could give rise to any claim,
obligation or liability under, Environmental Laws.
9.3. RESERVATION OF RIGHTS.
---------------------
9.3.1. Contributor and Acquiror specifically retain all rights
under statutory and common law not explicitly waived or released in this
Agreement, including, but not limited to, any rights that may exist under the
Environmental Laws to obtain contribution. For purposes of Acquiror "obtaining
contribution" pursuant to the preceding sentence only, the
27
<PAGE>
parties acknowledge that, as between the parties, Contributor shall be deemed to
be the "owner" of the Project prior to the Closing Date.
9.3.2. Acquiror shall have the right, but not the obligation, to
seek recovery for any liabilities, costs, damage, expenses, or losses
(collectively, "LOSSES") relating to the environmental condition of the Project,
Hazardous Conditions relating to the Project or Environmental Laws relating to
the Project it may incur, including, but not limited to, all of its rights to
(x) assert claims, causes of action, demands and suits against any third party
("THIRD-PARTY ACTIONS") concerning Losses which Acquiror has incurred or may
incur in the future relating to the Project; (y) retain control of any such
Third-Party Actions; and (z) retain in full any and all amounts recovered
thereby.
10. ADDITIONAL CONDITIONS PRECEDENT TO CLOSING.
------------------------------------------
10.1. ACQUIROR'S CONDITIONS PRECEDENT. In addition to the other
-------------------------------
conditions enumerated in this Agreement, the following shall be additional
Acquiror's Conditions Precedent:
10.1.1. PHYSICAL CONDITION. The physical condition of the
------------------
Project shall be substantially the same on the Closing Date as on the Contract
Date, reasonable wear and tear excepted, unless the alteration of said physical
condition is the result of Damage (as defined below).
10.1.2. PENDING ACTIONS. At Closing, there shall be no
---------------
administrative agency, litigation or governmental proceeding of any kind
whatsoever, pending or threatened, that, after Closing, would, in Acquiror's
reasonable discretion, materially and adversely affect (i) the value or
marketability of the Project or the Project as a whole, (ii) the ability of
Acquiror to operate any or all of the Project in the manner it is being operated
on the Contract Date, or (iii) the LLC or the Contributed Interests.
10.1.3. REAL ESTATE TAXES. As of the Closing Date, there shall
-----------------
have been no actual or pending reassessment to increase the value of the Project
for the purpose of calculating real estate taxes or any increase in the real
estate tax rate applicable to the Project.
10.1.4. ZONING. On the Closing Date, no proceedings shall be
------
pending or threatened that could or would involve the change, redesignation,
redefinition or other modification of the zoning classifications of (or any
building, environmental, or code requirements applicable to) the Project, or any
portion thereof, or any property adjacent to the Project.
10.1.5. FLOOD INSURANCE. As of the Closing Date, if the
---------------
Project is located in a flood plain, Acquiror shall have obtained flood plain
insurance in form and substance acceptable to Acquiror.
28
<PAGE>
10.1.6. UTILITIES. On the Closing Date, no moratorium or
---------
proceeding shall be pending or threatened affecting the availability, at regular
rates and connection fees, of sewer, water, electric, gas, telephone or other
services or utilities servicing the Project.
10.1.7. ASSUMED INDEBTEDNESS. Contributor shall provide to
--------------------
Acquiror a pay-off letter (the "PAY-OFF LETTER") issued by each mortgagee
holding an Existing Mortgage securing any Assumed Indebtedness, setting forth
the amount of principal and interest outstanding on the Closing Date.
Contributor shall also provide a statement of account from each other creditor
holding any Assumed Indebtedness, setting forth the amount necessary to retire
such Assumed Indebtedness, which such statement(s) of account shall also
constitute Pay-Off Letters for purposes of this Agreement.
10.2. CONTRIBUTOR'S ADDITIONAL CONDITIONS PRECEDENT. The following
---------------------------------------------
shall be conditions precedent to Contributor's Obligation to close the
transactions contemplated by this Agreement (collectively, "CONTRIBUTOR'S
CONDITIONS PRECEDENT"):
10.2.1. REPRESENTATIONS AND WARRANTIES. The representations and
------------------------------
warranties of Acquiror contained in this Agreement shall be true and correct as
of the Closing Date, in all material respects, as though such representations
and warranties were made on such date.
10.2.2. COVENANTS. All covenants of Acquiror and the REIT
---------
required to be performed on or prior to the Closing Date shall have been
performed, in all material respects.
10.3. MUTUAL CONDITIONS PRECEDENT. The following shall be additional
---------------------------
Conditions Precedent to the obligations of each of Contributor and Acquiror to
close hereunder:
10.3.1. FINANCING. As of the Closing, Acquiror shall have
---------
entered into, and consummated the loan transaction contemplated under the terms
of, one or more agreements with one or more institutional lenders (collectively,
"LENDER") to provide acquisition and working capital financing to Acquiror on
terms reasonably and mutually acceptable to Contributor and Acquiror.
10.3.2. MANAGEMENT AGREEMENTS. As of the Closing, the Acquiror
---------------------
shall have entered into agreements with each of WMC Realty, Inc. and a
management company ("HMC") controlled by Steve Hoyt to provide management
services to the Acquiror on terms reasonably and mutually acceptable to
Contributor and Acquiror and in geographic regions mutually and reasonably
determined by Acquiror and Contributor.
10.3.3. SHARE OPTIONS. As of the Closing, the REIT shall have
-------------
executed documentation to implement those certain equity-based compensation
plans (including, but not limited to, a stock option plan) that the REIT and
Contributor mutually and reasonably determine are appropriate in connection with
the compensation of the REIT's senior
29
<PAGE>
management, members of its board of directors, and any other parties to whom
Acquiror and Contributor wish to grant such benefits, all as may be permissible
pursuant to applicable law.
10.3.4. LOAN ASSUMPTION. At Closing, Contributor shall deliver
---------------
from Credit Suisse First Boston Mortgage Capital LLC (or its successor), the
secured party pursuant to the applicable Loan Documents encumbering the Project
(i) a consent ("LENDER'S CONSENT") in writing to the acquisition by, and sale,
transfer, conveyance and assignment to Acquiror or one or more Affiliates of
100% of the limited liability membership interests of the LLC, and (ii) an
estoppel certificate (the "LOAN ESTOPPEL") made for the benefit of Acquiror and
its Affiliates, certifying as to: the absence of any default by the LLC pursuant
to the Loan Documents; the outstanding principal balance of any Existing Note
and any accrued and unpaid interest thereon; the monthly principal and/or
interest due under any Existing Note; the maturity date of any Existing Note;
any escrow requirements pursuant to the Loan Documents; any and all fees
applicable to either the assumption of the Loan Documents by Acquiror or the
acquisition by, and sale, transfer, conveyance and assignment to, Acquiror or
one or more Affiliates thereof of 100% of the limited liability company
membership interests in the LLC, and such other matters as Acquiror may
reasonably require.
10.3.5. DRIP. As of the Closing, the REIT shall have amended
----
(and restated, if applicable) its existing "Dividend Reinvestment Plan" in a
manner mutually and reasonably acceptable to the REIT and Contributor.
10.3.6. SHAREHOLDER APPROVAL. All requisite shareholder
--------------------
approvals of the REIT shall have been obtained at a special meeting of
shareholders. Contributor shall have approved, in its reasonable discretion, all
proxy materials distributed to the REIT's shareholders in connection with such
special meeting.
10.3.7. AMENDED DECLARATION OF TRUST. As of the Closing, an
----------------------------
amended and restated Declaration of Trust of the REIT, in form and substance
reasonably and mutually acceptable to Contributor and Acquiror, shall have been
filed with the State of Maryland Department of Assessments and Taxation.
10.3.8. FORM OF DOCUMENTS. The form and substance of all
-----------------
documents required to be agreed upon by Contributor and Acquiror pursuant to
this Agreement shall have been agreed upon.
11. LEASES-CONDITIONS PRECEDENT AND WARRANTIES WITH RESPECT THERETO.
---------------------------------------------------------------
11.1. WARRANTIES AS TO LEASES. With respect to each of the tenants
-----------------------
listed on the Rent Roll (as defined in EXHIBIT H) provided to Acquiror by
Contributor and any other tenants leasing space in the Project as of the Closing
Date (collectively, the "TENANTS"), Contributor represents and warrants to
Acquiror as of the Contract Date and as of the Closing Date, and except as set
forth on SCHEDULE 11.1 as follows:
30
<PAGE>
11.1.1. To Contributor's knowledge, each of the Leases is in
full force and effect strictly according to the terms set forth therein and in
the Rent Roll, and has not been modified, amended, or altered, in writing or
otherwise. To Contributor's knowledge, each Tenant is legally required to pay
all sums and perform all obligations set forth in the Leases, without
concessions, abatements, offsets or other bases for relief or adjustment.
11.1.2. To Contributor's knowledge, all obligations of the
lessor under the Leases that accrue to the date of Closing have been performed,
including, but not limited to, all required tenant improvements, cash or other
inducements, rent abatements or moratoria, installations and construction (for
which payment in full has been made in all cases), and each Tenant has
unconditionally accepted lessor's performance of such obligations. To
Contributor's knowledge, the transactions described herein will not result in a
default or an event that, with the giving of notice or the passing of time, or
both, will result in a default by the landlord under any Lease. To Contributor's
knowledge, no Tenant has asserted (in writing) any offsets, defenses or claims
available against rent payable by it or other performance or obligations
otherwise due from it under any Lease. To Contributor's knowledge, the LLC has
no obligation to perform any tenant improvement for any Tenant other than as set
forth in the Leases.
11.1.3. Except as set forth in the Rent Roll, to Contributor's
knowledge, no Tenant is in default under or is in arrears in the payment of any
sums or in the performance of any obligations required of it under its Lease.
11.1.4. To Contributor's knowledge, during the 12-month period
immediately preceding the Contract Date, and continuing thereafter to and
through the Closing Date: (i) no Tenant has, at any time, been more than 60
days delinquent in its respective payment of any and all sums due under the
terms of its respective Lease; (ii) no Tenant has requested, in writing, that
either Contributor or the LLC provide that Tenant with any reduction in the
Tenant's monetary obligations under its Lease; (iii) no Tenant has expressed to
either Contributor or the LLC (in writing) any weakness or material decline in
that Tenant's financial condition, nor has any Tenant requested (in writing)
that either Contributor or the LLC, in its capacity as landlord, permit the
Tenant to sublease its leased premises, or assign its Lease, or terminate its
Lease on an accelerated basis; (iv) neither Contributor nor the LLC has "written
off" any delinquent sums owed by any Tenant to satisfy its obligation to
contribute to the payment of real estate taxes, common area maintenance charges,
and insurance premiums; and (v) neither Contributor nor the LLC has had (nor is
it currently engaged in) any dispute (evidenced in writing) with any Tenant
concerning that Tenant's obligations to make payments under the terms of its
Lease toward real estate taxes, insurance premiums and common area maintenance
charges or other charges imposed under its Lease.
11.1.5. Neither base rent ("BASE RENT"), nor regularly payable
estimated Tenant contributions or operating expenses, insurance premiums, real
estate taxes, common area charges, and similar or other "pass through" or non-
base rent items including, without limitation, cost-of-living or so-called
"C.P.I." or other such adjustments (collectively, "ADDITIONAL RENT"), nor any
other item payable by any Tenant under any Lease has been
31
<PAGE>
heretofore prepaid for more than one month nor shall either Contributor or the
LLC permit it to be prepaid between the Contract Date and the Closing Date for
more than one month.
11.1.6. To Contributor's knowledge, no guarantor(s) of any Lease
has been released or discharged, partially or fully, voluntarily or
involuntarily, or by operation of law, from any obligation under or in
connection with any Lease or any transaction related thereto.
11.1.7. To Contributor's knowledge, there are no brokers'
commissions, finders' fees, or other charges payable or to become payable to any
third party on behalf of either Contributor or the LLC as a result of or in
connection with any Lease or any transaction related thereto, including, but not
limited to, any exercised or unexercised option(s) to expand or renew.
11.1.8. To Contributor's knowledge, no Tenant or any other party
has asserted (in writing) any claim (other than for customary refund at the
expiration of a Lease) to all or any part of any security deposit. Other than
as set forth in the Rent Roll, neither Contributor nor the LLC has applied any
security deposit proceeds for its own benefit with respect to any current
Tenant.
11.1.9. To Contributor's knowledge and except as set forth in the
Rent Roll, no Tenant has sublet its leased premises; no assignment of any
interest in a Lease has been made by any Tenant; and there are no outstanding
requests from any Tenants to Contributor, requesting any consent to an
assignment of the Tenant's Lease or to a sublease of all or some portion of a
Tenant's leased premises.
11.1.10. To Contributor's knowledge, no controversy, complaint,
negotiation or renegotiation, proceeding, suit or litigation relating to all or
any of the Leases, is pending or, to Contributor's knowledge, threatened,
whether in any tribunal or informally. Contributor acknowledges that it is and
shall remain responsible after the Closing Date for defending (or continuing)
any such suit, proceeding or other matter relating to periods prior to the
Closing Date, and all damages, loss, expenses and costs related thereto.
11.2. ESTOPPEL CERTIFICATES FROM TENANTS. It shall be an Acquiror's
----------------------------------
Condition Precedent that Contributor shall have obtained and delivered to
Acquiror, on or prior to the Closing Date, a tenant's estoppel certificate (the
"ESTOPPEL CERTIFICATE"), dated no earlier than 30 days prior to the Closing
Date, from at least 80% (by square footage) of the Tenants at the Project. If
Contributor is unable to obtain an Estoppel Certificate from any Tenant,
Acquiror's sole remedy shall be to either (i) terminate this Agreement because
of non-satisfaction of an Acquiror's Condition Precedent; or (ii) proceed to
close and accept Contributor's own Estoppel Certificate with respect to the
Lease and tenancy for which Contributor fails to procure an Estoppel Certificate
from the relevant Tenant (and any Estoppel Certificate so executed by
Contributor shall also be tailored, in a manner mutually and reasonably
acceptable to Acquiror and Contributor, to reflect its issuance by Contributor,
rather than the Tenant in question). Each such Estoppel Certificate shall be
substantially in the form attached hereto as EXHIBIT L.
32
<PAGE>
11.3. PAYMENT OF LEASING COSTS. Contributor shall pay, and retains
------------------------
sole and exclusive responsibility for, all expenses incurred or imposed in
connection with, or arising out of, the negotiation, execution and delivery of
the Leases, including, without limitation, brokers' commissions (including those
applicable, if any, to future expansions or renewals by Tenant), leasing fees
and recording fees (as well as the cost of all tenant improvements not paid for
by Tenants), regardless of whether or not each and every of such expenses is
actually due and payable prior to the Closing Date; and Contributor shall be
deemed to have certified and warranted payment of all of such expenses to
Acquiror at the Closing.
12. CLOSING DELIVERIES.
------------------
12.1. CONTRIBUTOR'S. At Closing (or such other times as may be
-------------
specified below), Contributor shall deliver or cause to be delivered to Acquiror
the following, in form and substance reasonable acceptable to Acquiror and its
counsel:
12.1.1. CONTRIBUTED INTERESTS.
---------------------
12.1.1.1. ASSIGNMENTS OF MEMBERSHIP INTERESTS. An
-----------------------------------
Assignment of Membership Interests, duly executed by Contributor, such that the
Contributed Interests are conveyed to Acquiror or one or more Affiliates, free
and clear of all liens, claims and encumbrances.
12.1.1.2. CONSENT, CONFIRMATION AND AGREEMENT. A
-----------------------------------
Certificate of Consent, Confirmation and Agreement duly executed by Contributor,
whereby Contributor (x) releases and forever discharges the LLC from any and all
claims, demands, causes of actions, damages or rights Contributor may have
against the LLC, whether in its capacity as a former member of the LLC or
otherwise; (y) consents, as a member of the LLC, to the sale, transfer,
conveyance and assignment of all of the Contributed Interests in the LLC to
Acquiror or one or more Affiliates; and (z) consents to the resignation of the
existing general partner(s) or manager(s), as the case may be, of the LLC and
the appointment of a successor general partner designated by Acquiror on or
prior to Closing.
12.1.2. PROJECT.
-------
12.1.2.1. LEASES. Originals of all of the Leases.
------
12.1.2.2. KEYS. Keys to all locks located at the Project.
----
12.1.2.3. AFFIDAVIT OF TITLE AND ALTA STATEMENT. An
-------------------------------------
Affidavit of Title (or comparable document) as required by the Title Company in
the state in which the Project is located as a condition to the deletion of the
general exceptions of Schedule B, Section 2 of each Title Policy, executed by
the LLC and, if required, Contributor and in form and substance acceptable to
the Title Company and to Acquiror.
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12.1.2.4. LETTERS TO TENANTS. Letters executed by the
------------------
Contributor, and, if applicable, its management agent, and Acquiror, addressed
to all Tenants, in the form reasonably and mutually agreed to by Acquiror and
Contributor.
12.1.2.5. TITLE POLICY. The Title Policy (or "marked-up"
------------
title commitment) issued by the Title Company, dated as of the Closing Date in
the amount of the Allocated Amount, in accordance with the requirements of
SECTION 6 (it being understood that Contributor will provide any certificates or
undertakings required in order to induce the Title Company to insure over any
"gap" period resulting from any delay in recording of documents or later-dating
the title insurance file).
12.1.2.6. PLANS AND SPECIFICATIONS. All (if any) plans and
------------------------
specifications relating to the Project in Contributor's possession and control
or otherwise available to Contributor.
12.1.2.7. TAX BILLS. Copies of the most currently available
---------
Tax Bills to the extent not previously delivered to Acquiror.
12.1.2.8. ENTITY TRANSFER CERTIFICATE. Entity transfer
---------------------------
certifications confirming that each Contributor is a "United States Person"
within the meaning of Section 1445 of the Internal Revenue Code of 1986, as
amended.
12.1.2.9. RENT ROLL. A Rent Roll, prepared as of the
---------
Closing Date, certified by Contributor to be true, complete and correct, in all
material respects, through the Closing Date.
12.1.2.10. PAY-OFF LETTERS. The Pay-Off Letters with
---------------
respect to the Assumed Indebtedness.
12.1.2.11. CERTIFICATES OF OCCUPANCY. Currently valid
-------------------------
certificates of occupancy (or comparable permits or licenses) with respect to
the entirety of the Project.
12.1.3. CLOSING STATEMENT. A closing statement (the "CLOSING
-----------------
STATEMENT") conforming to the prorations and other relevant provisions of this
Agreement duly executed by Contributor.
12.1.4. REGISTRATION RIGHTS AGREEMENT AND SUBSCRIPTION AGREEMENTS.
---------------------------------------------------------
The Registration Rights Agreement, dated as of the Closing Date and duly
executed by Contributor, and, as required by SECTION 2.4, the Subscription
Agreement duly executed by Contributor.
12.1.5. PARTNERSHIP AGREEMENT DOCUMENTS. The Partnership Adoption
-------------------------------
Materials, duly executed by Contributor, as well as any documents required under
the Partnership Agreement in connection with the admission of an additional
limited partner
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(including, but not limited to, the Addendum), each of such documents to be duly
executed by Contributor (except for the Addendum, which is executed by the REIT
only).
12.1.6. POWERS OF ATTORNEY. Originals of all (if any) powers of
------------------
attorney utilized in connection with the transactions described herein and
evidence that such powers of attorney are coupled with an interest.
12.1.7. CLOSING CERTIFICATE. A certificate, signed by Contributor,
-------------------
certifying to the UPREIT that the representations and warranties of Contributor
contained in this Agreement are true and correct as of the Closing Date and that
all covenants required to be performed by Contributor prior to the Closing Date
have been performed.
12.1.8. LOAN ASSUMPTION DOCUMENTS. The Lender's Consent and the
-------------------------
Loan Estoppel, each as described in SECTION 10.3.4.
12.1.9. OTHER. Such other documents and instruments as may
-----
reasonably be required by Acquiror (including, without limitation, those of the
Contributor's Deliveries in Contributor's possession or control that have not
previously been delivered to Acquiror), its (or its underwriters' or lenders')
counsel or the Title Company and that may be necessary to consummate the
transaction that is the subject of this Agreement and to otherwise give effect
to the agreements of the parties hereto.
12.2. ACQUIROR'S. As a Contributor's Condition Precedent to Contributor's
----------
obligation to close, Acquiror shall cause to be delivered to Contributor the
following, each in form and substance reasonably acceptable to Contributor and
Acquiror and their respective counsel:
12.2.1. REGISTRATION NOTICE. A notice from the REIT's transfer
-------------------
agent, attesting to the registration of the LP Units in the books and records of
the UPREIT.
12.2.2. PARTNERSHIP AGREEMENT. A copy of the Partnership
---------------------
Agreement, duly certified by the secretary of the REIT as true, complete and
correct.
12.2.3. ADDENDUM. The Addendum, duly executed by the REIT.
--------
12.2.4. ORGANIZATIONAL DOCUMENTS. (i) A copy certified by the
------------------------
Secretary of State of the State of Maryland of the Declaration of Trust of the
REIT and a certified good standing certificate for the REIT from the State of
Maryland; (ii) a copy certified by the Secretary of State of the State of
Delaware of (x) the certificate of limited partnership of the UPREIT and (y) a
good standing certificate of the UPREIT; (iii) a certified good standing
certificate for the REIT and the UPREIT from the State of Wisconsin; and (iv) a
copy, certified by the secretary of the REIT, of the resolution of the REIT's
board of directors, authorizing the transaction described herein.
12.2.5. CLOSING STATEMENT. A Closing Statement, duly executed by
-----------------
Acquiror and the REIT.
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12.2.6. REGISTRATION RIGHTS AGREEMENT. The Registration
-----------------------------
Rights Agreement, duly executed by the REIT.
12.2.7. TENANT LETTERS. The Tenant Letters, duly executed by
--------------
the UPREIT.
12.2.8. CERTAIN ACKNOWLEDGMENT. The written acknowledgment
----------------------
of the REIT with respect to its obligations under this Agreement.
12.2.9. OTHER. Such other documents and instruments as may
-----
reasonably be required by Contributor or its counsel or the Title Company and
that are necessary to consummate the transaction which is the subject of this
Agreement and to otherwise effect the agreements of the parties hereto.
13. PRORATIONS AND ADJUSTMENTS. The following shall be prorated and
--------------------------
adjusted between Contributor and Acquiror as of the Closing Date, except as
otherwise specified:
13.1. The amount of all security and other Tenant deposits, and
interest due thereon, if any, shall be credited to Acquiror or paid to Acquiror
at Closing.
13.2. Acquiror and Contributor shall divide the cost of any closing
escrows hereunder equally between them.
13.3. Water, electricity, sewer, gas, telephone and other utility
charges based, to the extent practicable, on final meter readings and final
invoices, or, in the event final readings and invoices are not available, based
on the most currently available billing information, and reprorated upon
issuance of final utility bills.
13.4. Amounts paid or payable under any Assigned Contracts shall be
prorated based, to the extent practicable, on final invoices, or, in the event
final invoices are not available, based on the most currently available billing
information, and reprorated upon issuance of final invoices.
13.5. All real estate, personal property and ad valorem taxes (and
corresponding fees and penalties, accruing as of, or related to, the Closing
Date) applicable to the Project and levied with respect to calendar year 1998
shall be prorated as of the Closing Date, utilizing the actual final Tax Bills
for the Project. Actual 1998 taxes for the Project shall be promptly reprorated
upon the issuance of final Tax Bills therefor, and any amounts due from any
party to the other shall be paid in cash at that time. Prior to or at Closing,
Contributor shall pay or have paid all Tax Bills that are due and payable prior
to or on the Closing Date and shall furnish evidence of such payment to Acquiror
and the Title Company. Each party's respective obligations to reprorate real
estate taxes shall survive the Closing and shall not merge into any conveyancing
documents delivered at Closing. All sums accruing prior to the Closing Date
under the Existing Notes, Existing Mortgages and Existing Loan Documents shall
be paid by (and shall be the responsibility of) Contributor, including, without
36
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limitation , all prepayment penalties and any interest in respect of the period
following Closing with respect to the prepayment of Assumed Indebtedness at
Closing; provided, however, that, Contributor shall receive a credit at Closing
for all interest paid by Contributor prior to the Closing Date, but applicable
to any period after the Closing Date in connection with any of the Existing
Notes. Additionally, at Closing, Acquiror shall receive a credit for all
interest actually paid by (or that shall be paid by) Acquiror on a post-Closing
basis, but applicable to (and accruing during) a period of time prior to and/or
inclusive of the Closing Date, as required pursuant to any of the Existing Notes
that are not paid off substantially simultaneously with Closing.
13.6. All assessments, general or special, shall be prorated as of
the Closing Date on a "due date" basis such that Contributor shall be
responsible for any installments of assessments which are first due or payable
prior to the Closing Date and Acquiror shall be responsible for any installments
of assessments which are first due or payable on or after the Closing Date.
13.7. Commissions of leasing and rental agents for, and tenant
improvement costs related to, any Lease entered into as of or prior to the
Closing Date, whether with respect to base lease term, future expansions,
renewals, or otherwise, shall be paid in full at or prior to Closing by
Contributor, without contribution or proration from Acquiror.
13.8. All payroll, F.I.C.A., accrued vacation and sick pay, employee
benefits and employee-related taxes for the period prior to the Closing Date
shall be paid in full at or prior to Closing by Contributor, without
contribution or proration from Acquiror.
13.9. All Base Rents and other charges, including, without
limitation, all Additional Rent, shall be prorated as of the Closing Date.
Acquiror shall receive a credit for any and all prepaid Base Rent and/or
Additional Rent paid by or on behalf of any Tenant and applicable to any period
after the Closing Date. At the time(s) of final calculation and collection from
Tenants of Additional Rent for 1998, there shall be a re-proration between
Contributor and Acquiror as to Additional Rent adjustments, with such re-
prorations being payable to the appropriate recipient in cash. Such re-
proration shall be paid upon Acquiror's presentation of its final accounting to
Contributor, certified as to accuracy by Acquiror. At the Closing, no
"DELINQUENT RENTS" (rents or other charges that are due as of the Closing) shall
be prorated in favor of Contributor. The parties' respective obligations to
reprorate Additional Rent shall survive the Closing and shall not merge into any
of the conveyancing documents delivered at Closing. Notwithstanding the
foregoing, Acquiror shall use reasonable efforts after the Closing Date to
collect any Delinquent Rents due to Contributor pursuant to this Section 13.9
from Tenants, but Acquiror shall not be required to sue any Tenants or terminate
any Leases. All rents and other charges received by (or for the benefit of)
Acquiror or Contributor from any Tenant after the Closing Date (regardless of
whether such amounts indicate they are in respect of a period prior to the
Closing Date) shall be first applied against current and past due obligations
owed to, or for the benefit of, Acquiror (with respect to those obligations
accruing subsequent to the Closing Date), and any excess shall be delivered to
Contributor, but only to the extent of amounts in default and owed to, and for
the benefit of,
37
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Contributor for the period prior to the Closing Date. In no event, however,
shall any sums be paid to Contributor to the extent Contributor has been
previously reimbursed for such default out of any security deposit and security
deposits have been appropriately prorated hereunder. Without limitation of the
foregoing in this SECTION 13.9, Contributor shall deliver and properly endorse
to Acquiror any rent checks it receives from any Tenant with respect to all or
any portion of the period beginning on or after the first day of the calendar
month during which the Closing occurs.
13.10. Contributor shall be responsible for all bills and invoices
for labor, goods, material and services of any kind relating to the Project and
accruing on or before the Closing Date, which amounts shall be based on the most
currently available billing information and shall be reprorated upon issuance of
final invoices. Acquiror shall be responsible for bills in connection with
labor, goods, materials and services of any kind relating to the Project and
accruing after the Closing Date, which amounts shall be based upon the most
currently available billing information and shall be reprorated upon issuance of
final invoices.
13.11. Such other items that are customarily prorated in transactions
of this nature shall be ratably prorated.
In the event of a discrepancy between the Closing Statement and the prorations
described above, the Closing Statement shall govern. For purposes of calculating
prorations, Acquiror shall be deemed to be in title to the Project, and
therefore entitled to the income therefrom and responsible for the expenses
thereof, for the entire Closing Date. Subject to SECTION 13.9 above with
respect to delinquent rents, amounts received by Acquiror with respect to any
period of time from and after the Closing Date shall belong to Acquiror. All
such prorations shall be made on the basis of the actual number of days of the
year and month that shall have elapsed as of the Closing Date. Bills received
after Closing that relate to expenses incurred, services performed or other
amounts allocable to the period prior to the Closing Date shall be paid, in
cash, by Contributor, to the extent due and owing. Distributions in respect of
the LP Units acquired by Contributor shall begin to accrue from and after the
Closing Date (notwithstanding the fact that such date may not be the applicable
record date under the Partnership Agreement), and the amount of distributions
paid or to be paid to Contributor for any quarter shall be prorated accordingly.
The terms of this SECTION 13 shall survive the Closing indefinitely and shall
not merge into any conveyancing documents delivered at Closing.
14. TRANSACTION EXPENSES. Contributor will pay the cost of the Title
--------------------
Policy (including any and all endorsements and "date downs" thereto) and the
Survey (inclusive of any updates thereof required under this Agreement), all
documentary and state, county and municipal transfer taxes relating to the
instruments of conveyance contemplated herein. Contributor shall also pay all
release fees, prepayment fees and any other fees in connection with the payoff,
release and satisfaction of the Existing Mortgages. The aggregate amount of such
costs to Contributor is referred to herein as "CONTRIBUTOR'S CLOSING COSTS." If
the payment obligation of Contributor with respect to Contributor's Closing
Costs is satisfied by Acquiror, the Contribution Consideration otherwise due at
Closing shall be reduced by the
38
<PAGE>
amount of such Contributor's Closing Costs. Subject to the foregoing, at the
Closing, Acquiror shall reimburse Contributor and its affiliates for all costs
incurred by each of them, respectively, with respect to the transaction
contemplated by this Agreement and that certain Master Contribution Agreement of
even date herewith (the "MASTER CONTRIBUTION AGREEMENT") by and between the REIT
and American Real Estate Equities, LLC ("AREE"), including, but not limited to,
third party consultants' fees and expenses, loan fees, underwriting fees, legal
fees, accounting fees, due diligence expenses, closing costs and travel expenses
(collectively, "TRANSACTION COSTS"). In the event, however, that the Phase I
Closing (as defined in the Master Contribution Agreement) fail to occur on or
before December 31, 1998, Contributor understands that AREE, rather than
Acquiror, shall be responsible for the payment of all Transaction Costs, except
that the REIT shall remain solely responsible for the legal fees due to the
Reinhart Boerner firm in Milwaukee.
15. DESTRUCTION, LOSS OR DIMINUTION OF PROJECTS. If, prior to Closing, all
-------------------------------------------
or any portion of the Project is damaged by fire or other natural casualty
(collectively, "DAMAGE"), or is taken or made subject to condemnation, eminent
domain or other governmental acquisition proceedings (collectively, "EMINENT
DOMAIN"), then the following procedures shall apply:
15.1. LOW DAMAGE. If the aggregate cost of repair or replacement in
----------
connection with any Damage at the Project or the value of the Eminent Domain
involving the Project (collectively, "REPAIR AND/OR REPLACEMENT") is $50,000 or
less, in the mutual and reasonable opinions of Acquiror and Contributor,
Acquiror shall close and take the Project in question as diminished by the
Damage or Eminent Domain, as the case may be, subject to a reduction in the
Contribution Consideration otherwise due at the Closing, in the full amount of
the cost of repair and/or replacement. Any casualty insurance or condemnation
proceeds shall be the sole property of Contributor.
15.2. HIGH DAMAGE. If the aggregate cost of repair and/or
-----------
replacement at the Project is greater than $50,000, in the mutual and reasonable
opinions of Acquiror and Contributor, then Acquiror, in its sole and absolute
discretion, may elect any of the following options: (i) Acquiror may terminate
this Agreement by written notice to Contributor, and neither party shall have
any further liability to the other under this Agreement, except as otherwise
provided herein; or (ii) Acquiror and Contributor shall proceed to close on the
Project subject to an appropriate and commensurate reduction in the Contribution
Consideration (which reduction shall include, without limitation, an amount
equal to the full cost of repair and/or replacement of the Project; or (iii)
Acquiror may proceed to close on the Project, subject to (1) a reduction in the
Contribution Consideration equal to $50,000, otherwise due at the Closing and
(2) an assignment of the proceeds of Contributor's or the LLC's, as the case may
be, casualty insurance proceeds for all Damage (or condemnation awards for any
Eminent Domain) in excess of $50,000, together with payment to Acquiror by
Contributor of any uninsured or deductible amount not covered by such proceeds.
In such event, Contributor shall fully cooperate with Acquiror in the adjustment
and settlement of the insurance claim or governmental acquisition proceeding and
if, as of Closing, the insurance proceeds (or condemnation award) assignable to
Acquiror shall not have been collected from
39
<PAGE>
the insurer or Governmental Authority, then a cash credit in the amount thereof
shall be given to Acquiror, to be repaid to Contributor out of and upon
Acquiror's actual receipt of insurance proceeds. The proceeds and benefits under
any rent loss or business interruption policies attributable to the period
following the Closing shall likewise be transferred and paid over (and, if
applicable, likewise credited on an interim basis) to Acquiror.
15.3. DISPUTES. In the event of a dispute between Contributor and
--------
Acquiror with respect to the cost of repair and/or replacement with respect to
the matters set forth in this SECTION 15, an engineer designated by Contributor
and an engineer designated by Acquiror shall select an independent engineer
licensed to practice in the jurisdiction where the Project in question is
located who shall resolve such dispute. All fees, costs and expenses of such
third engineer so selected shall be shared equally by Acquiror and Contributor.
16. BROKERAGE. Each party hereto represents and warrants to the other that
---------
it, and Contributor represents and warrants to Acquiror that the LLC, has dealt
with no brokers or finders in connection with this transaction and that no
broker, finder or other party is entitled to a commission, finder's fee or other
similar compensation as a result hereof. Contributor hereby indemnifies,
protects and defends and holds Acquiror harmless from and against all losses,
claims, costs, expenses, damages (including, but not limited to, attorneys' fees
of counsel selected by Acquiror) resulting or arising from the claims of any
broker, finder or other such party, claiming by, through or under the acts or
agreements of Contributor or the LLC. Acquiror hereby indemnifies, defends and
holds Contributor harmless from and against all losses, claims, costs, expenses,
damages (including, but not limited to, attorneys' fees of counsel selected by
Contributor) resulting or arising from the claims of any broker, finder or other
such party claiming by, through or under acts or agreements of Acquiror, other
than Broker. The obligations of this SECTION 16 shall survive any termination
of this Agreement and the Closing indefinitely, and shall not be merged into any
of the conveyancing documents delivered at Closing.
17. AVAILABILITY OF RECORDS; AUDIT REPRESENTATION LETTER. Upon Acquiror's
----------------------------------------------------
request, for a period of two years after Closing, Contributor shall make the
Records available to Acquiror for inspection, copying and audit by Acquiror's
designated accountants. Without limitation of the foregoing in this SECTION 17,
Contributor agrees to abide by the terms of EXHIBIT I attached hereto. At any
time within two years after the Closing, Contributor further agrees to provide
to the Acquiror's designated independent auditor, upon request of Acquiror or
such auditor: (x) access (to the same extent to which Acquiror would be
entitled to such access) to the books and records of the Project and all related
information (including the information listed on EXHIBIT I) regarding the period
for which Acquiror is required to have the Project audited under the regulations
of the Securities and Exchange Commission, and (y) a representation letter
delivered by each managing agent of the Project regarding the books and records
of the Project, in substantially the form as attached hereto as EXHIBIT M.
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18. TERMINATION OF ADVISORY AGREEMENT
---------------------------------
18.1. PHASE I TERMINATION FEE. As partial consideration for the
-----------------------
termination of that certain Advisory Agreement dated August 2, 1994 by and
between the REIT and Contributor (the "ADVISORY AGREEMENT"), at the Phase I
Closing, Acquiror shall pay WMC a fee (the "PHASE I TERMINATION FEE") in an
amount equal to:
(a) 1% of the first $150,000,000 of the Phase I Contributed
Portfolio Value (as defined below); plus
(b) 0.25% of all additional Phase I Contributed Portfolio
Value.
For example, if the "Phase I Contributed Portfolio Value" equals $225,000,000,
the Phase I Termination Fee would be $1,687,500.00. For purposes of this SECTION
18.1, "PHASE I CONTRIBUTED PORTFOLIO VALUE" shall equal (a) the aggregate price
paid by Acquiror for the properties under any Phase I Contract (as defined in
the Master Contribution Agreement), plus (b) the Phase I Contribution
Consideration (as defined in the Master Contribution Agreement) payable to AREE
pursuant to the Master Contribution Agreement, plus (c) the Contribution
Consideration payable to Contributor hereunder.
18.2. PHASE II TERMINATION FEE. As partial consideration for
------------------------
termination of the Advisory Agreement, at the Phase II Closing (as defined in
the Master Contribution Agreement), Acquiror shall pay WMC a fee (the "PHASE II
TERMINATION FEE") in an amount equal to:
(a) 1% of the first $150,000,000 of the Total Contributed
Portfolio Value (as defined below); plus
(b) 0.25% of all additional Total Contributed Portfolio Value;
minus
(c) the amount of the Phase I Termination Fee.
For example, if the "Total Contributed Portfolio Value" equals $225,000,000 and
the Phase I Termination Fee were $1,000,000, the Phase II Termination Fee would
be $687,500.00. For purposes of this SECTION 18, "TOTAL CONTRIBUTED PORTFOLIO
VALUE" shall equal (a) the aggregate price paid by Acquiror for the properties
under any Phase I Contract or Phase II Contract (as defined in the Master
Contribution Agreement), plus (b) the Phase I Contribution Consideration and the
Phase II Contribution Consideration (as defined in the Master Contribution
Agreement) paid to AREE pursuant to the Master Contribution Agreement, plus (c)
the Contribution Consideration paid to Contributor hereunder.
19. DEFAULT.
-------
19.1. DEFAULT BY CONTRIBUTOR. If any of Contributor's
----------------------
representations and warranties contained herein shall not be true and correct on
the Contract Date or on the Closing Date, or if Contributor fails to perform any
of the covenants and agreements contained
41
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herein to be performed by Contributor (including Contributor's obligation to
close), or if any of the Acquiror's Conditions Precedent shall not have been
satisfied, Acquiror may elect: (x) in the event the Closing has not occurred,
either to (i) terminate Acquiror's obligations under this Agreement by written
notice to Contributor or (ii) close, in which event Acquiror may file an action
for either or both of specific performance and damages to compel Contributor to
cure all or any of such default(s), in whole or in part, whereupon Acquiror
shall be entitled to deduct from the Contribution Consideration the cost of such
action and cure, and all reasonable expenses incurred by Acquiror in connection
therewith, including, but not limited to, attorneys' fees of Acquiror's counsel;
or (y) in the event the Closing has occurred, to pursue whatever remedies it may
have at law or in equity. Notwithstanding anything to the contrary herein and in
addition to any other remedies of Acquiror, Acquiror shall be entitled to
recover actual (but not consequential) damages suffered by Acquiror by reason of
Contributor's defaults hereunder and/or any delay occasioned thereby. The
remedies of Acquiror set forth in this SECTION 19.1 shall be in addition to
remedies otherwise applicable or provided in this Agreement or otherwise
available to Acquiror at law or in equity, including, without limitation,
specific performance, it being understood that Acquiror's rights and remedies
under this Agreement shall always be non-exclusive and cumulative and that the
exercise of one remedy or form of relief available to Acquiror hereunder shall
not be exclusive or constitute a waiver of any other.
19.2. DEFAULT BY ACQUIROR. In the event Acquiror defaults in its
-------------------
obligations to acquire the Contributed Interests, then Acquiror shall be
obligated to pay Contributor $10,000 as Contributor's sole and exclusive remedy,
such amount being fixed and liquidated damages, it being understood that
Contributor's actual damages in the event of such default are difficult to
ascertain and that such proceeds represent the parties' best current estimate of
such damages. Contributor shall have no other remedy for any default by
Acquiror.
19.3. LITIGATION EXPENSES. In the event of litigation between the
-------------------
parties with respect to the Project or any of the Contributed Interests, this
Agreement, the performance of their respective obligations hereunder or the
effect of a termination under this Agreement, the losing party shall pay all
costs and expenses incurred by the prevailing party in connection with such
litigation, including, but not limited to, reasonable attorneys' fees of counsel
selected by the prevailing party. The parties hereby further acknowledge and
agree that in the event of litigation between them, as contemplated above, and
the resolution of that litigation through compromise, settlement, or partial
judgment, the court before which such litigation is initially brought shall have
the right to allocate responsibility, between the parties thereto, for all costs
and expenses (including, but not limited to, attorneys' reasonable fees)
incurred by both Contributor and Acquiror in the pursuit of that litigation
resolved through compromise, settlement or partial judgment. Notwithstanding
any provision of this Agreement to the contrary, the obligations of the parties
under this SECTION 19.1 shall survive termination of this Agreement and the
Closing, if applicable, and shall not be merged into any of the conveyancing
documents delivered at Closing.
42
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20. NOTICES. Any notice, demand or request which may be permitted,
-------
required or desired to be given in connection therewith shall be given in
writing and directed to Contributor and Acquiror as follows:
Contributor: Wellington Management Corporation
18650 West Corporate Drive, Suite 300
Brookfield, Wisconsin 53045
Attn: Arnold Leas
Acquiror: Wellington Properties Investments, L.P.
18650 West Corporate Drive, Suite 320
Brookfield, Wisconsin 53045
Attn: Robert Rice
With a copy to
its attorneys: Barack, Ferrazzano, Kirschbaum, Perlman & Nagelberg
Attn: Suzanne Bessette-Smith, Esq.
333 West Wacker Drive, Suite 2700
Chicago, Illinois 60606
Notices shall be deemed properly delivered and received when and if either (i)
personally delivered, including via facsimile; or (ii) on the first business day
after deposit with a commercial overnight courier for delivery on the next
business day. Any party may change its address for delivery of notices by
properly notifying the others pursuant to this SECTION 20.
21. SUCCESSORS AND ASSIGNS. The terms, conditions and covenants of this
----------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective nominees, successors, beneficiaries and assigns; provided,
however, no direct or indirect conveyance, assignment or transfer of any
interest whatsoever of, in or to any or all of the Contributed Interests or the
Project or of this Agreement shall be made by Contributor or the LLC during the
term of this Agreement. No such assignee shall accrue any obligations or
liabilities hereunder until the effective date of such assignment. Acquiror
shall have the right, exercisable prior to Closing, to designate any corporate
or partnership entity affiliated with, or related to, the Acquiror or the REIT
("AFFILIATE"), as the grantee or transferee of any or all of the conveyances,
transfers and assignments to be made by Contributor at Closing hereunder,
independent of, or in addition to, any assignment of this Agreement. In the
event that an Affiliate shall be designated as a transferee hereunder, that
transferee shall have the benefit of all of the representations and rights
which, by the terms of this Agreement, are incorporated in or relate to the
conveyance in question.
22. MISCELLANEOUS.
-------------
22.1. BENEFIT. This Agreement is for the benefit only of the parties
-------
hereto and their nominees, successors, beneficiaries and assignees as permitted
in SECTION 21 above and no
43
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other person or entity shall be entitled to rely hereon, receive any benefit
herefrom or enforce against any party hereto any provision hereof.
22.2. FURTHER ASSURANCES. All actions required to be taken pursuant
------------------
to this Agreement to effectuate the transaction contemplated herein shall be
taken promptly and in good faith by Contributor or Acquiror, as the case may be.
Contributor and Acquiror shall use their reasonable, diligent and good faith
efforts, and shall reasonably cooperate with and assist the other in its
efforts, to obtain or cause to be obtained, any and all consents and approvals
of third parties (including, but not limited to, governmental authorities) that
may be necessary in connection with the transaction contemplated hereby.
Contributor and Acquiror agree to (i) furnish with, or cause to be furnished to,
the other party such documents or further assurances, and (ii) perform, or cause
to be performed, such undertakings as the other party may reasonably request at
any time in connection with (x) the transaction contemplated by, and (y) the
respective obligations of Contributor, the REIT, and Acquiror, as the case may
be, set forth in, this Agreement.
22.3. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
understanding between the parties with respect to the transaction contemplated
herein, and all prior or contemporaneous oral agreements, understandings,
representations and statements, and all prior written agreements,
understandings, letters of intent and proposals are hereby superseded and
rendered null and void and of no further force and effect. Neither this
Agreement nor any provisions hereof may be waived, modified, amended, discharged
or terminated except by an instrument in writing signed by the party against
which the enforcement of such waiver, modification, amendment, discharge or
termination is sought, and then only to the extent set forth in such instrument.
22.4. TIME OF THE ESSENCE. Time is of the essence of this Agreement.
-------------------
If any date herein set forth for the performance of any obligations by
Contributor or Acquiror or for the delivery of any instrument or notice as
herein provided should be on a Saturday, Sunday or legal holiday, the compliance
with such obligations or delivery shall be deemed acceptable on the next
business day following such Saturday, Sunday or legal holiday. As used herein,
the term "LEGAL HOLIDAY" means any state or federal holiday for which financial
institutions or post offices are generally closed in the State of Wisconsin for
observance thereof.
22.5. CONDITIONS PRECEDENT. The waiver of any particular Condition
--------------------
Precedent shall not constitute the waiver of any other. Acquiror and
Contributor shall each have the right, in its sole and absolute discretion, to
waive any Condition Precedent for its benefit contained in this Agreement.
22.6. CONSTRUCTION. This Agreement shall not be construed more
------------
strictly against one party than against the other merely by virtue of the fact
that it may have been prepared by counsel for one of the parties, it being
recognized that both Contributor and Acquiror have contributed substantially and
materially to the preparation of this Agreement. The headings of various
Sections in this Agreement are for convenience only, and are not to be utilized
in construing the content or meaning of the substantive provisions hereof.
44
<PAGE>
22.7. GOVERNING LAW. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Wisconsin.
22.8. PARTIAL INVALIDITY. The provisions hereof shall be deemed
------------------
independent and severable, and the invalidity or partial invalidity or
enforceability of any one provision shall not affect the validity of
enforceability of any other provision hereof.
22.9. CERTAIN SECURITIES MATTERS. No sale of LP Units is intended by
--------------------------
the parties by virtue of their execution of this Agreement. Any sale of LP
Units referred to in this Agreement will occur, if at all, upon the Closing.
22.10. COUNTERPARTS. This Agreement may be executed in any number of
------------
identical counterparts, any of which may contain the signatures of less than all
parties, and all of which together shall constitute a single agreement.
22.11. CALCULATION OF TIME PERIODS. Notwithstanding anything to the
---------------------------
contrary contained in this Agreement, any period of time provided for in this
Agreement that is intended to expire on or prior to the Closing Date, but that
would extend beyond the Closing Date if permitted to run its full term, shall be
deemed to expire upon Closing.
22.12. CONFIDENTIALITY.
---------------
(a) Each of Contributor and Acquiror agrees to maintain in
confidence the information contained in this Agreement or pertaining to the
transactions contemplated hereby and intends that no claim of privilege or
protection from disclosure be waived by reason of the disclosure or transfer of
information among the parties pursuant to the terms of this Agreement; provided,
--------
however, that each of Contributor and Acquiror and their respective agents may
- -------
disclose such information and data (i) to such party's accountants, attorneys,
existing or prospective lenders, investment bankers, accountants, underwriters,
ratings agencies, partners, consultants and other advisors in connection with
the transactions contemplated by this Agreement (collectively,
"REPRESENTATIVES") to the extent that such Representatives reasonably need to
know (in the disclosing party's reasonable discretion) such information and data
in order to assist, and perform services on behalf of, the disclosing party;
(ii) to the extent required by any applicable statute, law, regulation or
Governmental Authority (including, but not limited to, Form 8-K and other
reports and filings required by the Securities Exchange Commission and other
regulatory entities, as described in EXHIBIT I attached hereto) or by the NASDAQ
(or other applicable exchange) in connection with the listing of the Conversion
Shares; (iii) in connection with any litigation that may arise between the
parties in connection with the transactions contemplated by this Agreement or
otherwise relating to the Contributed Interests or the Project; (iv) to the
extent such disclosure is required or appropriate in connection with any
securities offering or other capital markets or financing transaction undertaken
by the REIT; (v) to the extent such information and data become generally
available to the public other than as a result of disclosure by such party or
its agents or Representatives; (vi) to the extent such information and data
become available to such party or its agents or Representatives from a third
party who, insofar as is known to such party, is not subject to a
confidentiality obligation to the other party hereunder; and (vii) to the extent
45
<PAGE>
necessary in order to comply with each party's respective covenants, agreements
and obligations under this Agreement. Each of Contributor and Acquiror shall
take all necessary and appropriate measures to ensure that any person who is
granted access to any confidential information pursuant to the terms of this
SECTION 22.12 is familiar with the terms hereof and complies with such terms as
they relate to the duties of such person.
(b) In the event that this Agreement is terminated prior to the
Closing or the transactions contemplated hereby are abandoned or otherwise not
consummated, each of Contributor and Acquiror will, and will cause its
representatives to, deliver to the other party hereto, or destroy, all
documents, work papers and other materials (other than public filings), and all
copies thereof, obtained or created by it or on its behalf as a result of this
Agreement or in connection herewith, whether so obtained before or after the
execution hereof, and will hold in confidence and will not use for any purpose
the confidential information pursuant to the confidentiality provisions set
forth herein. The obligations of the parties under this SECTION 22.12 shall
survive such termination of this Agreement prior to Closing.
22.13. OTHER OFFERS. Until the termination of this Agreement in
------------
accordance with the terms hereof, neither Contributor nor any of its
shareholders, directors, officers, employees, representatives or agents, shall,
without Acquiror's prior written consent, directly or indirectly, encourage,
solicit or initiate any discussion or negotiations with, or provide any
information to, any person or group of persons (other than Acquiror or any of
its representatives) for the purpose of soliciting an alternate proposal,
indication of interest or letter of intent with respect to: (a) the sale or
other transfer of the Contributed Interests or the Project or any portion
thereof; (b) the sale or other transfer of a controlling interest in Contributor
or the LLC; (c) the merger of Contributor or the LLC and any other entity; or
(d) any similar transactions essentially designed to accomplish the goal(s) to
be achieved pursuant to this Agreement or any of the transactions described in
(a), (b) or (c) above. Contributor shall immediately inform Acquiror of any
inquiry, proposal or request for information (including the terms thereof and
the person making such inquiry) which it may receive in respect of such a
transaction.
[The remainder of this page intentionally left blank]
46
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Contribution
Agreement on the date first above written.
CONTRIBUTOR:
WELLINGTON MANAGEMENT
CORPORATION, a Wisconsin
corporation
By: /s/ Arnold K. Leas
--------------------
Arnold K. Leas, President
ACQUIROR:
WELLINGTON PROPERTIES
INVESTMENTS, L.P., a Delaware
limited partnership
By: Wellington Properties Trust, a Maryland real
estate investment trust, its sole general
partner
By: /s/ Arnold K. Leas
--------------------
Arnold K. Leas, President
S-1
<PAGE>
SCHEDULE OF EXHIBITS
A [Intentionally Omitted]
B Legal Descriptions of the Land
C Personal Property*
D Allocated Amount and Assumed Indebtedness
E [Intentionally Omitted]
F Accredited Investor Questionnaire*
G [Intentionally Omitted]
H Contributor's Deliveries*
I SEC Reporting Requirements*
J Permitted Exceptions*
K Surveyor's Certificate*
L Tenant Estoppel Certificate*
M Form of Audit Representation Letter*
* This exhibit has been intentionally omitted and will be
provided to any shareholder of the Company upon written
request to: Wellington Properties Trust, 18650 W.
Corporate Drive, Suite 300, P.O. Box 0919, Brookfield,
Wisconsin 53008-0919.
<PAGE>
LIST OF SCHEDULES
7.1 Exceptions to General Warranties*
7.1.9 Liabilities and Obligations of the LLC*
9.2.6 USTs*
11.1 Exceptions to Lease Warranties*
* This schedule has been intentionally omitted and will be
provided to any shareholder of the Company upon written
request to: Wellington Properties Trust, 18650 W.
Corporate Drive, Suite 300, P.O. Box 0919, Brookfield,
Wisconsin 53008-0919.
<PAGE>
EXHIBIT B
---------
WELLINGTON CENTRE
-----------------
LEGAL DESCRIPTION
-----------------
Parcel 10 of Certified Survey Map No. 4966, being a division of a part of the
Northwest 1/4 of the Northwest 1/4 of Section 33, Town 7 North, Range 20 East,
City of Brookfield, Waukesha County, Wisconsin, recorded June 23, 1986 in the
office of the Register of Deeds in Volume 40 of Certified Survey Maps, pages
205, 206 and 207 as Document No. 1353340.
<PAGE>
EXHIBIT D
ALLOCATED AMOUNT AND ASSUMED INDEBTEDNESS
Allocated Amount Assumed Indebtedness Mortgage Description
---------------- -------------------- --------------------
$13,750,000 $7,346,618
D-1
<PAGE>
EXHIBIT C
---------
_________________________________________
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLINGTON PROPERTIES INVESTMENTS, L.P.
_________________________________________
Dated as of August 31, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I DEFINED TERMS................................................................................. 1
ARTICLE II ORGANIZATIONAL MATTERS....................................................................... 12
Section 2.1 Organization....................................................................... 12
Section 2.2 Name............................................................................... 12
Section 2.3 Registered Office and Agent; Principal Office...................................... 12
Section 2.4 Term............................................................................... 12
ARTICLE III PURPOSE..................................................................................... 13
Section 3.1 Purpose and Business............................................................... 13
Section 3.2 Powers............................................................................. 13
ARTICLE IV CAPITAL CONTRIBUTIONS AND ISSUANCES OF PARTNERSHIP INTERESTS................................ 13
Section 4.1 Capital Contributions of the Partners.............................................. 14
Section 4.2 Additional Capital Contributions and Issuances of Additional Units................. 14
Section 4.3 Percentage Interest Adjustments in the Case of Capital Contributions for Units..... 17
Section 4.4 No Preemptive Rights............................................................... 18
Section 4.5 Other Contribution Provisions...................................................... 18
Section 4.6 No Interest on Capital............................................................. 18
Section 4.7 Return of Capital Contributions.................................................... 19
Section 4.8 No Third Party Beneficiary......................................................... 20
ARTICLE V DISTRIBUTIONS................................................................................. 20
Section 5.1 Requirement and Characterization of Distributions.................................. 20
Section 5.2 Amounts Withheld................................................................... 21
Section 5.3 Distributions Upon Liquidation..................................................... 21
Section 5.4 Revisions to Reflect Issuance of Units............................................. 21
ARTICLE VI ALLOCATIONS.................................................................................. 22
Section 6.1 Allocations for Capital Account Purposes........................................... 22
Section 6.2 Revisions to Allocations to Reflect Issuance of Units.............................. 24
ARTICLE VII MANAGEMENT AND OPERATIONS OF BUSINESS....................................................... 24
Section 7.1 Management......................................................................... 24
Section 7.2 Certificate of Limited Partnership................................................. 28
Section 7.3 Title to Partnership Assets........................................................ 29
Section 7.4 Reimbursement of the General Partner............................................... 29
Section 7.5 Outside Activities of the General Partner; Relationship of Shares to
Units; Funding Debt........................................................................... 30
Section 7.6 Transactions with Affiliates....................................................... 32
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 7.7 Indemnification..................................................... 32
Section 7.8 Liability of the General Partner.................................... 34
Section 7.9 Other Matters Concerning the General Partner........................ 35
Section 7.10 Reliance by Third Parties.......................................... 37
Section 7.11 Restrictions on General Partner Authority.......................... 38
Section 7.12 Loans by Third Parties............................................. 38
ARTICLE VIII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................................. 38
Section 8.1 Limitation of Liability............................................. 38
Section 8.2 Management of Business.............................................. 38
Section 8.3 Outside Activities of Limited Partners.............................. 39
Section 8.4 Return of Capital................................................... 39
Section 8.5 Rights of Limited Partners Relating to the Partnership.............. 39
Section 8.6 Redemption Right; Conversion Right.................................. 41
ARTICLE IX BOOKS, RECORDS, ACCOUNTING AND REPORTS........................................ 45
Section 9.1 Records and Accounting.............................................. 45
Section 9.2 Fiscal Year......................................................... 45
Section 9.3 Reports............................................................. 45
ARTICLE X TAX MATTERS.................................................................... 46
Section 10.1 Preparation of Tax Returns......................................... 46
Section 10.2 Tax Elections...................................................... 46
Section 10.3 Tax Matters Partner................................................ 46
Section 10.4 Organizational Expenses............................................ 47
Section 10.5 Withholding........................................................ 48
ARTICLE XI TRANSFERS AND WITHDRAWALS..................................................... 48
Section 11.1 Transfer........................................................... 48
Section 11.2 Transfers of Units of the General Partner.......................... 49
Section 11.3 Limited Partners' Rights to Transfer............................... 50
Section 11.4 Substituted Partners............................................... 52
Section 11.5 Assignees.......................................................... 52
Section 11.6 General Provisions................................................. 53
ARTICLE XII ADMISSION OF PARTNERS........................................................ 54
Section 12.1 Admission of a Successor General Partner........................... 54
Section 12.2 Admission of Additional Partners................................... 54
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership...... 55
ARTICLE XIII DISSOLUTION AND LIQUIDATION................................................. 56
Section 13.1 Dissolution........................................................ 56
Section 13.2 Winding Up......................................................... 56
Section 13.3 Compliance with Timing Requirements of Regulations................. 57
Section 13.4 Deemed Distribution and Recontribution............................. 58
Section 13.5 Rights of Limited Partners......................................... 59
Section 13.6 Notice of Dissolution.............................................. 59
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 13.7 Cancellation of Certificate of Limited Partnership..... 59
Section 13.8 Reasonable Time for Winding Up......................... 59
Section 13.9 Waiver of Partition.................................... 59
Section 13.10 Liability of Liquidator................................ 60
ARTICLE XIV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS...................... 60
Section 14.1 Amendments.............................................. 60
Section 14.2 Meetings of the Partners Consent........................ 62
ARTICLE XV GENERAL PROVISIONS................................................. 62
Section 15.1 Addresses and Notice................................... 62
Section 15.2 Titles and Captions.................................... 63
Section 15.3 Pronouns and Plurals................................... 63
Section 15.4 Further Action......................................... 63
Section 15.5 Binding Effect......................................... 63
Section 15.6 Creditors.............................................. 63
Section 15.7 Waiver................................................. 63
Section 15.8 Counterparts........................................... 63
Section 15.9 Applicable Law......................................... 64
Section 15.10 Invalidity of Provisions............................... 64
Section 15.11 Power of Attorney...................................... 64
Section 15.12 Entire Agreement; Exhibits............................. 65
Section 15.13 No Rights as Shareholders.............................. 65
Section 15.14 Limitation to Preserve REIT Status..................... 66
</TABLE>
EXHIBIT A
PARTNERS
EXHIBIT B
TAX MATTERS
EXHIBIT C
NOTICE OF REDEMPTION/CONVERSION
EXHIBIT D
FORM OF ADDENDUM TO ADMIT ADDITIONAL PARTNERS
EXHIBIT E
MASTER REGISTRATION RIGHTS AGREEMENT
SCHEDULE 4.2
PREFERRED UNIT TERMS
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLINGTON PROPERTIES INVESTMENTS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP, dated as of August 31, 1998, is
entered into by and among Wellington Properties Trust, a Maryland real estate
investment trust, as the General Partner, and the Persons whose names are set
forth on Exhibit A hereto as Limited Partners, together with any other Persons
---------
who become Partners in the Partnership as provided herein.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree to form the
Partnership as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act, as amended from time to time, as follows:
ARTICLE I
DEFINED TERMS
-------------
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
---
be amended from time to time, and any successor to such statute.
"Addendum" means the document executed by Additional Partners and
--------
Substituted Partners to evidence their admission to the Partnership (and, for
those Persons that are already Limited Partners, to evidence the issuance of
additional Units to them), which document shall be substantially in the form of
Exhibit D hereto.
- ---------
"Additional Partner" means a Person admitted to the Partnership as a
------------------
Limited Partner pursuant to Section 12.2.
"Adjusted Capital Account" has the meaning set forth in Exhibit B.
------------------------ ---------
"Adjusted Capital Account Deficit" has the meaning set forth in Exhibit B.
-------------------------------- ---------
"Adjusted Property" means any property the Carrying Value of which has been
-----------------
adjusted pursuant to Exhibit B.
---------
"Adjustment Date" has the meaning set forth in Section 4.3.
---------------
<PAGE>
"Affiliate" means, with respect to any Person, (i) any Person directly or
---------
indirectly controlling, controlled by, or under common control with, such
Person, (ii) any Person owning or controlling 10% or more of the outstanding
voting interests of such Person, (iii) any Person of which such Person owns or
controls 10% or more of the voting interests or (iv) any officer, director,
general partner or trustee of such Person or any Person referred to in clauses
(i), (ii), and (iii) above. For purposes of this definition, "control," when
used with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Protected Amount" means the aggregate balances of the Protected
--------------------------
Amounts, if any, of all Protected Partners, as determined on the date in
question.
"Agreed Value" has the meaning set forth in Exhibit B.
------------ ---------
"Agreement" means this Agreement of Limited Partnership, as it may be
---------
amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Units have been transferred
--------
in a manner permitted under this Agreement, but who has not become a Substituted
Partner, and who has the rights set forth in Section 11.5.
"Book-Tax Disparities" has the meaning set forth in Exhibit B.
-------------------- ---------
"Business Day" means any day except a Saturday, Sunday or other day on
------------
which commercial banks in Milwaukee, Wisconsin are authorized or required by law
to close.
"Calculation Date" means the date that is five Business Days prior to the
----------------
date with respect to which value must be determined (i.e., the date of
----
contributions of Contributed Property or the Specified Redemption Date).
"Capital Account" means the Capital Account maintained for a Partner
---------------
pursuant to Exhibit B.
---------
"Capital Contribution" means, with respect to any Partner, any cash, cash
--------------------
equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.1 or 4.2.
"Carrying Value" has the meaning set forth in Exhibit B.
-------------- ---------
"Cash Amount" means an amount of cash equal to the Value of the Shares
-----------
Amount on the date of receipt by the GP of a Notice of Redemption (or, if such
date is not a Business Day, the first Business Day thereafter).
"Certificate" means the Certificate of Limited Partnership relating to the
-----------
Partnership filed in the office of the Delaware Secretary of State, as amended
from time to time in accordance with the terms hereof and the Act.
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended and in effect
----
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Common Units" means those Units issued to Partners, pursuant to this
------------
Agreement, that are not conferred special rights, privileges or designations
pursuant to Section 4.2.
"Consent of Limited Partners" means the consent of Limited Partners holding
---------------------------
Units that are greater than 50% of the aggregate outstanding Units owned by all
Limited Partners; provided, however, that the vote of any Preferred Units with
voting rights that are convertible into Common Units shall be counted as though
the Conversion Right with respect to such Preferred Units has been exercised and
the number of Common Units into which such Preferred Units have been converted,
are outstanding, and have voted with respect to the matter at issue.
"Consolidation" means the series of transactions as a result of which the
-------------
Partnership acquires certain properties in exchange for Units, as described in
the first Proxy Statement of the General Partner Entity dated after the date
upon which the Certificate is initially filed pursuant to the Act.
"Contributed Property" means each property or other asset contributed to
--------------------
the Partnership, in such form as may be permitted by the Act, but excluding cash
contributed or deemed contributed to the Partnership. Once the Carrying Value
of any Contributed Property is adjusted pursuant to Exhibit B, such property
---------
shall no longer constitute a Contributed Property for purposes of Exhibit B, but
---------
shall be deemed an Adjusted Property for such purposes.
"Conversion Factor" means 1.0; provided that, if the General Partner Entity
-----------------
(i) declares or pays a dividend on its outstanding Shares in Shares or makes a
distribution to all holders of its outstanding Shares in Shares, (ii) subdivides
its outstanding Shares or (iii) combines its outstanding Shares into a smaller
number of Shares, the Conversion Factor shall be adjusted by multiplying the
Conversion Factor by a fraction, the numerator of which shall be the number of
Shares issued and outstanding on the record date for such dividend,
distribution, subdivision or combination (assuming for such purposes that such
dividend, distribution, subdivision or combination has occurred as of such time)
and the denominator of which shall be the actual number of Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, subdivision or combination; and provided further that if
an entity shall cease to be the General Partner Entity (the "Predecessor
Entity") and another entity shall become the General Partner Entity (the
"Successor Entity"), the Conversion Factor shall be adjusted by multiplying the
Conversion Factor by a fraction, the numerator of which is the Value of one
Share of the Predecessor Entity, determined as of the date when the Successor
Entity becomes the General Partner Entity, and the denominator of which is the
Value of one Share of the Successor Entity, determined as of that same date.
For purposes of the second proviso in the preceding sentence,
3
<PAGE>
if any shareholders of the Predecessor Entity will receive consideration in
connection with the transaction in which the Successor Entity becomes the
General Partner Entity, the numerator in the fraction described above for
determining the adjustment to the Conversion Factor (that is, the Value of one
Share of the Predecessor Entity) shall be the sum of the greatest amount of cash
and the fair market value (as determined in good faith by the General Partner)
of any securities and other consideration that the holder of one Share in the
Predecessor Entity could have received in such transaction (determined without
regard to any provisions governing fractional shares). Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
the event retroactive to the record date, if any, for the event giving rise
thereto, it being intended that (x) adjustments to the Conversion Factor are to
be made to avoid unintended dilution or anti-dilution as a result of
transactions in which Shares are issued, redeemed or exchanged without a
corresponding issuance, redemption or exchange of Units and (y) if a Specified
Redemption Date shall fall between the record date and the effective date of any
event of the type described above, that the Conversion Factor applicable to such
redemption shall be adjusted to take into account such event.
"Conversion Right" has the meaning set forth in Section 8.6.I.
----------------
"Convertible Funding Debt" has the meaning set forth in Section 7.5.C.
------------------------
"Debt" means, as to any Person, as of any date of determination, (i) all
----
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person, (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof, and (iv) obligations of such Person
incurred in connection with entering into a lease which, in accordance with
generally accepted accounting principles, should be capitalized.
"Declaration of Trust" means the Declaration of Trust of Wellington
--------------------
Properties Trust filed in the State of Maryland on March 15, 1994, as amended or
restated from time to time.
"Deemed Unit Value" means, as of any date and with respect to any class of
-----------------
Units, the Deemed Value of the Units of such class multiplied by the applicable
Partner's Percentage Interest in such class.
"Deemed Value of Units" means, as of any date and with respect to any class
---------------------
of Units, (i) if Shares corresponding to such class of Units (as provided for in
Section 4.3) are Publicly Traded (a) the total number of Shares corresponding to
such class of Units (as provided for in Section 4.3) issued and outstanding as
of the close of business on such date (excluding any treasury Shares) multiplied
by the Value of a Share of such class on such date divided by (b) the Percentage
Interest of the General Partner Entity in such class of Units on such date;
provided, however, that if the amount set forth in clause (a) equals zero, the
amount set forth
4
<PAGE>
in clause (i) shall be deemed to be zero, and (ii) otherwise, the aggregate
Value of such class of Units determined as set forth in the last sentence of the
definition of Value.
"Depreciation" has the meaning set forth in Exhibit B.
------------ ---------
"Distribution Period" means a quarter or shorter period with respect to
-------------------
which a distribution is to be made pursuant to Article V.
"Effective Date" means the date of the closing of the Consolidation.
--------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"ERISA Partner" means a Limited Partner that is also an ERISA Plan.
-------------
"ERISA Plan" means an "employee benefit plan" as that term is defined in 29
----------
U.S.C. Section 1002(3), and which is not exempt from regulation under ERISA by
virtue of 29 U.S.C. Section 1003(b).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Funding Debt" means the incurrence of any Debt by or on behalf of the
------------
General Partner Entity for the purpose of providing funds to the Partnership.
"General Partner" means Wellington Properties Trust, a Maryland real estate
---------------
investment trust, or its successors, as general partner of the Partnership.
"General Partner Entity" means the General Partner; provided, however, that
----------------------
if (i) the common Shares of the General Partner are at any time not Publicly
Traded and (ii) the common shares of beneficial interest (or other comparable
equity interests) of an entity that owns, directly or indirectly, fifty percent
(50%) or more of the common shares of beneficial interest (or other comparable
equity interests) of the General Partner are Publicly Traded, the term "General
Partner Entity" shall refer to such entity whose common shares of beneficial
interest (or other comparable equity securities) are Publicly Traded. If both
requirements set forth in clauses (i) and (ii) above are not satisfied, then the
term "General Partner Entity" shall mean the General Partner.
"General Partner Payment" has the meaning set forth in Section 15.14
-----------------------
hereof.
"IRS" means the Internal Revenue Service of the United States.
---
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
-----------------------------
death, total physical disability or entry by a court of competent jurisdiction
adjudicating such Partner incompetent to manage his or her Person or estate,
(ii) as to any corporation which is a Partner, the filing of a certificate of
dissolution, or its equivalent, for the corporation or the revocation of its
charter, (iii) as to any partnership or limited liability company which is a
Partner, the dissolution and commencement of winding up of the partnership or
limited liability company, (iv) as to any estate which is a Partner, the
distribution by the fiduciary of the
5
<PAGE>
estate's entire interest in the Partnership, (v) as to any trustee of a trust
which is a Partner, the termination of the trust (but not the substitution of a
new trustee) or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within 120 days after the commencement thereof, (g) the
appointment without the Partner's consent or acquiescence of a trustee, receiver
of liquidator has not been vacated or stayed within 90 days of such appointment
or (h) an appointment referred to in clause (g) is not vacated within 90 days
after the expiration of any such stay.
"Incentive Rights" has the meaning set forth in Section 4.2.C(iii).
----------------
"Indemnitee" means (i) any Person made a party to a proceeding by reason of
----------
its status as (a) the General Partner or (b) a trustee, director, shareholder or
officer of the Partnership or the General Partner, as the case may be, or any
Person acting on behalf of either the Partnership or the General Partner, and
(ii) such other Persons (including Affiliates of the General Partner, a Limited
Partner or the Partnership) as the General Partner may designate from time to
time (whether before or after the event giving rise to potential liability), in
its sole and absolute discretion.
"Independent Trustee" means any person serving as a trustee of the General
-------------------
Partner Entity who is not employed by or otherwise considered an Affiliate of
the General Partner or any Subsidiary of the General Partner.
"Limited Partner" means any Person named as a Limited Partner in Exhibit A,
--------------- ---------
as such Exhibit may be amended from time to time in accordance with this
Agreement, including any Substituted Partner or Additional Partner, in such
Person's capacity as a Limited Partner in the Partnership.
"Liquidating Event" has the meaning set forth in Section 13.1.
-----------------
"Liquidator" has the meaning set forth in Section 13.2.A.
----------
"Minimum Distribution Amount" means, with respect to any period for which
---------------------------
such calculation is being made, an amount of cash equal to that minimum amount
of cash necessary (i) to satisfy any Priority Return Amounts then due and owing
and (ii) to enable the General
6
<PAGE>
Partner Entity (a) to satisfy the then-prevailing REIT Requirements, including,
without limitation, those requirements concerning distributions to the General
Partner Entity's shareholders, and (b) otherwise to avoid the imposition of any
excise taxes under the Code, including, without limitation, under Section 4981
of the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
----------
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
- ---------
in the initial computation of Net Income is subjected to the special allocation
rules in Exhibit B, Net Income or Net Losses, whichever the case may be, shall
---------
be recomputed without regard to such item.
"Net Losses" means, for any taxable period, the excess, if any, of the
----------
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
Exhibit B. If an item of income, gain, loss or deduction that has been included
- ---------
in the initial computation of Net Losses is subjected to the special allocation
rules in Exhibit B, Net Losses or Net Income, whichever the case may be, shall
---------
be recomputed without regard to such item.
"New Securities" means (i) any rights, options, warrants or convertible or
--------------
exchangeable securities having the right to subscribe for or purchase shares of
beneficial interest (or other comparable equity interest) of the General Partner
Entity (excluding grants (but not exercises) under any Share Option Plan or
dividend reinvestment plan), (ii) any Debt issued by the General Partner Entity
that provides any of the rights described in clause (i), or (iii) any Shares
issued by the General Partner Entity as contemplated by Section 4.2, including,
without limitation, those issued in connection with any dividend reinvestment
plan or Share Option Plan of the General Partner Entity.
"Nonrecourse Deductions" has the meaning set forth in Exhibit B.
---------------------- ---------
"Nonrecourse Liability" has the meaning set forth in Exhibit B.
--------------------- ---------
"Notice of Conversion" means a Notice of Conversion substantially in the
--------------------
form of Exhibit C.
---------
"Notice of Redemption" means a Notice of Redemption substantially in the
--------------------
form of Exhibit C.
---------
"Option Exercise Price" has the meaning set forth in Section 4.2.C(ii).
---------------------
"Partner" means the General Partner or a Limited Partner, and "Partners"
-------
means the General Partner or the Limited Partners, in each case as may be
applicable from time to time.
"Partner Minimum Gain" has the meaning set forth in Exhibit B.
-------------------- ---------
7
<PAGE>
"Partner Nonrecourse Debt" has the meaning set forth in Exhibit B.
------------------------ ---------
"Partner Nonrecourse Deductions" has the meaning set forth in Exhibit B.
------------------------------ ---------
"Partnership" means the limited partnership formed under the Act upon the
-----------
terms and conditions set forth in this Agreement, or any successor to such
limited partnership.
"Partnership Minimum Gain" has the meaning set forth in Exhibit B.
------------------------ ---------
"Partnership Record Date" means the record date established by the General
-----------------------
Partner either (i) for distributions pursuant to Section 5.1 hereof, which
record date shall be the same as the record date established by the General
Partner Entity for a distribution to its shareholders of some or all of its
portion of such distribution, or (ii) if applicable, for determining the
Partners entitled to vote on or consent to any proposed action for which the
consent or approval of the Partners is sought pursuant to this Agreement.
"Partnership Year" means the fiscal year of the Partnership, which shall be
----------------
the calendar year.
"Percentage Interest" means, in each case after giving effect to additional
-------------------
Capital Contributions pursuant to Section 4.3, (i) within a class of Units, the
percentage determined by dividing (a) the number of Units of such class owned by
--------
the Partner with respect to which such determination is being made by (b) the
--
total number of Units of such class then outstanding; (ii) for a given class of
Units (in the event that the Partnership shall have more than one class of Units
outstanding), the percentage determined by dividing (a) the Deemed Value of
--------
Units of such class by (b) the Deemed Value of Units of all classes of Units
--
then outstanding; and (iii) with respect to any Partner relative to all other
Partners, as the case requires the percentage determined by multiplying (a) the
-----------
percentage determined in clause (i) by (b) the percentage determined in clause
--
(ii) (and, to the extent that such Partner holds more than one class of Units,
aggregating the amounts of determined for each class).
"Person" means a natural person, partnership (whether general or limited),
------
trust, estate, association, corporation, limited liability company,
unincorporated organization, custodian, nominee or any other individual or
entity in its own or any representative capacity.
"Plan Assets Regulation" has the meaning set froth in Section 7.9.E.
----------------------
"Pledge" has the meaning set forth in Section 11.3.A.
------
"Predecessor Entity" has the meaning set forth in the definition of
------------------
"Conversion Factor" herein.
"Preferred Units" mean those Units that are not Common Units and that are
---------------
described in Schedule 4.2 to this Agreement, as amended from time to time.
"Preferred Unit Terms" has the meaning set forth in Section 4.2.A.
--------------------
8
<PAGE>
"Priority Return Amount" means for each Distribution Period and with
----------------------
respect to each series of Preferred Units, an amount described in Schedule 4.2
as the Priority Return Amount with respect to such series of Preferred Units.
The Priority Return Amount shall be prorated for any Distribution Period shorter
than a full calendar quarter.
"Protected Amount" means, with respect to any Protected Partner, an amount
----------------
equal to (i) the taxable gain, if any, that would be realized by such Protected
Partner if such Partner were to dispose of its Units for no consideration other
than the release or deemed release of liabilities of the Partnership assumed by
or otherwise allocable to such Partner under Code Section 752, as such
hypothetical gain is determined from time to time, less (ii) such Partner's
share of "qualified nonrecourse financing" as defined in Code Section 465(b)(6)
and the Treasury Regulations thereunder, as such share is determined from time
to time in accordance with Treasury Regulations Section 1.752-3(a). The
Protected Amount allocable to any Protected Partner may be modified from time to
time by an amendment to the Agreement or by execution of a written instrument by
and between such Protected Partner and the General Partner, acting on behalf of
the Partnership and without the prior written consent of any other Partner
(whether or not Protected Partners).
"Protected Partner(s)" means that or those Limited Partner(s) designated as
--------------------
Protected Partner(s) on Exhibit A attached hereto and made a part hereof, as
---------
such designation may be modified from time to time by the General Partner,
whether by express amendment to this Agreement or by execution of a written
instrument by and between any Protected Partner(s) and the General Partner,
acting on behalf of the Partnership and without the prior consent of Limited
Partners (whether or not Protected Partners). For purposes hereof, any
successor, assignee, or transferee of Units of a Protected Partner, which
successor, assignee or transferee determines its basis in such Units by
reference to the basis of the predecessor, assignor or transferor Protected
Partner, shall be considered a Protected Partner for purposes hereof.
"Publicly Traded" means listed or admitted to trading on the New York Stock
---------------
Exchange, the American Stock Exchange or another national securities exchange or
designated for quotation on the NASDAQ National Market or NASDAQ Small-Cap
market, or any successor to any of the foregoing.
"Qualified REIT Subsidiary" means any Subsidiary of the General Partner
-------------------------
Entity that is a "qualified REIT subsidiary" within the meaning of Section
856(i) of the Code.
"Qualified Transferee" means an "Accredited Investor" as defined in Rule
--------------------
501 promulgated under the Securities Act.
"Recapture Income" means any gain recognized by the Partnership (computed
----------------
without regard to any adjustment required by Section 734 or Section 743 of the
Code) upon the disposition of any property or asset of the Partnership, which
gain is characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
9
<PAGE>
"Recourse Liabilities" means the amount of liabilities owed by the
--------------------
Partnership (other than nonrecourse liabilities and liabilities to which Partner
Nonrecourse Deductions are attributable in accordance with Treasury Regulations
Section 1.704-2(i)).
"Redeeming Partner" has the meaning set forth in Section 8.6.A.
-----------------
"Redemption Amount" means either the Cash Amount or the Shares Amount, as
-----------------
determined by the General Partner in its sole and absolute discretion.
"Redemption Right" has the meaning set forth in Section 8.6.A.
----------------
"Reference Price" means for the applicable Shares on a given date: (i) if
---------------
such Shares are listed for quotation on a NASDAQ system, the average of the
closing bid and ask prices; or (ii) if such Shares are listed on a national
exchange, the closing price, regular way.
"Regulation" or "Regulations" means the Income Tax Regulations promulgated
---------------------------
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"REIT" means a real estate investment trust under Section 856 of the Code.
----
"REIT Requirements" means the requirements for qualification as a REIT in
-----------------
effect from time to time under the Code and the Regulations.
"REOC" has the meaning set forth in Section 7.9.E.
----
"Residual Gain" or "Residual Loss" has the meaning set forth in Exhibit B.
-------------------------------- ---------
"Safe Harbors" has the meaning set forth in Section 11.6.F.
------------
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Share" means a share of beneficial interest (or other comparable equity
-----
interest) of the General Partner Entity. Shares may be issued in one or more
classes or series in accordance with the terms of the Declaration of Trust (or,
if the General Partner is not the General Partner Entity, the organizational
documents of the General Partner Entity). If there is more than one class or
series of Shares, the term "Shares" shall, as the context requires, be deemed to
refer to the class or series of Shares that correspond to the class or series of
Units for which the reference to Shares is made. When used with reference to
Common Units, the term "Shares" refers to common Shares.
"Shares Amount" means a number of Shares equal to the product of the number
-------------
of Units offered for redemption by a Redeeming Partner times the Conversion
Factor; provided that, if the General Partner Entity issues to all holders of
Shares rights, options, warrants or convertible or exchangeable securities
entitling such holders to subscribe for or purchase Shares or any other
securities or property (collectively, the "rights"), then the Shares Amount
10
<PAGE>
shall also include such rights that a holder of that number of Shares would be
entitled to receive to the extent such rights have not expired.
"Share Option Plan" has the meaning set forth in Section 4.2.C hereof.
-----------------
"Specified Redemption Date" means the tenth Business Day after receipt by
-------------------------
the General Partner of a Notice of Redemption; provided that, if the Shares are
not Publicly Traded, the Specified Redemption Date means the 30/th/ Business Day
after receipt by the General Partner of a Notice of Redemption.
"Subsidiary" means, with respect to any Person, any corporation, limited
----------
liability company, trust, partnership or joint venture, or other entity of which
a majority of (i) the voting power of the voting equity securities or (ii) the
outstanding equity interests is owned, directly or indirectly, by such Person.
"Substituted Partner" means a Person who is admitted as a Limited Partner
-------------------
to the Partnership pursuant to Section 11.4.
"Successor Entity" has the meaning set forth in the definition of
----------------
"Conversion Factor" herein.
"Terminating Capital Transaction" means any sale or other disposition of
-------------------------------
all or substantially all of the assets of the Partnership for cash or a related
series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership for
cash.
"Termination Transaction" has the meaning set forth in Section 11.2.B.
-----------------------
"Units" shall mean either or both of Common Units and Preferred Units, as
-----
the context may require. Collectively, Units represents the fractional,
undivided ownership interest in the Partnership of the Partners under this
Agreement, including rights to distributions and any other rights or benefits
which such Partners have in the Partnership, together with any and all
obligations of the Partners to comply with the terms and provisions of this
Agreement.
"Unrealized Gain" has the meaning set forth in Exhibit B.
--------------- ---------
"Unrealized Loss" has the meaning set forth in Exhibit B.
--------------- ---------
"Value" means, with respect to any outstanding Shares that are Publicly
-----
Traded, the average of the Reference Price for the 10 consecutive trading days
immediately preceding the Calculation Date. If the outstanding Shares are
Publicly Traded and the Shares Amount includes rights that a holder of Shares
would be entitled to receive, then the Value of such rights shall be determined
by the General Partner acting in good faith on the basis of such quotations and
other information as it considers, in its reasonable judgment, appropriate. If
Shares corresponding to such Units are not outstanding or otherwise Publicly
Traded, the
11
<PAGE>
Value shall be determined by the General Partner acting in good faith on the
basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate.
ARTICLE II
ORGANIZATIONAL MATTERS
----------------------
SECTION 2.1 ORGANIZATION.
------------
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. Each Partner's Units shall be
personal property for all purposes.
SECTION 2.2 NAME.
----
The name of the Partnership is Wellington Properties Investments, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE.
---------------------------------------------
The address of the registered office of the Partnership in the State of
Delaware shall be located at Corporation Service Company, 1013 Centre Road,
Wilmington, County of New Castle, Delaware 19805, or such other location as the
General Partner may select in its sole discretion; and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be Corporation Service Company, or such other Person as
the General Partner may select in its sole discretion. The principal office of
the Partnership shall be 18650 West Corporate Drive, Brookfield, Wisconsin
53045, or such other place as the General Partner may from time to time
designate by notice to the Limited Partner in a regular communication to the
Limited Partner. The Partnership may maintain offices at such other place or
places within or outside the State of Delaware as the General Partner deems
advisable.
SECTION 2.4 TERM.
----
The term of the Partnership shall commence upon the initial filing of the
Certificate pursuant to the Act and shall continue until December 31, 2097,
unless it is dissolved sooner pursuant to the provisions of Article XIII or as
otherwise provided by law.
ARTICLE III
12
<PAGE>
PURPOSE
-------
SECTION 3.1 PURPOSE AND BUSINESS.
--------------------
The purpose and nature of the business to be conducted by the Partnership
is (i) to conduct any business and own any assets that may be lawfully conducted
and owned, respectively, by a limited partnership organized pursuant to the Act;
provided, however, that it is currently anticipated that such business shall be
limited to and conducted in such a manner so as to permit the General Partner
Entity at all times to be classified as a REIT, unless the General Partner
Entity ceases to qualify or is not qualified as a REIT for any reason or reasons
not related to the business conducted by the Partnership, (ii) to enter into any
corporation, partnership, joint venture, trust, limited liability company or
other similar arrangement to engage in any of the foregoing, or to own an
interest in any entity engaged, directly or indirectly, in any of the foregoing,
and (iii) to do anything necessary or incidental to the foregoing. In
connection with the foregoing, the Partners acknowledge that the status of the
General Partner Entity as a REIT inures to the benefit of all the Partners and
not solely to the General Partner Entity, its shareholders or its Affiliates.
SECTION 3.2 POWERS.
------
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership, including, without limitation, full
power and authority, directly or through its ownership interest in other
entities, to enter into, perform and carry out contracts of any kind, borrow
money and issue evidences of indebtedness, whether or not secured by mortgage,
deed of trust, pledge or other lien, acquire, own, manage, improve and develop
real property, and lease, sell, transfer and dispose of real property;
provided, however, that the Partnership shall not take, or refrain from taking,
any action which, in the judgment of the General Partner, in its sole and
absolute discretion, (i) could adversely affect the ability of the General
Partner Entity to continue to qualify as a REIT, (ii) could subject the General
Partner Entity to any additional taxes under Section 857 or Section 4981 of the
Code or (iii) could violate any law or regulation of any governmental body or
agency having jurisdiction over the General Partner, the General Partner Entity
or the securities of the General Partner Entity, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
ARTICLE IV
CAPITAL CONTRIBUTIONS AND ISSUANCES OF UNITS
---------------------------------------------
SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS.
-------------------------------------
At the time of the execution of this Agreement, the Partners shall make or
shall have made the Capital Contributions as set forth in Exhibit A. The
---------
Partners shall own Units in respect of such Capital Contributions in the amounts
set forth in Exhibit A, which Exhibit A shall be amended from time to time by
--------- ---------
the General Partner, as contemplated by this Agreement and to the extent
necessary to reflect accurately redemptions of Common Units, conversions of
13
<PAGE>
Preferred Units into Common Units, Capital Contributions, the issuance of
additional Units, a transfer of Units (as described in Article XI) or similar
events having an effect on the number of Units outstanding from time to time.
To the extent the Partnership is acquiring any property by the merger of any
other Person into the Partnership, Persons who receive Units in exchange for
their interests in the Person merging into the Partnership shall become Partners
and shall be deemed to have made Capital Contributions as provided in the
applicable merger agreement and as set forth in Exhibit A as revised by the
---------
General Partner to reflect the merger. Except as provided in Sections 4.2, 7.5
and 10.5 hereof, the Partners shall have no right or obligation to make any
additional Capital Contributions or provide any additional funding to the
Partnership (whether in the form of loans, repayments of loans or otherwise).
Except as specifically set forth in Section 13.3 hereof, no Partner shall have
any obligation to restore any deficit that may exist in its Capital Account,
either upon a liquidation of the Partnership or otherwise.
SECTION 4.2 ADDITIONAL CAPITAL CONTRIBUTIONS AND ISSUANCES OF ADDITIONAL UNITS.
------------------------------------------------------------------
A. Issuances of Additional Units.
-----------------------------
(i) General. The General Partner is hereby authorized to cause
-------
the Partnership to issue such additional Common Units or Preferred
Units for any Partnership purpose at any time or from time to time, to
the Partners (including the General Partner) or to other Persons for
such consideration (including, without limitation, Contributed
Property) and on such terms and conditions as shall be established by
the General Partner in its sole and absolute discretion, all without
the approval of any Limited Partner. Any additional Preferred Units
issued pursuant to this Section 4.2.A(i) may be issued in one or more
classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or
other special rights, powers and duties (collectively, "Preferred Unit
Terms") as shall be determined by the General Partner, in its sole and
absolute discretion and without the approval of any Limited Partner,
subject to Delaware law. Preferred Unit Terms shall be set forth by
the General Partner on Schedule 4.2 to this Agreement. The General
Partner is authorized to establish or otherwise revise Schedule 4.2 to
this Agreement, as may be necessary from time to time, to reflect the
Preferred Unit Terms of those classes or series of classes of
Preferred Units that the General Partner may create pursuant to this
Section 4.2.A(i). Any such classes or series of classes of Preferred
Units may be senior to the Common Units or to other classes or series
of classes of Preferred Units. Preferred Unit Terms shall include,
without limitation, (x) the allocation of items of Partnership income,
gain, loss, deduction and credit to each such class or series of
Preferred Units, (y) the right of each such class or series of
Preferred Units to share in Partnership distributions, and (z) the
rights of each such class or series of Preferred Units upon
dissolution and liquidation of the Partnership. Notwithstanding the
foregoing in this Section 4.2.A(i), no additional Units shall be
issued to the General Partner in respect of an issuance of Shares or
other interests in the General Partner unless both:
14
<PAGE>
(1) the additional Units are issued in connection with the
issuance of Shares of, or other interests in, the General Partner,
which Shares or interests have designations, preferences and other
rights, all such that the economic interests (other than those
relating to tax matters) attributable to such newly issued Shares are
substantially similar to the designations, preferences and other
rights (other than voting rights) of the additional Units issued to
the General Partner by the Partnership in accordance with this Section
4.2; and
(2) except as provided in Section 4.2.A(ii), Section 4.2.B,
and Section 4.2.C hereof, the General Partner shall make a Capital
Contribution to the Partnership in an amount which is equal to the
proceeds raised in connection with the issuance of such Shares or
other interests in the General Partner.
Without limiting the foregoing, the General Partner is expressly
authorized to (a) receive Units in consideration for the contribution
of assets (including proceeds from the sale, refinancing or
disposition of any assets) to the Partnership; and (b) cause the
Partnership to issue Common Units for less than fair market value, so
long as the General Partner concludes, in good faith, that such
issuance is in the best interests of the General Partner and the
Partnership.
(ii) Upon Issuance of New Securities. The General Partner agrees
-------------------------------
that it shall not issue any New Securities (other than Shares issued
in connection with a redemption pursuant to Section 8.6 hereof) other
than to all holders of Shares, unless (x) the General Partner shall
cause the Partnership to issue to the General Partner Units or rights,
options, warrants or convertible or exchangeable securities of the
Partnership having designations, preferences and other rights, all
such that the economic interests (other than those relating to tax
matters) are substantially similar to those of the New Securities and
(y) the General Partner makes a Capital Contribution to the
Partnership in an amount which is equal to the proceeds from the
issuance of such New Securities or from the exercise of rights
contained in such New Securities, as the case may be; provided,
however, that the General Partner may issue New Securities in
connection with an acquisition of a property or other assets (whether
by merger, consolidation or otherwise) to be held directly by the
General Partner or a Subsidiary (other than the Partnership) of the
General Partner if, and only if, such direct acquisition and issuance
of additional Shares or New Securities have been approved and
determined to be in the best interest of the General Partner and the
Partnership by a majority of the Independent Trustees (or, if none, a
majority of trustees of the General Partner). Without limiting the
foregoing, the General Partner is expressly authorized to issue New
Securities for less than fair market value, and to cause the
Partnership to issue to the General Partner corresponding Units or
derivative Partnership securities so long as (1) the General Partner
concludes, in good faith, that such issuance is in the best
15
<PAGE>
interest of the General Partner and the Partnership (for example, and
not by way of limitation, but as more fully discussed in Section
4.2.C, the issuance of Shares and corresponding Units pursuant to a
Share Option Plan that have an exercise price that is less than the
fair market value of the Shares, either at the time of issuance or at
the time of exercise), and (2) the General Partner makes a Capital
Contribution to the Partnership in an amount which is equal to the
proceeds from such issuance to the Partnership.
B. Certain Deemed Contributions of Proceeds of Issuance of Shares.
--------------------------------------------------------------
Subject to Sections 4.2.C and 4.2.D, in connection with any and all issuances of
Shares, the General Partner shall make a Capital Contribution to the Partnership
which is equal to the proceeds raised in connection with such issuance as
required above, provided that if the proceeds actually received by the General
Partner are less than the gross proceeds of such issuance as a result of any
underwriter's discount or other expenses paid or incurred in connection with
such issuance, then the General Partner shall be deemed to have made a Capital
Contribution to the Partnership which is equal to the amount of the gross
proceeds of such issuance and the Partnership shall be deemed simultaneously to
have paid such offering expenses in connection with the required issuance of
additional Units to the General Partner for such Capital Contribution pursuant
to Section 4.2.A hereof.
C. Share Option Plan. The General Partner may, from time to time,
-----------------
establish compensation or other incentive plans, including, without limitation,
an employee stock purchase plan, a compensatory stock option plan, or phantom
stock plan (each a "Share Option Plan"), to provide incentives to any or all of
its trustees, executive officers, certain key employees and certain independent
contractors. The following examples are illustrative of the operation of the
provisions of Section 4.2.A(i) with respect to issuances of New Securities to
such trustees, officers, other employees and independent contractors:
(i) If the General Partner awards common Shares to any such
trustee, officer, other employee or independent contractor (a) the
General Partner shall, as soon as practicable, contribute to the
Partnership (to be thereafter taken into account of the purposes of
calculating any cash distributable to the Partners) an amount which is
equal to the price, if any, paid to the General Partner by such party
for such common Shares, and (b) the General Partner shall be issued by
the Partnership a number of additional Common Units equal to the
product of (1) the number of such common Shares issued by the General
Partner, multiplied by (2) a fraction, the numerator of which is one,
and the denominator of which is the Conversion Factor in effect on the
date of such contribution. In the case of Units issued to the General
Partner in connection with the issuance of New Securities under a
Share Option Plan, an amount equal to the difference between (a) the
Value of Shares issued pursuant to any Share Option Plan and (b) the
Option Exercise Price with respect to such Shares shall be deemed a
"guaranteed payment" to the General Partner "without regard to net
income" pursuant to the provisions of Section 707(c) of the Code and
be
16
<PAGE>
deemed to have been contributed by the General Partner to the capital
of the Partnership, thereby increasing its Capital Account;
(ii) If the General Partner awards an option or warrant relating
to common Shares, whether or not qualifying as an incentive stock
option under the Code, to any trustee, officer, other employee or
independent contractor, then the Partnership shall grant to the
General Partner a corresponding option or warrant to acquire Common
Units. Upon the exercise of such option or warrant for common Shares,
(a) the General Partner shall, as soon as practicable after such
exercise, contribute to the capital of the Partnership (to be
thereafter taken into account of the purposes of calculating cash
distributable to the Partners) an amount equal to the exercise price,
if any, paid to the General Partner by such exercising party in
connection with the exercise of the option or warrant (such amount
paid hereinafter referred to as the "Option Exercise Price"), and (b)
the General Partner shall be issued by the Partnership a number of
additional Common Units equal to the product of (1) the number of
Shares issued by the General Partner in satisfaction of such exercised
option or warrant, multiplied by (2) a fraction, the numerator of
which is one, and the denominator of which is the Conversion Factor in
effect on the date of such contribution; and
(iii) If the General Partner grants any trustee, officer, other
employee or independent contractor share appreciation rights,
performance share awards or other similar rights ("Incentive Rights"),
then simultaneously, the Partnership shall grant the General Partner
corresponding and economically equivalent rights. Consequently, upon
the cash payment by General Partner to its trustees, officers,
employees or independent contractors pursuant to such Incentive
Rights, the Partnership shall make an equal cash payment to the
General Partner.
SECTION 4.3 PERCENTAGE INTEREST ADJUSTMENTS IN THE CASE OF CAPITAL
------------------------------------------------------
CONTRIBUTIONS FOR UNITS.
-----------------------
Upon the acceptance of additional Capital Contributions in exchange for
additional Units, and if the Partnership shall have outstanding more than one
class of Units, the Percentage Interest related to such additional Units shall
be equal to a fraction, the numerator of which is equal to the amount of cash,
if any, plus the Agreed Value of Contributed Property, if any, contributed with
respect to such additional Units and the denominator of which is equal to the
sum of (i) the Deemed Value of the Units for all outstanding classes computed as
of the Business Day immediately preceding the date on which the additional
Capital Contributions are made (an "Adjustment Date") plus (ii) the aggregate
amount of additional Capital Contributions contributed to the Partnership on
such Adjustment Date in respect of such additional Units. The Percentage
Interest of each other Partner holding Units not making a full pro rata Capital
Contribution shall be adjusted to a fraction, the numerator of which is equal to
the sum of (i) the Deemed Unit Value of such Limited Partner (computed as of the
applicable Adjustment Date), plus (ii) the amount of additional Capital
Contributions
17
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(such amount being equal to the amount of cash, if any, plus the Agreed Value of
Contributed Property, if any, so contributed), if any, made by such Partner to
the Partnership in respect of such Units as of such Adjustment Date and the
denominator of which is equal to the sum of (i) the Deemed Value of the Units of
all outstanding classes (computed as of the applicable Adjustment Date) plus
(ii) the aggregate amount of additional Capital Contributions contributed to the
Partnership on such Adjustment Date in respect of the additional Units issued.
For purposes of calculating a Partner's Percentage Interest pursuant to this
Section 4.3, cash Capital Contributions by the General Partner will be deemed to
equal the cash contributed by the General Partner plus (a) in the case of cash
contributions funded by an offering of any equity interests in or other
securities of the General Partner (including, if applicable and without
limitation, those offered in connection with any dividend reinvestment plan of
the General Partner), the offering costs attributable to the cash contributed to
the Partnership, and (b) in the case of Units issued pursuant to Section
4.2.A(ii), an amount equal to the difference between the Value of the Shares
sold pursuant to any Share Option Plan and the net proceeds of such sale.
SECTION 4.4 NO PREEMPTIVE RIGHTS.
--------------------
Except to the extent expressly granted by the Partnership pursuant to
another agreement, no Person shall have any preemptive, preferential or other
similar right with respect to (i) additional Capital Contributions or loans to
the Partnership or (ii) the issuance or sale of any Units.
SECTION 4.5 OTHER CONTRIBUTION PROVISIONS.
-----------------------------
If any Partner is admitted to the Partnership and is given a Capital
Account in exchange for services rendered to the Partnership, such transaction
shall be treated by the Partnership and the affected Partner as if the
Partnership had compensated such Partner in cash, and the Partner had
contributed such cash to the capital of the Partnership.
SECTION 4.6 NO INTEREST ON CAPITAL.
----------------------
No Partner shall be entitled to interest on its Capital Contributions or
its Capital Account.
SECTION 4.7 RETURN OF CAPITAL CONTRIBUTIONS.
-------------------------------
No Partner shall be entitled to withdraw any part of its Capital
Contribution or its Capital Account or to receive any distribution from the
Partnership, except as specifically provided in this Agreement. Except as
otherwise provided herein, there shall be no obligation to return to any Partner
or withdrawn Partner any part of such Partner's Capital Contribution for so long
as the Partnership continues in existence.
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SECTION 4.8 NO THIRD PARTY BENEFICIARY.
--------------------------
Except as set forth in Section 13.3 hereof, no creditor or other third
party having dealings with the Partnership shall have the right to enforce the
right or obligation of any Partner to make Capital Contributions or loans or to
pursue any other right or remedy hereunder or at law or in equity, it being
understood and agreed that the provisions of this Agreement shall be solely for
the benefit of, and may be enforced solely by, the parties hereto and their
respective successors and assigns. Except as set forth in Section 13.3 hereof,
none of the rights or obligations of the Partners herein set forth to make
Capital Contributions or loans to the Partnership shall be deemed an asset of
the Partnership for any purpose by any creditor or other third party, nor may
such rights or obligations be sold, transferred or assigned by the Partnership
or pledged or encumbered by the Partnership to secure any debt or other
obligation of the Partnership or of any of the Partners. In addition, it is the
intent of the parties hereto that no distribution to any Limited Partner shall
be deemed a return of money or other property in violation of the Act.
ARTICLE V
DISTRIBUTIONS
-------------
SECTION 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS.
-------------------------------------------------
A. General. Subject to Section 5.1.C, the General Partner shall cause
-------
the Partnership to distribute, at least quarterly, to the Partners who are
Partners on the Partnership Record Date with respect to the applicable
Distribution Period, an amount equal to no less than the Minimum Distribution
Amount. Such distribution shall be made to and among the Partners in accordance
with the priorities, if any, set forth in Section 5.1.B hereof. Notwithstanding
anything to the contrary contained herein, in no event may a Partner receive a
distribution with respect to a Unit for a quarter or shorter period if such
Partner is entitled to receive a distribution with respect to a Share for which
such Unit has been redeemed or exchanged. Unless otherwise expressly provided
for in this Agreement, including in Schedule 4.2 of this Agreement as may be
established or amended to reflect the Preferred Unit Terms of a class of
Preferred Units that is created in accordance with Article IV hereof, no Unit
shall be entitled to a distribution in preference to any other Unit. The
General Partner shall make reasonable efforts, as determined by it in its sole
and absolute discretion and consistent with the qualification of the General
Partner Entity as a REIT, to distribute amounts to Limited Partners so as to
preclude any such distribution or portion thereof from being treated as part of
a sale of property of the Partnership by a Limited Partner under Section 707 of
the Code or the Regulations thereunder; provided that, the General Partner and
the Partnership shall not have liability to a Limited Partner under any
circumstances as a result of any distribution to a Limited Partner being so
treated.
B. Method. Subject to Section 5.1.A, Section 5.1.C, Section 5.2, Section
------
5.3, and Section 5.4, the General Partner shall cause the Partnership to
distribute the Minimum Distribution Amount to and among the Partners such that:
19
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(i) each holder of Preferred Units is accorded that preference to
which it is entitled pursuant to its respective Preferred Unit Terms (and,
within each class of Preferred Units, to and among the Partners in
proportion to their respective Percentage Interests on such Partnership
Record Date); and
(ii) to the extent that amounts remain available for distribution
following the aggregate distribution set forth in the foregoing clause (i),
amounts are distributed to and among the holders of all classes of Units
(including, without limitation, Preferred Units to the extent provided in
Schedule 4.2) in proportion to their respective Percentage Interests on
such Partnership Record Date.
C. Distribution For Initial Distribution Period. Notwithstanding
--------------------------------------------
anything to the contrary contained above in this Section 5.1 or in Section
11.6.D, the first distribution paid by the Partnership with respect to newly
issued Units held by any Partner shall be prorated to reflect the actual portion
of the Distribution Period for which the distribution is being paid during which
such newly issued Units were outstanding, regardless of the Partnership Record
Date for such Distribution Period, or shall be in such lesser amount (but not
greater amount) as may be agreed by the General Partner and the holders of such
Units.
SECTION 5.2 AMOUNTS WITHHELD.
----------------
All amounts withheld pursuant to the Code or any provisions of any state or
local tax law and Section 10.5 with respect to any allocation, payment or
distribution to the General Partner, Limited Partners or Assignees shall be
treated as amounts distributed to the General Partner, Limited Partners or
Assignees pursuant to Section 5.1 for all purposes under this Agreement.
SECTION 5.3 DISTRIBUTIONS UPON LIQUIDATION.
------------------------------
Proceeds from a Terminating Capital Transaction shall be distributed to the
Partners in accordance with Section 13.2.
SECTION 5.4 REVISIONS TO REFLECT ISSUANCE OF UNITS.
--------------------------------------
If the Partnership issues Units to the General Partner or any Additional
Partner pursuant to Article IV hereof, the General Partner shall make such
revisions to this Article V, Schedule 4.2 and Exhibit A as it deems necessary to
---------
reflect the issuance of such additional Units, without the consent or approval
of any other Partner. Such revisions may be (but shall not be required to be)
incorporated herein through the execution of an Addendum that reflects, among
other things, the terms of such issuance.
ARTICLE VI
ALLOCATIONS
-----------
SECTION 6.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES.
----------------------------------------
20
<PAGE>
For purposes of maintaining Capital Accounts and in determining the rights
of the Partners among themselves, Partnership income, gain, loss and deductions
(computed in accordance with Exhibit B) shall be allocated among the Partners in
---------
each taxable year (or portion thereof) as provided below.
A. Net Income. After giving effect to the special allocations set forth
----------
in Section B.3(a) of Exhibit B, Net Income shall be allocated:
---------
(i) first, to the General Partner to the extent that cumulative
Net Losses previously allocated the General Partner pursuant to Section
6.1.B(vi) hereof exceed cumulative Net Income previously allocated to the
General Partner pursuant to this clause (i);
(ii) second, to the holders of Preferred Units until each such
holder of Preferred Units has been allocated, on a cumulative basis
pursuant to this clause (ii), Net Income equal to the cumulative Priority
Return Amount distributable to such holder of Preferred Units (and, within
each class of Preferred Units, pro rata in proportion to the respective
Priority Return Amounts distributable to all holders of Preferred Units in
such class, and, among the classes of such Preferred Units, in accordance
with their relative preferences, if any, as set forth on Schedule 4.2
attached hereto);
(iii) third, to each Protected Partner until the cumulative Net
Income allocated such Protected Partner under this clause (iii) equals the
cumulative Net Losses allocated such Protected Partner under Section
6.1.B(v) (and, within the class of Protected Partners, pro rata in
proportion to their respective percentages of the cumulative Net Losses
allocated all Protected Partners pursuant to Section 6.1.B(v) hereof);
(iv) fourth, to the General Partner until the cumulative Net
Income allocated under this clause (iv) equals the cumulative Net Losses
allocated the General Partner under Section 6.1.B(iv) hereof;
(v) fifth, to each holder of Preferred Units until the
cumulative Net Income allocated such holder of Preferred Units under this
clause (v) equals the cumulative Net Losses allocated such holder under
Section 6.1.B(iii) hereof (and, within each class of Preferred Units, pro
rata in proportion to the respective amounts of cumulative Net Losses
allocated all holders of such class of Preferred Units pursuant to the
provisions of Section 6.1.B(iii), and, among the classes of Preferred Units
in accordance with their relative preferences, if any, as set forth on
Schedule 4.2 attached hereto); and
(vi) thereafter, to and among the holders of Common Units (and,
within each such class, pro rata in proportion to their respective
Percentage Interests as of the last day of the period for which such
allocation is being made and, among the classes of Common Units, if more
than one, in accordance with the relative preferences, if any, as set forth
on Schedule 4.2 attached hereto).
21
<PAGE>
B. Net Losses. After giving effect to the special allocations set forth
----------
in Section B.3(a) of Exhibit B, Net Losses shall be allocated:
(i) first, to each holder of Preferred Units, until such time
as such holder has been allocated cumulative Net Losses pursuant to this
clause (i) equal to the excess of (a) cumulative Net Income allocated such
holder under Section 6.1.A(ii) hereof over (b) actual distributions made
with respect to such holder of Preferred Units pursuant to clause (i) of
Section 5.1.B (and, within each class of Preferred Units, pro rata in
proportion to the respective amounts allocable pursuant to this clause (i)
to all holders of such class of Preferred Units and, among the classes of
Preferred Units in accordance with relative preferences, if any, as set
forth on Schedule 4.2 attached hereto);
(ii) second, to each holder of Common Units until such time as
the Capital Account of such holder of such Common Units has been reduced to
zero (and, within each class of Common Unit holders, pro rata in proportion
to their respective Percentage Interests as of the last day of the period
for which such allocation is being made and, among the classes of Common
Units, if more than one, in accordance with the relative preferences, if
any, as set forth on Schedule 4.2 attached hereto);
(iii) third, to each holder of Preferred Units until such time
as the Capital Account of such holder of Preferred Units has been reduced
to zero (and, within each class of Preferred Units, pro rata in proportion
to their respective Percentage Interests as of the last day of the period
for which such allocation is being made and, among the classes of Preferred
Units in accordance with the relative preferences, if any, as set forth on
Schedule 4.2 attached hereto);
(iv) fourth, to the General Partner in an amount equal to the
excess of (a) the amount of Recourse Liabilities over (b) the Aggregate
Protected Amount;
(v) fifth, to and among the Protected Partners, in proportion
to their respective Protected Amounts, until such time as the Protected
Partners have been allocated cumulative Net Losses pursuant to this clause
(v) equal to the Aggregate Protected Amount; and
(vi) thereafter, to the General Partner.
C. Recapture Income. Any gain allocated to the Partners upon the sale or
----------------
other taxable disposition of any Partnership asset shall, to the extent possible
after taking into account other required allocations of gain pursuant to Exhibit
B, be characterized as Recapture Income in the same proportions and to the same
extent as such Partners have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as Recapture Income.
SECTION 6.2 REVISIONS TO ALLOCATIONS TO REFLECT ISSUANCE OF UNITS.
-----------------------------------------------------
22
<PAGE>
If the Partnership issues Units to the General Partner or any Additional
Partner pursuant to Article IV hereof, the General Partner shall make such
revisions to this Article VI, Schedule 4.2, and Exhibit A as it deems necessary
---------
to reflect the terms of the issuance of such Units, without the consent or
approval of any other Partner. Such revisions may be (but shall not be required
to be) incorporated herein through the execution of an Addendum that reflect,
among other things, the terms of such issuance.
ARTICLE VII
MANAGEMENT AND OPERATIONS OF BUSINESS
-------------------------------------
SECTION 7.1 MANAGEMENT.
----------
A. Powers of General Partner. Except as otherwise expressly provided in
-------------------------
this Agreement, all management powers over the business and affairs of the
Partnership are and shall be exclusively vested in the General Partner, and no
Limited Partner shall have any right to participate in or exercise control or
management power over the business and affairs of the Partnership. The General
Partner may not be removed by the Limited Partners with or without cause. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner, subject to
Section 7.11, shall have full power and authority to do all things deemed
necessary or desirable by it to conduct the business of the Partnership, to
exercise all powers set forth in Section 3.2 and to effectuate the purposes set
forth in Section 3.1, including, without limitation:
(i) the making of any expenditures, the lending or borrowing of
money [including, without limitation, making prepayments on loans and
borrowing money to permit the Partnership to make distributions to its
Partners in such amounts as are required under Section 5.1.A or will permit
the General Partner Entity to avoid the payment of any federal income tax
(including, for this purpose, any corporate level tax imposed on
corporations which do not qualify as REIT and any excise tax pursuant to
Section 4981 of the Code) and to make distributions to its shareholders,
including borrowing money from the Partnership in amounts sufficient to
make distributions to its shareholders which, on a per share basis, are
consistent with distributions to each holder of Common Units], the
assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness (including the
securing of same by mortgage, deed of trust or other lien or encumbrance on
the Partnership's assets) and the incurring of any obligations the General
Partner Entity deems necessary for the conduct of the activities of the
Partnership;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any or all of the assets of the
Partnership (including the exercise or grant of any conversion, option,
privilege or subscription right or other
23
<PAGE>
right available in connection with any assets at any time held by the
Partnership) or the merger or other combination of the Partnership with or
into another entity on such terms as the General Partner deems proper;
(iv) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent with the terms
of this Agreement and on any terms it sees fit, including, without
limitation, the financing of the conduct of the operations of the General
Partner, the Partnership or any of the Partnership's Subsidiaries, the
lending of funds to other Persons (including, without limitation, the
General Partner, its Subsidiaries and the Partnership's Subsidiaries) and
the repayment of obligations of any or all of the Partnership, the
Partnership's Subsidiaries and any other Person in which the Partnership
has an equity investment and the making of capital contributions to its
Subsidiaries;
(v) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or improvements
owned or managed by the Partnership or any Subsidiary of the Partnership or
any Person in which the Partnership has made a direct or indirect equity
investment;
(vi) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's powers under this
Agreement, including contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents
and the payment of their expenses and compensation out of the Partnership's
assets;
(vii) the mortgage, pledge, encumbrance or hypothecation of any
assets of the Partnership for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct or the operations of the General Partner or the
Partnership, the lending of funds to other Persons (including, without
limitation, any Subsidiaries of the Partnership) and the repayment of
obligations of the Partnership, any of its Subsidiaries and any other
Person in which it has an equity investment;
(viii) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(ix) the holding, managing, investing and reinvesting of cash
and other assets of the Partnership;
(x) the collection and receipt of revenues and income of the
Partnership;
(xi) the selection, designation of powers, authority and duties
and the dismissal of employees of the Partnership (including, without
limitation, employees
24
<PAGE>
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors of the Partnership and the determination of their compensation
and other terms of employment or hiring;
(xii) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate;
(xiii) the formation of, or acquisition of an interest
(including non-voting interests in entities controlled by Affiliates of the
Partnership or third parties) in, and the contribution of property to, any
further limited or general partnerships, joint ventures, limited liability
companies or other relationships that it deems desirable (including,
without limitation, the acquisition of interests in, and the contributions
of funds or property to, or making of loans to, its Subsidiaries and any
other Person in which it has an equity investment from time to time, or the
incurrence of indebtedness on behalf of such Persons or the guarantee of
the obligations of such Persons); provided that, as long as the General
Partner Entity has determined to continue to qualify as a REIT, the
Partnership may not engage in any such formation, acquisition or
contribution that would cause the General Partner Entity to fail to qualify
as a REIT;
(xiv) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement, compromise,
submission to arbitration or any other form of dispute resolution or
abandonment of any claim, cause of action, liability, debt or damages due
or owing to or from the Partnership, the commencement or defense of suits,
legal proceedings, administrative proceedings, arbitrations or other forms
of dispute resolution, the representation of the Partnership in all suits
or legal proceedings, administrative proceedings, arbitrations or other
forms of dispute resolution, the incurring of legal expense and the
indemnification of any Person against liabilities and contingencies to the
extent permitted by law;
(xv) the determination of the fair market value of any
Partnership property distributed in kind, using such reasonable method of
valuation as the General Partner may adopt;
(xvi) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of
any right, including the right to vote, appurtenant to any assets or
investment held by the Partnership;
(xvii) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any
Subsidiary of the Partnership or any other Person in which the Partnership
has a direct or indirect interest, individually or jointly with any such
Subsidiary or other Person;
(xviii) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have any interest pursuant to contractual or other
arrangements with such Person;
25
<PAGE>
(xix) the making, executing and delivering of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties, indemnities,
waivers, releases or other legal instruments or agreements in writing
necessary or appropriate in the judgment of the General Partner for the
accomplishment of any of the powers of the General Partner enumerated in
this Agreement;
(xx) the distribution of cash to acquire Common Units held by a
Limited Partner in connection with a Limited Partner's exercise of its
Redemption Right under Section 8.6;
(xxi) the amendment and restatement of Exhibit A to reflect
accurately at all times the Capital Contributions and Percentage Interests
of the Partners as the same are adjusted from time to time to the extent
necessary to reflect redemptions, Capital Contributions, the issuance of
Units, the admission of any Additional Partner, Substituted Partner or
otherwise, which amendment and restatement, notwithstanding anything in
this Agreement to the contrary, shall not be deemed an amendment of this
Agreement, as long as the matter or event being reflected in Exhibit A
otherwise is authorized by this Agreement;
(xxii) the establishment, amendment and restatement of Schedule
4.2 hereof from time to time as the General Partner deems appropriate in
its sole and absolute discretion to create, modify, delete, or otherwise
affect the Preferred Unit Terms with respect to any and all classes of
Preferred Units, which amendment and restatement, notwithstanding anything
in this Agreement to the contrary, shall not be deemed an amendment of this
Agreement, as long as the matter or event being reflected in Schedule 4.2
otherwise is authorized by this Agreement; and
(xxiii) the General Partner shall be authorized, notwithstanding
its fiduciary or other obligations to the Limited Partners pursuant to
Delaware law or this Agreement, to consider and otherwise to take into
account in its actions or inactions, possibly to the derogation of the
Limited Partners, as appropriate, its fiduciary or other obligations to the
holders of its Shares pursuant to state or other law, including for this
purpose, federal securities laws and provisions of the Code.
B. No Approval by Limited Partners. Except as provided in Section 7.11,
-------------------------------
each of the Limited Partners agrees that the General Partner is authorized to
execute, deliver and perform the above-mentioned agreements and transactions on
behalf of the Partnership without any further act, approval or vote of the
Partners, notwithstanding any other provision of this Agreement, the Act or any
applicable law, rule or regulation, to the full extent permitted under the Act
or other applicable law. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners, any other
Persons under this Agreement or of any duty stated or implied by law or equity.
26
<PAGE>
C. Insurance. At all times from and after the date hereof, the General
---------
Partner may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance on the properties of the Partnership and (ii) liability
insurance for the Indemnitees hereunder and (iii) such other insurance as the
General Partner, in its sole and absolute discretion, determines to be necessary
or desirable.
D. Working Capital and Other Reserves. At all times from and after the
----------------------------------
date hereof, the General Partner may cause the Partnership to establish and
maintain working capital reserves in such amounts as the General Partner, in its
sole and absolute discretion, deems appropriate and reasonable from time to
time, including upon liquidation of the Partnership under Section 13.
E. No Obligations to Consider Tax Consequences of Limited Partners. In
---------------------------------------------------------------
exercising its authority under this Agreement, the General Partner may, but
shall be under no obligation to, take into account the tax consequences to any
Partner (including the General Partner) of any action taken (or not taken) by
it. The General Partner and the Partnership shall not have liability to a
Limited Partner for monetary damages or otherwise for losses sustained,
liabilities incurred or benefits not derived by such Limited Partner in
connection with such decisions, provided that the General Partner has acted in
good faith and pursuant to its authority under this Agreement.
SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP.
----------------------------------
The General Partner has previously filed the Certificate with the Secretary
of State of Delaware. To the extent that such action is determined by the
General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state, the District of Columbia or other
jurisdiction in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(iv), the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate
or any amendment thereto to any Limited Partner. The General Partner shall use
all reasonable efforts to cause to be filed such other certificates or documents
as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and any other state, the District of Columbia or other jurisdiction
in which the Partnership may elect to do business or own property.
SECTION 7.3 TITLE TO PARTNERSHIP ASSETS.
---------------------------
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partners, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby
declares
27
<PAGE>
and warrants that any Partnership assets for which legal title is held
in the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement. All
Partnership assets shall be recorded as the property of the Partnership in its
books and records, irrespective of the name in which legal title to such
Partnership assets is held.
SECTION 7.4 REIMBURSEMENT OF THE GENERAL PARTNER.
------------------------------------
A. No Compensation. Except as provided in this Section 7.4 and elsewhere
---------------
in this Agreement (including the provisions of Articles V and VI regarding
distributions, payments and allocations to which the General Partner may be
entitled), the General Partner shall not be compensated for its services as
general partner of the Partnership.
B. Responsibility for Partnership Expenses. The Partnership shall be
---------------------------------------
responsible for and shall pay all expenses relating to the Partnership's
organization, the ownership of its assets and its operations. The General
Partner shall be reimbursed on a monthly basis, or such other basis as the
General Partner may determine in its sole and absolute discretion, for all
expenses it incurs relating to the ownership and operation of, or for the
benefit of, the Partnership (including, without limitation, expenses related to
the operations of the General Partner and to the management and administration
of any Subsidiaries of the General Partner or the Partnership or Affiliates of
the Partnership, such as auditing expenses and filing fees); provided that, the
amount of any such reimbursement shall be reduced by (i) any interest earned by
the General Partner with respect to bank accounts or other instruments or
accounts held by it on behalf of the Partnership as permitted in Section 7.5.A
(which interest is considered to belong to the Partnership and shall be paid
over to the Partnership to the extent not applied to reimburse the General
Partner for expenses hereunder); and (ii) any amount derived by the General
Partner from any investments permitted in Section 7.5.A. The General Partner
shall determine, in good faith, the amount of expenses incurred by it related to
the ownership and operation of, or for the benefit of, the Partnership. If
certain expenses are incurred for the benefit of the Partnership and other
entities (including the General Partner), such expenses will be allocated to the
Partnership and such other entities in such a manner as the General Partner in
its sole and absolute discretion deems fair and reasonable. Such reimbursements
shall be in addition to any reimbursement to the General Partner pursuant to
Section 10.3.C and as a result of indemnification pursuant to Section 7.7. All
payments and reimbursements hereunder shall be characterized for federal income
tax purposes as expenses of the Partnership incurred on its behalf, and not as
expenses of the General Partner.
C. Unit Issuance Expenses. The General Partner shall also be reimbursed
----------------------
for all expenses it incurs relating to any issuance of Units, Shares, Debt of
the Partnership, Funding Debt or rights, options, warrants or convertible or
exchangeable securities pursuant to Article IV (including, without limitation,
all costs, expenses, damages and other payments resulting from or arising in
connection with litigation related to any of the foregoing), all of which
expenses are considered by the Partners to constitute expenses of, and for the
benefit of, the Partnership.
28
<PAGE>
D. Purchases of Shares by the General Partner. If the General Partner
------------------------------------------
exercises its rights under the Declaration of Trust to purchase Shares or
otherwise elects to purchase from its shareholder's Shares in connection with a
share repurchase or similar program or for the purpose of delivering such Shares
to satisfy an obligation under any dividend reinvestment or equity purchase
program adopted by the General Partner, any employee equity purchase plan
adopted by the General Partner or any similar obligation or arrangement
undertaken by the General Partner in the future, the purchase price paid by the
General Partner for those Shares and any other expenses incurred by the General
Partner in connection with such purchase shall be considered expenses of the
Partnership and shall be reimbursable to the General Partner, subject to the
conditions that: (i) if those Shares subsequently are to be sold by the General
Partner, the General Partner shall pay to the Partnership any proceeds received
by the General Partner for those Shares (provided that a transfer of Shares for
Common Units pursuant to Section 8.6 would not be considered a sale for such
purposes); and (ii) if such Shares are not retransferred by the General Partner
within 30 days after the purchase thereof, the General Partner shall cause the
Partnership to cancel a number of Units (rounded to the nearest whole Unit) held
by the General Partner equal to the product attained by multiplying the number
of those Shares by a fraction, the numerator of which is one and the denominator
of which is the Conversion Factor.
E. Reimbursement not a Distribution. If and to the extent any
--------------------------------
reimbursement made pursuant to this Section 7.4 is determined for federal income
tax purposes not to constitute a payment of expenses of the Partnership, the
amount so determined shall constitute a guaranteed payment within the meaning of
Section 707(c) of the Code, shall be treated consistently therewith by the
Partnership and all Partners and shall not be treated as a distribution for
purposes of computing the Partners' Capital Accounts.
SECTION 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER; RELATIONSHIP OF SHARES
-----------------------------------------------------------------
TO UNITS; FUNDING DEBT.
----------------------
A. General. Without the Consent of Limited Partners, the General Partner
-------
shall not, directly or indirectly, enter into or conduct any business that it is
not conducting as of the date hereof, other than in connection with the
ownership, acquisition and disposition of its Units, the management of the
business of the Partnership, and such activities as are incidental to any of the
foregoing. Without the Consent of Limited Partners, the assets of the General
Partner shall be limited to its interest in Subsidiaries it owns as of the
Effective Date, Units and permitted debt obligations of the Partnership (as
contemplated by Section 7.5.C), so that, but for the General Partner's interest
in Subsidiaries it owns as of the Effective Date, Shares and Units are
completely fungible except as otherwise specifically provided herein; provided
that the General Partner shall be permitted to hold such bank accounts or
similar instruments or accounts in its name as it deems necessary to carry out
its responsibilities and purposes as contemplated under this Agreement and its
organizational documents (provided that accounts held on behalf of the
Partnership to permit the General Partner to carry out its responsibilities
under this Agreement shall be considered to belong to the Partnership and the
interest earned thereon shall, subject to Section 7.4.B, be applied for the
benefit of the Partnership); and, provided further, that the General Partner
shall be permitted to acquire, directly or through a
29
<PAGE>
Qualified REIT Subsidiary or limited liability company, up to a 1% interest in
any partnership or limited liability company at least 99% of the equity of which
is owned, directly or indirectly, by the Partnership. The General Partner and
any of its Affiliates (including the Partnership) may acquire Units from Limited
Partners, and shall be entitled (though not obligated) to exercise all rights of
a Limited Partner relating to such Units. Without limitation of the preceding
sentence, if the Partnership acquires (or is entitled to acquire) Units, be it
by virtue of the exercise of a Redemption Right or otherwise (including, without
limitation, as a result of a direct or indirect interest held by the Partnership
in Contributed Property), such Units shall be canceled immediately, if they have
actually been issued at all; provided, however, that any such Units that would
otherwise be issued to the Partnership need not be issued at all.
B. Forfeiture of Shares. If the Partnership or the General Partner
--------------------
acquires Shares as a result of the forfeiture of such Shares under a Share
Option Plan, including, without limitation, a restricted or similar share plan,
then the General Partner shall cause the Partnership to cancel that number of
Units equal to the number of Shares so acquired, and, if the Partnership
acquired such Shares, it shall transfer such Shares to the General Partner for
cancellation.
C. Funding Debt. The General Partner Entity may incur a Funding Debt,
------------
including, without limitation, a Funding Debt that is convertible into Shares or
otherwise constitutes a class of New Securities ("Convertible Funding Debt"),
subject to the condition that, consistent with Section 7.4.C, the General
Partner Entity lend to the Partnership the net proceeds of such Funding Debt;
provided that Convertible Funding Debt shall be issued pursuant to Section 4.2
above; and, provided further, that the General Partner Entity shall not be
obligated to lend the net proceeds of any Funding Debt to the Partnership in a
manner that would be inconsistent with the General Partner Entity's ability to
remain qualified as a REIT. If the General Partner Entity enters into any
Funding Debt, the loan to the Partnership shall be on comparable terms and
conditions, including interest rate, repayment schedule and costs and expenses,
as are applicable with respect to or incurred in connection with such Funding
Debt.
SECTION 7.6 TRANSACTIONS WITH AFFILIATES.
----------------------------
A. Transactions with Certain Affiliates. Except as expressly permitted
------------------------------------
by this Agreement, including, without limitation, the provisions of Section
7.1.A(i), the Partnership shall not, directly or indirectly, sell, transfer or
convey any property to, or purchase any property from, or borrow funds from, or
lend funds to, any Partner or any Affiliate of the Partnership that is not also
a Subsidiary of the Partnership, except pursuant to transactions that are on
terms that are fair and reasonable and no less favorable to the Partnership than
would be obtained from an unaffiliated third party.
B. Conflict Avoidance. The General Partner is expressly authorized, but
------------------
not required, to enter into, in the name and on behalf of the Partnership, a
right of first opportunity arrangement and other conflict avoidance agreements
with various Affiliates of the
30
<PAGE>
Partnership and General Partner on such terms as the General Partner, in its
sole and absolute discretion, believes is advisable.
C. Benefit Plans Sponsored by the Partnership. The General Partner in
------------------------------------------
its sole and absolute discretion and without the approval of the Limited
Partners, may propose and adopt on behalf of the Partnership employee benefit
plans funded by the Partnership for the benefit of employees of the General
Partner, the Partnership, Subsidiaries of the Partnership or any Affiliate of
any of them.
SECTION 7.7 INDEMNIFICATION.
---------------
A. General. The Partnership shall indemnify each Indemnitee to the
-------
fullest extent provided by the Act from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including, without limitation,
attorneys fees and other legal fees and expenses), judgments, fines, settlements
and other amounts arising from or in connection with any and all claims,
demands, actions, suits or proceedings, civil, criminal, administrative or
investigative, incurred by the Indemnitee and relating to the Partnership or the
General Partner or the operation of, or the ownership of property by, any of
them as set forth in this Agreement in which any such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established by a final determination of a court of competent jurisdiction that:
(i) the act or omission of the Indemnitee was material to the matter giving rise
to the proceeding and either was committed in bad faith or was the result of
active and deliberate dishonesty; (ii) the Indemnitee actually received an
improper personal benefit in money, property or services; or (iii) in the case
of any criminal proceeding, the Indemnitee had reasonable cause to believe that
the act or omission was unlawful. Without limitation, the foregoing indemnity
shall extend to any liability of any Indemnitee pursuant to a loan guarantee,
contractual obligation for any indebtedness or other obligation or otherwise,
for any indebtedness of the Partnership or any Subsidiary of the Partnership
(including, without limitation, any indebtedness which the Partnership or any
Subsidiary of the Partnership has assumed or taken subject to), and the General
Partner is hereby authorized and empowered, on behalf of the Partnership, to
enter into one or more indemnity agreements consistent with the provisions of
this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. The termination of any proceeding by
judgment, order or settlement does not create a presumption that the Indemnitee
did not meet the requisite standard of conduct set forth in this Section 7.7.A.
The termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, creates a rebuttable presumption that the Indemnitee acted in a manner
contrary to that specified in this Section 7.7.A with respect to the subject
matter of such proceeding. Any indemnification pursuant to this Section 7.7
shall be made only out of the assets of the Partnership, and any insurance
proceeds from any liability policy covering the General Partner and any
Indemnitee, and no Partner shall have any obligation to contribute to the
capital of the Partnership or otherwise provide funds to enable the Partnership
to fund its obligations under this Section 7.7.
31
<PAGE>
B. Advancement of Expenses. Reasonable expenses expected to be incurred
-----------------------
by an Indemnitee shall be paid or reimbursed by the Partnership in advance of
the final disposition of any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative made or threatened
against an Indemnitee upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7 has been met and (ii) a written undertaking by or
on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. No Limitation of Rights. The indemnification provided by this Section
-----------------------
7.7 shall be in addition to any other rights to which an Indemnitee or any other
Person may be entitled under any agreement, pursuant to any vote of the
Partners, as a matter of law or otherwise, and shall continue as to an
Indemnitee who has ceased to serve in such capacity unless otherwise provided in
a written agreement pursuant to which such Indemnitee is indemnified.
D. Insurance. The Partnership may purchase and maintain insurance on
---------
behalf of the Indemnitees and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expenses that
may be incurred by such Person in connection with the Partnership's activities,
regardless of whether the Partnership would have the power to indemnify such
Person against such liability under the provisions of this Agreement.
E. Benefit Plan Fiduciary. For purposes of this Section 7.7, (i) excise
----------------------
taxes assessed on an Indemnitee, of for which the Indemnitee is otherwise found
liable, with respect to an ERISA Plan pursuant to applicable law shall
constitute fines within the meaning of this Section 7.7 and (ii) actions taken
or omitted by the Indemnitee with respect to an ERISA Plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of such ERISA Plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Partnership.
F. No Personal Liability for Partners. In no event may an Indemnitee
----------------------------------
subject any of the Partners to personal liability by reason of the
indemnification provisions set forth in this Agreement.
G. Interested Transactions. An Indemnitee shall not be denied
-----------------------
indemnification in whole or in part under this Section 7.7 because the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise not prohibited by the
terms of this Agreement.
H. Benefit. The provisions of this Section 7.7 are for the benefit of
-------
the Indemnitees, their employees, officers, directors, trustees, heirs,
successors, assigns and administrators and shall not be deemed to create any
rights for the benefit of any other Persons. Any amendment, modification or
repeal of this Section 7.7, or any provision hereof, shall be prospective only
and shall not in any way affect the limitation on the Partnership's liability to
any Indemnitee under this Section 7.7 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or related
to matters
32
<PAGE>
occurring, in whole or in part, prior to such amendment, modification or repeal,
regardless of when such claims may arise or be asserted.
I. Indemnification Payments Not Distributions. If and to the extent any
------------------------------------------
payments to the General Partner pursuant to this Section 7.7 constitute gross
income to the General Partner (as opposed to the repayment of advances made on
behalf of the Partnership), such amounts shall constitute guaranteed payments
within the meaning of Section 707(c) of the Code, shall be treated consistently
therewith by the Partnership and all Partners, and shall not be treated as
distributions for purposes of computing the Partners' Capital Accounts.
J. Exception to Indemnification. Notwithstanding anything to the
----------------------------
contrary in this Agreement, the General Partner shall not be entitled to
indemnification hereunder for any loss, claim, damage, liability or expense for
which the General Partner is obligated to indemnify the Partnership under any
other agreement between the General Partner and the Partnership.
SECTION 7.8 LIABILITY OF THE GENERAL PARTNER.
--------------------------------
A. General. Notwithstanding anything to the contrary set forth in this
-------
Agreement, the General Partner shall not be liable for monetary damages to the
Partnership, any Limited Partner or any Assignee for losses sustained,
liabilities incurred or benefits not derived as a result of errors in judgment
or mistakes of fact or law or of any act or omission unless the General Partner
acted in bad faith and the act or omission was material to the matter giving
rise to the loss, liability or benefit not derived.
B. No Obligation to Consider Separate Interests of Limited Partners or
-------------------------------------------------------------------
Shareholders. The Limited Partners expressly acknowledge that the General
- ------------
Partner is acting on behalf of the Partnership, that the General Partner is
under no obligation to consider the separate interests of the Limited Partners
(including, without limitation, the tax consequences to Limited Partners or
Assignees) in deciding whether to cause the Partnership to take (or decline to
take) any actions, and that the General Partner shall not be liable for monetary
damages for losses sustained, liabilities incurred or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith. Without limitation of the foregoing, the
General Partner acknowledges that it owes fiduciary duties both to its
shareholders and to the Limited Partners, and it shall use its reasonable
efforts to discharge such duties to each; provided, however, that in the event
of a conflict between the interests of the shareholders of the General Partner
and the interests of the Limited Partners, the Limited Partners agree that the
General Partner shall discharge its fiduciary duties to the Limited Partners by
acting in the best interests of the General Partner's shareholders.
C. Actions of Agents. Subject to its obligations and duties as General
-----------------
Partner, as set forth in Section 7.1.A, the General Partner may exercise any of
the powers granted to it by this Agreement and perform any of the duties imposed
upon it hereunder either directly or by or through its agents. The General
Partner shall not be responsible for any misconduct or negligence on the part of
any such agent appointed by the General Partner in good faith.
33
<PAGE>
D. Effect of Amendment. Notwithstanding any other provision contained
-------------------
herein, any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
--------------------------------------------
A. Reliance on Documents. The General Partner may rely and shall be
---------------------
protected in acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties.
B. Reliance on Advisors. The General Partner may consult with legal
--------------------
counsel, accountants, appraisers, management consultants, investment bankers and
other consultants and advisers selected by them, and any act taken or omitted to
be taken in reliance upon the opinion of such Persons as to matters which the
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
C. Action Through Agents. The General Partner shall have the right, in
---------------------
respect of any of its powers or obligations hereunder, to act through any of its
duly authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in the
power of attorney, have full power and authority to do and perform all and every
act and duty which is permitted or required to be done by the General Partner
hereunder.
D. Actions to Maintain REIT Status or Avoid Taxation of the General
----------------------------------------------------------------
Partner Entity. Notwithstanding any other provisions of this Agreement or the
- --------------
Act, any action of the General Partner on behalf of the Partnership or any
decision of the General Partner to refrain from acting on behalf of the
Partnership undertaken in the good faith belief that such action or omission is
necessary or advisable in order (i) to protect the ability of the General
Partner Entity to continue to qualify as a REIT or (ii) to allow the General
Partner Entity to avoid incurring any liability for taxes under Section 857 or
4981 of the Code, is expressly authorized under this Agreement and is deemed
approved by all of the Limited Partners.
E. Actions to Maintain REOC Status. If and so long as Units of "benefit
-------------------------------
plan investors" are "significant" [as such terms, or terms succeeding thereto
with the same objective, are used in 29 C.F.R. Section 2510.3-101(f) (such
regulation or successor regulation being known as the "Plan Assets Regulation"],
or if the General Partner determines in good faith that the affairs of the
Partnership be conducted in compliance with the exception for a real estate
operating company ("REOC") as provided in the Plan Assets Regulation, then the
General Partner shall use its best efforts to conduct the affairs of the
Partnership as a REOC
34
<PAGE>
and so that the assets of the Partnership will not be "plan assets" (as such
term is defined in the Plan Assets Regulations) of any ERISA Partner.
(i) If the General Partner, pursuant to this Section 7.9.E,
intends to conduct the affairs of the Partnership as a REOC, the General
Partner shall promptly deliver to each ERISA Partner an opinion of counsel
reasonably acceptable to each such ERISA Partner or the General Partner
with respect to the "initial valuation date" and each "annual valuation
period" (as those terms, or terms succeeding thereto with the same
objective, are defined in the Plan Assets Regulation). Such opinion of
counsel shall state, (a) as to the opinion respecting the "initial
valuation date," that the Partnership shall qualify or have qualified as a
REOC for the period beginning on such "initial valuation date" and ending
on the last day of the first "annual valuation period," and (b) as to each
annual opinion respecting each "annual valuation period," that the
Partnership shall qualify or have qualified as a REOC for the 12-month
period following the last day of such "annual valuation period." Each
opinion referred to in the prior two sentences may rely upon, among other
things, a certificate of the General Partner as to the exercise of
management rights with respect to one or more investments during the
appropriate period and as to a description of such investments, and such
counsel opinion also shall state whether the Partnership has included in a
certification to opinion counsel a statement to the effect that on such
"initial valuation date" or during such "annual valuation period" at least
50% of Partnership assets (other than short-term investments pending long-
term commitment or distribution to investors), valued at cost, were
invested in real estate investments as described in the Plan Assets
Regulation.
(ii) If the opinion described in this subsection is not provided
in the affirmative, or if any ERISA Partner shall obtain and deliver to the
General Partner an opinion of counsel to such ERISA Partner (which opinion
shall be reasonably satisfactory to the General Partner) that there is a
reasonable probability that either (a) the Partnership was or will not be a
REOC for any period in which either participation by benefit plan investors
in the Partnership is significant or the General Partner is an investor, or
(b) the assets of the Partnership were or will be "plan assets" of ERISA
Plan investors, then the General Partner is hereby authorized and empowered
to take such actions as it deems necessary and appropriate to mitigate,
prevent, or cure such adverse consequences resulting to the ERISA Plan
investors or the General Partner, including modifying the manner in which
the Partnership conducts its business, or requiring each ERISA Partner (on
a pro rata basis unless otherwise consented to by all ERISA Partners) to
transfer all or a portion of its interest at a price not less than the fair
value of such interest or portion thereof. Such calculation of fair value
of an interest or of any Partnership asset shall be made by the General
Partner.
F. Determination of GAAP Net Income and Funds From Operations. The
----------------------------------------------------------
General Partner and the Partnership agree to report their respective amounts of
"net income", as determined under generally accepted accounting principles
("GAAP Net Income"), and "funds from operations", as generally understood in the
REIT industry ("FFO"), such that the
35
<PAGE>
amounts of GAAP Net Income and FFO reported on a per Share basis shall be equal
to those amounts of GAAP Net Income and FFO reported on a per Common Unit basis.
SECTION 7.10 RELIANCE BY THIRD PARTIES.
-------------------------
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership, to enter into any contracts on behalf of the
Partnership and to take any and all actions on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies that may be available against such Person to contest, negate or
disaffirm any action of the General Partner in connection with any such dealing.
In no event shall any Person dealing with the General Partner or its
representatives be obligated to ascertain that the terms of this Agreement have
been complied with or to inquire into the necessity or expedience of any act or
action of the General Partner or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that (i) at
the time of the execution and delivery of such certificate, document or
instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership, and
(iii) such certificate, document or instrument was duly executed and delivered
in accordance with the terms and provisions of this Agreement and is binding
upon the Partnership.
SECTION 7.11 RESTRICTIONS ON GENERAL PARTNER AUTHORITY.
-----------------------------------------
A. Consent Required. The General Partner may not take any action in
----------------
contravention of an express prohibition or limitation of this Agreement without
the written consent of (i) all Partners adversely affected or (ii) such lower
percentage of the Units as may be specifically provided for under a provision of
this Agreement or the Act.
B. Sale of All Assets of the Partnership. Except as provided in Article
-------------------------------------
XIII, the General Partner may not, directly or indirectly, cause the Partnership
to sell, exchange, transfer or otherwise dispose of all or substantially all of
the Partnership's assets in a single transaction or a series of related
transactions [including by way of merger (including a triangular merger),
consolidation or other combination with any other Persons]: (i) if such merger,
sale or other transaction is in connection with a Termination Transaction
permitted under Section 11.2.B hereof, without the consent of the Partners
holding, in the aggregate, at least a majority of the then outstanding Units;
provided, however, that for such purposes, any Preferred Units that are
convertible into Common Units shall be counted as though the Conversion Right
with respect to such Preferred Units has been exercised and the number of
36
<PAGE>
Common Units into which such Preferred Units have been converted have voted with
respect to the matter at issue; or (ii) otherwise, without the Consent of
Limited Partners.
SECTION 7.12 LOANS BY THIRD PARTIES.
----------------------
The Partnership may incur Debt, or enter into similar credit, guarantee,
financing or refinancing arrangements for any purpose (including, without
limitation, in connection with any acquisition of property) with any Person that
is not a General Partner (subject to Section 7.5.C) upon such terms as the
General Partner determines appropriate; provided that, the Partnership shall not
incur any Debt that is recourse to the General Partner, except to the extent
otherwise agreed to by such General Partner in its sole discretion.
ARTICLE VIII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
------------------------------------------
SECTION 8.1 LIMITATION OF LIABILITY.
-----------------------
The Limited Partners shall have no liability under this Agreement except as
expressly provided in this Agreement, including Section 10.5, or under the Act.
SECTION 8.2 MANAGEMENT OF BUSINESS.
----------------------
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, partner, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any
of its Affiliates or any officer, director, employee, partner, agent or trustee
of the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS.
--------------------------------------
Subject to Section 7.5 hereof, and subject to any agreements entered into
pursuant to Section 7.6.B hereof and to any other agreements entered into by a
Limited Partner or any of their Affiliates with the Partnership or a Subsidiary,
any Limited Partner (other than the General Partner) and any officer, director,
employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall
be entitled to and may have business interests and engage in business activities
in addition to those relating to the Partnership, including business interests
and activities in direct or indirect competition with the Partnership. Neither
the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. None of
the Limited Partners or any other Person shall have any rights by virtue of this
Agreement or the partnership relationship established hereby in any business
ventures of any other Person (other than the General Partner to the extent
expressly
37
<PAGE>
provided herein), and such Person shall have no obligation pursuant to this
Agreement to offer any interest in any such business ventures to the
Partnership, any Limited Partner or any such other Person, even if such
opportunity is of a character which, if presented to the Partnership, any
Limited Partner or any such other Person, could be taken by such Person.
SECTION 8.4 RETURN OF CAPITAL.
-----------------
Except pursuant to the right of redemption set forth in Section 8.6, no
Limited Partner shall be entitled to the withdrawal or return of its Capital
Contribution, except to the extent of distributions made pursuant to this
Agreement or upon termination of the Partnership as provided herein. No Limited
Partner or Assignee shall have priority over any other Limited Partner or
Assignee either as to the return of Capital Contributions (except as permitted
by Section 4.2.A) or, except (i) to the extent provided by Exhibit B, (ii) as
---------
permitted by Sections 4.2.A, 5.1.B(i), 6.1.A(ii) and 6.1.B(i), or (iii) as
otherwise expressly provided in this Agreement, as to profits, losses,
distributions or credits.
SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP.
------------------------------------------------------
A. General. In addition to other rights provided by this Agreement or by
-------
the Act, and except as limited by Section 8.5.D, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon written demand with a statement of
the purpose of such demand and at such Limited Partner's own expense:
(i) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by the General
Partner Entity pursuant to the Exchange Act;
(ii) to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(iv) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
(v) to obtain true and full information regarding the amount of
cash and a description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to contribute
in the future, and the date on which each became a Partner.
38
<PAGE>
B. Notice of Conversion Factor. The Partnership shall notify each
---------------------------
Limited Partner, upon request, of the then current Conversion Factor and any
changes that have been made thereto.
C. Notice of Extraordinary Transaction of the General Partner Entity.
-----------------------------------------------------------------
The General Partner Entity shall not make any extraordinary distributions of
cash or property to its shareholders or effect a merger (including, without
limitation, a triangular merger), a sale of all or substantially all of its
assets or any other similar extraordinary transaction without notifying the
Limited Partners of its intention to make such distribution or effect such
merger, sale or other extraordinary transaction at least 20 Business Days prior
to the record date to determine shareholders eligible to receive such
distribution or to vote upon the approval of such merger, sale or other
extraordinary transaction (or, if no such record date is applicable, at least 20
Business Days before consummation of such merger, sale or other extraordinary
transaction). This provision for such notice shall not be deemed (i) to permit
any transaction that otherwise is prohibited by this Agreement or requires a
consent or (ii) to require a consent to a transaction that does not otherwise
require consent under this Agreement. Each Limited Partner agrees, as a
condition to the receipt of the notice pursuant hereto, to keep confidential the
information set forth therein until such time as the General Partner Entity has
made public disclosure thereof and to use such information during such period of
confidentiality solely for purposes of determining whether to exercise the
Redemption Right (following the exercise of a Conversion Right in the case of a
Preferred Unit); provided, however, that a Limited Partner may disclose such
information to its attorney, accountant and/or financial advisor for purposes of
obtaining advice with respect to such exercise so long as such attorney,
accountant and/or financial advisor agrees to receive and hold such information
subject to this confidentiality requirement.
D. Confidentiality. Notwithstanding any other provision of this Section
---------------
8.5, the General Partner may keep confidential from the Limited Partners, for
such period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
reasonably believes to be in the nature of trade secrets or other information
the disclosure of which the General Partner in good faith believes is not in the
best interests of the Partnership or could damage the Partnership or its
business or (ii) the Partnership is required by law or by agreements with
unaffiliated third parties to keep confidential.
SECTION 8.6 REDEMPTION RIGHT; CONVERSION RIGHT.
----------------------------------
A. General.
-------
(i) Subject to Section 8.6.C, at any time on or after the
first anniversary date of the issuance of Units pursuant to Article IV
hereof (which one-year period shall commence upon the issuance of such
Units, regardless of the rights and preferences of any or all of such Units
and regardless of whether the Conversion Right described in Section 8.6.I
has been exercised), or on or after such other date as the General Partner,
in its sole and absolute discretion, designates with respect to any or all
39
<PAGE>
Units then outstanding, each holder of a Common Unit (if other than the
General Partner Entity or any Subsidiary of either the General Partner or
the General Partner Entity) shall have the right (the "Redemption Right")
to require the Partnership to redeem such Common Unit, with such redemption
to occur on the Specified Redemption Date and at a redemption price equal
to the Cash Amount. Any such Redemption Right shall be exercised pursuant
to a Notice of Redemption delivered to the Partnership (with a copy to the
General Partner) by the Limited Partner who is exercising the Redemption
Right (the "Redeeming Partner"). A Limited Partner may exercise the
Redemption Right from time to time, without limitation as to frequency,
with respect to part or all of the Units that it owns, as selected by the
Limited Partner, provided that a Limited Partner may not exercise the
Redemption Right for less than 1,000 Common Units unless such Redeeming
Partner then holds less than 1,000 Common Units, in which event the
Redeeming Partner must exercise the Redemption Right for all of the Common
Units held by such Redeeming Partner.
(ii) The Redeeming Partner shall have no right with respect to
any Common Units so redeemed to receive any distributions paid after the
Specified Redemption Date with respect to such Common Units.
(iii) The Assignee of any Limited Partner may exercise the
rights of such Limited Partner pursuant to this Section 8.6, and such
Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Limited
Partner's Assignee. In connection with any exercise of such rights by such
Assignee on behalf of such Limited Partner, the Redemption Amount shall be
paid by the Partnership directly to such Assignee and not to such Limited
Partner.
(iv) If the General Partner provides notice to the Limited
Partners, pursuant to Section 8.5.C hereof, the Redemption Right (and the
Conversion Right, if applicable) shall be exercisable, without regard to
whether the Units have been outstanding for any specified period, during
the period commencing on the date on which the General Partner provides
such notice and ending on the record date to determine shareholders
eligible to receive such distribution or to vote upon the approval of such
merger, sale or other extraordinary transaction (or, if no such record date
is applicable, at least 20 Business Days before the consummation of such
merger, sale or other extraordinary transaction). If this subparagraph
(iv) applies, the Specified Redemption Date is the date on which the
Partnership and the General Partner receive notice of exercise of the
Redemption Right, rather than 10 Business Days after receipt of the Notice
of Redemption.
B. General Partner Assumption of Right.
-----------------------------------
(i) If a Limited Partner has delivered a Notice of Redemption,
the General Partner may, in its sole and absolute discretion (subject to
the limitations on ownership and transfer of Shares set forth in the
Declaration of Trust), elect to assume
40
<PAGE>
directly and satisfy a Redemption Right by paying to the Redeeming Partner
the Redemption Amount in the form of either the Cash Amount or the Shares
Amount, as the General Partner determines in its sole and absolute
discretion. On the Specified Redemption Date, the General Partner shall
acquire the Common Units offered for redemption by the Redeeming Partner
and shall be treated for all purposes of this Agreement as the owner of
such Common Units. Unless the General Partner, in its sole and absolute
discretion, shall exercise its right to assume directly and satisfy the
Redemption Right, the General Partner shall not have any obligation to the
Redeeming Partner or to the Partnership with respect to the Redeeming
Partner's exercise of the Redemption Right. If the General Partner shall
exercise its right to satisfy the Redemption Right in the manner described
in the first sentence of this Section 8.6.B and shall fully perform its
obligations in connection therewith, the Partnership shall have no right or
obligation to pay any amount to the Redeeming Partner with respect to such
Redeeming Partner's exercise of the Redemption Right, and each of the
Redeeming Partner, the Partnership and the General Partner shall, for
federal income tax purposes, treat the transaction between the General
Partner and the Redeeming Partner as a sale of the Redeeming Partner's
Common Units to the General Partner. Nothing contained in this Section
8.6.B shall imply any right of the General Partner to require any Limited
Partner to exercise the Redemption Right afforded to such Limited Partner
pursuant to Section 8.6.A.
(ii) If the General Partner determines to pay the Redeeming
Partner the Redemption Amount in the form of Shares, the total number of
Shares to be paid to the Redeeming Partner in exchange for the Redeeming
Partner's Common Units shall be the applicable Shares Amount. If this
amount is not a whole number of Shares, the Redeeming Partner shall be paid
(a) that number of Shares which equals the nearest whole number less than
such amount plus (b) an amount of cash which the General Partner
determines, in its reasonable discretion, to represent the fair value of
the remaining fractional Share which would otherwise be payable to the
Redeeming Partner.
(iii) Each Redeeming Partner agrees to execute such documents as
the General Partner may reasonably require in connection with the issuance
of Shares upon exercise of the Redemption Right.
C. Exceptions to Exercise of Redemption Right. Notwithstanding the
------------------------------------------
provisions of Sections 8.6.A and 8.6.B, a Limited Partner shall not be entitled
to exercise the Redemption Right pursuant to Section 8.6.A if (but only as long
as) the delivery of Shares to such Limited Partner on the Specified Redemption
Date (i) would be prohibited under the Declaration of Trust or (ii) would be
prohibited under applicable federal or state securities laws or regulations (in
each case regardless of whether the General Partner would in fact assume and
satisfy the Redemption Right).
D. No Liens on Common Units Delivered for Redemption. Each Limited
-------------------------------------------------
Partner covenants and agrees with the General Partner that all Common Units
delivered for redemption
41
<PAGE>
shall be delivered to the Partnership or the General Partner, as the case may
be, free and clear of all liens, and, notwithstanding anything contained herein
to the contrary, neither the General Partner nor the Partnership shall be under
any obligation to acquire Common Units which are or may be subject to any liens.
Each Limited Partner further agrees that, if any state or local property
transfer tax is payable as a result of the transfer of its Common Units to the
Partnership or the General Partner, such Limited Partner shall assume and pay
such transfer tax.
E. Additional Units. If the Partnership issues Units to any Additional
----------------
Partner pursuant to an agreement or an Addendum that sets forth any restrictions
on the exercise of the Redemption Right or Conversion Right with respect to such
Units, then such restrictions with respect to such Units shall be deemed a part
of this Agreement.
F. Further Assurances; Certain Representations. Each party to this
-------------------------------------------
Agreement agrees to execute any documents deemed reasonably necessary by the
General Partner to evidence the payment of the Shares Amount to a Redeeming
Partner. Each Limited Partner, by executing this Agreement shall be deemed to
have represented to the General Partner and the Partnership that (i) its
acquisition of its Units is or will be made as a principal for its own account,
for investment purposes only and not with a view to the resale or distribution
of such Units and (ii) if it shall receive Shares pursuant to this Article VIII
other than pursuant to an effective registration statement under the Securities
Act, that its acquisition of such Shares is or will be made as a principal for
its own account, for investment purposes only and not with a view to the resale
or distribution of such Shares.
G. Restrictive Legend. Each certificate, if any, evidencing Shares that
------------------
may be issued in redemption of Common Units under this Section 8.6 shall bear a
restrictive legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or any state securities law. No
transfer of the shares represented by this certificate shall
be valid or effective unless (A) such transfer is made
pursuant to an effective registration statement under the
Securities Act or (B) the holder of the securities proposed
to be transferred shall have delivered to the company either
a no-action letter from the Securities and Exchange
Commission or an opinion of counsel (who may be an employee
of such holder) experienced in securities matters to the
effect that such proposed transfer is exempt from the
registration requirements of the Securities Act which
opinion shall be reasonably satisfactory to the issuer of
the shares."
H. Registration Rights. In the event a Limited Partner receives Shares
-------------------
in connection with a redemption of Common Units pursuant to this Article VIII,
such Limited Partner shall be entitled to have such Shares registered under the
Securities Act, pursuant to
42
<PAGE>
the Master Registration Rights Agreement substantially in the form of
Exhibit F hereto and the applicable supplement thereto, as each may be
- ---------
amended from time to time.
I. Conversion. Each Limited Partner holding Preferred Units shall have
----------
the right (as described in this Section 8.6.I and in Schedule 4.2, the
"Conversion Right"), at any time or from time to time, to convert on or after
the first anniversary of the issuance of such Preferred Units (or such other
time as the General Partner may otherwise designate in a written agreement with
a particular holder(s) of Preferred Units) some or all of its Preferred Units
into Common Units, which right shall, subject to Section 8.6.A(iv), be exercised
by providing the General Partner with a Notice of Conversion not less than 30
days prior to the effective date of such conversion (or not less than 10 days
prior in the event Section 8.6.A(iv) is applicable). Upon the effective date of
any such conversion, the Preferred Units that are the subject of such conversion
shall be converted, without necessity of any further action by the General
Partner, into Common Units on the basis of exchange set forth in Schedule 4.2.
In any case in which the conversion into Common Units under this Section 8.6.I
would result in the issuance of a fractional Common Unit, the General Partner
shall pay the holder of converting Preferred Units an amount of cash which the
General Partner determines, in its reasonable discretion, to represent the fair
value of such fractional Unit.
In any case in which there is an unpaid Priority Return Amount with
respect to a Preferred Unit that is converted pursuant to Section 8.6.I, the
holder of converting Preferred Units shall continue to have the right to
distributions (and allocations of Net Income) under Articles V, VI and XIII, and
Schedule 4.2, of this Agreement, as if the holder of converting Preferred Units
continued to hold the converted Preferred Unit until the unpaid distributions
(and related tax allocations) have been paid (or allocated).
ARTICLE IX
BOOKS, RECORDS, ACCOUNTING AND REPORTS
--------------------------------------
SECTION 9.1 RECORDS AND ACCOUNTING.
----------------------
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including, without limitation, all books and records
necessary to provide to the Limited Partners any information, lists and copies
of documents required to be provided pursuant to Section 9.3. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles. Each Limited Partner
shall have, upon written demand and at such Limited Partner's expense, the right
to receive true and complete information regarding Partnership matters to the
extent required (and subject to the limitations) under the Act.
SECTION 9.2 FISCAL YEAR.
-----------
43
<PAGE>
The fiscal year of the Partnership shall be the calendar year.
SECTION 9.3 REPORTS.
-------
A. Annual Reports. As soon as practicable, but in no event later than
--------------
the date on which the General Partner Entity mails its annual report to its
shareholders, the General Partner Entity shall cause to be mailed to each
Limited Partner an annual report, as of the close of the most recently ended
Partnership Year, containing financial statements of the Partnership, or of the
General Partner Entity if such statements are prepared solely on a consolidated
basis with the Partnership, for such Partnership Year, presented in accordance
with generally accepted accounting principles, such statements to be audited by
a nationally recognized firm of independent public accountants selected by the
General Partner Entity.
B. Quarterly Reports. If and to the extent that the General Partner
-----------------
Entity mails quarterly reports to its shareholders, as soon as practicable, but
in no event later than the date on which such reports are mailed, the General
Partner Entity shall cause to be mailed to each Limited Partner a report
containing unaudited financial statements, as of the last day of such calendar
quarter, of the Partnership, or of the General Partner Entity if such statements
are prepared solely on a consolidated basis with the Partnership, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.
ARTICLE X
TAX MATTERS
-----------
SECTION 10.1 PREPARATION OF TAX RETURNS.
--------------------------
The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within 90 days of the close of each
taxable year, the tax information reasonably required by Limited Partners for
federal and state income tax reporting purposes.
SECTION 10.2 TAX ELECTIONS.
-------------
Except as otherwise provided herein, the General Partner shall, in its sole
and absolute discretion, determine whether to make any available election
pursuant to the Code; provided, however, that the General Partner shall make the
election under Section 754 of the Code in accordance with applicable regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) upon the General Partner's determination, in its sole and absolute
discretion, that such revocation is in the best interests of the Partners.
SECTION 10.3 TAX MATTERS PARTNER.
-------------------
44
<PAGE>
A. General. The General Partner shall be the "tax matters partner" of
-------
the Partnership for federal income tax purposes. Pursuant to Section 6223(c)(3)
of the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address, taxpayer identification
number and profit interest of each of the Limited Partners and any Assignees to
the extent that such information has been provided to the Partnership.
B. Powers. The tax matters partner is authorized, but not required:
------
(i) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken into account
by a Partner for income tax purposes (such administrative
proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the
settlement agreement the tax matters partner may expressly state
that such agreement shall bind all Partners, except that such
settlement agreement shall not bind any Partner (a) who (within
the time prescribed pursuant to the Code and Regulations) files a
statement with the IRS providing that the tax matters partner
shall not have the authority to enter into a settlement agreement
on behalf of such Partner or (b) who is a "notice partner" (as
defined in Section 6231(a)(8) of the Code) or a member of a
"notice group" (as defined in Section 6223(b)(2) of the Code);
(ii) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax
matters partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court or
the filing of a complaint for refund with the United States Claims Court or
the District Court of the United States for the district in which the
Partnership's principal place of business is located;
(iii) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(iv) to file a request for an administrative
adjustment with the IRS at any time and, if any part of such
request is not allowed by the IRS, to file an appropriate
pleading (petition or complaint) for judicial review with respect
to such request;
(v) to enter into an agreement with the IRS to
extend the period for assessing any tax which is attributable to
any item required to be taken into account by a Partner for tax
purposes, or an item affected by such item; and
(vi) to take any other action on behalf of the
Partners of the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by applicable
law or regulations.
45
<PAGE>
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 shall be fully applicable to the tax matters
partner in its capacity as such.
C. Reimbursement. The tax matters partner shall receive no compensation
-------------
for its services. All third party costs and expenses incurred by the tax
matters partner in performing its duties as such (including legal and accounting
fees and expenses) shall be borne by the Partnership. Nothing herein shall be
construed to restrict the Partnership from engaging an accounting firm and/or
law firm to assist the tax matters partner in discharging its duties hereunder,
so long as the compensation paid by the Partnership for such services is
reasonable.
SECTION 10.4 ORGANIZATIONAL EXPENSES.
-----------------------
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a 60-month period as provided in Section
709 of the Code.
SECTION 10.5 WITHHOLDING.
-----------
Each Limited Partner hereby authorizes the Partnership to withhold from or
pay on behalf of or with respect to such Limited Partner any amount of federal,
state, local, or foreign taxes that the General Partner determines that the
Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Section 1441, 1442, 1445, or 1446 of the Code. Any
amount paid by the Partnership to tax authorities pursuant to the foregoing
sections of the Code, on behalf of or with respect to a Limited Partner, shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within 15 days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds such
payment from a distribution which would otherwise be made to the Limited Partner
or (ii) the General Partner determines, in its sole and absolute discretion,
that such payment may be satisfied out of the available funds of the Partnership
which would, but for such payment, be distributed to the Limited Partner. Any
amounts withheld pursuant to the foregoing clauses (i) or (ii) shall be treated
as having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Units to secure such Limited Partner's obligation to pay
to the Partnership any amounts required to be paid pursuant to this Section
10.5. If a Limited Partner fails to pay any amounts owed to the Partnership
pursuant to this Section 10.5 when due, the General Partner may, in its sole and
absolute discretion, elect to make the payment to the Partnership on behalf of
such defaulting Limited Partner, and in such event shall be deemed to have
loaned such amount to such defaulting Limited Partner and shall succeed to all
rights and remedies of the Partnership as against such defaulting Limited
Partner (including, without limitation, the right to receive distributions).
Any amounts payable by a Limited Partner hereunder shall bear interest at the
base rate on corporate loans at large United States
46
<PAGE>
money center commercial banks, as published from time to time in the
Wall Street Journal, plus four percentage points (but not higher than
the maximum lawful rate under the laws of the State of Wisconsin) from
the date such amount is due (i.e., 15 days after demand) until such
amount is paid in full. Each Limited Partner shall take such actions
as the Partnership or the General Partner shall request to perfect or
enforce the security interest created hereunder.
ARTICLE XI
TRANSFERS AND WITHDRAWALS
-------------------------
SECTION 11.1 TRANSFER.
--------
A. Definition. The term "transfer," when used in this Article XI with
----------
respect to a Unit, shall mean a transaction by which the General Partner
purports to assign all or any portion of its Units to another Person or by which
a Limited Partner purports to assign all or any portion of its Units to another
Person, and includes a sale, assignment, gift, pledge, encumbrance,
hypothecation, mortgage, exchange or any other disposition by law or otherwise.
The term "transfer" when used in this Article XI does not include any
redemption, conversion or repurchase of Units by the Partnership, any
acquisition of Common Units by a Limited Partner upon the conversion of
Preferred Units, or any acquisition of Units from a Limited Partner by the
General Partner, whether pursuant to Section 8.6 or otherwise. Each Limited
Partner acknowledges that no part of the interest in the Partnership of a
Limited Partner shall be subject to the claims of any creditor, any spouse for
alimony or support, or to legal process, and may not be voluntarily or
involuntarily alienated or encumbered except as may be specifically provided for
in this Agreement.
B. General. No Unit shall be transferred, in whole or in part, except in
-------
accordance with the terms and conditions set forth in this Article XI. Any
transfer or purported transfer of a Unit not made in accordance with this
Article XI shall be null and void.
SECTION 11.2 TRANSFERS OF UNITS OF THE GENERAL PARTNER.
-----------------------------------------
A. Except for transfers of Units to the Partnership as provided in
Section 7.5 or Section 8.6, the General Partner may not transfer any of its
Units, except in connection with a transaction described in Section 11.2.B or as
otherwise expressly permitted under this Agreement, nor shall the General
Partner withdraw as a General Partner except in connection with a transaction
described in Section 11.2.B.
B. The General Partner shall not engage in any merger (including a
triangular merger), consolidation or other combination with or into another
person, sale of all or substantially all of its assets or any reclassification,
recapitalization or change of outstanding Shares (other than a change in par
value, or from par value to no par value, or as a result of a subdivision or
combination as described in the definition of "Conversion Factor") ("Termination
Transaction"), unless the Termination Transaction has been approved by the
General Partner and the Consent of Limited Partners has been obtained, and in
connection with which all Limited Partners either will receive or will have the
right to elect to receive, for each Unit, an amount of cash, securities, or
other property equal to the product of the Conversion
47
<PAGE>
Factor multiplied by the greatest amount of cash, securities or other
property paid to a holder of the number of Shares corresponding to
such Unit (after given effect to the Conversion Right, where
applicable) in consideration of one such Share at any time during the
period from and after the date on which the Termination Transaction is
consummated; provided that if, in connection with the Termination
Transaction, a purchase, tender or exchange offer shall have been made
to and accepted by the holders of more than 50% of the outstanding
Shares, each holder of Units shall receive, or shall have the right to
elect to receive without any right of consent set forth above in this
subsection B, the greatest amount of cash, securities, or other
property which such holder would have received had it exercised the
Redemption Right and received Shares in exchange for its Units (after
giving effect to the Conversion Right, where applicable) immediately
prior to the expiration of such purchase, tender or exchange offer and
had thereupon accepted such purchase, tender or exchange offer. Each
Limited Partner holding Preferred Units shall have the immediate right
to exercise the Conversion Right in the event of a Termination
Transaction.
SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER.
------------------------------------
A. General. Subject to the provisions of this Section 11.3.A and the
-------
provisions of Sections 11.3.C, 11.3.D, 11.3.E, 11.4 and 11.6, a Limited Partner
may transfer without the consent of the General Partner, all or any portion of
its Units, or any of such Limited Partner's rights as a Limited Partner,
provided that prior written notice of such proposed transfer is delivered to the
General Partner. Notwithstanding the foregoing, any Limited Partner may, at any
time, without the consent of the General Partner, (i) transfer all or any
portion of its Units to the General Partner, (ii) transfer all or any portion of
its Units to an Affiliate, another Limited Partner or to its spouse, subject to
the provisions of Section 11.6, (iii) transfer all or any portion of its Units
to a trust for the benefit of a charitable beneficiary or to a charitable
foundation, subject to the provisions of Section 11.6, and (iv) subject to the
provisions of Sections 11.3.E and 11.6, pledge (a "Pledge") all or any portion
of its Units to a lending institution that is not an Affiliate of such Limited
Partner and that has assets in excess of $1,000,000,000, as collateral or
security for a bona fide loan or other extension of credit, and transfer such
pledged Units to such lending institution in connection with the exercise of
remedies under such loan or extension or credit. In addition to the right to
transfer described in the immediately preceding sentence, each Limited Partner
or Assignee (resulting from a transfer made pursuant to clauses (i) - (iv) of
the proviso of the preceding sentence) shall have the right to transfer all or
any portion of its Units, subject to the provisions of Section 11.6 and the
satisfaction of each of the following conditions (unless either or both of such
conditions are waived by the General Partner, in its sole and absolute
discretion):
(a) General Partner Right of First Refusal. The transferring
--------------------------------------
Partner shall give written notice of the proposed transfer to the
General Partner, which notice shall state (1) the identity of the
proposed transferee, and (2) the amount and type of consideration
proposed to be received for the transferred Units. The General
Partner shall have 10 days upon which to give the transferring
Partner notice of its election to acquire the Units on the
proposed terms. If it so elects, it shall purchase the Units on
such terms within 10 days after giving notice of such election.
If it does not so elect,
48
<PAGE>
the transferring Partner may transfer such Units, to a third
party, on economic terms no more favorable to the transferee than
the proposed terms, subject to the other condition of this
Section 11.3.
(b) Qualified Transferee. Any transfer of a Unit shall be made only
--------------------
to Qualified Transferees.
It is a condition to any transfer otherwise permitted hereunder (excluding
Pledges of a Unit, but including any transfer of the pledged Unit, whether to
the secured party or otherwise, pursuant to the secured party's exercise of its
remedies under such Pledge or the related loan or extension of credit) that the
transferee assumes by operation of law or express agreement all of the
obligations of the transferor Limited Partner under this Agreement with respect
to such transferred Unit, and no such transfer (other than pursuant to a
statutory merger or consolidation wherein all obligations and liabilities of the
transferor Partner are assumed by a successor corporation by operation of law)
shall relieve the transferor Partner of its obligations under this Agreement
without the approval of the General Partner, in its reasonable discretion.
Notwithstanding the foregoing, any transferee of any transferred Unit shall be
subject to any and all ownership limitations contained in the Declaration of
Trust. Any transferee, whether or not admitted as a Substituted Partner, shall
take subject to the obligations of the transferor hereunder. Unless admitted as
a Substituted Partner, no transferee, whether by a voluntary transfer, by
operation of law or otherwise, shall have rights hereunder, other than the
rights of an Assignee as provided in Section 11.5.
B. Incapacitated Limited Partners. If a Limited Partner is subject to
------------------------------
Incapacity, the executor, administrator, trustee, committee, guardian,
conservator or receiver of such Limited Partner's estate shall have all the
rights of a Limited Partner, but not more rights than those enjoyed by other
Limited Partners for the purpose of settling or managing the estate and such
power as the Incapacitated Limited Partner possessed to transfer all or any part
of its interest in the Partnership. The Incapacity of a Limited Partner, in and
of itself, shall not dissolve or terminate the Partnership.
C. No Transfers Violating Securities Laws. The General Partner may
--------------------------------------
prohibit any transfer of Units by a Limited Partner unless it receives (i) a
written opinion of the Limited Partner's legal counsel (which opinion and
counsel shall be reasonably satisfactory to the Partnership) that such transfer
would not require filing of a registration statement under the Securities Act or
would not otherwise violate any federal, or state securities laws or regulations
applicable to the Partnership or the Units or (ii) at the option of the
Partnership, an opinion of legal counsel to the Partnership to the same effect.
D. No Transfers Affecting Tax Status of Partnership. No Pledge or
------------------------------------------------
transfer of Units by a Partner (including a redemption, conversion or exchange
pursuant to Section 8.6) may be made to any Person if, in the opinion of legal
counsel for the Partnership, (i) it would result in a termination of the
Partnership for federal income tax purposes (except as a result of the
redemption or exchange for Shares of all Units held by all Limited Partners or
the conversion of all Preferred Units held by all Limited Partners, other than
the General Partner
49
<PAGE>
Entity or any Subsidiary of the General Partner Entity or pursuant to a
transaction expressly permitted under Section 7.11.B or Section 11.2), (ii) it
would adversely affect the ability of the General Partner Entity to continue to
qualify as a REIT or would subject the General Partner Entity to any additional
taxes under Section 857 or Section 4981 of the Code or (iii) such transfer is
effectuated through an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) within the meaning of Section 7704 of
the Code or otherwise causes the Partnership to be considered a "publicly traded
partnership" within the meaning of Section 7704 of the Code.
E. No Transfers to Holders of Nonrecourse Liabilities. No Pledge or
--------------------------------------------------
transfer of any Units may be made to a lender to the Partnership or any Person
who is related (within the meaning of Section 1.752-4(b) of the Regulations) to
any lender to the Partnership whose loan constitutes a Nonrecourse Liability
unless (i) the General Partner is provided notice thereof and (ii) the lender
enters into an arrangement with the Partnership and the General Partner to
exchange or redeem for the Redemption Amount any Common Units (or convert, and
then so exchange or redeem, in the case of Preferred Units) in which a security
interest is held simultaneously with the time at which such lender would be
deemed to be a partner in the Partnership for purposes of allocating liabilities
to such lender under Section 752 of the Code.
SECTION 11.4 SUBSTITUTED PARTNERS.
--------------------
A. Consent of General Partner. No Partner shall have the right to
--------------------------
substitute a transferee as a Limited Partner in its place. The General Partner
shall, however, have the right to consent to the admission of a transferee of
the interest of a Limited Partner pursuant to this Section 11.4 as a Substituted
Partner, which consent may be given or withheld by the General Partner in its
sole and absolute discretion. The General Partner's failure or refusal to
permit a transferee of any such interests to become a Substituted Partner shall
not give rise to any cause of action against the Partnership or any Partner.
The General Partner hereby grants its consent to the admission as a Substituted
Partner to any bona fide financial institution that loans money or otherwise
extends credit to a holder of Units and thereafter becomes the owner of such
Units pursuant to the exercise by such financial institution of its rights under
a Pledge of such Units granted in connection with such loan or extension of
credit.
B. Rights of Substituted Partner. A transferee who has been admitted as
-----------------------------
a Substituted Partner in accordance with this Article XI shall have all the
rights and powers and be subject to all the restrictions and liabilities of a
Limited Partner (holding Common Units or Preferred Units, as the case may be)
under this Agreement. The admission of any transferee as a Substituted Partner
shall be conditioned upon the transferee executing and delivering to the
Partnership an Addendum and such other documents or instruments as may be
required to effect the admission.
C. Amendment of Exhibit A. The General Partner shall amend Exhibit A
----------------------
from time to tome as may be necessary pursuant to Section 12.3 to reflect the
name, address, Capital Account and number of Units of each Substituted Partner
and to eliminate or adjust, if
50
<PAGE>
necessary, the name, address, Capital Account and interest of the predecessor of
each such Substituted Partner.
SECTION 11.5 ASSIGNEES.
---------
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Partner, as described in Section 11.4, such transferee shall be
considered an "Assignee" for purposes of this Agreement. An Assignee shall be
entitled to all the rights of an assignee of a limited partnership interest
under the Act, including the right to receive distributions from the Partnership
and the share of Net Income, Net Losses, gain, loss and Recapture Income
attributable to the Units assigned to such transferee, and shall have the rights
granted to the Limited Partners under Section 8.6, but shall not be deemed to be
a holder of Units for any other purpose under this Agreement, and shall not be
entitled to vote such Units in any matter presented to the Limited Partners for
a vote (such Units being deemed to have been voted on such matter in the same
proportions as all other Units held by Limited Partners are voted). If any such
transferee desires to make a further assignment of any such Units, such
transferee shall be subject to all the provisions of this Article XI to the same
extent and in the same manner as any Limited Partner desiring to make an
assignment of Units.
SECTION 11.6 GENERAL PROVISIONS.
------------------
A. Withdrawal of Limited Partner. No Limited Partner may withdraw from
-----------------------------
the Partnership other than as a result of a permitted transfer of all of such
Limited Partner's or Units in accordance with this Article XI or pursuant to
redemption (and conversion, where appropriate) of all of its Units under Section
8.6.
B. Termination of Status as Limited Partner. Any Limited Partner who
----------------------------------------
shall transfer all of its Units in a transfer permitted pursuant to this Article
XI or pursuant to redemption (and conversion, where appropriate) of all of its
Units under Section 8.6 shall cease to be a Limited Partner.
C. Timing of Transfers. Transfers pursuant to this Article XI may only
-------------------
be made upon three Business Days prior notice to the Partnership, unless the
General Partner otherwise agrees.
D. Allocations. If any Unit is transferred during any quarterly segment
-----------
of the Partnership's fiscal year in compliance with the provisions of this
Article XI or redeemed or transferred pursuant to Section 8.6, Net Income, Net
Losses, each item thereof and all other items attributable to such interest for
such fiscal year shall be divided and allocated between the transferor Partner
and the transferee Partner by taking into account their varying interests during
the fiscal year in accordance with Section 706(d) of the Code, using the interim
closing of the books method (unless the General Partner, in its sole and
absolute discretion, elects to adopt a daily, weekly, or a monthly proration
period, in which event Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such fiscal year shall be prorated based
upon the applicable method selected by the General Partner). Solely for
51
<PAGE>
purposes of making such allocations, each of such items for the calendar month
in which the transfer or redemption occurs shall be allocated to the Person who
is a Partner as of midnight on the last day of said month. Subject to the
following sentence, all distributions attributable to any Unit with respect to
which the Partnership Record Date is before the date of such transfer,
assignment or redemption shall be made to the transferor Partner or the
Redeeming Partner, as the case may be, and, in the case of a transfer or
assignment other than a redemption, all distributions thereafter attributable to
such Unit shall be made to the transferee Partner. Section 5.1.C shall govern
distributions in respect of newly issued Units.
E. Additional Restrictions. In addition to any other restrictions on
-----------------------
transfer herein contained, including without limitation the provisions of this
Article XI, in no event may any transfer or assignment of a Unit by any Partner
(including pursuant to Section 8.6) be made without the express consent of the
General Partner, in its sole and absolute discretion: (i) to any person or
entity who lacks the legal right, power or capacity to own a Unit; (ii) in
violation of applicable law; (iii) of any component portion of a Unit, such as
the Capital Account, or rights to distributions, separate and apart from all
other components of a Unit; (iv) if such transfer would cause the Units of
"benefit plan investors" to become "significant," as those terms are used in
Section 7.9.E., or would cause the Partnership to become, with respect to any
employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as
defined in Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(c) of the Code); (v) if such transfer would, in the opinion of
counsel to the Partnership, cause any portion of the assets of the Partnership
to constitute assets of any employee benefit plan pursuant to Department of
Labor Regulations Section 2510.1-101; (vi) if such transfer requires the
registration of such Units pursuant to any applicable federal or state
securities laws; (vii) if such transfer subjects the Partnership to regulation
under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or
ERISA, each as amended; or (viii) if such transfer could adversely affect the
ability of the General Partner Entity to remain qualified as a REIT.
F. Avoidance of "Publicly Traded Partnership" Status. The General
-------------------------------------------------
Partner shall monitor the transfers of interests in the Partnership to determine
(i) if such interests are being traded on an "established securities market" or
a "secondary market" (or the substantial equivalent thereof) within the meaning
of Section 7704 of the Code and (ii) whether additional transfers of interests
would result in the Partnership being unable to qualify for at least one of the
"safe harbors" set forth in Regulations Section 1.7704-1 [or such other guidance
subsequently published by the IRS setting forth safe harbors under which
interests will not be treated as "readily tradable on a secondary market" (or
the substantial equivalent thereof) within the meaning of Section 7704 of the
Code] (the "Safe Harbors"). The General Partner shall take all steps reasonably
necessary or appropriate to prevent any trading of interests or any recognition
by the Partnership of transfers made on such markets and, except as otherwise
provided herein, to insure that at least one of the Safe Harbors is met, in each
case to the extent necessary to avoid having the Partnership be treated as a
"publicly traded partnership."
ARTICLE XII
ADMISSION OF PARTNERS
---------------------
52
<PAGE>
SECTION 12.1 ADMISSION OF A SUCCESSOR GENERAL PARTNER.
----------------------------------------
A successor to all of the General Partner's Units pursuant to Section 11.2,
who is proposed to be admitted as the successor General Partner, shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. Any such transferee shall carry on the business of the Partnership
without dissolution. In each case, the admission shall be subject to such
successor General Partner executing and delivering to the Partnership an
acceptance of all of the terms and conditions of this Agreement and such other
documents or instruments as may be required to effect the admission.
SECTION 12.2 ADMISSION OF ADDITIONAL PARTNERS.
--------------------------------
A. General. No Person shall be admitted as an additional Limited
-------
Partner, including, without limitation, the admission of an existing Limited
Partner with respect to an additional Capital Contribution by such Limited
Partner (an "Additional Partner"), without the consent of the General Partner,
which consent shall be given or withheld in the General Partner's sole and
absolute discretion. A Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement, including, without limitation,
under Section 4.1.C, or who exercises an option to receive Units shall be
admitted to the Partnership as an Additional Partner only with the consent of
the General Partner and only upon furnishing to the General Partner (i) an
executed Addendum and (ii) such other documents or instruments as may be
required in the discretion of the General Partner to effect such Person's
admission as an Additional Partner. The admission of any Person as an
Additional Partner shall become effective on the date upon which the name of
such Person is recorded on the books and records of the Partnership, following
the consent of the General Partner to such admission.
B. Allocations to Additional Partners. If any Additional Partner is
----------------------------------
admitted to the Partnership on any day other than the first day of a Partnership
Year, then Net Income, Net Losses, each item thereof and all other items
allocable among Partners and Assignees for such Partnership Year shall be
allocated among such Additional Partner and all other Partners and Assignees by
taking into account their varying interests during the Partnership Year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method (unless the General Partner, in its sole and absolute discretion,
elects to adopt a daily, weekly or monthly proration method, in which event Net
Income, Net Losses, and each item thereof would be prorated based upon the
applicable period selected by the General Partner). Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Partner occurs shall be allocated among all the
Partners and Assignees including such Additional Partner.
SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP.
-------------------------------------------------------------
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement (including an amendment of Exhibit A, it being
---------
understood that the execution of Addendum from time to time shall have the
effect of amending the then current certified Exhibit A included with this
---------
53
<PAGE>
Agreement) and, if required by law, shall prepare and file an amendment to the
Certificate and may for this purpose exercise the power of attorney granted
pursuant to Section 15.11 hereof.
ARTICLE XIII
DISSOLUTION AND LIQUIDATION
---------------------------
SECTION 13.1 DISSOLUTION.
-----------
The Partnership shall not be dissolved by the admission of Substituted
Partners or Additional Partners or by the admission of a successor General
Partner in accordance with the terms of this Agreement. The Partnership shall
dissolve, and its affairs shall be wound up, upon the first to occur of any of
the following ("Liquidating Events"):
(i) the expiration of its term as provided in Section 2.4
hereof;
(ii) an event of withdrawal of the General Partner (other than
an event of bankruptcy), unless, within 90 days after the withdrawal, the
Consent of Limited Partners is provided, in writing, to continue the
business of the Partnership and to the appointment, effective as of the
date of withdrawal, of a substitute General Partner;
(iii) an election to dissolve the Partnership made by the
General Partner with the consent of Limited Partners who, in the aggregate,
hold not less than two-thirds of the outstanding Units held by all Limited
Partners; provided, however, that the vote of any Limited Partners holding
Preferred Units that are convertible into Common Units shall be counted as
though the Conversion Right with respect to such Preferred Units has been
exercised and the number of Common Units into which such Preferred Units
have been converted have voted with respect to the matter at issue;
(iv) entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
(v) the sale of all or substantially all of the assets and
properties of the Partnership for cash or for marketable securities; or
(vi) a final and non-appealable judgment is entered by a court
of competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a
court with appropriate jurisdiction against the General Partner, in each
case under any federal or state bankruptcy or insolvency laws as now or
hereafter in effect, unless, prior to or at the time of the entry of such
order or judgment, the Consent of Limited Partners is provided, in writing,
to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment, of a
substitute General Partner.
SECTION 13.2 WINDING UP.
----------
54
<PAGE>
A. General. Upon the occurrence of a Liquidating Event, the Partnership
-------
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Partners. No Partner shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Partnership's business
and affairs. The General Partner or, if there is no General Partner, any Person
elected with the Consent of Limited Partners (the General Partner or any such
Person, the "Liquidator") shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include equity or other securities of the General Partner or any other entity)
shall be applied and distributed in the following order:
(i) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors including creditors who
are Partners;
(ii) Second, to the payment and discharge of any unpaid
Priority Return Amounts, pro rata based on the respective number of Common
Units issuable to each such Limited Partner upon exercise of the Conversion
Right with respect to outstanding Preferred Units; and
(iii) Third, the balance, if any, to the Partners in accordance
with their Capital Accounts, after giving effect to all contributions,
distributions, and allocations for all periods. The General Partner shall
not receive any additional compensation for any services performed pursuant
to this Article XIII.
B. Deferred Liquidation. Notwithstanding the provisions of Section
--------------------
13.2.A which require liquidation of the assets of the Partnership, but subject
to the order of priorities set forth therein, if prior to or upon dissolution of
the Partnership the Liquidator determines that an immediate sale of part or all
of the Partnership's assets would be impractical or would cause undue loss to
the Partners, the Liquidator may, in its sole and absolute discretion, defer for
a reasonable time the liquidation of any assets except those necessary to
satisfy liabilities of the Partnership (including to those Partners as
creditors) or distribute to the Partners, in lieu of cash, as tenants in common
and in accordance with the provisions of Section 13.2.A, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
SECTION 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS.
--------------------------------------------------
Subject to Section 13.4, if the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
under Section 13.2.A
55
<PAGE>
hereof to the Partners who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Protected Partner has a
deficit balance in his or its Capital Account [after giving effect to all
contributions (without regard to this Section 13.3), distributions and
allocations for all taxable years, including the year during which such
liquidation occurs], each such Protected Partner shall contribute to the capital
of the Partnership an amount equal to the lesser of (a) his or its respective
Capital Account deficit balance or (b) an amount equal to his or its Protected
Amount, such obligation to be satisfied within 90 days following the liquidation
and dissolution of the Partnership in accordance with the provisions of this
Article XIII. Any deficit restoration obligation pursuant to the provisions of
this Section 13.3 shall be for the benefit of creditors of the Partnership or
any other Person to whom any debts, liabilities, or obligations are owed by (or
otherwise have a claim against) the Partnership or General Partner, in its
capacity as General Partner of the Partnership. For purposes of computing each
Protected Partner's deficit balance in its Capital Account and its corresponding
obligations to contribute additional capital to the Partnership, only items of
income, gain and loss actually recognized shall be reflected.
If any Partner other than a Protected Partner has a deficit balance in his
or its Capital Account (after giving effect to all contributions, distributions
and allocations for all taxable years, including the year during which such
liquidation occurs), such Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit shall not be considered a debt owed to the Partnership or to any
other Person for any purpose whatsoever.
In the discretion of the General Partner, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article XIII may be: (A) distributed to a trust
established for the benefit of the General Partner and Limited Partners for the
purposes of liquidating Partnership assets, collecting amounts owed to the
Partnership and paying any contingent or unforeseen liabilities or obligations
of the Partnership or of the General Partner arising out of or in connection
with the Partnership (in which case the assets of any such trust shall be
distributed to the General Partner and Limited Partners from time to time, in
the reasonable discretion of the General Partner, in the same proportions as the
amount distributed to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant to this
Agreement); or (B) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the General Partner and Limited Partners as soon
as practicable.
SECTION 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION.
--------------------------------------
Notwithstanding any other provision of this Article XIII, if the
Partnership is deemed liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged and the Partnership's affairs shall not be wound up. Instead,
for federal income tax purposes and for purposes of maintaining Capital Accounts
56
<PAGE>
pursuant to Exhibit B, the Partnership shall be deemed to have complied with its
---------
obligations under the Regulations to Sections 704(b) and 708 of the Code and the
resulting new "partnership" for tax purposes shall be deemed the Partnership for
all purposes hereof, including, without limitation, matters relating to its
Units.
SECTION 13.5 RIGHTS OF LIMITED PARTNERS.
--------------------------
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise expressly provided in
this Agreement, no Limited Partner shall have priority over any other Limited
Partner as to the return of its Capital Contributions, distributions, or
allocations.
SECTION 13.6 NOTICE OF DISSOLUTION.
---------------------
If a Liquidating Event occurs or an event occurs that would, but for
provisions of an election or objection by one or more Partners pursuant to
Section 13.1, result in a dissolution of the Partnership, the General Partner
shall, within 30 days thereafter, provide written notice thereof to each of the
Partners and to all other parties with whom the Partnership regularly conducts
business (as determined in the discretion of the General Partner).
SECTION 13.7 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP.
--------------------------------------------------
Upon the completion of the liquidation of the Partnership cash and property
as provided in Section 13.2, the Partnership shall be terminated and the
Certificate and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be canceled
and such other actions as may be necessary to terminate the Partnership shall be
taken.
SECTION 13.8 REASONABLE TIME FOR WINDING UP.
------------------------------
A reasonable time shall be allowed for the orderly winding up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2, to minimize any losses otherwise attendant upon such
winding-up, and the provisions of this Agreement shall remain in effect among
the Partners during the period of liquidation.
SECTION 13.9 WAIVER OF PARTITION.
-------------------
Each Partner hereby waives any right to partition of the Partnership
property.
SECTION 13.10 LIABILITY OF LIQUIDATOR.
-----------------------
The Liquidator shall be indemnified and held harmless by the Partnership in
the same manner and to the same degree as an Indemnitee may be indemnified
pursuant to Section 7.7.
57
<PAGE>
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
--------------------------------------------
SECTION 14.1 AMENDMENTS.
----------
A. Proposed Amendments. Amendments to this Agreement may be proposed by
-------------------
the General Partner or by any Limited Partners holding 25% or more of the
aggregate outstanding Units of all Partners (including the Units owned by the
General Partner, and assuming that only Common Units are outstanding following a
deemed exercise of all Conversion Rights). Any such proposal by a Limited
Partner shall be in a reasonably detailed writing setting forth the text of the
proposed amendment. Following such proposal (except one proposing an amendment
described in Section 14.1.B), the General Partner shall submit any proposed
amendment to the Limited Partners. The General Partner shall seek the written
vote of the Limited Partners on the proposed amendment or shall call a meeting
to vote thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written vote, the General Partner may require a
response within a reasonable specified time, but not less than 15 days, and
failure to respond in such time period shall constitute a vote which is
consistent with the General Partner's recommendation with respect to the
proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D, a proposed
amendment shall be adopted and be effective as an amendment hereto if it is
approved by the General Partner and it receives the consent of Partners holding
---
a majority of the aggregate outstanding Units (including Units owned by the
General Partner, and assuming that only Common Units are outstanding following a
deemed exercise of all Conversion Rights).
B. Amendments Not Requiring Limited Partner Approval. Notwithstanding
-------------------------------------------------
Section 14.1.A or 14.1.C, the General Partner shall have the power, without
making a proposed amendment pursuant to Section 14.1.A and without the consent
of any Limited Partners, to amend this Agreement as may be required to
facilitate or implement any of the following purposes:
(i) to add to the obligations of the General Partner or
surrender any right or power granted to the General Partner or any
Affiliate of a General Partner in each case for the benefit of the Limited
Partners;
(ii) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement (which may be
effected through the replacement of Exhibit A with an amended Exhibit A
from time to time; it being understood, however, that the execution of an
Addendum from time to time shall have the effect of amending this Agreement
and updating Exhibit A hereto);
(iii) to set forth the designations, rights, powers, duties, and
preferences of the holders of any Preferred Units issued pursuant to
Article IV and Schedule 4.2;
(iv) to reflect a change that does not adversely affect the
Limited Partners in any material respect, or to cure any ambiguity, correct
or supplement any
58
<PAGE>
provision in this Agreement not inconsistent with law or with other
provisions of this Agreement, or make other changes with respect to matters
arising under this Agreement that will not be inconsistent with law or
materially inconsistent with the provisions of this Agreement;
(v) to reflect the designation or termination of designation
of any Limited Partner as a Protected Partner; and
(vi) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or regulation of a
federal, state or local agency or contained in federal, state or local law.
The General Partner shall notify the Limited Partners when any action under
this Section 14.1.B is taken (including the execution of any Addendum not
then reflected in an updated Exhibit A) in the next regular communication
---------
to the Limited Partners.
C. Amendments Requiring Limited Partner Approval. Notwithstanding
---------------------------------------------
Section 14.1.A and Section 14.1.B, without the Consent of Limited Partners, the
General Partner shall not amend Section 4.2, Section 7.1.A (second sentence
only), Section 7.5, Section 7.6, Section 7.7.H, Section 7.8, Section 7.11.B,
Section 11.2, the last sentence of Section 11.4.A (provided that no such
amendment shall in any event adversely affect the rights of any lender who made
a loan or who extended credit and received in connection therewith a Pledge of
Units prior to the date such amendment is adopted unless, and only to the extent
such lender consents thereto), Section 13.1 (other than Section 13.1(iii), which
can be amended only with the consent of two-thirds of the outstanding Units of
the Limited Partners, as more fully described in such section), this Section
14.1.C or Section 14.2.
D. Other Amendments Requiring Certain Limited Partner Approval.
-----------------------------------------------------------
Notwithstanding anything in this Section 14.1 to the contrary, this Agreement
shall not be amended in any of the following respects, with respect to any
Partner that would be materially adversely affected by such amendment, without
the consent of such Partner (or any Assignee who is a bona fide financial
institution that loans money or other wise extends credit to a holder of Units
that is materially adversely affected): (i) converting a Limited Partner's
interest in the Partnership into a General Partner's interest; (ii) modifying
the limited liability of a Limited Partner; (iii) amending Section 7.11.A; (iv)
amending Article V or Article VI (except as permitted pursuant to Sections 4.2,
5.4, 6.2 and 14.1(B)(iii)), (v) amending Section 8.6 or any defined terms set
forth in Article I that relate to the Redemption Right or Conversion Right
(except as permitted in Section 8.6.E), or (vi) amending this Section 14.1.D.
This Section 14.1.D does not require unanimous consent of all Partners
materially adversely affected unless the amendment is to be effective against
all Partners adversely affected.
SECTION 14.2 MEETINGS OF THE PARTNERS; CONSENT.
---------------------------------
A. General. Meetings of the Partners may be called by the General
-------
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners holding 25% or more of the outstanding Units of all
Partners (including the General Partner, and assuming that only Common Units are
outstanding following the exercise of all Conversion
59
<PAGE>
Rights). The call shall state the nature of the business to be transacted.
Notice of any such meeting shall be given to all Partners not less than seven
days nor more than 30 days prior to the date of such meeting. Partners may vote
in person or by proxy at such meeting. Whenever the vote or consent of Partners
is permitted or required under this Agreement, such vote or consent may be given
at a meeting of Partners or may be given in accordance with the procedure
prescribed in Section 14.1.A. Except as otherwise expressly provided in this
Agreement, the consent of Partners holding a majority of the aggregate
outstanding Units (including Units owned by the General Partner, and assuming
that only Common Units are outstanding following a deemed exercise of all
Conversion Rights) shall control.
B. Actions Without a Meeting. Any action required or permitted to be
-------------------------
taken at a meeting of the Partners may be taken without a meeting if a written
consent setting forth the action so taken is signed by the General Partner and
consent of Limited Partners required by this Agreement has been obtained. Such
consent may be in one instrument or in several instruments. Such consent shall
be certified on behalf of the Partnership by an officer of the General Partner
and kept on file with the General Partner. An action so taken shall be deemed
to have been taken at a meeting duly held on the effective date so certified.
C. Proxy. Each Partner may authorize any Person or Persons to act for
-----
him by proxy on all matters in which a Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Partner or its attorney-in-fact. No
proxy shall be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice thereof.
D. Conduct of Meeting. Each meeting of Partners shall be conducted by
------------------
the General Partner or such other Person as the General Partner may appoint
pursuant to such rules for the conduct of the meeting as the General Partner or
such other Person deem appropriate.
ARTICLE XV
GENERAL PROVISIONS
------------------
SECTION 15.1 ADDRESSES AND NOTICE.
--------------------
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit A (or a more recent Addendum) or
---------
such other address as the Partners shall notify the General Partner of in
writing.
60
<PAGE>
SECTION 15.2 TITLES AND CAPTIONS.
-------------------
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" "Sections"
and "Exhibits" are to Articles, Sections and Exhibits of this Agreement.
SECTION 15.3 PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
SECTION 15.4 FURTHER ACTION.
--------------
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
SECTION 15.5 BINDING EFFECT.
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
SECTION 15.6 CREDITORS. Other than as expressly set forth herein with regard to
---------
any Indemnitee, none of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Partnership.
SECTION 15.7 WAIVER.
------
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
SECTION 15.8 COUNTERPARTS.
------------
This Agreement may be executed in counterparts, all of which together shall
constitute one agreement binding on all the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto or, in the case of an Additional Partner or Substituted
Partner, to an Addendum.
61
<PAGE>
SECTION 15.9 APPLICABLE LAW.
--------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
SECTION 15.10 INVALIDITY OF PROVISIONS.
------------------------
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
SECTION 15.11 POWER OF ATTORNEY.
-----------------
A. General. Each Limited Partner and each Assignee that accepts Units
-------
(or any rights, benefits or privileges associated therewith) is deemed to
irrevocably constitute and appoint the General Partner, any Liquidator and
authorized officers and attorneys-in-fact of each, and each of those acting
singly, in each case with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead to:
(i) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate and all amendments or restatements thereof) that the General
Partner or any Liquidator deems appropriate or necessary to form, qualify
or continue the existence or qualification of the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all other jurisdictions in which
the Partnership may conduct business or own property, (b) all instruments
that the General Partner or any Liquidator deem appropriate or necessary to
reflect any amendment, change, modification or restatement of this
Agreement in accordance with its terms, (c) all conveyances and other
instruments or documents that the General Partner or any Liquidator deems
appropriate or necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation, (d) all instruments relating to
the admission, withdrawal, removal or substitution of any Partner pursuant
to, or other events described in, Article XI, XII or XIII hereof or the
Capital Contribution of any Partner and (e) all certificates, documents and
other instruments relating to the determination of the rights, preferences
and privileges of Units; and
(ii) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is made
or given by the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole discretion of the
General Partner or any Liquidator, to effectuate the terms or intent of
this Agreement. Nothing contained
62
<PAGE>
in this Section 15.11 shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article
XIV hereof or as may be otherwise expressly provided for in this Agreement.
B. Irrevocable Nature. The foregoing power of attorney is hereby
------------------
declared to be irrevocable and a power coupled with an interest, in recognition
of the fact that each of the Partners will be relying upon the power of the
General Partner or any Liquidator to act as contemplated by this Agreement in
any filing or other action by it on behalf of the Partnership, and it shall
survive and not be affected by the subsequent Incapacity of any Limited Partner
or Assignee and the transfer of all or any portion of such Limited Partner's or
Assignee's Units and shall extend to such Limited Partner's or Assignee's heirs,
successors, assigns and personal representatives. Each such Limited Partner or
Assignee hereby agrees to be bound by any representation made by the General
Partner or any Liquidator, acting in good faith pursuant to such power of
attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the General
Partner's or Liquidator's request therefor, such further designation, powers of
attorney and other instruments as the General Partner or the Liquidator, as the
case may be, deems necessary to effectuate this Agreement and the purposes of
the Partnership.
SECTION 15.12 ENTIRE AGREEMENT; EXHIBITS.
--------------------------
This Agreement, including the Exhibits hereto and any Addendum executed
from time to time, all of which are an integral part of this Agreement, contains
the entire understanding and agreement among the Partners with respect to the
subject matter hereof and supersedes any prior written oral understandings or
agreements among them with respect thereto.
SECTION 15.13 NO RIGHTS AS SHAREHOLDERS.
-------------------------
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Units any rights whatsoever as partners or shareholders of
the General Partner, including, without limitation, any right to receive
dividends or other distributions made to partners or shareholders of the General
Partner or to vote or to consent or receive notice as shareholders in respect to
any meeting of shareholders for the election of trustees of the General Partner
or any other matter.
SECTION 15.14 LIMITATION TO PRESERVE REIT STATUS.
----------------------------------
To the extent that any amount paid or credited to the General Partner or
any of its officers, directors, trustees, employees or agents pursuant to
Section 7.4 or Section 7.7 would constitute gross income to the General Partner
for purposes of Section 856(c)(2) or 856(c)(3) of the Code (a "General Partner
Payment") then, notwithstanding any other provision of this Agreement, the
amount of such General Partner Payment for any fiscal year shall not exceed the
lesser of:
63
<PAGE>
(i) an amount equal to the excess, if any, of (a) 4.20% of the
General Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in
subsections (A) though (H) of Section 856(c)(2) of the Code over (b) the
amount of gross income (within the meaning of Section 856(c)(2) of the
Code) derived by the General Partner from sources other than those
described in subsections (A) through (H) of Section 856(c)(2) of the Code
(but not including the amount of any General Partner Payments); or
(ii) an amount equal to the excess, if any of (a) 25% of the
General Partner's total gross income (but not including the amount of any
General Partner Payments) for the fiscal year which is described in
subsections (A) through (I) of Section 856(c)(3) of the Code over (b) the
amount of gross income (within the meaning of Section 856(c)(3) of the
Code) derived by the General Partner from sources other than those
described in subsections (A) through (I) of Section 856(c)(3) of the Code
(but not including the amount of any General Partner Payments); provided,
however, that General Partner Payments in excess of the amounts set forth
in subparagraphs (i) and (ii) above may be made if the General Partner, as
a condition precedent, obtains an opinion of tax counsel that the receipt
of such excess amounts would not adversely affect the General Partner's
ability to qualify as a REIT. To the extent General Partner Payments may
not be made in a year due to the foregoing limitations, such General
Partner Payments shall carry over and be treated as arising in the
following year, provided, however, that such amounts shall not carry over
for more than five years, and if not paid within such five year period,
shall expire; provided further, that (x) as General Partner Payments are
made, such payments shall be applied first to carry over amounts
outstanding, if any, and (y) with respect to carry over amounts for more
than one Partnership Year, such payments shall be applied to the earliest
Partnership Year first.
[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
64
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
WELLINGTON PROPERTIES TRUST, a Maryland real
estate investment trust
By: /s/Arnold K. Leas
-------------------------------
Name: Arnold K. Leas
Title: President
LIMITED PARTNER:
WELLINGTON FORMATION, LLC, a
Delaware limited liability company
By: /s/ Robert F. Rice
-------------------------------
Name: Robert F. Rice
Title: Vice President
S-1
<PAGE>
EXHIBIT A
PARTNERS
<TABLE>
<CAPTION>
Protected
Common Preferred Units Agreed Initial Partner
Name of Partner Units [Series] Capital Account ("X" if yes)
------------------------ -------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
GENERAL PARTNER:
Wellington Properties Trust 1 0 $ 1
LIMITED PARTNERS:
Wellington Formation, LLC 99 0 $ 99
----------- ---------------- ----------------- -----------------
TOTAL 100 0 $100
</TABLE>
CERTIFICATE
-----------
This certification constitutes an amendment of this Agreement and this
Exhibit A as of the date hereof. This Exhibit A incorporates all Partners
- --------- ---------
admitted to the Partnership through __________, 1998. Any Addenda executed
subsequent to such date shall have the effect of amending this Exhibit A.
---------
WELLINGTON PROPERTIES TRUST, as
General Partner
By:_____________________________
Authorized Officer
Date:______________, ____
A-1
<PAGE>
EXHIBIT B
TAX MATTERS
B.1. TAX-RELATED DEFINITIONS
-----------------------
Notwithstanding the foregoing, the following definitions shall have the
following meanings for purposes of this Exhibit B and this Agreement:
---------
"Adjusted Capital Account" means the Capital Account maintained for each
------------------------
Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii)
decreased by the items described in Regulations Sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
--------------------------------
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
"Agreed Value" means (i) in the case of any Contributed Property
------------
contributed to the Partnership as part of or in connection with the
Consolidation, the amount set forth on the applicable Addendum as the Agreed
Value of such Property; (ii) in the case of any other Contributed Property, the
fair market value of such property as of the time of its contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt, reduced by any liabilities either assumed by the Partnership upon
such contribution or to which such property is subject when contributed; and
(iii) in the case of any property distributed to a Partner by the Partnership,
the Partnership's Carrying Value of such property at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such distribution or to which such property is subject at the time of
distribution as determined under Section 752 of the Code and the regulations
thereunder.
"Book-Tax Disparities" means, with respect to any item of Contributed
--------------------
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all
of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to this Exhibit B and the hypothetical balance of such Partner's Capital Account
---------
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
B-1
<PAGE>
"Capital Account" means, with respect, with respect to any Partner, the
---------------
separate capital account maintained for such Partner in accordance with the
rules of Regulations Section l.704-l(b)(2)(iv) and the provisions of Section B.2
of this Exhibit B.
---------
"Carrying Value" means (i) with respect to a Contributed Property or
--------------
Adjusted Property, the Agreed Value of such property reduced (but not below
zero) by all Depreciation with respect to such Contributed Property or Adjusted
Property, as the case may be, charged to the Partners' Capital Accounts and (ii)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with this Exhibit B, and to reflect changes, additions (including
---------
capital improvements thereto) or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Depreciation" means, for each Partnership Year, an amount equal to the
------------
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year, Depreciation shall be an amount which
bears the same ratio to such beginning Carrying Value as the federal income tax
depreciation, amortization, or other cost recovery deduction for such year bears
to such beginning adjusted tax basis; provided, however, that if the federal
income tax depreciation, amortization, or other cost recovery deduction for such
year is zero, Depreciation shall be determined with reference to such beginning
Carrying Value using any reasonable method selected by the General Partner.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
----------------------
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section 1.704-
2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
---------------------
1.752-1(a)(2).
"Partner Minimum Gain" means an amount, with respect to each Partner
--------------------
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section
------------------------
1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
------------------------------
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined
in accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
------------------------
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease
B-2
<PAGE>
in Partnership Minimum Gain, for a Partnership Year shall be determined in
accordance with the rules of Regulations Section 1.704-2(d).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
--------------------------------
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Section B.3(b)(2)(i) or B.3(b)(2)(ii) of this Exhibit B to eliminate
---------
Book-Tax Disparities.
"Unrealized Gain" attributable to any item of Partnership property means,
---------------
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under this Exhibit B) as of such date,
---------
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to this Exhibit B) as of such date.
---------
"Unrealized Loss" attributable to any item of Partnership property means,
---------------
as of any date of determination, the excess, if any, of (i) the Carrying Value
of such property (prior to any adjustment to be made pursuant to this Exhibit B)
---------
as of such date, over (ii) the fair market value of such property (as determined
under this Exhibit B) as of such date.
---------
B.2. CAPITAL ACCOUNT MAINTENANCE
----------------------------
(a) Capital Accounts of the Partners
--------------------------------
(1) The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules of Regulations Section l.704-l(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions and any other deemed contributions made by such Partner to the
Partnership pursuant to this Agreement and (ii) all items of Partnership income
and gain (including income and gain exempt from tax) computed in accordance with
Section B.2(a)(2) hereof and allocated to such Partner pursuant to Section 6.1
of the Agreement and this Exhibit B thereof, and decreased by (x) the amount of
---------
cash or Agreed Value of all actual and deemed distributions of cash or property
made to such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section B.2(a)(2) hereof and
allocated to such Partner pursuant to Section 6.1 of the Agreement and Exhibit B
---------
thereof.
(2) For purposes of computing the amount of any item of income, gain,
deduction or loss to be reflected in the Partners' Capital Accounts, unless
otherwise specified in this Agreement, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes determined in
accordance with Section 703(a) of the Code (for this purpose all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a) (1) of the Code shall be included in taxable income or loss),
with the following adjustments:
(i) Except as otherwise provided in Regulations Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain,
loss and deduction shall be made without regard to any election
under Section 754 of the Code
B-3
<PAGE>
which may be made by the Partnership, provided that the
amounts of any adjustments to the adjusted bases of the assets
of the Partnership made pursuant to Section 734 of the Code as
a result of the distribution of property by the Partnership to
a Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital Accounts)
shall be reflected in the Capital Accounts of the Partners in
the manner and subject to the limitations prescribed in
Regulations Section l.704-1(b)(2)(iv) (m)(4).
(ii) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items described
in Sections 705(a)(l)(B) or 705(a)(2)(B) of the Code are not
includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
(iii) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as
if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnership's Carrying
Value with respect to such property as of such date.
(iv) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal year.
(v) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section B.2(a)(4) hereof, the amount of
any such adjustment shall be taken into account as gain or
loss from the disposition of such asset.
(vi) Any items specially allocated under Section B.3(a) of this
Exhibit B hereof shall not be taken into account.
---------
(3) A transferee (including any Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor.
(4) Adjustment to Carrying Value
----------------------------
(i) Consistent with the provisions of Regulations Section 1.704-
1(b)(2)(iv)(f), and as provided in Section B.2(a)(4)(ii), the
Carrying Values of all Partnership assets shall be adjusted
upward or downward to reflect any Unrealized Gain or
Unrealized loss attributable to such Partnership property, as
of the times of the adjustments provided in Section
B.2(a)(4)(ii) hereof, as if such Unrealized Gain or Unrealized
Loss had been recognized on an actual sale of each such
property and allocated pursuant to Section 6.1 of the
Agreement.
B-4
<PAGE>
(ii) Such adjustments shall be made as of the following times: (a)
immediately prior to the acquisition of an additional interest
in the Partnership by any new or existing Partner in exchange
for more than a de minimis Capital Contribution; (b)
immediately prior to the distribution by the Partnership to a
Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c)
immediately prior to the liquidation of the Partnership within
the meaning of Regulations Section 1.704-l(b)(2)(ii)(g),
provided however that adjustments pursuant to clauses (a) and
(b) above shall be made only if the General Partner determines
that such adjustments are necessary or appropriate to reflect
the relative economic interests of the Partners in the
Partnership.
(iii) In accordance with Regulations Section 1.704-l(b)(2)(iv)(e),
the Carrying Value of Partnership assets distributed in kind
shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership
property, as of the time any such asset is distributed.
(iv) In determining Unrealized Gain or Unrealized Loss for purposes
of this Exhibit B, the aggregate cash amount and fair market
---------
value of all Partnership assets (including cash or cash
equivalents) shall be determined by the General Partner using
such reasonable method of valuation as it may adopt, or in the
case of a liquidating distribution pursuant to Article XIII of
the Agreement, shall be determined and allocated by the
Liquidator using such reasonable methods of valuation as it
may adopt. The General Partner, or the Liquidator, as the case
may be, shall allocate such aggregate fair market value among
the assets of the Partnership in such manner as it determines
in its sole and absolute discretion to arrive at a fair market
value for individual properties.
(5) The provisions of the Agreement (including this Exhibit B)
----------
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner
consistent with such Regulations. In the event the General Partner shall
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership, the General Partner, or the
Limited Partners) are computed in order to comply with such Regulations, the
General Partner may make such modification without regard to Article XIV of the
Agreement, provided that it is not likely to have a material effect on the
amounts distributable to any Person pursuant to Article XIII of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i)
make any adjustments that are necessary or appropriate to maintain equality
between the Capital Accounts of the Partners and the amount of Partnership
capital reflected on the Partnership's balance sheet, as computed for book
purposes, in accordance with Regulations Section l.704-
B-5
<PAGE>
l(b)(2)(iv)(q), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section l.704-1(b).
(b) No Interest. No interest shall be paid by the Partnership on Capital
-----------
Contributions or on balances in Partners' Capital Accounts.
(c) No Withdrawal. No Partner shall be entitled to withdraw any part of
-------------
its Capital Contribution or Capital Account or to receive any distribution from
the Partnership, except as provided in Articles IV, V, VII and XIII of the
Agreement.
B.3. SPECIAL ALLOCATION RULES
------------------------
(a) Special Allocation Rules.
------------------------
Notwithstanding any other provision of the Agreement or this Exhibit B, the
---------
following special allocations shall be made in the following order:
(1) Minimum Gain Chargeback. Notwithstanding the provisions of
-----------------------
Section 6.1 of the Agreement or any other provisions of this Exhibit B, if there
---------
is a net decrease in Partnership Minimum Gain during any Partnership Year, each
Partner shall be specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as determined
under Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(f)(6). This
Section B.3(a)(1) is intended to comply with the minimum gain chargeback
requirements in Regulations Section 1.704-2(f) and for purposes of this Section
B.3(a)(1) only, each Partner's Adjusted Capital Account Deficit shall be
determined prior to any other allocations pursuant to Section 6.1 of this
Agreement with respect to such Partnership Year and without regard to any
decrease in Partner Minimum Gain during such Partnership Year.
(2) Partner Minimum Gain Chargeback. Notwithstanding any other
-------------------------------
provision of Section 6.1 of this Agreement or any other provisions of this
Exhibit B (except Section B.3(a)(1) hereof), if there is a net decrease in
- ---------
Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any
Partnership Year, each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal to such Partner's share of the net decrease in Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i) (5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each General Partner and Limited Partner pursuant thereto.
The items to be so allocated shall be determined in accordance with Regulations
Section 1.704-2(i)(4). This Section B.3(a)(2) is intended to comply with the
minimum gain chargeback requirement in such section of the Regulations and shall
be interpreted consistently therewith.
B-6
<PAGE>
Solely for purposes of this Section B.3(a)(2), each Partner's Adjusted Capital
Account Deficit shall be determined prior to any other allocations pursuant to
Section 6.1 of the Agreement or this Exhibit with respect to such Partnership
Year, other than allocations pursuant to Section B.3(a)(1) hereof.
(3) Qualified Income Offset. In the event any Partner unexpectedly
-----------------------
receives any adjustments, allocations or distributions described in Regulations
Sections 1.704-l(b)(2)(ii)(d)(4), l.704-1(b)(2)(ii)(d)(5), or 1.704-
l(b)(2)(ii)(d)(6), and after giving effect to the allocations required under
Sections B.3(a)(1) and B.3(a)(2) hereof with respect to such Partnership Year,
such Partner has an Adjusted Capital Account Deficit, items of Partnership
income and gain (consisting of a pro rata portion of each item of Partnership
income, including gross income and gain for the Partnership Year) shall be
specifically allocated to such Partner in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, its Adjusted Capital
Account Deficit created by such adjustments, allocations or distributions as
quickly as possible. This Section B.3(a)(3) is intended to constitute a
"qualified income offset" under Regulations Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
(4) Gross Income Allocation. In the event that any Partner has an
-----------------------
Adjusted Capital Account Deficit at the end of any Partnership Year (after
taking into account allocations to be made under the preceding paragraphs hereof
with respect to such Partnership Year), each such Partner shall be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income, including gross income and gain for the
Partnership Year) in an amount and manner sufficient to eliminate, to the extent
required by the Regulations, its Adjusted Capital Account Deficit.
(5) Nonrecourse Deductions. Nonrecourse Deductions for any
----------------------
Partnership Year shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its good
faith discretion that the Partnership's Nonrecourse Deductions must be allocated
in a different ratio to satisfy the safe harbor requirements of the Regulations
promulgated under Section 704(b) of the Code, the General Partner is authorized,
upon notice to the Limited Partners, to revise the prescribed ratio for such
Partnership Year to the numerically closest ratio which would satisfy such
requirements.
(6) Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions for any Partnership Year shall be specially allocated to the Partner
who bears the economic risk of loss with respect to the Partner Nonrecourse Debt
to which such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Sections 1.704-2(b)(4) and 1.704-2(i).
(7) Code Section 754 Adjustments. To the extent an adjustment to the
----------------------------
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b)
of the Code is required, pursuant to Regulations Section 1.704-l(b)(2)(iv)(m),
to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to
B-7
<PAGE>
the Partners in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such Section of the
Regulations.
(b) Allocations for Tax Purposes.
----------------------------
(1) Except as otherwise provided in this Section B.3(b), for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1 of
the Agreement and Section B.3(a) hereof.
(2) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss, and
deduction shall be allocated for federal income tax purposes among the Partners
as follows:
(i) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners consistent with
the principles of Section 704(c) of the Code to take into account the
variation between the Agreed Value of such property and its adjusted basis
at the time of contribution (taking into account Section B.3(b)(3) of this
Exhibit B); and (b) any item of Residual Gain or Residual Loss attributable
---------
to a Contributed Property shall be allocated among the Partners in the same
manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section B.3(a) of this Exhibit
-------
B.
-
(ii) (a) In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the Code to
take into account the Unrealized Gain or Unrealized Loss
attributable to such property and the allocations thereof
pursuant to Section B.2 hereof;
(2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners in a manner
consistent with Section B.3(b)(2)(i) of this Exhibit B; and
---------
(b) any item of Residual Gain or Residual Loss
attributable to an Adjusted Property shall be allocated among the
Partners in the same manner its correlative item of "book" gain
or loss is allocated pursuant to Section 6.1 of the Agreement and
Section B.3(a) of this Exhibit B.
---------
(iii) all other items of income, gain, loss and deduction shall
be allocated among the Partners the same manner as their correlative
item of "book" gain or loss is allocated pursuant to Section 6.1 of
the Agreement and Section B.3(a) of this Exhibit B.
---------
(3) To the extent Regulations promulgated pursuant to Section 704(c)
of the Code permit a Partnership to utilize alternative methods to eliminate the
disparities between the
B-8
<PAGE>
Carrying Value of property and its adjusted basis, the General Partner shall
have the authority to elect the method to be used by the Partnership and such
election shall be binding on all Partners.
B-9
<PAGE>
EXHIBIT C
NOTICE OF REDEMPTION/CONVERSION
The undersigned hereby irrevocably (i) elects to exercise its [redemption]
[conversion] rights contained in ARTICLE VIII of the Limited Partnership
Agreement of Wellington Properties Investments, L.P. (the "Partnership
Agreement") with respect to an aggregate of [Common Units] [Preferred Units],
(ii) surrenders such [Common Units] [Preferred Units] and all right, title and
interest therein and (iii) directs that the [Share Amount (or applicable Cash
Amount if so determined by the General Partner in accordance with the
Partnership Agreement)] [Common Units] deliverable upon [redemption]
[conversion] of such [Common Units] [Preferred Units] be delivered to the
address specified below. The undersigned hereby represents, warrants, and
certifies that the undersigned (a) has marketable and unencumbered title to such
[Common Units] [Preferred Units], free and clear of the rights of or interests
of any other person or entity, (b) has the full right, power and authority to
redeem and surrender such [Common Units] [Preferred Units] as provided herein
and (c) has obtained the consent or approval of all persons or entities, if any,
having the right to consult or approve such redemption and surrender.
Capitalized terms used above that are defined in the Partnership Agreement are
used herein as defined therein.
Dated:________________________________
Name of Limited Partner:______________
Social Security or
Federal Employer ID Number:___________
________________________________________
(Signature of Limited Partner)
________________________________________
(Street Address)
________________________________________
(City) (State)(Zip Code)
C-1
<PAGE>
EXHIBIT D
FORM OF ADDENDUM
ADDENDUM DATED AS OF ___________, ____
TO WELLINGTON PROPERTIES INVESTMENTS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Addendum to Wellington Properties Investments, L.P. Agreement of
Limited Partnership dated as of ___________, ____ (the "Addendum"), which
Addendum is incorporated into and an amendment of (pursuant to Section 14.1.B(2)
thereof) that certain Wellington Properties Investments, L.P. Agreement of
Limited Partnership dated as of _________, 1998 (the "Partnership Agreement"),
is executed and delivered by the undersigned. As of the date hereof, the
undersigned designated as an Additional Partner is admitted as a Limited Partner
of the Partnership, and by said undersigned's execution and delivery hereof,
said undersigned agrees to be bound by the terms and provisions of the
Partnership Agreement, including, without limitation, those set forth in Section
15.12 thereof. The number of [Common] [Preferred] Units issued as of the date
hereof to the undersigned designated as an Additional Partner is shown opposite
such Additional Partner's signature below. Attachment 1 to this Addendum sets
forth the Agreed Value of all Contributed Property (on an asset-by-asset basis)
contributed to the Partnership by the Additional Partner. [The series, and
corresponding rights and designations, of the Preferred Units are as described
on Attachment 2 hereto, which rights and designations will be incorporated into
Schedule 4.2 of the Partnership Agreement.] All terms used herein and not
otherwise defined shall have the meanings given them in the Partnership
Agreement.
GENERAL PARTNER
---------------
WELLINGTON PROPERTIES TRUST, a Maryland real
estate investment trust
By:_________________________________
Name:
Title:
ADDITIONAL PARTNER
------------------
[__________________________________]
________ [COMMON] [SERIES_____
PREFERRED] Units By:_______________________________
Name:
Title:
D-1
<PAGE>
Exhibit E
- --------------------------------------------------------------------------------
MASTER REGISTRATION RIGHTS AGREEMENT
Dated as of August 31, 1998
of
Wellington Properties Trust
for the benefit of
CERTAIN HOLDERS OF LIMITED PARTNERSHIP UNITS
of
Wellington Properties Investments, L.P.
- --------------------------------------------------------------------------------
E-1
<PAGE>
MASTER REGISTRATION RIGHTS AGREEMENT
------------------------------------
THIS MASTER REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of August 31, 1998, by Wellington Properties Trust, a
Maryland real estate investment trust (the "Company"), for the benefit of
Person(s) (as hereinafter defined) identified from time to time in Schedule 1 to
one or more Supplemental Registration Rights Agreements (each, a "Supplement"),
substantially in the form of Exhibit A hereto, entered into by the Company and
such Persons.
WHEREAS, the Company is the sole general partner of Wellington
Properties Investments, L.P. (the "Partnership"), which is engaged in the
business of owning, managing, acquiring and developing primarily office, retail,
industrial, and residential apartment properties (collectively with any other
properties owned, managed, acquired, or developed by the Partnership from time
to time, "Properties");
WHEREAS, the Partnership anticipates acquiring from time to time
additional Properties or contract rights to acquire additional Properties in
transactions (the "Contributions") in which all or a portion of the
consideration to be paid by the Partnership will consist of Units (as
hereinafter defined);
WHEREAS, pursuant to the Partnership Agreement (as hereinafter
defined) Units are, under certain circumstances, redeemable for Shares (as
hereinafter defined) of the Company;
WHEREAS, the Company desires to provide certain registration rights
with respect to Shares for the benefit of Persons receiving Units in connection
with Contributions and the successors and assigns of such Persons (collectively,
the "Holders");
NOW, THEREFORE, the Company for the benefit of the Holders agrees as
follows:
SECTION 1. Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
Exchange Act: The Securities Exchange Act of 1934, as amended from
time to time.
Exclusion Notice: As defined in Section 2(c).
Holder or Holders: As set forth in the preamble.
Holder Group: The Person(s) identified in Schedule 1 to a particular
Supplement, and their successors and assigns.
E-2
<PAGE>
Majority Holders: At any time, Holders of Registrable Securities and
Units then redeemable for Registrable Securities who, if all such Units were so
redeemed, would then hold a majority of the Registrable Securities.
Partnership Agreement: The Limited Partnership Agreement of the
Partnership, dated August 31, 1998, as amended from time to time.
Person: Any individual, partnership, corporation, trust or other
entity.
Prospectus: A prospectus included in a Registration Statement,
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any Prospectus Supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by such
Registration Statement, and including post-effective amendments, in each case
including all material incorporated by reference therein.
Prospectus Supplement: A prospectus supplement to a Prospectus
contained in a Shelf Registration Statement that has already been declared
effective.
Registrable Securities: The Shares, excluding (i) Shares that have
been disposed of under a Shelf Registration Statement or any other effective
registration statement, (ii) Shares that have been issued to the Holder pursuant
to an effective registration statement, (iii) Shares sold or otherwise
transferred pursuant to Rule 144 under the Securities Act, (iv) Shares that are
held by Holders who are not affiliates of the Company that are eligible for sale
pursuant to Rule 144(k) under the Securities Act, and (v) Shares held by each
Holder who is an affiliate of the Company if all of such Shares are eligible for
sale pursuant to Rule 144 under the Securities Act and could be sold in one
transaction in accordance with the volume limitations contained in Rule
144(e)(1)(i) under the Securities Act.
Registration Expenses: Any and all expenses incident to the
performance of, or compliance with, this Agreement, including, without
limitation: (i) all SEC or stock exchange registration and filing fees, (ii)
all fees and expenses incurred in connection with compliance with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualification of any of the Registrable
Securities and the preparation of a Blue Sky Memorandum), (iii) all expenses of
any Persons in preparing or assisting in preparing, word processing, printing
and distributing Registration Statements, Prospectuses, certificates and other
documents relating to the performance of and compliance with this Agreement,
(iv) all fees and expenses incurred in connection with the listing, if any, of
any of the Registrable Securities on any securities exchange or exchanges
pursuant to Section 3(k) hereof, and (v) the fees and disbursements of counsel
for the Company and of the independent public accountants of the Company.
Notwithstanding anything to the contrary set forth in the preceding sentence,
Registration Expenses shall specifically exclude underwriting discounts and
commissions, brokerage or dealer fees, the fees and disbursements of counsel,
accountants or other representatives of a selling Holder, and transfer taxes, if
any, relating to the sale or disposition of Registrable Securities by a selling
Holder, all of which shall be borne by such Holder in all cases.
E-3
<PAGE>
Registration Statement: A registration statement of the Company and
any other entity required to be a registrant with respect to such registration
statement pursuant to the requirements of the Securities Act, and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to
time.
Shares: Common shares, $.01 par value, of the Company issued to
Holders of Units upon redemption of their Units pursuant to the Partnership
Agreement.
Shelf Registration: A registration required to be effected pursuant
to Section 2(a) hereof.
Shelf Registration Statement: A Registration Statement on Form S-3,
or any successor form thereto, covering the sale of Registrable Securities on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, or
any similar rule that may be adopted by the SEC.
Units: Limited partnership interests in the Partnership issued to the
Holders in connection with the Contributions.
SECTION 2. Registration Under the Securities Act.
(a) Filing of Shelf Registration Statement. Provided that such
Holder has not delivered an Exclusion Notice to the Company and has timely
provided the information requested by the Company pursuant to Section 2(c), the
Company shall, not later than the "Required Filing Date" specified in the
Supplement to which a Holder is a party, cause to be filed, in accordance with
the terms hereof but subject to Section 2(b), a Shelf Registration Statement or
a Prospectus Supplement providing for the sale by such Holder of the Registrable
Securities for which such Holder's New Units (as defined in the applicable
Supplement) are redeemable. If a Shelf Registration Statement is to be filed,
the Company will use its reasonable, diligent and good faith efforts to cause
such Shelf Registration Statement to be declared effective by the SEC as soon as
reasonably practicable if it is not then effective. The Company agrees to use
its reasonable, diligent and good faith efforts to keep a Shelf Registration
Statement covering the sale of each Holder's Registrable Securities continuously
effective under the Securities Act for a period expiring on the earlier of (i)
the date on which the aggregate market value of all outstanding Registrable
Securities covered by a Supplement and held by a beneficiary of this Agreement
(assuming for this purpose that all Units then held by Holders were redeemed for
Shares) becomes less than $5,000,000 and (ii) the date on which (A) all Shares
that Holders that are unaffiliated with the Company have the right to obtain
upon redemption of their Units, in the opinion of counsel for the Company, which
counsel shall be reasonably acceptable to such Holders, are eligible for sale
pursuant to Rule 144(k) under the
E-4
<PAGE>
Securities Act and (B) all Shares that Holders that are affiliated with the
Company have the right to obtain upon redemption of their Units, in the opinion
of counsel for the Company, which counsel shall be reasonably acceptable to such
Holders, are eligible for sale pursuant to Rule 144 under the Securities Act and
could be sold in one transaction in accordance with the volume limitations
contained in Rule 144(e)(1)(i) under the Securities Act. Subject to Section
3(i), the Company further agrees to supplement or amend each Shelf Registration
Statement, if and as required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for Shelf Registration.
(b) Alternate Registration Procedures. Notwithstanding anything to
the contrary set forth in Section 2(a), if the Company shall not be eligible to
effect a Shelf Registration pursuant to Section 2(a) because the condition set
forth in clause 3 or clause 5 of General Instruction I(A) to Form S-3 (or any
corresponding condition applicable under any successor form) is not satisfied,
it shall so notify promptly all Holders for which it will not be able to file a
Shelf Registration Statement or a Prospectus Supplement by the applicable
Required Filing Date (such Holders, the "Affected Holders", and the Registrable
Securities which were to be included in such Shelf Registration Statement or
Prospectus Supplement, the "Affected Securities"). Thereafter, the Company
agrees to prepare and file with the SEC, within 120 days after it receives a
written request for the filing of such a registration statement from Affected
Holders holding (or who would hold, after redemption of Units) Affected
Securities with an aggregate market value of greater than $10,000,000, a
registration statement on any available form covering the sale by the Affected
Holders of Affected Securities in accordance with the terms hereof and will use
its reasonable, diligent and good faith efforts to cause such registration
statement to be declared effective by the SEC as soon as reasonably practicable
and use its reasonable, diligent and good faith efforts to keep such
registration statement continuously effective under the Securities Act for a
period of 90 days following its effective date. The Company may terminate any
such Registration Statement (or, if applicable, be relieved of its obligation to
file any such Registration Statement) at such time as any new Shelf Registration
Statement shall be available for the purposes set forth in Section 2(a).
(c) Inclusion of Holder in Registration Statement. Prior to filing a
Registration Statement or a Prospectus Supplement identifying a Holder as a
selling shareholder, the Company will send such Holder a notice (1) indicating
its intent to make such a filing, (2) requesting such information from the
Holder as the Company reasonably believes is required in connection with such
filing (including the proposed method of distribution by such Holder) and (3)
indicating that the Holder may elect, by notice (each, an "Exclusion Notice") to
the Company, not to be named in the Registration Statement or Prospectus
Supplement, as applicable, to be filed. If a Holder does not provide the
requested information within 14 days after request therefor given in accordance
with Section 7(b) or delivers an Exclusion Notice, such Holder shall not be
entitled to use any Prospectus prepared by the Company in connection with the
sale of any Registrable Securities until the later of (i) ten business days
after receipt by the Company from the Holder of the information requested in
such notice from the Company, and (ii) the effective date of the applicable
Registration
E-5
<PAGE>
Statement under the Securities Act, in each case subject to the other
requirements of and limitations set forth in this Agreement.
(d) Registration of Redemption. In lieu of complying with Sections
2(a) and 2(b) hereof, the Company may, in its sole discretion, elect to file a
Registration Statement prior to the applicable Required Filing Date (or at any
time thereafter) that registers the issuance to one or more Holders of Shares
(as opposed to the resale of such Shares by such Holder(s)). If the Company so
elects, it will use its reasonable, diligent and good faith efforts to cause
such Registration Statement to be declared effective by the SEC as soon as
reasonably practicable after filing and to keep such Registration Statement
continuously effective under the Securities Act until such time as the aggregate
market value of all Shares for which such registrations have been effected and
which remain unissued is less than $5,000,000, and further agrees to supplement
or amend each such Registration Statement if and as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Registration Statement or by the Securities Act or by any other
rules and regulations thereunder. If the Company makes an election under this
Section 2(d), it shall be relieved of its obligations under Sections 3(a), 3(b)
(except 3(b)(ii)), 3(c), 3(h), 3(j) and 3(l), and any continuing obligations in
Section 3 shall be deemed modified as appropriate to apply only to the issuance
of Shares to Holders.
SECTION 3. Registration Procedures.
In connection with the Company's obligations under Section 2 hereof, the
Company shall:
(a) for each Holder Group, prepare and file with the SEC, within the
time period referenced in Section 2 hereof, a Registration Statement or
Prospectus Supplement, as appropriate, which Registration Statement or
Prospectus Supplement and related Prospectus (i) shall be available for the sale
by such Holders of the Registrable Securities attributable to the New Units (as
defined in the applicable Supplement) in accordance with the intended method or
methods of distribution thereof as communicated to the Company by such Holders
and (ii) shall comply as to form in all material respects with the requirements
of the applicable form and include all financial statements required by the SEC
to be filed therewith.
(b) for each Holder Group, (i) prepare and file with the SEC such
amendments, post-effective amendments and supplements to the applicable
Registration Statement, and any Prospectus contained therein, as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such Registration
Statement in accordance with the intended method or methods of distribution
thereof as communicated to the Company by such Holders; (ii) respond promptly to
any comments received from the SEC with respect to the applicable Registration
Statement, or any amendment, post-effective amendment or supplement relating
thereto; and (iii) otherwise comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by the
applicable Registration Statement during the applicable period in accordance
with the intended method or methods of distribution thereof as communicated to
the Company by the applicable Holders. The Company shall have seven
E-6
<PAGE>
business days to prepare and file any such amendment or supplement, or such
longer period as is reasonably necessary if such preparation and filing are not
commercially practicable within seven business days, after receipt of a notice
from a Holder containing information giving rise to the need to file any such
amendment or supplement. Notwithstanding anything to the contrary contained
herein, the Company shall not be required to take any of the actions described
in clauses (i) and (ii) above with respect to a Holder unless such Holder shall
have provided all information and documents reasonably requested by the Company
in connection with such actions.
(c) furnish to each Holder, without charge, as many copies of each
applicable Prospectus, including each preliminary Prospectus, and any amendment
or supplement thereto and such other documents as such Holder may reasonably
request, in order to facilitate the public sale or other disposition of such
Holder's Registrable Securities; the Company consents to the use of such
Prospectus, including such preliminary Prospectus, by each such Holder in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or the preliminary Prospectus.
(d) use its reasonable, diligent and good faith efforts to register
or qualify each Holder's Registrable Securities, not later than the First Sale
Date specified in the Supplement to which the Holder is a party, under all
applicable state securities or "blue sky" laws of such jurisdictions as such
Holder shall reasonably request in writing, keep each such registration or
qualification effective during the period the applicable Registration Statement
is required to be kept effective or during the period offers or sales are being
made by such Holder, whichever is shorter, and do any and all other acts and
things which may be reasonably necessary or advisable to enable such Holder to
consummate the disposition in each such jurisdiction of such Holder's
Registrable Securities; provided, however, that the Company shall not be
required (i) to qualify generally to do business in any jurisdiction or to
register as a broker or dealer in such jurisdiction where it would not be
required so to qualify or register but for this Section 3(d), (ii) to subject
itself to taxation in any such jurisdiction or (iii) to submit to the general
service of process in any such jurisdiction.
(e) notify each Holder of Registrable Securities when the
Registration Statement applicable to such Holder has become effective and, if
requested by any Holder, confirm in writing (i) when any post-effective
amendments and supplements to the Registration Statement applicable to such
Holder become effective, (ii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of the Registration
Statement applicable to such Holder or the initiation of any proceedings for
that purpose, (iii) if the Company receives any notification with respect to the
suspension of the qualification of such Holder's Registrable Securities for sale
in any jurisdiction or the initiation of any proceeding for such purpose and
(iv) of the happening of any event during the period the Registration Statement
applicable to such Holder is effective as a result of which (A) such
Registration Statement contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (B) the applicable Prospectus, as then
amended or supplemented, contains any untrue statement of a material fact or
omits to state any material fact required to be stated
E-7
<PAGE>
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) for each Holder Group, use its reasonable, diligent and good
faith efforts to obtain the withdrawal of any order suspending the effectiveness
of the applicable Registration Statement at the earliest possible moment.
(g) upon request, furnish to each Holder of Registrable Securities,
without charge, at least one conformed copy of the applicable Registration
Statement and any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto, unless requested).
(h) cooperate with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and, once sold, not bearing any Securities Act
legend, and, as soon as practicable prior to any sale of Registrable Securities,
enable certificates for such Registrable Securities to be issued for such
numbers of shares and registered in such names as the selling Holders may
reasonably request.
(i) for each Holder, provided that such Holder has provided all
information and documents reasonably requested by the Company, upon the
occurrence of any event contemplated by Section 3(e)(iv) hereof, use its
reasonable, diligent and good faith efforts promptly to prepare and file a
supplement or prepare, file and obtain effectiveness of a post-effective
amendment to the applicable Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(j) make available for inspection by the Holders of Registrable
Securities and any counsel or accountant retained by such Holders, all financial
and other records, pertinent corporate documents and properties of the Company,
and cause the respective officers, directors and employees of the Company to
supply all information reasonably requested (not including any document
incorporated by reference in such Registration Statement) by any such Holders,
counsel or accountant in connection with the applicable Registration Statement;
provided, however, that such records, documents or information which the Company
determines in good faith to be confidential, and notifies such Holders, counsel
or accountants in writing that such records, documents or information are
confidential, shall not be disclosed by the representatives, counsel or
accountants unless (i) the disclosure of such records, documents or information
is necessary to avoid or correct a material misstatement or omission in such
Registration Statement, (ii) the release of such records, documents or
information is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or (iii) such records, documents or information have been
generally made available to the public otherwise than in violation of this
Agreement.
E-8
<PAGE>
(k) use its reasonable, diligent and good faith efforts to cause all
Shares to be listed on any securities exchange on which similar securities
issued by the Company are then listed.
(l) use its reasonable, diligent and good faith efforts to cause the
Registrable Securities covered by each Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
applicable Holders to consummate the disposition of such Registrable Securities.
(m) pay all Registration Expenses in connection with the filing of
any Registration Statement; provided, however, that each Holder shall pay all
underwriting discounts and commissions, brokerage or dealer fees, fees and
disbursements of counsel, accountants or other representatives of such Holder
and transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities, be it pursuant to any Registration Statement, Rule 144
under the Securities Act or otherwise.
The Company may require each Holder of Registrable Securities to furnish to
the Company in writing such information regarding the proposed distribution by
such Holder of such Registrable Securities as the Company may from time to time
reasonably request in writing.
Notwithstanding anything to the contrary contained in this Agreement or in
any Supplement, the Company shall have no obligation to enter into any
underwriting or other agreement or incur any expenses of counsel, accountants or
otherwise, in connection with any underwritten offering by any Holder of its
Registrable Securities (except in connection with the fulfillment of its
obligations hereunder), regardless of whether any such offering includes
securities of other Persons.
SECTION 4. Restrictions on Public Sale by Holders of Registrable Securities.
Each Holder agrees with the Company that:
(a) If the Company determines in its good faith judgment, after
consultation with counsel, that the filing of a Registration Statement or the
taking of any other action under Section 2 hereof or the use of any Prospectus
would require the disclosure of important information which the Company has a
bona fide business purpose for preserving as confidential or the disclosure of
which would impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by the Company, the
rights of the Holders to offer, sell or distribute any Registrable Securities
pursuant to a Registration Statement or Prospectus or to require the Company to
take action with respect to the registration or sale of any Registrable
Securities pursuant to a Registration Statement (including any action
contemplated by Section 3 hereof) will be suspended until the date upon which
the Company notifies the Holders in writing that suspension of such rights for
the grounds set forth in this Section 4(a) is no longer necessary; provided,
however, that the
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<PAGE>
Company may not suspend such rights for an aggregate period of more than 90 days
in any 12-month period.
(b) In the case of the registration of any underwritten equity
offering proposed by the Company (other than any registration by the Company on
Form S-8, or a successor or substantially similar form, of (i) an employee stock
option, stock purchase or compensation plan or of securities issued or issuable
pursuant to any such plan or (ii) a dividend reinvestment plan), each Holder
agrees, if requested in writing by the managing underwriter or underwriters
administering such offering, not to effect any offer, sale or distribution of
Registrable Securities (or any option or right to acquire Registrable
Securities) (each, a "Transfer") during the period commencing on the 10th day
prior to the expected effective date (which date shall be stated in such notice)
of the registration statement covering such underwritten primary equity offering
or, if such offering shall be a "take-down" from an effective shelf registration
statement, the 10th day prior to the expected commencement date (which date
shall be stated in such notice) of such offering, and ending on the date
specified by such managing underwriter in such written request to such Holder;
provided, however, that no Holder shall be required to agree not to Transfer its
Registrable Securities for a period of time which is longer than the period of
time for which the President of the Company is required so to agree in
connection with such offering. Nothing in this Section 4(b) shall be read to
limit the ability of any Holder to redeem its Units for Shares in accordance
with the Partnership Agreement.
(c) In the event that any Holder uses a Prospectus in connection with
the offering and sale of Registrable Securities covered by such Prospectus, such
Holder will use only the latest version of such Prospectus provided to it by the
Company.
(d) In connection with and as a condition to the Company's
obligations under Sections 2 and 3 hereof, (i) such Holder will not offer or
sell its Registrable Securities under the applicable Registration Statement
unless it has received copies of the applicable Prospectus or any supplemented
or amended Prospectus contemplated by Section 3(b) hereof and receives notice
that any post-effective amendment has become effective; (ii) upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 3(e)(iv) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the applicable Registration Statement until
such Holder receives copies of the supplemented or amended Prospectus
contemplated by Section 3(i) hereof and receives notice that any post-effective
amendment has become effective, and, if so directed by the Company, such Holder
will deliver to the Company (at the expense of the Company) all copies in its
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice; (iii) such Holder and any of its partners, officers,
directors, trustees or affiliates, if any, must comply with the provisions of
Regulation M under the Exchange Act, or any successor regulations, as applicable
to them in connection with the sales of Registrable Securities pursuant to the
Shelf Registration Statement; and (iv) such Holder and any of its partners,
officers, directors, trustees or affiliates, if any, must enter into such
written agreements as the Company shall reasonably request to ensure compliance
with clause (iii) above.
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SECTION 5. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Holder and its officers and directors and each Person, if
any, who controls any Holder within the meaning of Section 15 of the Securities
Act as follows:
(i) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, arising out, or based upon, of any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement under which such Registrable Securities were
registered under the Securities Act, any preliminary Prospectus, final
Prospectus or summary Prospectus contained therein, or any amendment or
supplement thereto or any documents incorporated therein by reference, or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all losses, liabilities, claims, damages and
expenses whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expenses whatsoever, as incurred (including
reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, in each case whether or not a party, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is not
paid under clause (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 5(a)
does not apply to any Holder (or its officers, directors and controlling
persons) with respect to any loss, liability, claim, damage or expense to the
extent arising out of any untrue statement or omission or alleged untrue
statement or omission (A) contained in any preliminary Prospectus, final
Prospectus or summary Prospectus (each, an "Original Document") if such untrue
statement or omission or alleged untrue statement or omission (each a
"Statement") was corrected in a subsequent preliminary Prospectus, final
Prospectus or summary Prospectus delivered to such Holder prior to the use of
the Original Document giving rise to the loss, liability, claim, damage or
expense; or (B) made in reliance upon and in conformity with written information
furnished to the Company by such Holder expressly for use in a Registration
Statement (or any amendment thereto) or any Prospectus. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of Holder or its officers and directors or any such controlling person
and shall survive the transfer of such securities by any Holder.
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<PAGE>
(b) Indemnification by Holders. Each Holder severally agrees to
indemnify and hold harmless the Company and the other selling Holders, and each
of their respective directors and officers (including each director and officer
of the Company who signed the Registration Statement), and each person, if any,
who controls the Company or any other selling Holder within the meaning of
Section 15 of the Securities Act, to the same extent as the indemnity contained
in Section 5(a) hereof (except that any settlement described in Section 5(a)(ii)
shall be effected with the written consent of such Holder), but only insofar as
such loss, liability, claim, damage or expense arises out of or is based upon
any untrue statement or omission, or alleged untrue statement or omission, made
in a Registration Statement (or any amendment thereto) or any Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such selling Holder expressly for use in a Registration Statement (or
any amendment thereto) or such Prospectus. In no event shall the liability of
any Holder under this Section 5(b) be greater in amount than the dollar amount
of the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Indemnification Proceedings. Each indemnified party shall give
reasonably prompt notice to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, but
failure so to notify an indemnifying party (i) shall not relieve it from any
liability which it may have under the indemnity agreement provided in Section
5(a) or (b) unless and to the extent it did not otherwise learn of such action
and the lack of notice by the indemnified party results in the forfeiture by the
indemnifying party of substantial rights or defenses and (ii) shall not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided under Section 5(a) or
(b). If the indemnifying party so elects within a reasonable time after receipt
of such notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by the
indemnifying party; provided, however, that, if such indemnified party or
parties reasonably determine that a conflict of interest exists where it is
advisable for such indemnified party or parties to be represented by separate
counsel or that, upon advice of counsel, there may be legal defenses available
to them which are different from or in addition to those available to the
indemnifying party, then the indemnifying party shall not be entitled to assume
such defense and the indemnified party or parties in the aggregate shall be
entitled to one separate counsel at the indemnifying party's expense. If an
indemnifying party is not so entitled to assume the defense of such action or
does not assume such defense, after having received the notice referred to in
the first sentence of this Section 5(c), the indemnifying party or parties will
pay the reasonable fees and expenses of counsel for the indemnified party or
parties. In such event however, no indemnifying party will be liable for any
settlement effected without the written consent of such indemnifying party. If
an indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, such indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action or proceeding.
(d) Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 5 is for any
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<PAGE>
reason held to be unenforceable although applicable in accordance with its
terms, the Company and the selling Holders shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity agreement incurred by the Company and the selling Holders, in
such proportion as is appropriate to reflect the relative fault of and benefits
to the Company on the one hand and the selling Holders on the other (in such
proportions that the selling Holders are severally, not jointly, responsible for
the balance), in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations. The relative benefits to the indemnifying
party and indemnified parties shall be determined by reference to, among other
things, the total proceeds received by the indemnifying party and indemnified
parties in connection with the offering to which such losses, liabilities,
claims, damages or expenses relate. The relative fault of the indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether the action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
the indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The Company and the Holders agree that it would not be just or equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such selling Holder were offered to
the public exceeds the amount of any damages which such selling Holder is
otherwise required to pay by reason of such untrue statement or omission.
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5(d), each Person,
if any, who controls a Holder within the meaning of Section 15 of the Securities
Act and directors and officers of a Holder shall have the same rights to
contribution as such Holder, and each director of the Company, each officer of
the Company who signed the Shelf Registration Statement and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
SECTION 6. Rule 144 Sales.
(a) The Company covenants that, from and after the date hereof, it
will file the reports required to be filed by the Company as referenced in Rule
144(c) promulgated under the Securities Act.
(b) In connection with any sale by any Holder of any Registrable
Securities pursuant to Rule 144 under the Securities Act, the Company shall
cooperate with such Holder to facilitate the timely preparation and delivery
after such sale of certificates representing
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<PAGE>
Registrable Securities and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as the selling Holders may reasonably request as soon
as practicable prior to any sale of Registrable Securities. The Company's
obligation set forth in the previous sentence shall be subject to the delivery,
if reasonably requested by the Company or its transfer agent, by counsel to such
Holder, in form and substance reasonably satisfactory to the Company and its
transfer agent, of an opinion that such Securities Act legend need not appear on
such certificate.
SECTION 7. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and Holders
constituting Majority Holders; provided, however, that no amendment,
modification or supplement or waiver or consent to the departure with respect to
the provisions of Sections 2, 3, 4, 5, 6 or 7(a) hereof or the definition of
Registrable Securities that would materially impair the rights of any Holder
under such provisions, shall be effective as against any Holder unless consented
to in writing by such Holder. Notice of any amendment, modification or
supplement to this Agreement adopted in accordance with this Section 7(a) shall
be provided by Company to each holder of Registrable Securities or Units
redeemable for Registrable Securities at least ten (10) days prior to the
effective date of such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, first-class mail,
telex, telecopier or any courier guaranteeing overnight delivery, (i) if to a
Holder, at the most current address given by such Holder to the Company by means
of a notice given in accordance with the provisions of this Section 7(b), which
address initially is, with respect to each Holder, the address set forth in the
Partnership Agreement, or (ii) if to the Company, at 18650 West Corporate Drive,
Suite 300, Brookfield, Wisconsin, 53045, Attention: President.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; or at
the time delivered if delivered by an air courier guaranteeing overnight
delivery.
(c) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the Company and the Holders, including without limitation and without the
need for an express assignment, subsequent Holders. If any successor, assignee
or transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such Person shall be entitled to receive the
benefits hereof and shall be conclusively deemed to have agreed to be bound by
all of the terms and provisions hereof.
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<PAGE>
(d) Headings. The headings in this Agreement are for the convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(e) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT GIVING EFFECT TO
THE CONFLICTS OF LAW PROVISIONS THEREOF.
(f) Specific Performance. The Company and the Holders acknowledge
that there would be no adequate remedy at law if any party fails to perform any
of its obligations hereunder, and accordingly agree that the Company and each
Holder, in addition to any other remedy to which it may be entitled at law or in
equity, shall be entitled to compel specific performance of the obligations of
another under this Agreement in accordance with the terms and conditions of this
Agreement in any court of the United States or any State thereof having
jurisdiction.
(g) Limitation of Liability of Shareholders and Officers of the
Company. Any obligation or liability whatsoever of the Company that may arise
at any time under this Agreement, or any obligation or liability that may be
incurred by it pursuant to any other instrument, transaction, or undertaking
contemplated hereby, shall be satisfied, if at all, out of the Company's assets
only. No such obligation or liability, other than this Agreement as it relates
to each of the Holders, shall be personally binding upon, nor shall resort for
the enforcement thereof be had to, the property of any of its shareholders,
trustees, officers, employees, or agents (solely as a result of their status as
shareholders, trustees, officers, employees, or agents), regardless of whether
such obligation or liability is in the nature of contract, tort, or otherwise.
Notwithstanding the foregoing, this Section 7(g) shall not in any way affect or
limit any obligation or liability of any Holder under this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Master Registration
Rights Agreement as of the date first above written.
WELLINGTON PROPERTIES TRUST
By:/s/ Arnold K. Leas
---------------------------------
Name: Arnold K. Leas
Title: President
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<PAGE>
Exhibit A
---------
Supplemental Registration Rights Agreement
------------------------------------------
This Supplemental Registration Rights Agreement (the "Supplement") is
supplemental to that certain Master Registration Rights Agreement (the
"Agreement"), dated as of ____________________, 1998, of Wellington Properties
Trust (the "Company"), and is made as of [insert date], by and among the Company
and the other Persons executing this Supplement (the "New Holders").
Capitalized terms used herein without definition shall have the meanings set
forth in the Agreement.
1. Status as Holders. From and after the date hereof, the New
Holders shall be deemed to be Holders under the Agreement with respect to the
Units identified on Schedule 1 hereto (the "New Units").
2. Certain Definitions. When used with respect to the New Units or
the Holders of the New Units, the following terms used in the Agreement shall
have the indicated meanings:
First Sale Date: [insert the date on which the New Holders will first
be allowed to sell Registrable Securities (i.e., the end of any lock-up
period)].
Required Filing Date: [insert date] or, if later, the day after the
date on which expires any "lock-up" or similar agreement made by the
Company with any underwriter in connection with an underwritten public
offering of equity securities of the Company, which agreement is in effect
on such first date.
3. Effect of Other Supplements. Unless otherwise explicitly set
forth therein, the New Holders shall not have any rights under any other
supplemental registration rights agreement or similar agreement entered into by
the Company pursuant to the Agreement.
[Insert here any transaction-specific terms]
4. Entire Agreement. This Supplement together with the Agreement is
intended by the parties to be a complete and exclusive statement of the
agreement and understanding of the parties in respect of the subject matter
contained herein and therein. This Supplement together with the Agreement
supersedes all prior agreements and understandings of the Company and the New
Holders with respect to such subject matter.
5. Counterparts. This Supplement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same Supplement to the Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Supplement as of
the date set forth above.
WELLINGTON PROPERTIES TRUST
By:_________________________________
Name:
Title:
Insert signature blocks for Holders
[SCHEDULE 1 TO BE ATTACHED]
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<PAGE>
SCHEDULE 4.2
Preferred Unit Terms to be supplied by General Partner with respect to
Preferred Units, if any, issued by the Partnership pursuant to Section 4.2.A(i)
hereof.
<PAGE>
EXHIBIT D
---------
[FORM OF WARRANT]
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION
RIGHTS AGREEMENT, DATED AS OF _____________, BETWEEN WELLINGTON PROPERTIES TRUST
AND THE INITIAL HOLDER OF THIS WARRANT, A COPY OF WHICH WILL BE MADE AVAILABLE
BY WELLINGTON PROPERTIES TRUST UPON REQUEST.
WELLINGTON PROPERTIES TRUST
COMMON SHARE PURCHASE WARRANT
No. W-2 _______, l998
Warrant to Purchase ________
Common Shares
WELLINGTON PROPERTIES TRUST, a Maryland real estate investment trust (the
"Company"), for value received, hereby certifies that _________________________,
or registered assigns (the "Holder"), is entitled to purchase from the Company
________ duly authorized, validly issued, fully paid and nonassessable common
shares of beneficial interest, par value $0.0l per share, of the Company (the
"Common Shares"), at a purchase price of $______ per share, at any time or from
time to time prior to 5:00 P.M., Milwaukee, Wisconsin time, on ________, 2008
(or such later date as may be determined pursuant to Section 21) (the
"Expiration Date"), all subject to the terms, conditions and adjustments set
forth below in this Warrant.
This Warrant is one of the Common Share Purchase Warrants (collectively,
the "Warrants", such term to include any such warrants issued in substitution
therefor) originally issued pursuant to the terms of a certain Warrant
Subscription Agreement, dated as of the date hereof, between the Company and the
Holder (the "Subscription Agreement"). The Warrants originally so issued
evidence rights to purchase an aggregate of 1,000,000 Common Shares subject to
adjustment as provided herein and in the other Warrants. Capitalized terms used
<PAGE>
herein and not otherwise defined herein shall have the meanings assigned such
terms in the Subscription Agreement.
1. DEFINITIONS. As used herein, unless the context otherwise requires, the
following terms shall have the meanings set forth below:
"Acquiring Person" shall mean, with reference to the transactions referred
to in clauses (a) through (d) of Section 4.1, the continuing or surviving
corporation of a consolidation or merger with the Company (if other than the
Company), the transferee of substantially all of the properties of the Company,
the corporation consolidating with or merging into the Company in a
consolidation or merger in connection with which the Common Shares is changed
into or exchanged for shares or other securities of any other Person or cash or
any other property, or, in the case of a capital reorganization or
reclassification, the Company.
"Acquisition Price" shall mean, as applied to the Common Shares, (a) the
Market Price on the date immediately preceding the date on which any transaction
to which Section 4 applies is consummated, or (b) if a purchase, tender or
exchange offer is made by the Acquiring Person (or by any of its affiliates) to
the holders of the Common Shares and such offer is accepted by the holders of
more than 50% of the outstanding shares of Common Shares, the greater of (i) the
price determined in accordance with the provisions of the foregoing clause (a)
of this sentence and (ii) the Market Price on the date immediately preceding the
acceptance of such offer by the holders of more than 50% of the outstanding
shares of Common Shares.
"Business Day" shall mean any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
"Commission" shall mean the Securities and Exchange Commission or any
successor agency having jurisdiction to enforce the Securities Act.
"Common Shares" shall have the meaning assigned to it in the introduction
to this Warrant, such term to include any shares into which such Common Shares
shall have been changed or any shares resulting from any reclassification of
such Common Shares, and all other shares of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the introduction to this
Warrant, such term to include any corporation or other entity which shall
succeed to or assume the obligations of the Company hereunder in compliance with
Section 4.
"Current Market Price" shall mean, on any date specified herein, the
average of the daily Market Price during the 10 consecutive trading days
commencing 15 trading days before
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<PAGE>
such date, except that, if on any such date the Common Shares are not listed or
admitted for trading on any national securities exchange or quoted in the over-
the-counter market, the Current Market Price shall be the Market Price on such
date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations thereunder, or any successor
statute.
"Expiration Date" shall have the meaning assigned to it in the introduction
to this Warrant.
"Fair Value" shall mean, on any date specified herein (i) in the case of
cash, the dollar amount thereof, (ii) in the case of a security, the Current
Market Price, and (iii) in all other cases, the higher of (A) the fair value
thereof determined by any firm of independent public accountants of recognized
standing selected by the Board of Trustees of the Company as of the last day of
any month ending within 60 days preceding the date as of which the determination
is to be made, and (B) the fair value thereof (as of a date which is within 20
days of the date as of which the determination is to be made) determined in good
faith by the Board of Trustees of the Company.
"Holder" shall have the meaning assigned to it in the introduction to this
Warrant.
"Market Price" shall mean, on any date specified herein, the amount per
Common Share, equal to (i) the last reported sale price of such Common Shares,
regular way, on such date or, in case no such sale takes place on such date, the
average of the closing bid and asked prices thereof regular way on such date, in
either case as officially reported on the principal national securities exchange
on which such Common Shares are then listed or admitted for trading, (ii) if
such Common Shares are not then listed or admitted for trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last reported trading price of the Common Shares on such date,
(iii) if there shall have been no trading on such date or if the Common Shares
are not so designated, the average of the closing bid and asked prices of the
Common Shares on such date as shown by the NASD automated quotation system, or
(iv) if such Common Shares are not then listed or admitted for trading on any
national exchange or quoted in the over-the-counter market, the fair value
thereof (as of a date which is within 20 days of the date as of which the
determination is to be made) determined in good faith jointly by the Company and
the Holder; provided, however, that if such parties are unable to reach
agreement within a reasonable period of time, the Market Price shall be
determined in good faith by an independent investment banking firm selected
jointly by the Company and the Holder or, if that selection cannot be made
within ten days, by an independent investment banking firm selected by the
American Arbitration Association in accordance with its rules, and provided
further, that the Company shall pay all of the fees and expenses of any third
parties incurred in connection with determining the Market Price.
"Market Value" shall mean, with respect to a share of common stock (or
equivalent equity interests) of the Acquiring Person or its Parent on any date
specified herein, (a) the average of the last sale prices, regular way, on the
20 consecutive trading days immediately preceding such date or, if there shall
have been no sale on any such day, the average of the
3
<PAGE>
closing bid and asked prices on such date, in each case as officially reported
on the principal national securities exchange on which such common stock is at
the time listed or admitted to trading, or (b) if such common stock is not then
listed or admitted to trading on any national securities exchange, but is
designated as a national market system security by the NASD, the last trading
price of the common stock on such date, or if there shall have been no trading
on such date or if the common stock is not so designated, the average of the
reported closing bid and asked prices on such 20 days as shown by the NASD
automated quotation system.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Other Securities" shall mean any shares of beneficial interest (other than
Common Shares) and other securities of the Company or any other Person
(corporate or otherwise) which the holders of the Warrants at any time shall be
entitled to receive, or shall have received, upon the exercise of the Warrants,
in lieu of or in addition to Common Shares, or which at any time shall be
issuable or shall have been issued in exchange for or in replacement of Common
Shares or Other Securities pursuant to Section 4 or otherwise.
"Parent" shall mean, as to any Acquiring Person, any corporation which (a)
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in the
consolidated financial statements contained in such Parent's Annual Report on
Form 10-K and (c) is not itself included in the consolidated financial
statements of any other person (other than its consolidated subsidiaries).
"Person" shall mean any individual, firm, partnership, corporation, trust,
joint venture, association, joint stock company, limited liability company,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof, and shall include any
successor (by merger or otherwise) of such entity.
"Subscription Agreement" shall have the meaning assigned to it in the
introduction to this Warrant.
"Purchase Price" shall mean initially $______ per share, subject to
adjustment and readjustment from time to time as provided in Section 3, and, as
so adjusted or readjusted, shall remain in effect until a further adjustment or
readjustment thereof is required by Section 3.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of _____ __, 1998, between the Company and the Holder.
"Restricted Securities" shall mean (i) any Warrants bearing the applicable
legend set forth in Section 10.1, (ii) any Common Shares (or Other Securities)
issued or issuable upon the exercise of Warrants which are (or, upon issuance,
will be) evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section, and (iii) any Common Shares (or Other
Securities) issued subsequent to the exercise of any of the Warrants as a
dividend or other distribution with respect to, or resulting from a subdivision
of the outstanding Common Shares (or other Securities) into a greater number of
shares by
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reclassification, stock splits or otherwise, or in exchange for or in
replacement of the Common Shares (or Other Securities) issued upon such
exercise, which are evidenced by a certificate or certificates bearing the
applicable legend set forth in such Section.
"Rights" shall have the meaning assigned to it in Section 3.6.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations thereunder, or any successor
statute.
"Warrants" shall have the meaning assigned to it in the introduction to
this Warrant.
2. EXERCISE OF WARRANT.
2.1. Manner of Exercise; Payment of the Purchase Price.
(a) This Warrant may be exercised by the Holder hereof, in whole or
in part, at any time or from time to time after _______, 1999 and
prior to the Expiration Date, by surrendering to the Company at
its principal office this Warrant, with the form of Election to
Purchase Shares attached hereto as Exhibit A (or a reasonable
facsimile thereof) duly executed by the Holder and accompanied by
payment of the Purchase Price for the number of Common Shares
specified in such form.
(b) Payment of the Purchase Price may be made as follows (or by any
combination of the following): (i) in United States currency by
cash or delivery of a certified check or bank draft payable to
the order of the Company or by wire transfer to the Company, (ii)
by cancellation of such number of Common Shares otherwise
issuable to the Holder upon such exercise as shall be specified
in such Election to Purchase Shares, such that the excess of the
aggregate Current Market Price of such specified number of shares
on the date of exercise over the portion of the Purchase Price
attributable to such shares shall equal the Purchase Price
attributable to the Common Shares to be issued upon such
exercise, in which case such amount shall be deemed to have been
paid to the Company and the number of shares issuable upon such
exercise shall be reduced by such specified number, or (iii) by
surrender to the Company for cancellation certificates
representing Common Shares of the Company owned by the Holder
(properly endorsed for transfer in blank) having a Current Market
Price on the date of Warrant exercise equal to the Purchase
Price.
2.2. When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to, and the
Purchase Price shall have been received by, the Company as provided in Section
2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for Common Shares (or Other
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Securities) shall be issuable upon such exercise as provided in Section 2.3
shall be deemed to have become the holder or holders of record thereof for all
purposes.
2.3. Delivery of Share Certificates, etc.; Charges, Taxes and
Expenses.
(a) As soon as practicable after each exercise of this Warrant, in
whole or in part, and in any event within five Business Days
thereafter, the Company shall cause to be issued in the name of
and delivered to the Holder hereof or, subject to Section 10, as
the Holder may direct,
(i) a certificate or certificates for the number of Common
Shares (or Other Securities) to which the Holder shall be
entitled upon such exercise plus, in lieu of issuance of any
fractional share to which the Holder would otherwise be
entitled, if any, a check for the amount of cash equal to
the same fraction multiplied by the Current Market Price per
share on the date of Warrant exercise, and
(ii) in case such exercise is for less than all of the Common
Shares purchasable under this Warrant, a new Warrant or
Warrants of like tenor, for the balance of the Common Shares
purchasable hereunder.
(b) Issuance of certificates for Common Shares upon the exercise of
this Warrant shall be made without charge to the Holder hereof
for any issue or transfer tax or other incidental expense, in
respect of the issuance of such certificates, all of which such
taxes and expenses shall be paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at the time
of each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to such Holder all
rights to which such Holder shall continue to be entitled after such exercise in
accordance with the terms of this Warrant, provided that if the Holder of this
Warrant shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford such rights to the Holder.
3. ADJUSTMENT OF COMMON SHARES ISSUABLE UPON EXERCISE.
3.1. Adjustment of Number of Shares. Upon each adjustment of the
Purchase Price as a result of the calculations made in this Section 3, this
Warrant shall thereafter evidence the right to receive, at the adjusted Purchase
Price, that number of Common Shares (calculated to the nearest one-hundredth)
obtained by dividing (i) the product of the aggregate number of shares covered
by this Warrant immediately prior to such adjustment and the Purchase Price in
effect immediately prior to such adjustment of the Purchase Price by (ii) the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.
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3.2. Adjustment of Purchase Price for Dividends and Distributions.
In case the Company at any time or from time to time after the date hereof shall
declare, order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or other securities or property by way of
dividend or spin-off, reclassification, recapitalization or similar corporate
rearrangement) on the Common Shares other than (a) a regularly scheduled cash
dividend (at a rate not in excess of 110% of the rate of the last regularly
scheduled cash dividend theretofore paid), or (b) a dividend payable in Common
Shares, pursuant to the Company's Dividend Reinvestment Program as in effect on
the date hereof, provided that the cash dividend equivalent of such Common Share
dividend does not exceed 110% of the rate of the last regularly scheduled cash
dividend, or (c) a dividend of Rights referred to in Section 3.6 hereof, then,
in each such case, subject to Section 3.4, the Purchase Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of business
on such record date to a price determined by multiplying such Purchase Price by
a fraction:
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Common Shares trade on an
ex-dividend basis, on the date prior to the commencement of ex-
dividend trading, less the Fair Value of such dividend or
distribution applicable to one Common Share, and
(y) the denominator of which shall be such Current Market Price;
provided that, in the event that the amount of such dividend as so determined is
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is less than 9/10ths, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder shall receive, upon Warrant
exercise at the time such dividend or distribution is paid to the holders of the
Common Shares, a pro rata share of such dividend based upon the maximum number
of Common Shares at the time issuable to the Holder (determined without regard
to whether the Warrant is exercisable at such time.)
3.3. Adjustments for Stock Splits, Combinations, etc. In case the
outstanding Common Shares shall be combined or consolidated, by reclassification
or otherwise, into a lesser number of Common Shares, or increased into a greater
number of Common Shares by way of a stock split, then the Purchase Price in
effect immediately prior to such combination, consolidation or split shall,
concurrently with the effectiveness of such combination, consolidation or split,
be proportionately increased or decreased, as appropriate.
3.4. De Minimis Adjustments. If the amount of any adjustment of the
Purchase Price per share required pursuant to this Section 3 would be less than
one tenth (1/10) of one percent (1%) of the Purchase Price, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate a change in the
Purchase Price of at least one tenth (1/10) of one
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percent (1%) of such Purchase Price. All calculations under this Warrant shall
be made to the nearest .001 of a cent or to the nearest one-hundredth of a
share, as the case may be.
3.5. Abandoned Dividend or Distribution. If the Company shall take
a record of the holders of its Common Shares for the purpose of entitling them
to receive a dividend or other distribution (which results in an adjustment to
the Purchase Price under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
Common Shares purchasable upon Warrant exercise by reason of the taking of such
record shall be reversed, and any subsequent adjustments, based thereon, shall
be recomputed.
3.6. Shareholder Rights Plan. Notwithstanding the foregoing, in the
event that the Company shall distribute "poison pill" rights pursuant to a
"poison pill" shareholder rights plan (the "Rights"), the Company shall make
proper provision so that each Holder who exercises a Warrant after the record
date for such distribution and prior to the expiration or redemption of the
Rights shall be entitled to receive upon such exercise, in addition to the
Common Shares issuable upon such exercise, a number of Rights to be determined
as follows: (i) if such exercise occurs on or prior to the date for the
distribution to the holders of Rights or separate certificates evidencing such
Rights (the "Distribution Date"), the same number of Rights to which a holder of
a number of Common Shares equal to the number of Common Shares issuable upon
such exercise at the time of such exercise would be entitled in accordance with
the terms and provisions of and applicable to the Rights; and (ii) if such
exercise occurs after the Distribution Date, the same number of Rights to which
a holder of the number of shares into which the Warrant so exercised was
exercisable immediately prior to the Distribution Date would have been entitled
on the Distribution Date in accordance with the terms and provisions of and
applicable to the Rights.
4. CONSOLIDATION, MERGER, ETC.
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Shares or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Shares or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of additional Common Shares for which adjustment in the Purchase Price is
provided in Section 3.2), then, and in the case of each such transaction, proper
provision shall be made so that, upon the basis and the terms and in the manner
provided in this Warrant, the Holder of this Warrant, upon the exercise hereof
at any time after the consummation of such transaction, shall be entitled to
receive (at the aggregate Purchase Price in effect at the time of such
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consummation for all Common Shares or Other Securities issuable upon such
exercise immediately prior to such consummation), in lieu of the Common Shares
or Other Securities issuable upon such exercise prior to such consummation,
either of the following, as shall be elected by the Holder (such election to be
made within one year after the date of the consummation of such transaction by
written notice to the Acquiring Person or its Parent, as the case may be, and,
in the absence of such notice, the provisions of clause (ii) below shall be
deemed to have been elected by the Holder):
(i) the highest amount of securities, cash and property to which the
Holder actually would have been entitled as a shareholder upon
such consummation if the Holder had exercised this Warrant
immediately prior thereto, subject to adjustments (subsequent to
such corporate action) as nearly equivalent as possible to the
adjustments provided for in Sections 3 through 5, or
(ii) the number of common shares of the Acquiring Person or its
Parent, whichever meets the requirements set forth below (subject
to adjustments, subsequent to such corporate action, as nearly
equivalent as possible to the adjustments provided for in
Sections 3 through 5), determined by dividing (a) the amount
equal to the product obtained by multiplying (1) the number of
Common Shares (or Other Securities) to which the Holder of this
Warrant would have been entitled had the Holder exercised this
Warrant immediately prior to such consummation, times (2) the
greater of the Acquisition Price and the Purchase Price in effect
on the date immediately preceding the date of such consummation,
by (b) the Market Value per share of the common shares of the
Acquiring Person or its Parent, as the case may be, on the date
immediately preceding the date of such consummation;
provided that the Company shall not enter into any of the transactions described
in clauses (a) through (d) above, unless, immediately after the date of the
consummation of such transaction, the Acquiring Person or the Parent of the
Acquiring Person is required to file, and in each of its three fiscal years
immediately preceding the date of the consummation of such transaction has
filed, reports with the Securities and Exchange Commission pursuant to section
13 or section 15(d) of the Exchange Act. In the event that the Acquiring Person
fulfills the requirements contained in the immediately preceding sentence, then,
if the Holder of this Warrant shall elect (or shall be deemed to elect) to
receive common shares pursuant to clause (ii) above, such Holder shall be
entitled to receive, upon the basis stated in such clause (ii), only the common
shares of the Acquiring Person.
4.2. Assumption of Obligations. Notwithstanding anything contained
in the Warrants or in the Subscription Agreement to the contrary, the Company
shall not effect any of the transactions described in clauses (a) through (d) of
Section 4.1 unless, prior to the consummation thereof, each Person (other than
the Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided
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herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant), (b)
the obligations of the Company under the Registration Rights Agreement, and (c)
the obligation to deliver to the Holder such shares of stock, securities, cash
or property as, in accordance with the foregoing provisions of this Section 4,
the Holder may be entitled to receive and such Person shall have similarly
delivered to the Holder an opinion of counsel for such Person, which counsel
shall be reasonably satisfactory to the Holder, stating that this Warrant shall
thereafter continue in full force and effect and the terms hereof (including,
without limitation, all of the provisions of this Section 4) shall be applicable
to the stock, securities, cash or property which such Person may be required to
deliver upon any exercise of this Warrant or the exercise of any rights pursuant
hereto.
5. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the
provisions of Section 3 or Section 4 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles of such Sections,
then, in each such case, the Company shall appoint a firm of independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion on the
adjustment, if any, on a basis consistent with the essential intent and
principles established in Sections 3 and 4, necessary to preserve, without
dilution, the purchase rights represented by this Warrant. Upon receipt of such
opinion, the Company shall promptly mail a copy thereof to the Holder and shall
make the adjustments described therein.
6. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment of its
certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) shall not permit the par value of
any shares of stock receivable upon the exercise of this Warrant to exceed the
amount payable therefor upon such exercise, (b) shall take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all taxes,
liens, security interests, encumbrances, preemptive rights and charges on the
exercise of the Warrants from time to time outstanding, (c) shall not take any
action which results in any adjustment of the Purchase Price if the total number
of Common Shares (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of Common Shares
(or Other Securities) then authorized by the Company's declaration of trust and
available for the purpose of issue upon such exercise, and (d) shall not issue
any capital stock of any class which is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding-up, unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value or a sum determined by reference to
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a formula based on a published index of interest rates, an interest rate
publicly announced by a financial institution or a similar indicator of interest
rates in respect of participation in dividends and to a fixed sum or percentage
of par value in any such distribution of assets.
7. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. In each case of any adjustment
or readjustment in the Common Shares (or Other Securities) issuable upon the
exercise of this Warrant, the Company at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms of this Warrant and
cause independent certified public accountants of recognized national standing
(which may be the regular auditors of the Company) selected by the Company to
verify such computation and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation thereof
and the facts upon which such adjustment or readjustment is based. The Company
shall forthwith mail a copy of each such report to the Holder. The Company
shall also keep copies of all such reports at its principal office and shall
cause the same to be available for inspection at such office during normal
business hours by the Holder of this Warrant or any prospective purchaser of
this Warrant designated by the Holder.
8. NOTICES OF CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a regularly
scheduled cash dividend) or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of
beneficial interest of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the shares of beneficial interest the
Company, any consolidation or merger involving the Company and
any other Person, any transaction or series of transactions in
which more than 50% of the voting securities of the Company are
transferred to another Person, or any transfer, sale or other
disposition of all or substantially all the assets of the Company
to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall mail to the holder of this Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Shares (or Other Securities) shall be entitled to exchange
their Common Shares (or Other Securities) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution,
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liquidation or winding-up. Such notice shall be mailed at least 45 days prior to
the date therein specified.
9. REGISTRATION OF COMMON SHARES. If any Common Shares required to be
reserved for purposes of exercise of this Warrant require registration with or
approval of any governmental authority under any federal or state law (other
than the Securities Act) before such shares may be issued upon exercise, the
Company shall, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be. At any such time as the Common Shares are listed on any national securities
exchange or automated quotation system, the Company shall, at its expense,
obtain promptly and maintain the approval for listing on each such exchange (or,
if applicable, quotation on each such system), upon official notice of issuance,
the Common Shares issuable upon exercise of the then outstanding Warrants and
maintain the listing (or, if applicable, quotation) of such shares after their
issuance; and the Company shall also list on such national securities exchange
(or, if applicable, quotation system), shall register under the Exchange Act and
shall maintain such listing (or, if applicable, quotation) of, any Other
Securities that at any time are issuable upon exercise of the Warrants, if and
at the time that any securities of the same class shall be listed on such
national securities exchange (or, if applicable, quotation system) by the
Company.
10. RESTRICTIONS ON TRANSFER.
10.1. Restrictive Legends. Except as otherwise permitted by this
Section 10, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND
IN THE REGISTRATION RIGHTS AGREEMENT, DATED AS OF _______, 1998,
BETWEEN WELLINGTON PROPERTIES TRUST AND THE INITIAL HOLDER OF THIS
WARRANT."
Except as otherwise permitted by this Section 10, each certificate for Common
Shares (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the
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transfer of any such Common Shares (or Other Securities), shall be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN CERTAIN COMMON SHARE PURCHASE WARRANTS ISSUED
BY WELLINGTON PROPERTIES TRUST PURSUANT TO THE SUBSCRIPTION AGREEMENT,
DATED AS OF ________, 1998, BETWEEN WELLINGTON PROPERTIES TRUST AND
THE INITIAL HOLDER OF SUCH COMMON SHARE PURCHASE WARRANTS. A COMPLETE
AND CORRECT COPY OF THE FORM OF SUCH WARRANT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF WELLINGTON PROPERTIES TRUST OR
AT THE OFFICE OR AGENCY MAINTAINED BY WELLINGTON PROPERTIES TRUST AS
PROVIDED IN SUCH WARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH
SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE."
10.2. Transfer to Comply With the Securities Act. Restricted
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws
and the terms and conditions hereof.
10.3. Termination of Restrictions. The restrictions imposed by this
Section 10 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without
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expense, new securities of like tenor not bearing the applicable legends
required by Section 10.1.
11. RESERVATION OF SHARES, ETC. The Company shall at all times reserve
and keep available, solely for issuance and delivery upon exercise of the
Warrants, the number of Common Shares (or Other Securities) from time to time
issuable upon exercise of all Warrants at the time outstanding. All Common
Shares (or Other Securities) issuable upon exercise of any Warrants shall be
duly authorized and, when issued upon such exercise, shall be validly issued
and, in the case of shares, fully paid and nonassessable with no liability on
the part of the holders thereof, and, in the case of all securities, shall be
free from all taxes, liens, security interests, encumbrances, preemptive rights
and charges. The transfer agent for the Common Shares, which may be the Company
("Transfer Agent"), and every subsequent Transfer Agent for any of the Company's
shares of beneficial interest issuable upon the exercise of any of the purchase
rights represented by this Warrant, are hereby irrevocably authorized and
directed at all times until the Expiration Date to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company shall keep copies of this Warrant on file with the Transfer Agent for
the Common Shares and with every subsequent Transfer Agent for any of the
Company's shares of beneficial interest issuable upon the exercise of the rights
of purchase represented by this Warrant. The Company shall supply such Transfer
Agent with duly executed share certificates for such purpose. All Warrant
Certificates surrendered upon the exercise of the rights thereby shall be
canceled, and such canceled Warrants shall constitute sufficient evidence of the
number of Common Shares which have been issued upon the exercise of such
Warrants. Subsequent to the Expiration Date, no Common Shares need be reserved
in respect of any unexercised Warrant.
12. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
12.1. Warrant Register; Ownership of Warrants. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 10, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
12.2. Transfer of Warrants. Subject to compliance with Section 10,
if applicable, this Warrant and all rights hereunder are transferable in whole
or in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new
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Warrant of like tenor, in the name of the Holder, which shall be exercisable for
such number of Common Shares with respect to which rights under this Warrant
were not so transferred.
12.3. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
12.4. Adjustments To Purchase Price and Number of Shares.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
Common Shares purchasable upon exercise of this Warrant, any Warrant theretofore
or thereafter issued may continue to express the same number and kind of Common
Shares as are stated in this Warrant, as initially issued.
12.5. Fractional Shares. Notwithstanding any adjustment pursuant to
Section 3 in the number of Common Shares covered by this Warrant or any other
provision of this Warrant, the Company shall not be required to issue fractions
of shares upon exercise of this Warrant or to distribute certificates which
evidence fractional shares. In lieu of fractional shares, the Company shall make
payment to the Holder, at the time of exercise of this Warrant as herein
provided, in an amount in cash equal to such fraction multiplied by the Current
Market Price of a Common Share on the date of Warrant exercise.
13. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that there
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
14. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof any rights as a
shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company,
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whether such obligation or liabilities are asserted by the Company or by
creditors of the Company.
15. NOTICES. All notices and other communications (and deliveries)
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of its Chief Executive Officer
at its principal office located at 18650 West Corporate Drive, Suite 300, P.O.
Box 0919, Brookfield, Wisconsin 53045 or such other address as may hereafter be
designated in writing by the Company to the Holder in accordance with the
provisions of this Section, or (b) if to the Holder, at its address as it
appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed to
have been duly given: at the time delivered by hand, if personally delivered;
when receipt is acknowledged, if telecopied; on the next Business Day, if timely
delivered to a courier guaranteeing overnight delivery; and five days after
being deposited in the mail, if sent first class or certified mail, return
receipt requested, postage prepaid; provided, that the exercise of any Warrant
shall be effective in the manner provided in Section 2.
16. AMENDMENTS. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
17. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (1) words of any gender shall be deemed to include each other gender;
(2) words using the singular or plural number shall also include the plural or
singular number, respectively; (3) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (4) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Wisconsin without giving effect to the
conflict of laws principles thereof).
19. JUDICIAL PROCEEDINGS; JURY TRIAL. Nothing herein contained shall be
deemed to affect the right of any party to serve process in any manner permitted
by law or commence legal proceedings or otherwise proceed against any other
party in any jurisdiction to enforce judgments obtained in any action, suit or
proceeding brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY
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ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE
HOLDER IN CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
20. REGISTRATION RIGHTS AGREEMENT. The Common Shares (and Other
Securities) issuable upon exercise of this Warrant (or upon conversion of any
Common Shares issued upon such exercise) shall constitute Registrable Securities
(as such term is defined in the Registration Rights Agreement). Each holder of
this Warrant shall be entitled to all of the benefits afforded to a holder of
any such Registrable Securities under the Registration Rights Agreement and such
holder, by its acceptance of this Warrant, agrees to be bound by and to comply
with the terms and conditions of the Registration Rights Agreement applicable to
such holder as a holder of such Registrable Securities.
21. EXPIRATION. The Company shall give the Holder of this Warrant not
less than six weeks nor more than nine months notice of the expiration of the
right to exercise this Warrant. The right to exercise this Warrant shall expire
at 5:00 p.m., Milwaukee, Wisconsin time, on the later of _______, 2008 and the
date of the effectiveness of a registration statement covering Common Shares,
unless the Company shall fail to give such notice as aforesaid, in which event
the right to exercise this Warrant shall not expire until a date six weeks after
the date on which the Company shall give the holder hereof notice of the
expiration of the right to exercise this Warrant.
WELLINGTON PROPERTIES TRUST
By: _________________________________
Title: __________________________
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EXHIBIT A
to
Common Share Purchase Warrant
-----------------------------
FORM OF
ELECTION TO PURCHASE SHARES
The undersigned hereby irrevocably elects to exercise the Warrant to
purchase _____ Common Shares, par value $0.01 per share ("Common Shares"), of
WELLINGTON PROPERTIES TRUST and hereby [makes payment of $_______ therefor] [or]
[makes payment therefor by reduction pursuant to Section 2.1(b)(ii) of the
Warrant of the number of Common Shares otherwise issuable to the Holder upon
Warrant exercise by __________ shares] [or] [makes payment therefor by delivery
of the following Common Share Certificates of the Company (properly endorsed for
transfer in blank) for cancellation by the Company pursuant to Section
2.1(b)(iii) of the Warrant, certificates of which are attached hereto for
cancellation __________________________ [list certificates by number and
amount]]. The undersigned hereby requests that certificates for such shares be
issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of Common Shares purchased (and/or reduced) hereby is less
than the number of Common Shares covered by the Warrant, the undersigned
requests that a new Warrant representing the number of Common Shares not so
purchased (or reduced) be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
A-1
<PAGE>
DELIVER TO:_____________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Dated:____________________________ [NAME OF HOLDER]
By: ____________________________________
Name: ______________________________
Title: _____________________________
A-2
<PAGE>
EXHIBIT B
to
Common Share Purchase Warrant
-----------------------------
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto the Assignee named below all of the rights of the undersigned to purchase
Common Shares, par value $________ per share ("Common Shares") of WELLINGTON
PROPERTIES TRUST, represented by the Warrant, with respect to the number of
Common Shares set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint the Chief Executive Officer
of WELLINGTON PROPERTIES TRUST as attorney for the undersigned to make such
transfer on the books of WELLINGTON PROPERTIES TRUST maintained for that
purpose, with full power of substitution in the premises.
Dated:__________________________ [NAME OF HOLDER]
By: ____________________________________
Name: ______________________________
Title: _____________________________
B-1
<PAGE>
EXHIBIT E
---------
WELLINGTON PROPERTIES TRUST
ARTICLES OF AMENDMENT AND RESTATEMENT
Dated __________, 1998
Wellington Properties Trust, a Maryland real estate investment trust,
hereby certifies as follows:
FIRST: Wellington Properties Trust desires to amend and restate its
Declaration of Trust as currently in effect.
SECOND: The amendments to and restatement of the Declaration of Trust set
forth herein shall become effective on the date and at the time that these
Articles of Amendment and Restatement are filed with and accepted for recording
by the State Department of Assessments and Taxation of the State of Maryland.
THIRD: The following are the provisions of the Declaration Trust currently
in effect as amended hereby:
ARTICLE I
THE TRUST; CERTAIN DEFINITIONS
Section 1.1 Name. The name of the trust (hereinafter referred to as the
"Trust") is:
Wellington Properties Trust
Section 1.2 Resident Agent. The name of the resident agent of the Trust in
the State of Maryland is CSC-Lawyers Incorporating Service Company, and the
address of such agent in the State of Maryland is 11 East Chase Street,
Baltimore, Maryland 21202. The Trust may have such offices or places of business
within or without the State of Maryland as the Trustees may from time to time
determine.
Section 1.3 Nature of Trust. The Trust is a real estate investment trust
within the meaning of Title 8 (as hereinafter defined).
Section 1.4 Powers. The Trust shall have all of the powers granted to real
estate investment trusts generally by Title 8 and shall have any other and
further powers as are not inconsistent with Title 8 or any other applicable law.
Section 1.5 Definitions. As used in this Declaration of Trust, the
following terms shall have the following meanings unless the context otherwise
requires:
"Board" or "Board of Trustees" means the board of trustees of the Trust.
<PAGE>
"Bylaws" shall mean the Bylaws of the Trust as in effect from time to time.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and regulations promulgated thereunder.
"Declaration" or "Declaration of Trust" means this Declaration of Trust,
including any amendments or supplements hereto.
"Person" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (other than a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside
for or to be used exclusively for the purposes described in Section 642(c) of
the Code, association, private foundation within the meaning of Section 509(a)
of the Code, joint stock company or other entity and also includes a group as
that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended.
"REIT" means a real estate investment trust under Section 856 of the Code.
"REIT Provisions of the Code" means Sections 856 through 860, inclusive, of
the Code and any successor or other provision(s) of the Code relating to real
estate investment trusts (including provisions as to the attribution of
ownership of beneficial interests therein) and the regulations promulgated
thereunder.
"Securities" means Shares (as hereinafter defined), any stock, shares or
other evidences of equity, beneficial or other interest, voting trust
certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares, or participation in, temporary or interim certificates for, guarantees
of, or warrants, options or rights to subscribe to, purchase or otherwise
acquire, any of the foregoing.
"Securities of the Trust" means any Securities issued by the Trust.
"Shareholders" means holders of record of outstanding Shares.
"Shares" means transferable shares of beneficial interest of the Trust of
any class or series.
"Title 8" means Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland, as amended, or any successor statute.
"Trustee" means, individually, an individual, and "Trustees" means,
collectively, the individuals, in each case as named in Section 2.2 of this
Declaration of Trust so long as they continue in office and any and all other
individuals who have been duly elected and qualify as trustees of the Trust
hereunder.
"Trust Property" means any and all property, real, personal or otherwise,
tangible or intangible, which is transferred or conveyed to the Trust or the
Trustees
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(including all rents, income, profits or gains therefrom), which is owned or
held by, or for the account of, the Trust or the Trustees.
ARTICLE II
TRUSTEES
Section 2.1 Number. The number of Trustees shall be seven, which number may
be increased or decreased by the Trustees then in office from time to time in
accordance with the Bylaws then in effect or as specified in any rights or
preferences in any class or series of Shares; however, the total number of
Trustees shall not be less than three. No reduction in the number of Trustees
shall cause the removal of any Trustee from office prior to the expiration of
his term.
Section 2.2 Initial Board; Term. The Trustees shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible, one class to hold office initially for a
term expiring at the annual meeting of Shareholders to be held in 1999, another
class to hold office initially for a term expiring at the annual meeting of
Shareholders to be held in 2000, and another class to hold office initially for
a term expiring at the annual meeting of Shareholders to be held in 2001, with
the members of each class to hold office until their successors are duly elected
and qualify. At each annual meeting of Shareholders, the successors to the class
of Trustees whose term expires at such annual meeting shall be elected to hold
office for a term expiring at the annual meeting of Shareholders held in the
third year following the year of their election and the other Trustees shall
remain in office.
The names and classes of the Trustees serving on the date this Declaration
of Trust is amended and restated are:
Name Term Expiration
---- ---------------
Lyle W. Larcheid 1999
Peter Ogden 1999
Gerald Sobczak 1999
Paul Lambert 2000
Robert P. Ripp 2000
Steven B. Hoyt 2001
Arnold K. Leas 2001
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<PAGE>
Section 2.3 Resignation, Removal or Death. Any Trustee may resign by
written notice to the remaining Trustees, effective upon execution and delivery
to the Trust of such written notice or upon any future date specified in the
notice. A Trustee may be removed only with Cause (as hereinafter defined) at a
meeting of the Shareholders called for that purpose, by the affirmative vote of
the holders of not less than two-thirds of the Shares then outstanding and
entitled to vote in the election of Trustees. As used herein, "Cause" shall mean
(i) theft, fraud or embezzlement or active and deliberate dishonesty by a
Trustee; (ii) habitual neglect of duty by a Trustee having a material and
adverse significance to the Trust; or (iii) the conviction of a Trustee of a
felony or of any crime involving moral turpitude. Upon the resignation or
removal of any Trustee, or his otherwise ceasing to be a Trustee, he shall
automatically cease to have any right, title or interest in and to the Trust
Property and shall execute and deliver such documents as the remaining Trustees
shall require for the conveyance of any Trust Property held in his name, and
shall account to the remaining Trustees as they require for all property which
he holds as Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall perform those acts. Subject to the rights of holders of one
or more classes or series of Shares to elect one or more Trustees, any vacancy
created by removal for Cause may be filled by a majority of the remaining
Trustees or by the Shareholders. A vacancy arising for any reason other than the
removal of a Trustee may be filled by the remaining Trustees. A Trustee elected
by the Trustees to fill a vacancy will hold office until the next annual meeting
of Shareholders, at which time such Trustee may stand for election for the
balance of the term of his predecessor. A Trustee elected by the Shareholders to
fill a vacancy will have the same remaining term as that of his predecessor.
Section 2.4 Legal Title. Legal title to all Trust Property shall be vested
in the Trust, but it may cause legal title to any Trust Property to be held by
or in the name of any or all of the Trustees or any other Person as nominee. Any
right, title or interest of the Trustees in and to the Trust Property shall
automatically vest in successor and additional Trustees upon their qualification
and acceptance of election or appointment as Trustees, and they shall thereupon
have all the rights and obligations of Trustees, whether or not conveying
documents have been executed and delivered pursuant to Section 2.3 or otherwise.
Written evidence of the qualification and acceptance of election or appointment
of successor and additional Trustees may be filed with the records of the Trust
and in such other offices, agencies or places as the Trust or Trustees may deem
necessary or desirable.
Section 2.5 Duties of Trustees. A Trustee shall perform his duties as a
Trustee, including his duties as a member of a committee of the Board on which
he serves: (a) in good faith; (b) in a manner he reasonably believes to be in
the best interests of the Trust; and (c) with the care that an ordinarily
prudent person in a like position would use under similar circumstances. In
performing his duties, a Trustee is entitled to rely on any information,
opinion, report, or statement, including any financial statement or other
financial data, prepared or presented by: (i) an officer or employee of the
Trust whom the Trustee reasonably believes to be reliable and competent in the
matters presented; (ii) a lawyer, public accountant, or other person, as to a
matter which the Trustee reasonably believes to be within the person's
4
<PAGE>
professional or expert competence; or (iii) a committee of the Board on which
the Trustee does not serve, as to a matter within its designated authority, if
the Trustee reasonably believes the committee to merit confidence. A Trustee is
not acting in good faith if he has any knowledge concerning the matter in
question which would cause such reliance to be unwarranted.
ARTICLE III
POWERS OF TRUSTEES
Section 3.1 General Powers. Subject to any express limitations contained in
this Declaration of Trust, the Bylaws or Maryland law, (a) the business and
affairs of the Trust shall be managed under the direction of the Board of
Trustees and (b) the Board shall have full, exclusive and absolute power,
control and authority over any and all of the Trust Property and over the
business of the Trust. Subject to Section 2.5, the Board may take any action as
in its sole judgment and discretion is necessary or appropriate to conduct the
business and affairs of the Trust. This Declaration of Trust shall be construed
with the presumption in favor of the grant of power and authority to the Board.
Any construction of this Declaration of Trust or determination made in good
faith by the Board concerning its powers and authority hereunder shall be
conclusive. The powers of the Trustees shall in no way be limited or restricted
by reference to or inference from the terms of this or any other provision of
the Declaration of Trust or construed or deemed by inference or otherwise in any
manner to exclude or limit the powers conferred upon the Trustees under the laws
of the State of Maryland or any other applicable laws as now or hereafter in
force.
ARTICLE IV
INVESTMENT POLICY
The fundamental investment policy of the Trust shall be to make investments
in such a manner as to comply with the REIT Provisions of the Code and with the
requirements of Title 8 with respect to the composition of the Trust's
investments and the derivation of its income. Subject to Section 6.5, the
Trustees shall use their best efforts to carry out this fundamental investment
policy and to qualify the Trust for the tax treatment provided in the REIT
Provisions of the Code; provided, however, that no Trustee, officer, employee or
agent of the Trust shall be liable for any act or omission resulting in the loss
of tax benefits under the Code, except to the extent provided in Section 11.2.
ARTICLE V
SHARES
Section 5.1 Authorized Shares. The total number of Shares which the Trust
is authorized to issue is 110,000,000 shares, of which 100,000,000 are Common
Shares, par value $0.01 per share (individually a "Common Share" or collectively
"Common Shares"), and 10,000,000 are Preferred Shares, par value $0.01 per share
(individually, a "Preferred Share" or collectively "Preferred Shares").
Section 5.2 Common Shares Voting. Subject to the provisions of Article VII
regarding Excess Shares (as such term is defined therein) and to any special
voting rights as to
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<PAGE>
any class or series of Shares, each Common Share shall entitle the holder
thereof to one vote on all matters upon which Shareholders are entitled to vote.
The holders of Common Shares shall not be entitled to cumulative voting.
Section 5.3 Preferred Shares. Preferred Shares may be issued, from time to
time, in one or more series as authorized by the Board of Trustees. Prior to
issuance of Preferred Shares of each series, the Board of Trustees, by
resolution, shall designate that series of Preferred Shares to distinguish it
from all other series and classes of Preferred Shares, shall specify the number
of Preferred Shares to be included in the series and, subject to the provisions
of Article VII regarding Excess Shares, shall set the terms, preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, and, in such event, the Trust shall file with the State Department
of Assessments and Taxation of the State of Maryland articles supplementary to
this Declaration of Trust in substance and form as prescribed by Maryland law.
Section 5.4 Classification or Reclassification of Unissued Shares. Subject
to the express terms of any series of Preferred Shares or any class of Common
Shares outstanding at the time and notwithstanding any other provision of this
Declaration of Trust, the Board of Trustees may increase or decrease the
aggregate number of Shares or the number of Shares of any class that the Trust
has authority to issue or classify or reclassify any unissued Shares by setting
or changing the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions, qualifications
or terms or conditions of redemption of any series or class of Shares and, in
such event, the Trust shall file with the State Department of Assessments and
Taxation of the State of Maryland articles of amendment or articles
supplementary to this Declaration of Trust in substance and form as prescribed
by Maryland law.
Section 5.5 Declaration of Trust and Bylaws. All Persons who shall acquire
Shares shall acquire the same subject to the provisions of this Declaration of
Trust and the Bylaws of the Trust.
Section 5.6 Dividends or Distributions. The Board of Trustees may from time
to time declare and pay to Shareholders such dividends or distributions in cash,
property or other assets of the trust or in Securities of the Trust or from any
other source as the Trustees in their discretion shall determine. The Trustees
shall endeavor to declare and pay such dividends and distributions as shall be
necessary for the Trust to qualify as a REIT under the REIT Provisions of the
Code; however, Shareholders shall have no right to any dividend or distribution
unless and until declared by the Trustees. Notwithstanding any other provision
in this Declaration of Trust, no determination shall be made by the Board of
Trustees nor shall any transaction be entered into by the Trust which would
cause any Shares or other beneficial interest in the Trust not to constitute
"transferable shares" or "transferable certificates of beneficial interest"
under Section 856(a)(2) of the Code or which would cause any distribution to
constitute a preferential dividend as described in Section 562(c) of the Code.
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Section 5.7 Issuance of Rights to Purchase Securities and Other Property.
Subject to the rights of the holders of any series of Preferred Shares, the
Board of Trustees is hereby authorized to create and to authorize and direct the
issuance (on either a pro rata or a non-pro rata basis) by the Trust of rights,
options and warrants for the purchase of Shares of the Trust at such times, in
such amounts, to such persons, for such consideration (if any), with such form
and content (including without limitation the consideration for which any shares
of capital stock of the Trust or other Securities of the Trust are to be issued)
and upon such terms and conditions as it may, from time to time, determine,
subject only to the restrictions, limitations, conditions and requirements
imposed by Maryland law, other applicable laws and this Declaration of Trust.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE TRUST AND
OF THE SHAREHOLDERS AND TRUSTEES
Section 6.1 Authorization by Board of Share Issuance. The Board of Trustees
may authorize the issuance, from time to time, of Shares of any class or
Securities convertible into Shares of any class for such consideration as the
Board of Trustees may deem advisable. The Board of Trustees may create and issue
rights entitling holders thereof to purchase from the Trust Shares of any class
or other Securities or property.
Section 6.2 Preemptive and Appraisal Rights. Except as may be provided by
the Board of Trustees in authorizing the issuance of Preferred Shares pursuant
to Section 5.3, no holder of Shares shall, as such holder, (a) have any
preemptive right to purchase or subscribe for any additional Shares or any other
Securities of the Trust which the Trust may issue or sell, or (b) except as
expressly required by Maryland law, have any right to require the Trust to pay
such holder the fair value of such holder's Shares in an appraisal or similar
proceeding.
Section 6.3 Related Party Transactions. An agreement or transaction between
the Trust and any of its Trustees or between the Trust and any other entity in
which any Trustee is a trustee or director or has a material financial interest
shall not be void or voidable solely by reason of the existence of any such
relationship if either (a) the existence of such relationship is disclosed or
known by (i) the Board of Trustees and the contract or transaction is approved
or ratified by a majority of the Board of Trustees other than the Trustee who
has such relationship, even if those disinterested Trustees constitute less than
a quorum, or (ii) the contract or transaction is approved or ratified by a
majority of the votes cast by Shareholders entitled to vote other than votes of
Shares owned of record or beneficially by the interested Trustee or such other
entity in which such Trustee is a trustee or director or has a material
financial interest, or (b) the contract or transaction is fair and reasonable to
the Trust. Any Trustee who is a trustee or director of such other party or has
such material financial interest may be counted in determining the existence of
a quorum at any meeting of the Board of Trustees considering such matter.
Section 6.4 Determination by Board. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Trustees and in the
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absence of actual receipt of an improper benefit in money, property or services
or active and deliberate dishonesty established by a court, shall be final and
conclusive and shall be binding upon the Trust and every holder of Shares: (a)
the amount of the net income of the Trust for any period and the amount of
assets at any time available for the payment of dividends, redemption of Shares
or the payment of other distributions with respect to Shares; (b) the amount of
paid-in surplus, net assets, other surplus, annual or other net profit, net
assets in excess of capital, undivided profits or excess of profits over losses
on sales of assets; (c) the amount, purpose, time of creation, increase or
decrease, alteration or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
(d) the fair value, or any sale, bid or asked price to be applied in determining
the fair value, of any asset owned or held by the Trust; and (e) any matters
relating to the acquisition, holding and disposition of any assets by the Trust.
Section 6.5 REIT Qualification. The Board of Trustees shall use its
reasonable best efforts to cause the Trust and the Shareholders to qualify for
federal income tax treatment in accordance with the REIT Provisions of the Code.
In furtherance of the foregoing, the Board of Trustees shall use its reasonable
best efforts to take such actions as are necessary, and may take such actions as
in its sole judgment and discretion are desirable, to preserve the status of the
Trust as a REIT, including amending the provisions of this Declaration of Trust
as provided in Article IX, provided, however, that if the Board of Trustees
determines that it is no longer in the best interests of the Trust for it to
continue to qualify as a REIT, the Board of Trustees may revoke or otherwise
terminate the Trust's REIT election.
ARTICLE VII
RESTRICTION ON TRANSFER;
DESIGNATION OF EXCESS SHARES
Section 7.1 Definitions. The following terms shall have the following
meanings:
"AREE" shall mean American Real Estate Equities, LLC, a Delaware limited
liability company.
"AREE Contribution Transaction" shall mean that certain transaction or
series of transactions pursuant to which (a) AREE first acquired Common Shares,
(b) the Trust, AREE, and certain other Persons acquired interests in Wellington
Properties Investments, L.P., and (c) AREE and other Persons acquired
Rights.
"Beneficial Ownership" shall mean the ownership of Equity Shares by a
Person who would be treated as an owner of such Equity Shares either directly or
indirectly through the application of Section 544 of the Code, as modified by
subsection (h)(1)or (h)(2) of Section 856 of the Code. The terms "Beneficial
Owner," "Beneficially Owns," and "Beneficially Owned" shall have correlative
meanings.
"Beneficiary" shall mean, with respect to any Excess Shares Trust, one or
more organizations described in each of Section 170(b)(1)(A) and Section 170(c)
of the Code which are named by the Board of Trustees as the beneficiary or
beneficiaries of such Excess Shares Trust, in accordance with the provisions of
Section 7.15.1 of this Article VII; provided, however, for all periods in time
prior to the time that the Board of Trustees effectively so designates such
organization as beneficiary of such Excess Shares Trust, the beneficiary shall
be the Default Beneficiary.
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"Constructive Ownership" shall mean ownership of Equity Shares by a Person
who would be treated as an owner of such Equity Shares either directly or
indirectly through the application of Section 318 of the Code, as modified by
Section 856(d)(5) of the Code. The terms "Constructive Owner," "Constructively
Owns" and "Constructively Owned" shall have correlative meanings.
"Default Beneficiary" shall mean the Salvation Army of the United States.
"Equity Share(s)" shall mean a Share or Shares that are either Preferred
Shares or Common Shares and shall include all shares of Preferred Shares or
Common Shares that are held as Excess Shares in accordance with the provisions
of Section 7.15 of this Article VII.
"Excess Shares Trust" shall mean any separate trust created pursuant to
Section 7.3 of this Article VII and administered in accordance with the terms of
Section 7.15 of this Article VII, for the exclusive benefit of any Beneficiary.
"Excess Shares Trustee" shall mean any person or entity unaffiliated with
both the Trust and any Purported Record Owner, such Excess Shares Trustee to be
designated by the Board of Trustees to act as trustee of any Excess Shares
Trust, or any successor trustee thereof.
"Existing Holder" shall mean (i) AREE, (ii) any Person who is the
Beneficial Owner of Common Shares and/or Preferred Shares in excess of the
Ownership Limit both upon and immediately after any closing date of the AREE
Contribution Transaction, so long as, but only so long as, such Person
Beneficially Owns Common Shares and/or Preferred Shares in excess of the
Ownership Limit, (iii) any Person to whom an Existing Holder Transfers, subject
to the limitations provided in this Article VII, Beneficial Ownership of Common
Shares and/or Preferred Shares causing such transferee to Beneficially Own
Common Shares and/or Preferred Shares in excess of the Ownership Limit, and (iv)
any Person subsequently designated by the Board of Trustees.
"Existing Holder Limit" (i) for AREE, shall mean 30%; (ii) for any Existing
Holder who is an Existing Holder by virtue of clause (ii) of the definition
thereof, shall mean, initially, the percentage of the outstanding Equity Shares
Beneficially Owned by such Existing Holder upon and immediately after any
closing date of the AREE Contribution Transaction and, after any adjustment
pursuant to Section 7.10, shall mean such percentage of the outstanding Equity
Shares as so adjusted, (iii) for any Existing Holder who becomes an Existing
Holder by virtue of clause (iii) of the definition thereof, shall mean,
initially, the percentage of the outstanding Equity Shares Beneficially Owned by
such Existing Holder at the time that such Existing Holder becomes an Existing
Holder, but in no event shall such percentage be greater than the Existing
Holder Limit for the Existing Holder who Transfers Beneficial Ownership of
Common Shares and/or Preferred Shares to such transferee Existing Holder or, in
the case of more than one transferor, in no event shall such percentage be
greater than the smallest Existing Holder Limit of any transferring Existing
Holder, and, after any adjustment pursuant to Section 7.10, shall mean such
percentage of the outstanding Equity Shares as so adjusted. From the closing
date of the AREE Contribution Transaction and prior to the Restriction
Termination Date, the Secretary of the Trust shall maintain and, upon request,
make available to each Existing Holder a schedule which sets forth the then
current Existing Holder Limit for each Existing
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Holder; and (iv) for any Existing Holder who becomes an Existing Holder by
virtue of clause (iv) of the definition thereof, shall mean, initially, the
percentage of the outstanding Equity Shares designated by the Board of Trustees.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. The "Closing Price" on
any date shall mean the last sale price of Common Shares or Preferred Shares, as
the case may be, 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 or admitted to trading on the New York Stock Exchange or,
if the Common Shares or Preferred Shares, as the case may be, are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Common Shares or
Preferred Shares, as the case may be, are listed or admitted to trading or, if
the Common Shares or Preferred Shares, as the case may be, are not listed or
admitted to trading on any national securities exchange, 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 the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal other automated quotations system that may then be in use or, if
the Common Shares or Preferred Shares, as the case may be, are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Shares or Preferred
Shares, as the case may be, selected by the Board of Trustees of the Company, or
if no professional market maker is making a market in Common Shares or Preferred
Shares, as the case may be, then the market price of Common Shares or Preferred
Shares, as the case may be, on the relevant date as determined in good faith by
the Board of Trustees, which determination shall be conclusive for all purposes
hereof. "Trading Day" shall mean a day on which the principal national
securities exchange on which the Common Shares or Preferred Shares, as the case
may be, are listed or admitted to trading is open for the transaction of
business or, if the Common Shares or Preferred Shares, as the case may be, are
not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Non-Transfer Event" shall mean an event other than a purported Transfer
that would cause any Person to Beneficially Own or Constructively Own Equity
Shares in excess of the Ownership Limit (in the case of any Person other than an
Existing Holder) or the applicable Existing Holder Limit (in the case of an
Existing Holder), including, but not limited to, the granting of any option or
entering into any agreement for the sale, transfer or other disposition of
Equity Shares or the sale, transfer, assignment or other disposition of any
Securities or rights convertible into or exchangeable for Equity Shares.
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"Ownership Limit" shall initially mean an amount of Equity Shares which
aggregate the lesser of (a) 3.0% of the value of the outstanding Equity Shares
of the Trust, and after any adjustment as set forth in Section 7.11 of this
Article VII, shall mean such greater percentages of the value of the outstanding
Equity Shares as so adjusted, (b) 9.9% of the total combined voting power of all
classes of Equity Shares, or (c) 9.9% of the total number of shares of all
classes of Equity Shares. The value of outstanding Equity Shares shall be
determined by the Board of Trustees in good faith, which determination shall be
conclusive for all purposes hereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section 7.15.5 hereof.
"Purported Record Owner" shall mean, with respect to any purported Transfer
or Non-Transfer Event, any Person who, but for the provisions of this Article
VII, would own record title to Equity Shares which have been reclassified as
Excess Shares.
"Restriction Termination Date" shall mean the first day after the date of
the AREE Contribution Transaction on which the Board of Trustees determines that
it is no longer in the best interests of the Trust to attempt, or to continue to
qualify as a REIT.
"Rights" shall mean the rights granted under the Wellington Partnership
Agreement to the limited partners thereof, including members of AREE, to acquire
Common Shares in exchange for limited partnership units of Wellington Properties
Investments, L.P.
"Transfer" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Equity Shares, whether voluntary or involuntary, whether of
record, constructively or beneficially and whether by operation of law or
otherwise. The terms "Transfers" and "Transferred" shall have the correlative
meanings.
"Wellington Partnership Agreement" shall mean the agreement of limited
partnership of Wellington Properties Investments, L.P., as amended from time to
time.
"Wellington Properties Investments, L.P." shall mean Wellington Properties
Investments, L.P., a Delaware limited partnership.
Section 7.2 Restriction on Transfers.
7.2.1 Except as provided in Section 7.9 of this Article VII, from the date
of the AREE Contribution Transaction and prior to the Restriction Termination
Date, no Person (other than an Existing Holder) shall Beneficially Own or
Constructively Own shares of the outstanding Equity Shares in excess of the
Ownership Limit, and no Existing Holder shall Beneficially Own or Constructively
Own Equity Shares in excess of the Existing Holder Limit for such Existing
Holder.
7.2.2 Except as provided in Section 7.9 of this Article VII, from the date
of the AREE Contribution Transaction and prior to the Restriction Termination
Date, any Transfer that, if effective, would result in any Person (other than an
Existing Holder) Beneficially Owning or Constructively Owning Equity Shares in
excess of the Ownership Limit shall be void ab initio as
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to the Transfer of that number of Equity Shares which would be otherwise
Beneficially Owned or Constructively Owned by such Person in excess of the
Ownership Limit; and the intended transferee shall acquire no rights in such
excess Equity Shares.
7.2.3 Except as provided in Section 7.9 of this Article VII, from the date
of the AREE Contribution Transaction and prior to the Restriction Termination
Date, any Transfer that, if effective, would result in any Existing Holder
Beneficially Owning or Constructively Owning Equity Shares in excess of the
applicable Existing Holder Limit shall be void ab initio as to the Transfer of
that number of Equity Shares which would be otherwise Beneficially Owned or
Constructively Owned by such Person in excess of the applicable Existing Holder
Limit; and such Existing Holder shall acquire no rights in such excess Equity
Shares.
7.2.4. Except as provided in Section 7.9 of this Article VII, from the date
of the AREE Contribution Transaction and prior to the Restriction Termination
Date, any Transfer that, if effective, would result in the Equity Shares being
beneficially owned (within the meaning of Section 856(a)(5) of the Code) by
fewer than 100 Persons (determined without reference to any rules of
attribution) shall be void ab initio as to the Transfer of that number of Equity
Shares which would be otherwise beneficially owned (determined without reference
to any rules of attribution) by the transferee; and the intended transferee
shall acquire no rights in such excess Equity Shares.
7.2.5 From the date of the AREE Contribution Transaction and prior to the
Restriction Termination Date, any Transfer of Equity Shares that, if effective,
would result in the Trust being "closely held" within the meaning of Section
856(h) of the Code shall be void ab initio as to the Transfer of that number of
Equity Shares which would cause the Trust to be "closely held" within the
meaning of Section 856(h) of the Code; and the intended transferee shall acquire
no rights in such excess Equity Shares.
Section 7.3 Transfer to Excess Shares Trust.
7.3.1 If, notwithstanding the other provisions contained in this Article
VII, at any time after the date of the AREE Contribution Transaction and prior
to the Restriction Termination Date, there is a purported Transfer or Non-
Transfer Event, such that any Person would either Beneficially Own or
Constructively Own Equity Shares in excess of the Ownership Limit (in the case
of any Person other than an Existing Holder) or Existing Holder Limit (in the
case of an Existing Holder), then, (i) except as otherwise provided in Section
7.9, the Purported Record Owner shall acquire no right or interest (or, in the
case of a Non-Transfer Event, shall cease to own any right or interest) in such
number of Equity Shares which would cause such Beneficial Owner or Constructive
Owner to Beneficially Own or Constructively Own Equity Shares in excess of the
Ownership Limit or the Existing Holder Limit, as the case may be; and (ii) such
number of Equity Shares in excess of the Ownership Limit or the Existing Holder
Limit (rounded up to the nearest whole share) shall be designated Excess Shares
and, in accordance with Section 7.15 of this Article VII, transferred
automatically and by operation of law to an Excess Shares Trust to be held in
accordance with such Section 7.15. Such transfer to an Excess Shares Trust and
the designation of such Equity Shares as Excess Shares shall be effective as of
the close of business
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on the business day immediately preceding the date of the purported Transfer or
Non-Transfer Event, as the case may be.
7.3.2 If, notwithstanding the other provisions contained in this Article
VII, at any time after the date of the AREE Contribution Transaction and prior
to the Restriction Termination Date, there is a purported Transfer or Non-
Transfer Event that, if effective, would cause the Trust to become "closely
held" within the meaning of Section 856(h) of the Code, then (i) the Purported
Record Owner shall not acquire any right or interest (or, in the case of a Non-
Transfer Event, shall cease to own any right or interest) in such number of
Equity Shares, the ownership of which by such Purported Record Owner would cause
the Trust to be "closely held" within the meaning of Section 856(h) of the Code;
and (ii) such number of Equity Shares (rounded up to the nearest whole share)
shall be designated Excess Shares and, in accordance with the provisions of
Section 7.15 of this Article VII, transferred automatically and by operation of
law to an Excess Shares Trust to be held in accordance with that Section 7.15.
Such transfer to an Excess Shares Trust and the designation of shares as Excess
Shares shall be effective as of the close of business on the business day
immediately preceding the date of the Transfer or Non-Transfer Event, as the
case may be.
Section 7.4 Remedies For Breach. If the Trust or its designees shall at any
time determine in good faith that a Transfer has taken place in violation of
Section 7.2 of this Article VII or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership or Constructive Ownership of any
Equity Shares in violation of Section 7.2 of this Article VII, the Trust shall
take such action as it deems advisable to refuse to give effect to or to prevent
such Transfer or acquisition, including, but not limited to, refusing to give
effect to such Transfer on the books of the Trust or instituting proceedings to
enjoin such Transfer or acquisition.
Section 7.5 Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire Equity Shares in violation of Section 7.2 of this Article
VII, or any Person who owned Equity Shares that were transferred to an Excess
Shares Trust pursuant to the provisions of Section 7.3 of this Article VII,
shall immediately give written notice to the Trust of such event and shall
provide to the Trust such other information as the Trust may request in order to
determine the effect, if any, of such Transfer or the Non-Transfer Event, as the
case may be, on the Trust's status as a REIT.
Section 7.6 Owners Required To Provide Information. From the date of the
AREE Contribution Transaction and prior to the Restriction Termination Date:
(a) every Beneficial Owner or Constructive Owner of more than 1%, or such
lower percentages as required pursuant to regulations under the Code, of the
outstanding Equity Shares of the Trust shall, within 30 days after each of
January 1 and June 30 of each year, give written notice to the Trust stating the
name and address of such Beneficial Owner or Constructive Owner, the number of
Equity Shares Beneficially Owned or Constructively Owned, and a description of
how such Equity Shares are held. Each such Beneficial Owner or Constructive
Owner shall provide to the Trust such additional information as the Trust may
request in order to
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determine the effect, if any, of such Beneficial Ownership on the Trust's status
as a REIT and to ensure compliance with the Ownership Limit and Existing Holder
Limit; and
(b) each Person who is a Beneficial Owner or Constructive Owner of
Equity Shares and each Person (including the stockholder of record) who is
holding Equity Shares for a Beneficial Owner or Constructive Owner shall provide
to the Trust such information as the Trust may request in order to determine the
Trust's status as a REIT and to ensure compliance with the Ownership Limit and
Existing Holder Limit.
Section 7.7 Remedies Not Limited. Nothing contained in this Article VII
shall limit the authority of the Trust to take such other action as it deems
necessary or advisable to protect the Trust and the interests of its
Shareholders by preservation of the Trust's status as a REIT and to ensure
compliance with the Ownership Limit and Existing Holder Limit.
Section 7.8 Ambiguity. In the case of an ambiguity in the application of
any of the provisions of this Article VII, including any definition contained in
Section 7.1, the Board of Trustees shall have the power to determine the
application of the provisions of this Article VII with respect to any situation
based on the facts known to it. If Section 7.2 or Section 7.3 of this Article
VII requires an action by the Board of Trustees and this Declaration of Trust
fails to provide specific guidance with respect to such action, the Board of
Trustees shall have the power to determine the action to be taken so long as
such action is not contrary to the provisions of Sections 7.1, 7.2 or 7.3 of
this Article VII.
Section 7.9 Exception. The Board of Trustees, upon receipt of a ruling from
the Internal Revenue Service or an opinion of counsel in each case to the effect
that the restrictions contained in Section 7.2.4 and/or Section 7.2.5 of this
Article VII will not be violated, may exempt a Person from the Ownership Limit
or Existing Holder Limit, as the case may be, if such Person (i) is an
underwriter which participates in a public offering of the Equity Shares for a
period of 90 days following the purchase by such underwriter of the Equity
Shares, or (ii) is not an individual for purposes of Section 542(a)(2) of the
Code, and the Board of Trustees obtains such representations and undertakings
from such Person as are reasonably necessary to ascertain that no individual's
Beneficial Ownership of Equity Shares will violate the Ownership Limit or
Existing Holder Limit, as the case may be, and agrees that any violation or
attempted violation will result in such transfer to, an Excess Shares Trust of
Equity Shares pursuant to Section 7.3 of this Article VII.
Section 7.10 Modifications of Existing Holding Limits. The Existing Holder
Limit shall be modified as follows:
7.10.1 Upon any exercise of Rights pursuant to the Wellington
Partnership Agreement by any Existing Holder, or the acquisition of Equity
Shares by AREE, the Existing Holder Limit for such Existing Holder shall be
increased, pro rata in accordance with the number of shares of Common Shares to
be received by such Existing Holder, to the maximum extent possible under
Section 7.12 of this Article VII to permit the Beneficial Ownership or
Constructive Ownership of the Common Shares issuable upon such exercise or
acquisition.
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7.10.2 Subject to the limitations contained in Section 7.12, the Board
of Trustees may grant stock options which result in Beneficial Ownership or
Constructive Ownership of Equity Shares by an Existing Holder pursuant to a
stock option plan. Any such grant of stock options shall increase the Existing
Holder Limit for the affected Existing Holder to the maximum extent possible
under Section 7.12 to permit the Beneficial Ownership or Constructive Ownership
of the Equity Shares issuable upon exercise of such stock options.
7.10.3 The Board of Trustees may reduce the Existing Holder Limit for
any Existing Holder, with the written consent of such Existing Holder, after any
Transfer permitted under this Article VII by such Existing Holder to a Person
other than an Existing Holder or after the lapse (without exercise) of a stock
option described in Section 7.10.2.
Section 7.11 Modification of Ownership Limit. Subject to the limitations
contained in Section 7.12, the Board of Trustees may from time to time increase
or decrease the Ownership Limit.
Section 7.12 Limitations on Modifications.
7.12.1 Neither the Ownership Limit nor any Existing Holder Limit may
be increased (nor may any additional Existing Holder Limit be created) if, after
giving effect to such increase (or creation), five Beneficial Owners of Equity
Shares (including all of the then Existing Holders) could (assuming ownership of
Equity Shares by all Persons other than Existing Holders equal to the Ownership
Limit) Beneficially Own, in the aggregate, more than 50% of the outstanding
Equity Shares.
7.12.2 Prior to any modifications of any Existing Holder Limit or
Ownership Limit, the Board of Trustees of the Trust may require such opinions of
counsel, affidavits, undertakings or agreements as it may deem necessary or
advisable in order to determine or ensure the Trust's status as a REIT.
7.12.3 No Existing Holder Limit shall be reduced to a percentage that
is less than the Ownership Limit.
7.12.4 The Ownership Limit may not be increased to a percentage that
is greater than 9.9%.
Section 7.13 Legend. Each certificate for Equity Shares shall bear the
following legend:
"The shares of Wellington Properties Trust (the "Trust") represented
by this certificate are subject to restrictions on transfer for the
purpose, among other things, of the Trust's maintenance of its status as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended (the "Code"). No Person may (1) Beneficially Own or Constructively
Own Equity Shares in excess of (a) 8% (or such other percentage as may be
determined by the Board of Trustees of the Trust) of the value of the
outstanding Equity Shares of the Trust, (b) 9.9% of the total combined
voting power of all classes of
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Equity Shares, or (c) 9.9% of the total number of shares of all classes of
Equity Shares, unless such Person is an Existing Holder (in which case the
Existing Holder Limit shall be applicable); or (2) Beneficially Own Equity
Shares which would result in the Trust being "closely held" under Section
856(h) of the Code. Any Person who attempts to Beneficially Own or
Constructively Own Equity Shares in excess of the above limitations must
immediately notify the Trust in writing. If the restrictions above are
violated, the Equity Shares represented hereby will be transferred
automatically and by operation of law to an Excess Shares Trust and shall
be designated Excess Shares. All capitalized terms in this legend have the
meanings defined in the Trust's Declaration of Trust, as the same may be
further amended from time to time, a copy of which, including the
restrictions on transfer, will be sent without charge to each Shareholder
who so requests."
Section 7.14 Severability. If any provision of this Article VII or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
Section 7.15 Excess Shares.
7.15.1 Excess Shares Trust. Any Equity Shares transferred to an Excess
Shares Trust and designated Excess Shares pursuant to Section 7.3 of this
Article VII shall be held for the exclusive benefit of the Beneficiary. The
Board of Trustees shall name a new Beneficiary of each Excess Shares Trust
within five (5) days after discovery of the existence thereof and such newly
designated Person shall become Beneficiary of such Excess Shares Trust;
provided, however, that, in the event that the Board of Trustees fails to
designate a new Beneficiary within the time period described above, the Excess
Shares Trust shall be held for the benefit of the Default Beneficiary. Any
transfer to an Excess Shares Trust, and subsequent designation of Equity Shares
as Excess Shares, pursuant to Section 7.3 of this Article VII, shall be
effective as of the applicable date set forth in Section 7.3. Excess Shares
shall remain issued and outstanding Equity Shares of the Trust and shall be
entitled to the same rights and privileges on identical terms and conditions as
are all other issued and outstanding Equity Shares of the same class and series.
When transferred to the Permitted Transferee in accordance with the provisions
of Section 7.15.5 of this Article VII, such Excess Shares shall cease to be
designated as Excess Shares.
7.15.2 Dividend Rights. The Excess Shares Trustee, as record holder of
Excess Shares, shall be entitled to receive all dividends and distributions as
may be declared by the Board of Trustees on such Equity Shares and shall hold
such dividends or distributions in trust for the benefit of the Beneficiary. The
Purported Record Owner with respect to Excess Shares shall repay to the Excess
Shares Trustee the amount of any dividends or distributions received by it that
(i) are attributable to any Equity Shares designated Excess Shares and (ii) the
record date of which was on or after the date that such Equity Shares became
Excess Shares. The Trust shall take all measures that it determines reasonably
necessary to recover the amount of any such dividend or distribution paid to a
Purported Record Owner, including, if necessary, withholding
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any portion of future dividends or distributions payable on Equity Shares
Beneficially Owned or Constructively Owned by the Purported Record Owner; and,
as soon as reasonably practicable following the Trust's receipt or withholding
thereof, shall pay over to the Excess Shares Trustee for the benefit of the
Beneficiary the dividends so received or withheld, as the case may be.
7.15.3 Rights Upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of, or any distribution of
the assets of, the Trust, distributions in respect of Excess Shares shall be
made ratably with each other distributions in respect of Equity Shares of the
same class or series of Equity Shares, that portion of the assets of the Trust
which is available for distribution in respect of such class and series of
Equity Shares. The Excess Shares Trustee shall distribute to the Purported
Record Owner the amounts received upon such liquidation, dissolution, or winding
up, or distribution; provided, however, that the Purported Record Owner shall
not be entitled to receive amounts pursuant to this Section 7.15.3 in excess of,
in the case of a purported Transfer in which the Purported Record Owner gave
value for Equity Shares and which Transfer resulted in the transfer of the
Equity Shares to the Excess Shares Trust, the price per share, if any, such
Purported Record Owner paid for the Equity Shares and, in the case of a Non-
Transfer Event or Transfer in which the Purported Record Owner did not give
value for such shares (e.g., if the shares were received through a gift or
devise) and which Non-Transfer Event or Transfer, as the case may be, resulted
in the transfer of shares to the Excess Shares Trust, the price per share equal
to the Market Price on the date of such Non-Transfer Event or Transfer. Any
remaining amount in such Excess Shares Trust shall be distributed to the
Beneficiary.
7.15.4 Voting Rights. The Excess Shares Trustee shall be entitled to
vote all Excess Shares. Any vote by a Purported Record Owner as a holder of
Equity Shares prior to the discovery by the Trust that the Equity Shares are
Excess Shares shall, subject to applicable law, be rescinded and shall be void
ab initio with respect to such Excess Shares and the Purported Record Owner
shall be deemed to have given, as of the close of business on the business day
immediately prior to the date of the purported Transfer or Non-Transfer Event
that results in the transfer to the Excess Shares Trust of the Equity Shares
under Section 7.3 of this Article VII, an irrevocable proxy to the Excess Shares
Trustee to vote the Excess Shares in the manner in which the Excess Shares
Trustee, in its sole and absolute discretion, desires.
7.15.5 Designation of Permitted Transferee. The Excess Shares Trustee
shall have the exclusive and absolute right to designate a Permitted Transferee
of any and all Excess Shares. As reasonably practicable as possible, in an
orderly fashion so as not to materially adversely affect the Market Price of the
Excess Shares, the Excess Shares Trustee shall designate any Person as Permitted
Transferee, provided, however, that (i) the Permitted Transferee so designated
purchases for valuable consideration (whether in a public or private sale) the
Excess Shares and (ii) the Permitted Transferee so designated may acquire such
Excess Shares without such acquisition resulting in a transfer to an Excess
Shares Trust and the re-designation of such shares of the Equity Shares so
acquired as Excess Shares under Section 7.3 of this Article VII. Upon the
designation by the Excess Shares Trustee of a Permitted Transferee in accordance
with the provisions of this Section 7.15.5, the Excess Shares Trustee of an
Excess Shares Trust shall (i) cause to be transferred to the Permitted
Transferee that number of Excess Shares acquired by
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the Permitted Transferee; (ii) cause to be recorded on the books of the Trust
that the Permitted Transferee is the holder of record of such number of Equity
Shares; and (iii) distribute to the Beneficiary any and all amounts held with
respect to the Excess Shares after making that payment to the Purported Record
Owner pursuant to Section 7.15.6 of this Article VII.
7.15.6 Compensation to Record Holder of Equity Shares that Become Excess
Shares. A Purported Record Owner shall be entitled (following discovery of the
Excess Shares and subsequent designation of the Permitted Transferee in
accordance with Section 7.15.5 of this Article VII) to receive from the Excess
Shares Trustee the lesser of (i) in the case of (a) a purported Transfer in
which the Purported Record Owner gave value for Equity Shares and which Transfer
resulted in the transfer of the Excess Shares to the Excess Shares Trust, the
price per share, if any, such Purported Record Owner paid for the Excess Shares,
or (b) a Non-Transfer Event or Transfer in which the Purported Record Owner did
not give value for such shares (e.g., if the shares were received through a gift
or devise) and which Non-Transfer Event or Transfer, as the case may be,
resulted in the transfer of Excess Shares to the Excess Shares Trust, the price
per share equal to the Market Price on the date of such Non-Transfer Event or
Transfer, and (ii) the price per share received by the Excess Shares Trustee of
the Excess Shares Trust from the sale or other disposition of such Excess Shares
in accordance with Section 7.15.5 of this Article VII. Any amounts received by
the Excess Shares Trustee in respect of such Excess Shares and in excess of such
amounts to be paid the Purported Record Owner pursuant to this Section 7.15.6
shall be distributed to the Beneficiary in accordance with the provisions of
Section 7.15.5 of this Article VII. Each Beneficiary and Purported Record Owner
waives any and all claims that it may have against the Trust, the Excess Shares
Trustee and the Excess Shares Trust arising out of the disposition of Excess
Shares, except for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with Sections
7.15.2, 7.15.3 or 7.15.5 of this Article VII by the Trust, such Excess Shares
Trustee or the Excess Shares Trust.
7.15.7 Purchase Right in Excess Shares. Excess Shares shall be deemed to
have been offered for sale to the Trust, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that created
such Excess Shares (or, in the case of Transfer or Non-Transfer Event in which
less than full consideration was given, the Market Price at the time of such
Transfer or Non-Transfer Event) and (ii) the Market Price on the date the Trust,
or its designee, accepts such offer. The Trust shall have the right to accept
such offer for a period of ninety days after the later of (x) the date of the
Non-Transfer Event or purported Transfer which resulted in such Excess Shares
and (y) the date the Trust determines in good faith that a Transfer or Non-
Transfer Event resulting in Excess Shares has occurred, if the Trust does not
receive a notice of such Transfer or Non-Transfer Event pursuant to Section 7.5
of this Article VII.
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ARTICLE VIII
SHAREHOLDERS
Section 8.1 Meetings of Shareholders. There shall be an annual meeting of
the Shareholders, to be held at such time and place after delivery to the
Shareholders of the annual report as shall be determined by or in the manner
prescribed in the Bylaws, at which time the successors to the class of Trustees
whose term expires at such annual meeting shall be elected and any other proper
business may be conducted. Except as otherwise provided in this Declaration of
Trust, special meetings of Shareholders may be called in the manner provided in
the Bylaws then in effect. If there are no Trustees, the President or any
officer of the Trust shall promptly call a special meeting of the Shareholders
entitled to vote for the election of successor Trustees. Any meeting may be
adjourned and reconvened by the Trustees as provided in the Bylaws then in
effect.
Section 8.2 Voting Rights of Shareholders. Subject to the provisions of
any class or series of Shares then outstanding, the Shareholders shall be
entitled to vote only on the following matters: (a) the election or removal of
Trustees; (b) the amendment of this Declaration of Trust; (c) the voluntary
dissolution or termination of the Trust; (d) the reorganization of the Trust;
and (e) the merger or consolidation of the Trust or a share exchange by the
Trust or the sale or other disposition of all or substantially all of the Trust
Property. Except with respect to the foregoing matters, no action taken by the
Shareholders at any meeting shall in any way bind the Trustees. Notwithstanding
anything contained in this Declaration of Trust to the contrary or any provision
of Title 8 requiring the affirmative vote of more than a majority, the matters
contained in Subsections (b), (c), (d) and (e) of this Section 8.2 shall, upon
the approval of the Board of Trustees, be effective and valid if approved by the
affirmative vote of the holders of not less than a majority of all the Shares
then outstanding and entitled to vote on such matter.
ARTICLE IX
AMENDMENTS
Section 9.1 By Shareholders. Except as provided in Section 9.2, this
Declaration of Trust may be amended only upon the approval of the Board of
Trustees and with the affirmative vote of the holders of not less than a
majority of all the Shares then outstanding and entitled to vote on the matter.
Section 9.2 By Trustees. The Trustees, by a two-thirds vote of the
Trustees then in office and without the vote of the Shareholders, may amend
provisions of this Declaration of Trust from time to time (i) as permitted by
Section 5.4 and/or (ii) to enable the Trust to qualify as a real estate
investment trust under the Code or under Title 8.
Section 9.3 No Other Amendment. This Declaration of Trust may not be
amended except as provided in this Article IX.
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ARTICLE X
DURATION OF TRUST
The Trust shall continue perpetually unless terminated pursuant to any
applicable provision of Title 8. The Trust may be voluntarily dissolved or
reorganized or its existence terminated only by the affirmative vote of the
holders of not less than a majority of all the Shares then outstanding and
entitled to vote on the matter. The Trust may sell or otherwise dispose of all
or substantially all of the Trust Property only by the affirmative vote of the
holders of not less than a majority of all the Shares then outstanding and
entitled to vote on the matter.
ARTICLE XI
LIABILITY OF SHAREHOLDERS, TRUSTEES, OFFICERS,
EMPLOYEES AND AGENTS
AND TRANSACTIONS BETWEEN THEM AND THE TRUST
Section 11.1 Limitation of Shareholder Liability. No Shareholder shall be
liable for any debt, claim, demand, judgment or obligation of any kind of,
against or with respect to the Trust by reason of his being a Shareholder, nor
shall any Shareholder be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any Person in connection with the Trust Property or
the affairs of the Trust.
Section 11.2 Limitation of Trustee and Officer Liability. To the maximum
extent that Maryland law in effect from time to time permits limitation of the
liability of trustees and officers of a real estate investment trust, no Trustee
or officer of the Trust shall be liable to the Trust or to any Shareholder for
money damages. Neither the amendment nor the repeal of this Section 11.2, nor
the adoption or amendment of any other provision of this Declaration of Trust
inconsistent with this Section 11.2, shall apply to or affect in any respect the
applicability of the preceding sentence with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption. In the absence
of any Maryland statute limiting the liability of trustees and officers of a
Maryland real estate investment trust for money damages in a suit by or on
behalf of the Trust or by any Shareholder, no Trustee or officer of the Trust
shall be liable to the Trust or to any Shareholder for money damages except to
the extent that (a) the Trustee or officer actually received an improper benefit
or profit in money, property or services, for the amount of the benefit or
profit in money, property or services actually received or (b) a judgment or
other final adjudication adverse to the Trustee or officer is entered in a
proceeding based on a finding in the proceeding that the Trustee's or officer's
action or failure to act was the result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding.
Section 11.3 Express Exculpatory Clauses in Instruments. Neither the
Shareholders nor the Trustees, officers, employees or agents of the Trust shall
be liable under any written instrument creating an obligation of the Trust, and
all Persons shall look solely to the Trust Property for the payment of any claim
under or for the performance of that instrument. The omission of the foregoing
exculpatory language from any instrument shall not affect the
20
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validity or enforceability of such instrument, and shall not render any
Shareholder, Trustee, officer, employee or agent liable thereunder to any third
party, and no Shareholder or Trustee or any officer, employee or agent of the
Trust shall be liable to anyone for such omission.
Section 11.4 Indemnification and Advance for Expenses. The Trust shall, to
the fullest extent permitted by Maryland law, as applicable from time to time,
indemnify all persons who (a) at any time were or are Trustees or officers of
the Trust or (b) while a Trustee or officer of the Trust and at the express
request of the Trust, serves or has served as an officer, director, member,
trustee or partner of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, for any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) relating to any action alleged to have been taken or omitted by
such person in such capacity. The Trust shall pay or reimburse all reasonable
expenses incurred by a present or former Trustee or officer of the Trust in
connection with any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) in which the present
or former Trustee or officer is a party, in advance of the final disposition of
the proceeding, to the fullest extent permitted by and in accordance with the
applicable requirements of Maryland law, as applicable from time to time. The
Trust may indemnify any other persons permitted but not required to be
indemnified by Maryland law, as applicable from time to time, if and to the
extent indemnification is authorized and determined to be appropriate in each
case in accordance with applicable law by the Board of Trustees, the
Shareholders or special legal counsel appointed by the Board of Trustees. The
Trust may, but shall not be required to, purchase or maintain insurance on
behalf of any persons required or permitted to be indemnified. No amendment of
this Declaration of Trust shall limit or eliminate any of the benefits provided
to Trustees and officers hereunder in respect of any act or omission that
occurred prior to such amendment. The Trust shall have the power to provide such
indemnification to any person who served as predecessor of the Trust in any of
the capacities described above.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Governing Law. This Declaration of Trust is executed by the
Trustees and delivered in the State of Maryland with reference to the laws
thereof, and the rights of all parties an the validity, construction and effect
of every provision hereof shall be subject to and construed in accordance with
the laws of the State of Maryland without regard to conflicts of laws provisions
thereof.
Section 12.2 Reliance by Third Parties. Any certificate shall be final and
conclusive as to any Person dealing with the Trust if executed by an individual
who, according to the records of the Trust or of any recording office in which
this Declaration of Trust may be recorded, appears to be the Secretary or an
Assistant Secretary of the Trust or a Trustee, and if certifying to the
following:
(a) the number or identity of Trustees, officers of the Trust or
Shareholders;
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(b) the due authorization of the execution of any document;
(c) any action or vote taken, and the existence of a quorum at a
meeting of Trustees or Shareholders;
(d) a copy of this Declaration of Trust or of the Bylaws of the Trust
as a true and complete copy as then in force;
(e) an amendment to this Declaration of Trust;
(f) the termination of the Trust; or
(g) the existence of any fact or facts which relate to the affairs of
the Trust.
No purchaser, lender, transfer agent or other Person shall be bound to make
any inquiry concerning the validity of any transaction purporting to be made on
behalf of the Trust by the Trustees or any officer, employee or agent of the
Trust.
Section 12.3 Provisions in Conflict with Law or Regulations.
12.3.1 The provisions of this Declaration of Trust are severable, and
if the Trustees shall determine, with the advice of counsel, that any one or
more of such provisions ("Conflicting Provisions") are in conflict with the REIT
Provisions of the Code, Title 8 or any other applicable federal or state law,
the Conflicting Provisions shall be deemed never to have constituted a part of
this Declaration of Trust, even without any amendment of this Declaration
pursuant to Article IX; provided, however, that such determination by the
Trustees shall not affect or impair any of the remaining provisions of this
Declaration of Trust or render invalid or improper any action taken or omitted
prior to such determination.
12.3.2 If any provision of this Declaration of Trust shall be held
invalid or unenforceable in any jurisdiction, such holding shall not in any
manner affect or render invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Declaration of Trust in any
jurisdiction.
Section 12.4 Construction. In this Declaration of Trust, unless the context
otherwise requires, words used in the singular or in the plural include both the
singular and plural, and words denoting any gender include all genders. The
title and headings of different parts of this Declaration of Trust are inserted
for convenience and shall not affect the meaning, construction or effect of this
Declaration of Trust.
FOURTH: The amendments to this Declaration of Trust set forth in these
Articles of Amendment and Restatement shall increase the total number of Shares
which the Trust has the authority to issue. Prior to the effectiveness of the
amendments set forth herein, the total number of Shares authorized to be issued
by the Trust were as follows:
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Share Type Number of Shares Authorized Par Value
---------- --------------------------- ---------
Common 100,570,000 $0.01
Preferred 500,000 $0.01
Upon the effectiveness of these Articles of Amendment and Restatement, the
number of Shares which the Trust is authorized to issue is 110,000,000, divided
as follows:
Share Type Number of Shares Authorized Par Value
---------- --------------------------- ---------
Common 100,000,000 $0.01
Preferred 10,000,000 $0.01
FIFTH: The amendments to and the restatement of this Declaration of Trust
set forth in these Articles of Amendment and Restatement were declared advisable
and approved by the Board of Trustees by unanimous written consent dated
______________, 1998, and the amendments set forth therein were approved by the
Shareholders of the Trust at a meeting of the Shareholders on ______________,
1998, all in the manner prescribed by and in accordance with the provisions of
Maryland law.
SIXTH: The name and address of the current resident agent of the Trust are
set forth in Section 1.2 of this Declaration of Trust set forth in Paragraph
THIRD hereof.
SEVENTH: The names of those individuals currently serving as Trustees of
the Trust are set forth in Section 2.2 of this Declaration of Trust set forth in
Paragraph THIRD hereof.
IN WITNESS WHEREOF, these Articles of Amendment and Restatement have been
executed on ______________, 1998, by the undersigned ___________________,
Chairman of the Board of Trustees of the Trust, who acknowledges this document
to be the act of the Trust and that, to the best of his knowledge, information
and belief and under the penalties for perjury, the matters and facts set forth
herein are true and correct in all material respects.
ATTEST:
- --------------------------- -------------------------------------------
Robert F. Rice, Secretary Arnold K. Leas, Chairman (SEAL)
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EXHIBIT F
---------
WELLINGTON PROPERTIES TRUST
1998 SHARE OPTION PLAN
<PAGE>
TABLE OF CONTENTS
SECTION 1. General Purpose of the Plan; Definitions.......................... 1
SECTION 2. Administration of Plan; Committee Authority to Select
Participants and Determine Awards................................. 4
SECTION 3. Shares Issuable under the Plan; Mergers; Substitution............. 6
SECTION 4. Eligibility....................................................... 7
SECTION 5. Options........................................................... 7
SECTION 6. Restricted Share Awards...........................................12
SECTION 7. Performance Share Awards..........................................13
SECTION 8. Share Appreciation Rights.........................................15
SECTION 9. Dividend Equivalents..............................................16
SECTION 10. Tax Withholding...................................................16
SECTION 11. Transfer, Leave of Absence, Etc...................................18
SECTION 12. Amendments and Termination........................................18
SECTION 13. Status of Plan....................................................18
SECTION 14. Change of Control Provisions......................................19
SECTION 15. General Provisions................................................22
SECTION 16. Effective Date of Plan............................................22
SECTION 17. Governing Law.....................................................23
<PAGE>
WELLINGTON PROPERTIES TRUST
1998 SHARE OPTION PLAN
----------------------
SECTION 1. General Purpose of the Plan; Definitions.
The name of the plan is the Wellington Properties Trust 1998 Share Option
Plan (the "Plan"). The purpose of the Plan is to encourage and enable the
officers, employees and Trustees of Wellington Properties Trust (the "Company")
and its Affiliates upon whose judgment, initiative and efforts the Company
largely depends for the successful conduct of its business to acquire a
proprietary interest in the Company. It is anticipated that providing such
persons with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby stimulating
their efforts on the Company's behalf and strengthening their desire to remain
with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board or the Committee as a
participating employer under the Plan, provided that the Company directly
or indirectly owns at least 20% of the combined voting power of all classes
of stock of such entity or at least 20% of the ownership interests in such
entity.
"Award" or "Awards", except where referring to a particular category
of grant under the Plan, shall include; but not be limited to, Incentive
Options, Non-Qualified Options, Restricted Share Awards, Performance Share
Awards, Share Appreciation Rights, and Dividend Equivalents.
"Board" means the Board of Trustees of the Company.
<PAGE>
"Cause" means and shall be limited to a vote of the Board to the
effect that the participant should be dismissed as a result of (i) any
material breach by the participant of any agreement to which the
participant and the Company or an Affiliate are parties, (ii) any act
(other than retirement, death or disability) or omission to act by the
participant, including without limitation, the commission of any crime,
which may have a material and adverse effect on the business of the Company
or any Affiliate or on the participant's ability to perform services for
the Company or any Affiliate, or (iii) any material misconduct or neglect
of duties by the participant in connection with the business or affairs of
the Company or any Affiliate.
"Change of Control" is defined in Section 14.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means any Committee of the Board referred to in Section 2.
"Disability" means disability as set forth in Section 22(e)(3) of the
Code.
"Dividend Equivalent" means a right, granted under Section 9 hereof,
to receive cash, Shares, or other property equal in value to dividends paid
with respect to a specified number of Shares or the excess of dividends
paid over a specified rate of return. Dividend Equivalents may be awarded
on a free-standing basis or in connection with another Award, and may be
paid currently or on a deferred basis.
"Effective Date" means the date on which the Plan is approved by the
Board as set forth in Section 16.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related rules, regulations and interpretations.
2
<PAGE>
"Fair Market Value" on any given date means the average of the
Reference Price for the ten (10) consecutive trading days immediately
preceding the date for which the value is being determined.
"Incentive Option" means any Option designated and qualified as an
"incentive stock option" as defined in Section 422 of the Code.
"Non-Employee" Trustee means a member of the Board who: (i) is not
currently an officer of the Company or any Affiliate; (ii) does not receive
compensation for services rendered to the Company or any Affiliate in any
capacity other than as a Trustee; (iii) does not possess an interest in any
transaction with the Company for which disclosure would be required under
the securities laws; or (iv) is not engaged in a business relationship with
the Company for which disclosure would be required under the securities
laws.
"Non-Qualified Option" means any Option that is not an Incentive
Option.
"Option" or "Share Option" means any option to purchase Shares granted
pursuant to Section 5.
"Parent" means a "parent corporation" as defined in Section 424(e) of
the Code.
"Performance Share Award" means Awards granted pursuant to Section 7.
"Reference Price" means for the applicable Shares on a given date: (i)
if such Shares are listed for quotation on a NASDAQ system, the average of
the closing bid and ask prices; or (ii) if such Shares are listed on a
national exchange, the closing price, regular way.
3
<PAGE>
"Restricted Share Award" means Awards granted pursuant to Section 6.
"Share" means a common share of beneficial interest (or other
comparable equity interest) of the Company, subject to adjustment pursuant
to Section 3.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations, beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
"Trustee" means a member of the Board.
SECTION 2. Administration of Plan; Committee Authority to
Select Participants and Determine Awards.
(a) Committee. The Plan shall be administered by a committee of not less
than two Non-Employee Trustees, as appointed by the Board from time to time (the
"Committee").
(b) Powers of Committee. The Committee shall have the power and authority
to grant Awards consistent with the terms of the Plan, including the power and
authority:
(i) to select the officers, employees and Trustees of the Company
and Affiliates to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Options, Non-Qualified Options, Restricted Shares,
Performance Shares and Dividend Equivalents, or any combination of the
foregoing, granted to any officer, employee or Trustee;
(iii) to determine the number of shares to be covered by any Award
granted to an officer, employee or Trustee;
4
<PAGE>
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award
granted to an officer, employee or Trustee, which terms and conditions may
differ among individual Awards and participants, and to approve the form of
written instruments evidencing the Awards;
(v) to accelerate the exercisability or vesting of all or any
portion of any Award granted to a participant;
(vi) subject to the provisions of Section 5(ii), to extend the
period in which Options granted may be exercised;
(vii) to determine whether, to what extent and under what
circumstances Shares and other amounts payable with respect to an Award
granted to a participant shall be deferred either automatically or at the
election of the participant and whether and to what extent the Company
shall pay or credit amounts equal to interest (at rates determined by the
Committee) or dividends or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments) granted to a participant; and to decide all disputes arising
in connection with and make all determinations it deems advisable for the
administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
5
<PAGE>
SECTION 3. Shares Issuable under the Plan; Mergers; Substitution.
(a) Shares Issuable. The maximum number of Shares reserved and available
for issuance under the Plan shall be 2,000,000. For purposes of this limitation,
the Shares underlying any Awards which are forfeited, canceled, reacquired by
the Company, satisfied without the issuance of Shares or otherwise terminated
(other than by exercise) shall be added back to the Shares available for
issuance under the Plan so long as the participants to whom such Awards had been
previously granted receive no benefits of ownership of the underlying Shares to
which the Award related. Shares issued under the Plan may be authorized but
unissued Shares or Shares reacquired by the Company.
(b) Share Dividends, Mergers, etc. In the event of any recapitalization,
reclassification, split-up or consolidation of Shares, separation (including a
spin-off), dividend on Shares payable in Shares, or other similar change in
capitalization of the Company or a merger or consolidation of the Company or
sale by the Company of all or a portion of its assets or other similar event,
the Committee shall make such appropriate adjustments in the exercise prices of
Awards, including Awards then outstanding, in the number and kind of securities,
cash or other property which may be issued pursuant to Awards under the Plan,
including Awards then outstanding, and in the number of Shares with respect to
which Awards may be granted (in the aggregate and to individual participants) as
the Committee deems equitable with a view toward maintaining the proportionate
interest of the participant and preserving the value of the Awards.
(c) Substitute Awards. The Committee may grant Awards under the Plan in
substitution for Share and Share-based awards held by employees of another
corporation who
6
<PAGE>
concurrently become employees of the Company or an Affiliate as the result of a
merger or consolidation of the employing corporation with the Company or an
Affiliate or the acquisition by the Company or an Affiliate of property or
shares of the employing corporation. The Committee may direct that the
substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
SECTION 4. Eligibility.
Participants in the Plan will be Trustees and such full or part-time
officers and other employees of the Company and its Affiliates who are
responsible for or contribute to the management, growth or profitability of the
Company and its Affiliates and who are selected from time to time by the
Committee, in its sole discretion.
SECTION 5. Options.
Any Option granted under the Plan shall be in such form as the Committee
may from time to time approve.
Options granted under the Plan may be either Incentive Options, subject to
required shareholder approval, or Non-Qualified Options. To the extent that any
option does not qualify as an Incentive Option, it shall constitute a Non-
Qualified Option.
No Incentive Option may be granted under the Plan after the tenth (10th)
anniversary of the Effective Date.
7
<PAGE>
The Committee in its discretion may grant Options to employees of the
Company or any Affiliate. Options granted to Trustees and employees pursuant to
this Section 5 shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem desirable:
(i) Exercise Price. The per share exercise price of a Option
granted pursuant to this Section 5 shall be determined by the Committee at
the time of grant. The per share exercise price of an Incentive Option
shall not be less than 100% of Fair Market Value on the date of grant. If
an employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of shares of the Company or any Subsidiary or
Parent and an Incentive Option is granted to such employee, the option
price shall be not less than 110% of Fair Market Value on the grant date.
(ii) Option Term. The term of each Option shall be fixed by the
Committee, but no Incentive Option shall be exercisable more than ten (10)
years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of shares
of the Company or any Subsidiary or Parent and an Incentive Option is
granted to such employee, the term of such option shall be no more than
five (5) years from the date of grant.
8
<PAGE>
(iii) Exercisability; Rights of a Shareholder. Options shall become
exercisable at such time or times, whether or not in installments, as shall
be determined by the Committee at or after the grant date. The Committee
may at any time accelerate the exercisability of all or any portion of any
Option. An optionee shall have the rights of a shareholder only as to
Shares acquired upon the exercise of a Option and not as to unexercised
Options.
(iv) Method of Exercise. Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the
number of Shares to be purchased. Payment of the purchase price may be made
by one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(B) In the form of Shares that are not then subject to
restrictions under any Company plan, if permitted by the Committee in
its discretion. Such surrendered Shares shall be valued at Fair Market
Value on the exercise date; or
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition of such
payment procedure. Payment instruments will be received subject to
collection.
9
<PAGE>
The delivery of certificates representing Shares to be purchased pursuant
to the exercise of the Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Option) by the Company of the full purchase price for
such Shares and the fulfillment of any other requirements contained in the
Option or applicable provisions of laws.
(v) Non-transferability of Options. No Option shall be
transferable by the optionee other than by will or by the laws of descent
and distribution.
(vi) Termination by Death. If any optionee's service with the
Company and its Affiliates terminates by reason of death, the Option may
thereafter be exercised, to the extent exercisable at the date of death, by
the legal representative or legatee of the optionee, for a period of six
(6) months (or such longer period as the Committee shall specify at any
time) from the date of death, or until the expiration of the stated term of
the Option, if earlier.
(vii) Termination by Reason of Disability.
(A) Any Option held by an optionee whose service with the
Company and its Affiliates has terminated by reason of Disability may
thereafter be exercised, to the extent it was exercisable at the time
of such termination, for a period of twelve (12) months (or such
longer period as the Committee shall specify at any time) from the
date of such termination of service, or until the expiration of the
stated term of the Option, if earlier.
(B) The Committee shall have sole authority and discretion to
determine whether a participant's service has been terminated by
reason of Disability.
10
<PAGE>
(C) Except as otherwise provided by the Committee at the time of
grant or otherwise, the death of an optionee during a period provided
in this Section 5(vii) for the exercise of a Non-Qualified Option,
shall extend such period for six (6) months from the date of death,
subject to termination on the expiration of the stated term of the
Option, if earlier.
(viii) Termination for Cause. If any optionee's service with the
Company and its Affiliates has been terminated for Cause, any Option held
by such optionee shall immediately terminate and be of no further force and
effect; provided, however, that the Committee may, in its sole discretion,
provide that such Option can be exercised for a period of up to thirty (30)
days from the date of termination of service or until the expiration of the
stated term of the Option, if earlier.
(ix) Other Termination. Unless otherwise determined by the Committee,
if an optionee's service with the Company and its Affiliates terminates for
any reason other than death, Disability, or for Cause, any Option held by
such optionee may thereafter be exercised, to the extent it was exercisable
on the date of termination of service, for three (3) months (or such longer
period as the Committee shall specify at any time) from the date of
termination of service or until the expiration of the stated term of the
Option, if earlier.
(x) Annual Limit on Incentive Options. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
Share with respect to which Incentive Options granted under this Plan and
any other plan of the Company or its
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Subsidiaries become exercisable for the first time by an optionee during any
calendar year shall not exceed one hundred thousand dollars ($100,000).
(xi) Form of Settlement. Shares issued upon exercise of an Option
shall be free of all restrictions under the Plan, except as otherwise
provided in this Plan.
SECTION 6. Restricted Share Awards.
(a) Nature of Restricted Share Award. The Committee may grant Restricted
Share Awards to Trustees and employees of the Company or any Affiliate. A
Restricted Share Award is an Award entitling the recipient to acquire, at no
cost or for a purchase price determined by the Committee, Shares subject to such
restrictions and conditions as the Committee may determine at the time of grant
("Restricted Share"). Conditions may be based on continuing service and/or
achievement of pre-established performance goals and objectives. In addition, a
Restricted Share Award may be granted to a Trustee or employee by the Committee
in lieu of any compensation due to such Trustee or employee.
(b) Acceptance of Award. A participant who is granted a Restricted Share
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within sixty (60) days (or such shorter date as
the Committee may specify) following the award date by making payment to the
Company, if required, by certified or bank check or other instrument or form of
payment acceptable to the Committee in an amount equal to the specified purchase
price, if any, of the shares covered by the Award and by executing and
delivering to the Company a written instrument that sets forth the terms and
conditions of the Restricted Share in such form as the Committee shall
determine.
12
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(c) Rights as a Shareholder. Upon complying with Section 6(b) above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Share including voting and dividend rights, subject to
transferability restrictions and Company repurchase or forfeiture rights
described in this Section 6 and subject to such other conditions contained in
the written instrument evidencing the Restricted Share Award. Unless the
Committee shall otherwise determine, certificates evidencing Restricted Shares
shall remain in the possession of the Company until such shares are vested as
provided in Section 6(e) below.
(d) Restrictions. Restricted Shares may not be sold, assigned, transferred,
pledged or otherwise encumbered or disposed of except as specifically provided
herein.
(e) Vesting of Restricted Shares. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which the non-transferability of the
Restricted Share and the Company's right of repurchase or forfeiture shall
lapse. Subsequent to such date or dates and/or the attainment of such pre-
established performance goals, objectives and other conditions, the shares on
which all restrictions have lapsed shall no longer be Restricted Shares and
shall be deemed "vested."
(f) Waiver, Deferral and Reinvestment of Dividends. The written instrument
evidencing the Restricted Share Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Share.
SECTION 7. Performance Share Awards.
(a) Nature of Performance Shares. A Performance Share Award is an award
entitling the recipient to acquire Shares upon the attainment of specified
performance goals. The Committee may make Performance Share Awards independent
of or in connection with the
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<PAGE>
granting of any other Award under the Plan. Performance Share Awards may be
granted under the Plan to Trustees and employees of the Company or any
Affiliate, including those who qualify for awards under other performance plans
of the Company. The Committee in its sole discretion shall determine whether and
to whom Performance Share Awards shall be made, the performance goals applicable
under each such Award, the periods during which performance is to be measured,
and all other limitations and conditions applicable to the awarded Performance
Shares; provided, however, that the Committee may rely on the performance goals
and other standards applicable to other performance based plans of the Company
in setting the standards for Performance Share Awards under the Plan.
(b) Restrictions on Transfer. Performance Share Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Shareholder. A participant receiving a Performance Share
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a share certificate evidencing the acquisition of Shares
under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Committee).
(d) Termination. Except as may otherwise be provided by the Committee at
any time prior to termination of service, a participant's rights in all
Performance Share Awards shall automatically terminate upon the participant's
termination of service with the Company and its Affiliates for any reason
(including, without limitation, death, Disability and for Cause).
14
<PAGE>
(e) Acceleration, Waiver, Etc. At any time prior to the participant's
termination of service with the Company and its Affiliates, the Committee may in
its sole discretion accelerate, waive or, subject to Section 12, amend any or
all of the goals, restrictions or conditions imposed under any Performance Share
Award; provided, however, that in no event shall any provision of the Plan be
construed as granting to the Committee any discretion to increase the amount of
compensation payable under any Performance Share Award to the extent such an
increase would cause the amounts payable pursuant to the Performance Share Award
to be nondeductible in whole or in part pursuant to Section 162(m) of the Code
and the regulations thereunder, and the Committee shall have no such discretion
notwithstanding any provision of the Plan to the contrary.
SECTION 8. Share Appreciation Rights.
(a) Notice of Share Appreciation Rights. A Share Appreciation Right ("SAR")
is a right entitling the participant to receive cash or Shares having a fair
market value equal to the appreciation in the Fair Market Value of a stated
number of Shares from the date of grant, or in the case of rights granted in
tandem with or by reference to an Option granted prior to the grant of such
rights, from the date of grant of the related Option to the date of exercise.
SARs may be granted to Trustees and employees of the Company or any Affiliate.
(b) Terms of Awards. SARs may be granted in tandem with or with reference
to a related Option, in which event the participant may elect to exercise either
the Option or the SAR, but not both, as to the same share subject to the Option
and the SAR, or the SAR may be granted independently. In the event of an Award
with a related Option, the SAR shall be subject to the terms and conditions of
the related Option. In the event of an independent Award, the SAR shall be
subject to the terms and conditions determined by the Committee.
15
<PAGE>
(c) Restrictions on Transfer. SARs shall not be transferred, assigned or
encumbered, except that SARs may be exercised by the executor, administrator or
personal representative of the deceased participant within six (6) months of the
death of the participant (or such longer period as the Committee shall specify
at any time) and transferred pursuant to a certified domestic relations order.
(d) Payment Upon Exercise. Upon exercise of an SAR, the participant shall
be paid the excess of the then Fair Market Value of the number of shares to
which the SAR relates over the Fair Market Value of such number of shares at the
date of grant of the SAR, or of the related Option, as the case may be. Such
excess shall be paid in cash or in Shares having a Fair Market Value equal to
such excess or in such combination thereof as the Committee shall determine.
SECTION 9. Dividend Equivalents.
The Committee is authorized to grant Dividend Equivalents to Trustees and
employees of the Company or any Affiliate. The Committee may provide, at the
date of grant or thereafter, that Dividend Equivalents shall be paid or
distributed when accrued or shall be deemed to have been reinvested in
additional Shares, or other investment vehicles as the Committee may specify,
provided that Dividend Equivalents (other than freestanding Dividend
Equivalents) shall be subject to all conditions and restrictions of the
underlying Awards to which they relate.
SECTION 10. Tax Withholding.
(a) Payment by Participant. Each participant shall, no later than the date
as of which the value of an Award or of any Share or other amounts received
thereunder first becomes includible in the gross income of the participant for
Federal income tax purposes, pay
16
<PAGE>
to the Company, or make arrangements satisfactory to the Committee regarding
payment of, any Federal, state, or local taxes of any kind required by law to be
withheld with respect to such income. The Company and its Affiliates shall, to
the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(b) Payment in Shares. A participant may elect to have such tax withholding
obligation satisfied, in whole or in part, by (i) authorizing the Company to
withhold from Shares to be issued pursuant to any Award a number of Shares with
an aggregate Fair Market Value (as of the date the withholding is effected) that
would satisfy the withholding amount due, or (ii) transferring to the Company
Shares owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due
with respect to any participant who is subject to Section 16 of the Act, the
following additional restrictions shall apply:
(A) the election to satisfy tax withholding obligations relating
to an Award in the manner permitted by this Section 10(b) and the
actual tax withholding shall be made during the period beginning on
the third (3rd) business day following the date of release of
quarterly or annual summary statements of revenues and earnings of the
Company and ending on the twelfth (12th) business day following such
date. Alternatively, such election may be made at least six (6) months
prior to the date as of which the receipt of such an Award first
becomes a taxable event for Federal income tax purposes;
(B) such election shall be irrevocable;
(C) such election shall be subject to the consent or disapproval
of the Committee; and
17
<PAGE>
(D) the Share(s) withheld to satisfy tax withholding, if granted
at the discretion of the Committee, must pertain to an Award which has
been held by the participant for at least six (6) months from the date
of grant of the Award.
SECTION 11. Transfer, Leave of Absence, Etc.
For purposes of the Plan, the following events shall not be deemed a
termination of service:
(a) a transfer to the employment of the Company from an Affiliate or from
the Company to an Affiliate, or from one Affiliate to another; and
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Committee otherwise
so provides in writing.
SECTION 12. Amendments and Termination.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent.
SECTION 13. Status of Plan.
With respect to the portion of any Award which has not been exercised and
any payments in cash, Shares or other consideration not received by a
participant, a participant
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<PAGE>
shall have no rights greater than those of a general unsecured creditor of the
Company unless the Committee shall otherwise expressly determine in connection
with any Award or Awards. In its sole discretion, the Committee may authorize
the creation of trusts or other arrangements to meet the Company's obligations
to deliver Shares or make payments with respect to Awards hereunder, provided
that the existence of such trusts or other arrangements is consistent with the
provision of the foregoing sentence.
SECTION 14. Change of Control Provisions.
Upon the occurrence of a Change of Control as defined in this Section 14:
(a) Each Shares Option shall automatically become fully exercisable unless
the Committee shall otherwise expressly provide at the time of grant.
(b) Restrictions and conditions on Awards of Restricted Shares, Performance
Shares and Dividend Equivalents shall automatically be deemed waived, and the
recipients of such Awards shall become entitled to receipt of the maximum amount
of Shares subject to such Awards unless the Committee shall otherwise expressly
provide at the time of grant.
(c) Unless otherwise expressly provided at the time of grant, participants
who hold Options shall have the right, in lieu of exercising the Option, to
elect to surrender all or part of such Option to the Company and to receive cash
in an amount equal to the excess of (i) the higher of (x) the Fair Market Value
of a Share on the date such right is exercised and (y) the highest price paid
for Shares or, in the case of securities convertible into Shares or carrying a
right to acquire Shares, the highest effective price (based on the prices paid
for such securities) at which such securities are convertible into Shares or at
which Shares may be acquired, by any person or group whose acquisition of voting
securities has resulted in a Change of Control
19
<PAGE>
of the Company over (ii) the exercise price per share under the Option,
multiplied by the number of Shares with respect to which such right is
exercised.
(d) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person", as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan of the Company or any of its Subsidiaries), together with all
"affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Act) of such person, shall become the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 40% or more of either (A) the
combined voting power of the Company's then outstanding securities having
the right to vote in an election of the Company's Board of Trustees
("Voting Securities") or (B) the then outstanding shares of common shares
of the Company (in either such case other than as a result of acquisition
of securities directly from the Company); or
(ii) persons who, as of the date of the closing of the Company's
initial public offering, constitute the Company's Board of Trustees (the
"Incumbent Directors") cease for any reason, including without limitation,
as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that
any person becoming a director of the Company subsequent to the Closing of
the Company's initial public offering whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes of this Plan, be considered an Incumbent
Director; or
20
<PAGE>
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 50% or more of
the voting shares of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if any),
(B) any sale, lease, exchange or other transfer (in one transaction or a
series of transactions contemplated or arranged by any party as a single
plan) of all or substantially all of the assets of the Company or (C) any
plan or proposal for the liquidation or dissolution of the Company;
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Common Shares or other Voting Securities outstanding, increases (x)
the proportionate number of shares of Common Shares beneficially owned by any
person to 40% or more of the shares of Common Shares then outstanding or (y) the
proportionate voting power represented by the Voting Securities beneficially
owned by any person to 40% or more of the combined voting power of all then
outstanding Voting Securities; provided, however, that if any person referred to
in clause (x) or (y) of this sentence shall thereafter become the beneficial
owner of any additional shares of Common Shares or other Voting Securities
(other than pursuant to a share split, share dividend, or similar transaction),
then a "Change of Control" shall be deemed to have occurred for purposes of the
foregoing clause (i).
21
<PAGE>
SECTION 15. General Provisions.
(a) No Distribution; Compliance with Legal Requirements. The Committee may
require each person acquiring shares pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No Shares shall be issued pursuant to an Award until all applicable
securities laws and other legal and stock exchange requirements have been
satisfied. The Committee may require the placing of such stop-orders and
restrictive legends on certificates for Shares and Awards as it deems
appropriate.
(b) Delivery of Share Certificates. Delivery of Share certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a Share transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to stockholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan and
the grant of Awards do not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 16. Effective Date of Plan.
The Plan shall become effective upon approval by the Board, or any
committee thereof with such authority. The ability to grant Incentive Option
Awards requires approval by the shareholders, and no such Awards may be issued
hereunder prior to such approval.
22
<PAGE>
SECTION 17. Governing Law.
THIS PLAN SHALL BE GOVERNED BY WISCONSIN LAW EXCEPT TO THE EXTENT SUCH LAW
IS PREEMPTED BY FEDERAL LAW.
23
<PAGE>
PROXY FOR COMMON SHARES SOLICITED ON BEHALF OF THE BOARD
OF TRUSTEES FOR THE SPECIAL MEETING OF THE SHAREHOLDERS OF
WELLINGTON PROPERTIES TRUST TO BE HELD ON NOVEMBER 16, 1998
-----------------------------------------------------------
The undersigned hereby appoints Arnold K. Leas and Robert F. Rice, or
either of them acting in the absence of the other, with power of substitution,
attorneys and proxies, for and in the name and place of the undersigned, to vote
the number of common shares that the undersigned would be entitled to vote if
then personally present at the Special Meeting of the Trustees of Wellington
Properties Trust to be held at the Wellington Centre, located at 18650 W.
Corporate Drive, Brookfield, Wisconsin, on November 16, 1998 at 9:00 a.m., local
time, or any adjournment thereof, upon the matters set forth in the Notice of
Special Meeting and Proxy Statement, receipt of which is hereby acknowledged, as
follows:
- --------------------------------------------------------------------------------
1. To approve the following primary components of the Transaction (as defined
and more fully described in the accompanying Proxy Statement; capitalized
terms have the meanings ascribed thereto in the accompanying Proxy
Statement), each component of which is conditioned upon the approval of
each other component:
(a) The Operating Partnership will acquire from certain persons and
entities the Acquired Properties in exchange for the issuance of
approximately 9,860,838 Units in the Operating Partnership (which Units,
with certain limitations, are exchangeable on a one-for-one basis, subject
to adjustment, for Common Shares), the payment of approximately $35.2
million in cash, and the assumption of approximately $71.8 million in
indebtedness.
For Against Abstain
[_] [_] [_]
(b) The Company will issue 500,000 Warrants to each of AREE and WMC.
For Against Abstain
[_] [_] [_]
(c) The Company will issue 105,263 Common Shares to AREE in exchange for
$1.0 million in cash.
For Against Abstain
[_] [_] [_]
(d) The Company will enter into the New Credit Facility.
For Against Abstain
[_] [_] [_]
(e) The Company will pay to WMC a cash termination fee of approximately
$1.6 million, and the advisory agreement between the Company and WMC will
be terminated.
For Against Abstain
[_] [_] [_]
(f) The Company will enter into employment agreements with Duane H. Lund
and Robert F. Rice to serve as the Company's Chief Executive Officer and
President, respectively.
For Against Abstain
[_] [_] [_]
(g) The Company will enter into the Property Management Agreements with
respect to the day-to-day operations and leasing of the Acquired
Properties.
For Against Abstain
[_] [_] [_]
2. To approve the amendments to the Company's Declaration of Trust.
For Against Abstain
[_] [_] [_]
3. Election of Trustees and election to extend terms for certain Trustees:
For Against Abstain
[_] [_] [_]
FOR all persons listed WITHHOLD AUTHORITY
--- ------------------
below (except as marked to to vote for all persons listed
the contrary below) below
[_] [_]
Steven B. Hoyt, Paul T. Lambert, Arnold K. Leas, Robert P. Ripp
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL, WRITE THAT
PERSON'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
4. To approve the adoption of the Wellington Properties Trust 1998 Share
Option Plan.
For Against Abstain
[_] [_] [_]
5. To approve any adjournment of the Special Meeting. However, proxies voting
against any of the primary components of the Transaction will not be used to
vote for adjournment of the meeting to solicit more votes pursuant to such
discretionary authority.
For Against Abstain
[_] [_] [_]
6. In accordance with their discretion, upon all matters that may properly
come before said meeting and any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED UNDER PROPOSAL 3 AND FOR PROPOSALS 1, 2, 4 and 5.
Please Sign Here__________________________________
Name:
Title (if any):
Dated: November __, 1998
Additional signatory (if any):____________________
Name:
Title (if any):
NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR NAMES APPEAR BELOW. ALL
JOINT OWNERS OF SHARES SHOULD SIGN. STATE FULL TITLE WHEN SIGNING AS EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC. PLEASE RETURN SIGNED PROXY IN THE
ENCLOSED ENVELOPE.
