SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Commission
Date of Report (Date of earliest event reported) OCTOBER 31, 1996
Franklin Select Realty Trust
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(Exact Name of Registrant as Specified in its Charter)
California 1-12708 94-0395938
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State or other jurisdiction Commission File No. IRS Employer
incorporation Identification
Number
1800 Gateway Drive, San Mateo, CA 94404
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (415)312-3000
Item 5. Other Events
PROPERTY ACQUISITIONS: On October 31, 1996, FSRT, L.P., a limited
partnership of which the Company is the sole general partner ("FSRT"),
acquired two industrial R&D buildings totalling 211,860 square feet located
in Fremont, California (the "LAM Buildings") for approximately $25.5
million. FSRT acquired the LAM Buildings from Northport Associates No. 18, a
California limited liability company ("Northport Associates"), which is the
limited partner of FSRT. Northport Associates contributed to FSRT its fee
title equity interests in the LAM Buildings (with an approximate value of
$9.3 million) in exchange for 1.625 million limited partnership units in FSRT
(the "FSRT Units"). FSRT will assume the existing financing on the LAM
Buildings, consisting of approximately $16.2 million of fixed rate,
non-recourse loans. FSRT expects to refinance the loans with long-term fixed
rate debt to be provided by Midland Commercial Financing Corporation during
the fourth quarter. LAM Research occupies both buildings under triple net
leases that expire on December 31, 2014, and include two 5-year extensions at
the option of the tenant. Current combined annual rent for the LAM Buildings
is approximately $2.4 million.
In addition, the Company contributed to FSRT fee title to the
Data General Building in Manhattan Beach, California, which has a net book
value of approximately $20.6 million, and will contribute to FSRT
approximately $1.3 million in cash to cover transaction and closing costs,
including loan prepayment fees. For their contributions, the Company
received an approximately 70% ownership interest in FSRT as the general
partner, and Northport Associates received an approximately 30% ownership
interest in FSRT, after adjustment for payment of closing costs by the
Company. The Company may contribute all of its remaining properties to FSRT
(the "UPREIT Contribution") at some later date.
Northport Associates is entitled to distributions from FSRT of
$.11 per FSRT Unit, payable quarterly. As of the first calendar quarter that
occurs eighteen months after the closing of the acquisition of the LAM
Buildings, the distributions shall be increased by 10%, and shall be
increased by 10% every year thereafter on the anniversary date of the first
increase. The balance of FSRT's cash flow shall be paid to the Company.
However, if the Company makes the UPREIT Contribution, the Company has the
right to modify the distributions payable to Northport Associates.
After October 31, 1997, each limited partner of FSRT will have
the right to exchange FSRT Units for shares of Series A common stock of the
Company. The Company has the option of satisfying the exchange obligation
with cash instead of stock. FSRT Units will be exchangeable for shares of
Series A common stock of the Company on a one-for-one basis, subject to
adjustment for stock splits, stock dividends or similar changes to the Series
A common stock.
The acquisition involves a number of additional terms, including
but not limited to: (i) the appointment of two individual partners of
Northport Associates to the Company's Board of Directors; (ii) limitation on
the ability of FSRT to dispose of or prepay debt secured by the LAM Buildings
during certain periods; (iii) provisions that restrict the Northport
Associates from transferring shares of Series A common stock received in
exchange for FSRT Units except in accordance with applicable securities laws;
and (iv) the grant to the Northport Associates of certain registration rights
to enable them to resell shares of Series A common stock to the public under
certain conditions.
REPURCHASE OF DISSENTING SHARES: On November 1, 1996, the Company purchased
all of the remaining "dissenting shares" of Series A common stock arising
from the merger of the Company with Franklin Real Estate Income Fund
("FREIF") and Franklin Advantage Real Estate Income Fund ("Advantage") in May
1996. The remaining dissenting shareholder agreed to sell its 634,137
dissenting shares of Series A common stock of FREIF and 1,077,608 dissenting
shares of Series A common stock of Advantage for an aggregate purchase price
of $8.4 million. After giving effect to the transaction, the total number of
shares of Series A common stock outstanding is 12.25 million shares.
Item 7. Financial Statements and Exhibits
(a) Pro Forma Financial Statements
It is impracticable to provide the required historical financial
statements of the acquired properties. The Company will file such statements
not more than 60 days after the date of this filing.
(b) Historical Financial Statements
It is impracticable to provide the required historical financial
statements of the acquired properties. The Company will file such statements
not more than 60 days after the date of this filing.
(c) Exhibits
10.1 Agreement of Limited Partnership of FSRT, L.P. between the
Company and Northport Associates No. 18, a California limited liability
company, dated as of October 30, 1996.
10.2 Contribution Agreement dated as of October 30, 1996 between FSRT,
L.P., the Company, Northport Associates No. 18, a California limited
liability company, and the members of Northport Associates No. 18.
10.3 Exchange Rights Agreement dated as of October 30, 1996 among the
Company, FSRT, L.P., and Northport Assocciates No. 18, a California limited
liability company.
10.4 Registration Rights Agreement dated as of October 30, 1996 among
the Company and Northport Associates No. 18, a California limited liability
company.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1996 Franklin Select Realty Trust
By /s/ David P. Goss
David P. Goss
President
AGREEMENT OF LIMITED PARTNERSHIP
OF
FSRT, L.P.
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINED TERMS..........................................................1
ARTICLE 2
ORGANIZATIONAL MATTERS................................................10
Section 2.1 Organization............................................10
Section 2.2 Name....................................................10
Section 2.3 Registered Office and Agent; Principal Office...........11
Section 2.4 Power of Attorney.......................................11
Section 2.5 Term....................................................12
ARTICLE 3
PURPOSE...............................................................12
Section 3.1 Purpose and Business....................................12
Section 3.2 Powers..................................................13
ARTICLE 4
CAPITAL CONTRIBUTIONS.................................................13
Section 4.1 Capital Contributions of the Partners...................13
Section 4.2 Issuances of Additional Partnership Interests...........14
Section 4.3 Preemptive Rights. .....................................17
Section 4.4 General Partner Additional
Capital Contributions and Loans.........................17
ARTICLE 5
DISTRIBUTIONS AND OTHER ACCOUNTING ISSUES.............................18
Section 5.1 Distributions...........................................18
Section 5.2 Amounts Withheld........................................18
Section 5.3 Distributions Upon Liquidation..........................19
Section 5.4 Other Distribution Issues...............................19
ARTICLE 6
ALLOCATIONS.....................................................20
Section 6.1 Allocations of Net Income and Net Loss..................20
Section 6.2 Other Allocations.......................................21
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS.................................21
Section 7.1 Management..............................................21
Section 7.2 Certificate of Limited Partnership......................24
Section 7.3 Tax Consequences........................................25
Section 7.4 Management Fee and Reimbursement
of the General Partner..................................25
Section 7.5 Outside Activities of the General Partner...............28
Section 7.6 Contracts with Affiliates...............................28
Section 7.7 Indemnification.........................................29
Section 7.8 Liability of the General Partner........................31
Section 7.9 Other Matters Concerning the General Partner............32
Section 7.10 Title to Partnership Assets.............................32
Section 7.11 Reliance by Third Parties...............................33
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................33
Section 8.1 Limitation of Liability.................................33
Section 8.2 Management of Business..................................33
Section 8.3 Outside Activities of Limited Partners..................34
Section 8.4 Return of Capital.......................................34
Section 8.5 Rights of Limited Partners Relating to the Partnership..35
Section 8.6 No Redemption Right.....................................36
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS................................36
Section 9.1 Records and Accounting..................................36
Section 9.2 Fiscal Year.............................................36
Section 9.3 Reports.................................................36
ARTICLE 10
TAX MATTERS...........................................................37
Section 10.1 Preparation of Tax Returns..............................37
Section 10.2 Tax Elections...........................................37
Section 10.3 Tax Matters Partner.....................................38
Section 10.4 Organization Expenses...................................39
Section 10.5 Withholding.............................................39
ARTICLE 11
TRANSFER AND WITHDRAWALS..............................................40
Section 11.1 Transfer................................................40
Section 11.2 Transfer of the General Partner's Partner
Interest and Limited
Partner Interest........................................41
Section 11.3 Limited Partners' Rights to Transfer....................41
Section 11.4 Substituted Limited Partners............................42
Section 11.5 Assignees...............................................43
Section 11.6 General Provisions......................................43
Section 11.7 Restrictions on Transfer................................44
ARTICLE 12
ADMISSION OF PARTNERS.................................................44
Section 12.1 Admission of Successor General Partner..................44
Section 12.2 Admission of Additional Limited Partners................45
Section 12.3 Amendment of Agreement and
Certificate of Limited Partnership......................45
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION..............................46
Section 13.1 Dissolution.............................................46
Section 13.2 Winding Up..............................................47
Section 13.3 Compliance with Timing Requirements of Regulations......48
Section 13.4 Deemed Distribution and Recontribution..................48
Section 13.5 Rights of Limited Partners..............................49
Section 13.6 Notice of Dissolution...................................49
Section 13.7 Termination of Partnership and
Cancellation of Certificate of
Limited Partnership.....................................49
Section 13.8 Reasonable Time for Winding-Up..........................49
Section 13.9 Waiver of Partition.....................................49
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS..........................50
Section 14.1 Amendments..............................................50
Section 14.2 Meetings of the Partners................................51
ARTICLE 15
GENERAL PROVISIONS....................................................52
Section 15.1 Addresses and Notices...................................52
Section 15.2 Titles and Captions.....................................52
Section 15.3 Pronouns and Plurals....................................53
Section 15.4 Further Action..........................................53
Section 15.5 Binding Effect..........................................53
Section 15.6 Creditors...............................................53
Section 15.7 Waiver..................................................53
Section 15.8 Counterparts............................................53
Section 15.9 Applicable Law..........................................53
Section 15.10 Invalidity of Provisions...............................54
Section 15.11 Entire Agreement.......................................54
Section 15.12 No Rights as Shareholders..............................54
Section 15.13 Agreements Read Together...............................54
AGREEMENT OF LIMITED PARTNERSHIP
OF
FSRT, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF FSRT, L.P. (this
"Agreement"), dated as of October 30, 1996 (the "Effective Date"), is entered
into by and among Franklin Select Realty Trust, a California corporation, as the
general partner (the "General Partner"), and the "Limited Partners" (as defined
below) whose names are set forth on EXHIBIT "A" as attached hereto (as it may be
amended from time to time), collectively as the Limited Partners.
WHEREAS, the General Partner and the Limited Partners desire that this
limited partnership be a Delaware limited partnership (the "Partnership")
pursuant to this Agreement and the "Act" (as hereinafter defined);
WHEREAS, the General Partner and the Limited Partners desire to make
certain capital contributions in connection with entering into this Agreement,
all in the amounts and on the terms herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
Section 1.1 "ACT" means the Delaware Revised Uniform Limited Partnership
Act, Delaware Code, Title Six, Chapter 17, as it may be amended from time to
time, and any successor to such statute.
Section 1.2 "ADDITIONAL LIMITED PARTNER" means a Person admitted to the
Partnership as a Limited Partner pursuant to SECTION 4.2 hereof and who is shown
as such on the books and records of the Partnership.
Section 1.3 "ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained
for each Partner as of the end of each Partnership taxable 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 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
Section 1.4 "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 taxable year.
Section 1.5 "ADJUSTED PROPERTY" means any property, the Carrying Value of
which has been adjusted pursuant to EXHIBIT "C" hereof. Once an Adjusted
Property is deemed distributed by, and re-contributed to, the Partnership for
federal income tax purposes upon a termination thereof pursuant to Section 708
of the Code, such property shall thereafter constitute a Contributed Property
until the Carrying Value of such property is further adjusted pursuant to
EXHIBIT "C" hereof.
Section 1.6 "AFFILIATE" means, with respect to any Person: (i) any Person
directly or indirectly controlling, controlled by or under common control with
such Person; (ii) any Person owning or controlling ten percent (10%) or more of
the outstanding voting interests of such Person; (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests; or
(iv) any officer, director, general partner or trustee of such Person or of any
Person referred to in clauses (i), (ii) and (iii) above.
Section 1.7 "AGREED VALUE" means: (i) in the case of any Contributed
Property set forth on EXHIBIT "D" , the Agreed Value of such property as of the
time of contribution, as set forth in EXHIBIT "D"; (ii) in the case of any
Contributed Property not set forth in EXHIBIT "D ", the 704(c) Value of such
property, 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.
Section 1.8 "AGREEMENT" means this Agreement of Limited Partnership, as it
may be amended, supplemented or restated from time to time.
Section 1.9 "ASSIGNEE" means a Person to whom one or more Partnership
Units of one or more Limited Partners have been transferred in a manner
permitted under this Agreement, but who has not become a Substituted Limited
Partner, and who has the rights set forth in SECTION 11.5.
Section 1.10"AVAILABLE CASH" means, with respect to any period for which
such calculation is being made, all cash receipts of the Partnership during that
period (including cash Capital Contributions and sales and refinancing proceeds
other than Terminating Capital Transactions), PLUS the amount of any reduction
in Partnership reserves previously established pursuant to CLAUSE (IV) below,
LESS the sum of the following amounts:
(i) All payments of principal and interest on any indebtedness of the
Partnership during that period;
(ii) capital expenditures and investments made by the Partnership during
such period;
(iii) All payments during the period for carrying costs, operating costs
or other expenses incurred incident to the operation of the business of the
Partnership and in accordance with the terms of this Agreement, whether or not
deducted in determining Net Income or Net Loss; and
(iv) Reasonable reserves incident to the conduct of the business of the
Partnership, as determined by the General Partner.
Notwithstanding the foregoing, Available Cash shall not include any cash
received or reduction in reserves, or take into account any disbursements made
or reserves established, after commencement of the dissolution and liquidation
of the Partnership.
Section 1.11 "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 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.
Section 1.12 "BUSINESS DAY" means any day except a Saturday, Sunday or
other day on which commercial banks in San Francisco, California are authorized
or required by law to close.
Section 1.13 "CAPITAL ACCOUNT" means the Capital Account maintained for a
Partner pursuant to EXHIBIT "B " hereof.
Section 1.14 "CAPITAL CONTRIBUTION" means, with respect to any Partner, any
cash, cash equivalents or the Agreed Value of Contributed Property (which may
include cash and cash equivalents) which such Partner contributes or is deemed
to contribute to the Partnership pursuant to SECTION 4.1, 4.2 or 4.4 hereof.
Section 1.15" CARRYING VALUE" means: (i) with respect to a Contributed
Property or Adjusted Property, the 704(c) Value of such property, reduced (but
not below zero) by all Depreciation with respect to such Property charged to the
Partners' Capital Accounts following the contribution of or adjustment with
respect to such Property; 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 EXHIBIT "B" hereof, and to reflect
changes, additions or other adjustments to the Carrying Value for dispositions
and acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
Section 1.16 "CERTIFICATE" means a 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.
Section 1.17 "CODE" means the Internal Revenue Code of 1986, as amended
and in effect from time to time. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provisions of future law.
Section 1.18 "COMBINED NET VALUES" means the sum of the Franklin REIT Net
Value and the Northport Property Net Value.
Section 1.19 "CONSENT" means the consent or approval of a proposed action
by a Partner given in accordance with SECTION 14.2 hereof.
Section 1.20 "CONTRIBUTED PROPERTY" means each property or other asset, in
such form as may be permitted by the Act (but excluding cash), contributed or
deemed contributed to the Partnership (including deemed contributions to the
Partnership on termination and reconstitution thereof pursuant to Section 708 of
the Code). Once the Carrying Value of a Contributed Property is adjusted
pursuant to EXHIBIT "B" hereof, such property shall no longer constitute a
Contributed Property for purposes of EXHIBIT "B" hereof, but shall be deemed an
Adjusted Property for such purposes.
Section 1.21 "CONTRIBUTION AGREEMENT" means that certain Contribution
Agreement by and among the General and the Limited Partners, among others,
providing for the formation of this Partnership and the contributions of cash
and/or other assets by the General Partner and the Northport Property by the
Limited Partners.
Section 1.22 "CLOSING" shall have the meaning set forth in the
Contribution Agreement.
Section 1.23 "DEPRECIATION" means, for each taxable 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 or other period, 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.
Section 1.24 "EXCHANGE RIGHTS AGREEMENT" means that certain Exchange Rights
Agreement entered into concurrently herewith by and between the Partnership, the
General Partner, and the Limited Partners, among others.
Section 1.25 "FRANKLIN REIT GROSS ASSETS" shall mean the Data General
property described in Exhibit 1.17 to the Contribution Agreement, the Real
Property and Personal Property (as those terms are defined in the Contribution
Agreement) relating to the Data General property and the other assets reflected
on the books of the General Partner that relate to the Data General property or
this transaction, including without limitation cash and cash equivalents,
capitalized Lam Building acquisition expenses, commissions, closing costs,
prepaid expenses, accounts receivable, deferred rent receivable, unamortized
leasing commissions and deferred loan costs.
Section 1.26 "FRANKLIN REIT DEPRECIATED ASSET VALUE" means the depreciated
net book value of the Franklin REIT Gross Assets on the Closing.
Section 1.27 "FRANKLIN REIT NET VALUE" shall mean the Franklin REIT
Depreciated Asset Value reduced by an amount equal to all liabilities reflected
on the books of the General Partner that relate to the Data General property or
this transaction on the Closing, including without limitation notes payable,
security deposits, prepaid rent, taxes payable, and other accrued liabilities.
Section 1.28 "GENERAL PARTNER INTEREST" means a Partnership Interest held
by the General Partner, in its capacity as General Partner. A General Partner
Interest may, but need not, be expressed as a number of Partnership Units.
Section 1.29 "IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
Section 1.30 "INCAPACITY" or "INCAPACITATED" means: (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating him incompetent to manage his person or his
estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii) as to any partnership which is a Partner, the
dissolution and commencement of winding up the partnership; (iv) as to any
estate which is a Partner, the distribution by the fiduciary of the estate's
entire interest in the Partnership; (v) as to any trustee of a trust which is a
Partner, the termination of the trust (but not the substitution of a new
trustee); (vi) as to any limited liability company or limited liability
partnership which is a Partner, the dissolution and commencement of winding up
the limited liability company or limited liability partnership; or (vii) 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 of or against such Partner under any bankruptcy, insolvency or
other similar law now or hereafter in effect which has not been dismissed within
one hundred twenty (120) days after the commencement thereof; (g) the
appointment without the Partner's consent or acquiescence of a trustee, receiver
or liquidator which has not been vacated or stayed within ninety (90) days of
such appointment; or (h) an appointment referred to in CLAUSE (G) which has been
stayed is not vacated within ninety (90) days after the expiration of any such
stay.
Section 1.31 "INDEMNITEE" means any Person made a party to a proceeding by
reason of (i) his status as the General Partner, or as a director, officer,
employee, partner, agent, representative or Affiliate of the General Partner, or
(ii) his or its liabilities pursuant to a loan guarantee or otherwise for or as
a result of any indebtedness or obligation of the Partnership or any Subsidiary
of the Partnership (including, without limitation, any indebtedness or
obligation which the Partnership or any Subsidiary of the Partnership has
assumed or taken assets subject to).
Section 1.32 "LIMITED PARTNER" means any Person named as a Limited Partner
on EXHIBIT "A" attached hereto, as such Exhibit may be amended from time to
time, or any Substituted Limited Partner or Additional Limited Partner, in such
Person's capacity as a Limited Partner of the Partnership. If there is more than
one Limited Partner, "Limited Partners" means the Limited Partner membership
collectively.
Section 1.33 "LIMITED PARTNER INTEREST" means a Partnership Interest of a
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Partners, and includes any and all benefits to
which the holder of such a Partnership Interest may be entitled, as provided in
this Agreement, together with all obligations of such Person to comply with the
terms and provisions of this Agreement. A Limited Partner Interest may be
expressed as a number of Partnership Units.
Section 1.34 "LIQUIDATING EVENT" has the meaning set forth in SECTION
13.1.
Section 1.35 "LIQUIDATOR" has the meaning set forth in SECTION 13.2.
Section 1.36 "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 that are
to be reflected in the Partners' Capital Accounts, determined in accordance with
federal income tax accounting principles and EXHIBIT "B".
Section 1.37 "NET LOSS" 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 that are to
be reflected in the Partners' Capital Accounts, determined in accordance with
federal income tax accounting principles and EXHIBIT "B".
Section 1.38 "NONRECOURSE BUILT-IN-GAIN" means, with respect to any
Contributed Properties or Adjusted Properties that are subject to a Nonrecourse
Liability, the amount of any taxable gain that would be allocated to the
Partners pursuant to SECTION 2.B. of EXHIBIT "C " if such properties were
disposed of in a taxable transaction in full satisfaction of such liabilities
and for no other consideration.
Section 1.39 "NONRECOURSE DEDUCTIONS" has the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
Section 1.40" NONRECOURSE LIABILITY" has the meaning set forth in
Regulations Section 1.752-1(a)(2).
Section 1.41" NORTHPORT PROPERTY" shall have the meaning set forth in the
Contribution Agreement.
Section 1.42 "NORTHPORT PROPERTY NET VALUE" means $25.5 Million minus the
principal amount of the Secured Debt on the Closing..
Section 1.43 "PARTNER" means a General Partner or a Limited Partner, and
"PARTNERS" means the General Partner and the Limited Partners collectively.
Section 1.44 "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).
Section 1.45 "PARTNER NONRECOURSE DEBT" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
Section 1.46 "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 taxable
year shall be determined in accordance with the rules of Regulations Section
1.704-2(i)(2).
Section 1.47 "PARTNERSHIP" means the limited partnership formed under this
Agreement and any successor thereto.
Section 1.48 "PARTNERSHIP INTEREST" means an ownership interest in the
Partnership by either a Limited Partner or the General Partner, and includes any
and all benefits to which the holder of such a Partnership Interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. A Partnership
Interest may, but need not, be expressed as a number of Partnership Units.
Section 1.49 "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in a Partnership Minimum Gain, for a
Partnership taxable year shall be determined in accordance with the rules of
Regulations Section 1.704-2(d).
Section 1.50 "PARTNERSHIP PAYMENT DATE" means, in the case of distributions
made pursuant to SECTION 5.1 hereof with respect to a calendar quarter, the date
that is fifteen days following the end of the calendar quarter; provided
however, that should such date fall on a weekend or legal holiday, the
Partnership Payment Date shall be the first Business Day following such weekend
or legal holiday.
Section 1.51"PARTNERSHIP UNIT" means a fractional undivided share of the
Partnership Interests. The number of Partnership Units outstanding in the hands
of the Limited Partners are set forth in EXHIBIT "A" attached hereto, as such
Exhibit may be amended from time to time. The ownership of Partnership Units
shall be evidenced by such form of certificate for units as the General Partner
adopts from time to time unless the General Partner determines that the
Partnership Units shall be uncertificated securities. If the General Partner
elects to evidence the Partnership Units with a certificate, such certificate
may be imprinted with a legend setting forth such restrictions placed on the
units as specified in this Agreement and such restrictions will be binding upon
all holders of the certificate along with the terms and conditions set forth in
this Agreement.
Section 1.52 "PARTNERSHIP YEAR" means the fiscal year of the Partnership,
which shall be the calendar year.
Section 1.53 "PERCENTAGE INTEREST" means, as to a Partner, its interest in
the Partnership as specified in EXHIBIT "A" attached hereto, as such Exhibit may
be amended from time to time.
Section 1.54 "PERSON" means an individual or a corporation, partnership,
trust, limited liability company, unincorporated organization, association or
other entity.
Section 1.55 "RECAPTURE INCOME" means any gain recognized by the
Partnership 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.
Section 1.56 "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).
Section 1.57 "REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement entered into concurrently herewith by and between
the General Partner and the Limited Partners, among others.
Section 1.58 "REIT" means a real estate investment trust under Section 856
of the Code.
Section 1.59 "REIT SHARE" shall mean a share of Class A common stock of
the General Partner, without par value.
Section 1.60 "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 2.B.(1)(A) or 2.B.(2)(A) of EXHIBIT "C " to
eliminate Book-Tax Disparities.
Section 1.61 "704(C) VALUE" of any Contributed Property means the value of
such property as of the time of its contribution to the Partnership, as set
forth in EXHIBIT "D", or if no value is set forth in EXHIBIT "D", the fair
market value of such property or other consideration at the time of
contribution, as determined by the General Partner using such reasonable method
of valuation as it may adopt; PROVIDED, HOWEVER, that the 704(c) Value of any
property deemed contributed to the Partnership for federal income tax purposes
upon termination and reconstitution thereof pursuant to Section 708 of the Code
shall be determined in accordance with EXHIBIT "B" hereof. Subject to SECTION
10.2 and Exhibit "B" hereof, the General Partner shall, in its sole and absolute
discretion, exercised in good faith, use such method as it deems reasonable and
appropriate to allocate the aggregate of the 704(c) Values of Contributed
Properties in a single or integrated transaction among the separate properties
on a basis proportional to their respective fair market values.
Section 1.62 "SECURED DEBT" shall have the meaning set forth in the
Contribution Agreement.
Section 1.63 "SUBSIDIARY" means, with respect to any Person, any
corporation, partnership 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.
Section 1.64 "SUBSTITUTED LIMITED PARTNER" means a Person who is admitted
as a substituted Limited Partner to the Partnership pursuant to SECTION 11.4.
Section 1.65 "TERMINATING CAPITAL TRANSACTION" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
Section 1.66"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 EXHIBIT "B" hereof) as
of such date, over (ii) the Carrying Value of such property (prior to any
adjustment to be made pursuant to EXHIBIT "B" hereof) as of such date.
Section 1.67"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
EXHIBIT "B" hereof) as of such date, over (ii) the fair market value of such
property (as determined under EXHIBIT "B" hereof) as of such date.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 ORGANIZATION
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein to the contrary, the rights and
obligations of the Partners and the administration and termination of the
Partnership shall be governed by the Act. The Partnership Interest of each
Partner shall be personal property for all purposes.
Section 2.2 NAME
The name of the Partnership shall be FSRT, L.P. The Partnership's business
may be conducted under any other name or names deemed advisable by the General
Partner. The words "Limited Partnership," "L.P.," "Ltd." or similar words or
letters shall be included in the Partnership's name where necessary for the
purpose of complying with the laws of any jurisdiction that so requires. The
General Partner, in its sole and absolute discretion exercised in good faith,
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 and the name and address of the registered agent for service of process
on the Partnership in the State of Delaware is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The
principal office of the Partnership shall be c/o Franklin Select Realty Trust,
1800 Gateway Drive, San Mateo, California 94404, or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems advisable.
Section 2.4 POWER OF ATTORNEY
A. Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices: (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the Certificate
and all amendments or restatement thereof) that the General Partner or the
Liquidator deems appropriate or necessary to form, qualify or continue the
existence or qualification of the Partnership as a limited partnership (or a
partnership in which the Limited Partners have limited liability) in the State
of Delaware and in all other jurisdictions in which the Partnership may or plans
to conduct business or own property; (b) all instruments that the General
Partner deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its terms; (c)
all conveyances and other instruments or documents that the General Partner or
the Liquidator deems appropriate or necessary to reflect the dissolution and
liquidation of the Partnership pursuant to the terms of this Agreement,
including, without limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal, removal or substitution of
any Partner pursuant to, or other events described in, ARTICLE 11, 12 or 13
hereof or the Capital Contribution of any Partner; (e) all certificates,
documents and other instruments relating to the determination of the rights,
preferences and privileges of Partnership Interest; and (f) any and all
financing statements, continuation statements and other documents necessary or
desirable to create, perfect, continue or validate the security interest granted
by a Limited Partner pursuant to SECTION 10.5 of this Agreement or to exercise
or enforce the Partnership's rights with respect to such security interest; and
(2) execute, swear to, seal, acknowledge and file all ballots, consents,
approvals, waivers, certificates and other instruments appropriate or necessary,
in the sole and absolute discretion, exercised in good faith, of the General
Partner or any Liquidator, to make, evidence, give, confirm or ratify any vote,
consent, approval, agreement or other action which is made or given by the
Partners hereunder or is consistent with the terms of this Agreement or
appropriate or necessary, in the sole and absolute discretion exercised in good
faith, of the General Partner or any Liquidator, to effectuate the terms or
intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with ARTICLE 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, in recognition of the fact that each of
the Partners will be relying upon the power of the General Partner and any
Liquidator to act as contemplated by this Agreement in any filing or other
action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's Assignee's Partnership
Units and shall extend to such Limited Partner's or Assignee's heirs,
successors, assigns and personal representatives. As between the Partnership and
an independent third party, 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 against such independent
third party 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 in accordance with the provisions of this Agreement. Each Limited
Partner or Assignee shall execute and deliver to the General Partner or the
Liquidator, within twenty-one (21) 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 2.5 TERM
The term of the Partnership commenced on the Effective Date and shall
continue until December 31, 2096, unless the Partnership is dissolved sooner
pursuant to the provisions of ARTICLE 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the Partnership
is: (i) to conduct any business that may be lawfully conducted by a limited
partnership organized pursuant to the Act; PROVIDED, HOWEVER, that such business
shall be limited to and conducted in such a manner as to permit the General
Partner at all times to be classified as a REIT, unless the General Partner
ceases to qualify as a REIT for reasons other than the conduct of the business
of the Partnership; (ii) to acquire, hold, own, operate, manage, and otherwise
deal with (either directly or through a subsidiary) real and personal property
of all kinds; (iii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing or to own interests in any
entity engaged in any of the foregoing; and (iv) to do anything necessary or
incidental to the foregoing. In connection with the foregoing, and without
limiting the General Partner's right, in its sole and absolute discretion,
exercised in good faith, to cease qualifying as a REIT, the Partners acknowledge
the General Partner's current status as a REIT inures to the benefit of all of
the Partners and not solely the General Partner.
Section 3.2 POWERS
The Partnership is empowered to do any and all acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance
and accomplishment of the purposes and business described herein and for the
protection and benefit of the Partnership; PROVIDED, 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 exercised
in good faith: (I) could adversely affect the ability of the General Partner to
continue to qualify as a REIT; (ii) could subject the General Partner to any
additional taxes under Section 857 or Section 4981 of the Code; or (iii) could
violate any law or regulation of any governmental body or agency having
jurisdiction over the General Partner or its securities, unless such action (or
inaction) shall have been specifically consented to by the General Partner in
writing.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 CAPITAL CONTRIBUTIONS OF THE PARTNERS
A. Concurrently with the Closing, the General Partner shall contribute to
the Partnership the cash and other assets described and in accordance with the
terms, provisions, and conditions of the Contribution Agreement. Additional
Capital Contributions shall be made by the General Partner in accordance with
this Agreement.
B. Concurrently with the Closing, the Limited Partners shall transfer,
assign, convey, and deliver all right, title, and interest in and to the real
properties, improvements, and other assets as described and in accordance with
the terms, provisions, and conditions of the Contribution Agreement, and such
shall constitute the Capital Contribution of the Limited Partners to the
Partnership.
By executing and delivering this Agreement, the Partners hereby
acknowledge and agree that the aggregate Capital Contributions of the Limited
Partners shall be determined in accordance with the terms and provisions of the
Contribution Agreement.
In consideration of their Capital Contributions, the Partners shall
receive Percentage Interests (and in the case of the Limited Partners, such
Percentage Interests shall also be expressed in Partnership Units), in the
amounts set forth on EXHIBIT "A". The Percentage Interests shall be adjusted in
EXHIBIT "A" from time to time by the General Partner to the extent necessary to
reflect accurately redemptions, additional Capital Contributions, the issuance
of additional Partnership Units (pursuant to any merger or otherwise), or
similar or other events having an effect on any Partner's Percentage Interest.
Except as provided hereinabove and as expressly provided in SECTIONS 4.4, and
10.5, the Partners shall have no obligation whatsoever to make any additional or
further Capital Contributions, loans, or advances of any kind to the
Partnership, or to in any way finance the operation of the Partnership or any of
the debt or obligations of the Partnership.
C. Except as provided in SECTION 13.3 of this Agreement and as otherwise
expressly provided herein, the Capital Contribution of each Partner will be
returned to that Partner only in the manner and to the extent provided in
ARTICLE 5 and ARTICLE 13 hereof, and no Partner may withdraw from the
Partnership or otherwise have any right to demand or receive the return of its
Capital Contribution to the Partnership. Under circumstances requiring a return
of any Capital Contribution, no Partner shall have the right to receive property
other than cash, except as specifically provided herein. No Partner shall be
entitled to interest on any Capital Contribution or Capital Account. The General
Partner shall not be liable for the return of any portion of the Capital
Contribution of any Limited Partner, and the return of such Capital
Contributions shall remain solely from partnership assets.
D. Except as provided in SECTION 10.5 or under the Act, no Limited Partner
shall have any further personal liability to contribute money to, or in respect
of, the liabilities or the obligations of the Partnership, nor shall any Limited
Partner be personally liable for any obligations of the Partnership. Except as
provided in this ARTICLE 4, no Limited Partner shall be required to make any
contributions to the capital of the Partnership.
Section 4.2 ISSUANCES OF ADDITIONAL PARTNERSHIP INTERESTS
A. The General Partner is hereby authorized to cause the Partnership from
time to time to issue to the Partners (including the General Partner) or other
Persons additional Partnership Units or other Partnership Interests in one or
more classes, or one or more series of any of such classes, with such
designation, preferences and relative, participating, optional or other special
rights, powers and duties, including, rights, powers and duties senior to the
Limited Partners.
B. Subject to the foregoing, the rights, privileges, benefits, burdens, and
restrictions relating to any such additional Partnership Units or Partnership
Interests provided for in SECTION 4.2A above, shall be determined by the General
Partner in its sole and absolute discretion, exercised in good faith (but
without creating different priorities as between the Limited Partner Interests
and the General Partner Interests received by the General Partner and the
Limited Partners in connection with the contributions provided for under the
Contribution Agreement), subject to Delaware law, including, without limitation:
(i) the allocations of items of Partnership income, gain, loss, deduction and
credit to each such class or series of Partnership Interests; (ii) the right of
each such class or series of Partnership Interests to share in Partnership
distributions; and (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership. Notwithstanding
anything stated to the contrary, no such additional Partnership Units or other
Partnership Interests shall be issued to the General Partner, as the General
Partner, or a Limited Partner, or to an Affiliate of either the General Partner
or the Limited Partner, unless the additional Partnership Interests are issued
for a fair economic consideration determined at the time of or within ninety
(90) days prior to the issuance, or unless the issuance of such additional
Partnership Interests is otherwise permitted under the terms and provisions of
this Agreement.
C. With regard to such issuances provided for in this SECTION 4.2, the
General Partner may in its sole and absolute discretion exercised in good faith,
but shall not be required, to obtain a determination by an independent
investment banker or financial advisor that the consideration paid or proposed
to be paid by the General Partner of a new or existing Limited Partner is a fair
economic consideration, or is otherwise fair from a financial point of view, to
the Partnership. In the event such a determination is obtained by the General
Partner, the Partners agree that such determination shall be conclusive and
binding upon all parties hereto for all purposes, and shall constitute a
conclusive, non-rebuttable presumption that the consideration so paid
represented fair consideration and that the action taken by the General Partner
was in good faith and proper action by the General Partner for all purposes
under this Agreement.
D. The Limited Partners expressly acknowledge that, in addition to the
actions that may be taken by the General Partner in accordance with this SECTION
4.2, the General Partner may, from time to time, issue capital stock or other
securities in the General Partner for consideration it believes to be fair
economic consideration, and that such issuance, may affect the Limited Partners'
investment in the Partnership as well as other rights the Limited Partners may
have acquired in connection with the transactions entered into on or about the
time the Limited Partners entered into this Agreement, including without
limitation the Exchange Rights Agreement. The Limited Partners agree that the
General Partner shall not be liable for any damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in connection
with such actions, provided that the General Partner has acted in good faith. In
connection therewith, the General Partner may, but shall not be required to,
obtain a determination similar to the determination described in SECTION 4.2C
above in connection with a transaction described in this Section. If obtained,
the Limited Partners agree that such a determination shall be conclusive and
binding upon all parties hereto for all purposes, and shall constitute a
conclusive, non-rebuttable presumption that the consideration so paid
represented fair consideration and that the action taken by the General Partner
was in good faith and proper action.
E. In addition to the other rights set forth in this SECTION 4.2, and
subject to the obligations of the General Partner to the "Northport Parties," as
that term is defined in the Contribution Agreement, the General Partner shall be
authorized at any time, in its sole and absolute discretion exercised in good
faith, and without the need for any vote, consent or approval from, or
consultation with, any Limited Partner, and further without the need for any
appraisal, valuation, or any other analysis or evaluation of any property,
assets, rights, debts, liabilities, obligations, claims, title, encumbrances, or
any other matters of any sort from any person, to contribute, assign, convey,
and transfer all, but not less than all, of the General Partner's rights, title,
claims, interest, debts, duties, liabilities, and obligations, in, to, and
relating to all, but not less than all, of the General Partner's assets,
properties, debts, liabilities, and obligations (excluding the General Partner's
rights, title, claims, interests, debts, duties, liabilities, and obligations
in, to, and relating to its interest in the Partnership, and also excluding same
as such relates to any other entity in which the General Partner has an interest
but which does not own a direct or indirect interest in real property) to the
Partnership (the "UPREIT Contribution"). In exchange therefor, the Partnership
shall immediately issue to the General Partner (A) that number of Partnership
Units equal to the number of the outstanding shares of common stock of the
General Partner at the time of the UPREIT Contribution, and (B) options,
warrants, and other rights to acquire additional Partnership Units in the
Partnership and other securities of the Partnership on an equivalent basis to,
and on the same terms and conditions as, all options, warrants, and other rights
and securities issued and then outstanding, or thereafter issued, with regard to
any shares of capital stock or other securities of any kind of the General
Partner ("General Partner Security Rights"), which shall evidence the General
Partner's entire Partnership Interest. In addition, it is the intention of the
parties that following the UPREIT Contribution, the Limited Partners' percentage
interest in the Partnership shall be equal to the percentage interest which the
Limited Partners would own in the General Partner had the Limited Partners then
exercised their rights and received common stock of the General Partner under
the Exchange Rights Agreement, and therefore, at such time, each Limited
Partner's number of Partnership Units shall be adjusted upward or downward, as
the case may be, to equal the number of shares of common stock of the General
Partner such Limited Partner would have received had it exercised its rights and
received common stock of the General Partner under the Exchange Rights Agreement
at the time of the UPREIT Contribution (assuming for this purpose that the "No
Exchange Period," as that term is used in the Exchange Rights Agreement, had
expired prior to the time of the UPREIT Contribution). Upon the UPREIT
Contribution, the General Partner shall have the right to amend and restate this
Agreement without the consent of any Limited Partner in order convert the
Partnership into an "UPREIT" operating partnership, with terms similar to UPREIT
operating partnerships of the same size and market segment as the Partnership,
whether or not any such amendment would affect the amount, priority, or timing
of distributions (including without limitation SECTIONS 5.1A. and SECTION 5.1D.,
or allocation of Net Income, Net Loss, gross income or any other items, to any
of the Limited Partners; provided however nothing contained in any such amended
or restated agreement shall modify or in any way affect or limit the rights of
any Limited Partner to receive any distribution under SECTION 5.1A that has
become payable, or allocation of Net Income or Loss, gross income or any other
items that accrue prior to the time of the UPREIT Contribution. If a Partnership
Payment Date occurs after the UPREIT Contribution and the Partnership operated
under this Agreement (prior to amendment or restatement) for the entire calendar
quarter prior to the UPREIT Contribution, the full distribution of Available
Cash under SECTION 5.1A for such calendar quarter shall be paid to the Limited
Partners pursuant this Agreement. With respect to the calendar quarter in which
the UPREIT Contribution is made, an amount equal to the Available Cash such
Limited Partner would have been entitled to receive pursuant to SECTION 5.1 for
the entire calendar quarter under this Agreement (prior to amendment or
restatement), multiplied by a fraction, the numerator of which is the number of
days in the calendar quarter (based on three 30-day months) prior to the UPREIT
Contribution and the denominator of which is 90, shall be paid in accordance
with SECTION 5.1 of this Agreement (prior to amendment or restatement).
F. On or after the General Partner exercises its rights under SECTION
4.2E., upon the exercise by any holder of any General Partner Security Rights
and the General Partner's issuance of its securities to the exercising party
with respect thereto, or the issuance of any other General Partner Security
Rights, the General Partner promptly shall contribute to the Partnership any
consideration received upon such exercise (net of all costs, fees, expenses, and
commissions relating thereto), and the Partnership shall thereupon issue to the
General Partner an equivalent number of Partnership Units (in the case of
issuances by the General Partner of shares of its common stock) or an equivalent
number of other interests in the Partnership which have parallel and comparable
rights and privileges to the rights and privileges of the securities issued by
the General Partner.
Section 4.3 PREEMPTIVE RIGHTS. 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 sale of the Partnership;
or (iii) issuance or sale of any Partnership Units or other Partnership
Interests.
Section 4.4 GENERAL PARTNER ADDITIONAL CAPITAL CONTRIBUTIONS AND LOANS.
A. Except as provided in SECTION 4.4B. below, the General Partner and its
Affiliates shall have the right, but not the obligation, to make additional
Capital Contributions, loans and advances to the Partnership. With respect to
loans and advances, the General Partner and its Affiliates shall be treated as a
third party lender to the Partnership (with all attendant rights, privileges,
and remedies) to the extent that it does so. Loans and advances, if any, funded
by the General Partner or its Affiliates shall be on commercially competitive
terms, comparable to similar loans and advances made by unrelated third party
institutional lenders; and, if institutional lenders would not regularly make
such loans or advances, then terms for a comparable loan or advance described by
any unrelated third party loan broker upon request by the General Partner shall
be conclusively presumed to be commercially competitive and comparable to
similar loans and advances made by unrelated third parties for purposes of this
Agreement.
B. The General Partner shall be obligated to contribute or loan to the
Partnership the amount necessary to increase Available Cash to a level that
enables the Partnership to make the distributions set forth in SECTION 5.1A on
each payment date set forth in SECTION 5.1A.
ARTICLE 5
DISTRIBUTIONS AND OTHER ACCOUNTING ISSUES
Section 5.1 DISTRIBUTIONS.
The General Partner shall distribute to the Partners at least quarterly on
the Partnership Payment Date an amount equal to 100% of Available Cash as
follows:
A. First, to each Limited Partner listed on EXHIBIT "A" , an amount
equal to $.11 per Unit; and
B. Thereafter to the General Partner.
C. If a Limited Partner transfers any of his or her Partnership Units in
accordance with this Agreement after the Effective Date, the amount referred to
in SECTION 5.1A shall be paid to the Person who was the holder of the Unit(s) on
the Partnership Payment Date.
D. For the first calendar quarter after the Effective Date, the amount
referred to in SECTION 5.1A shall be reduced to an amount equal to the amount
described, multiplied by a fraction, the numerator of which is the number of
days from the Effective Date to the end of the calendar quarter (based on 30-day
months) and the denominator of which is 90.
E. The amount referred to in SECTION 5.1A shall be increased by ten
percent (10%) as of the first calendar quarter that occurs eighteen months after
the Effective Date and shall be further increased by ten percent (10%) every
year thereafter on the anniversary date of the first calendar quarter increase.
By way of example, if the Effective Date is October 15, 1996, the amount in
SECTION 5.1A shall be increased by 10% for the quarterly distribution to be made
on the Partnership Payment Date occurring after the second calendar quarter of
1998 and shall be increased by 10% each year thereafter for the Partnership
Payment Date occurring after the second calendar.
Section 5.2 AMOUNTS WITHHELD
All amounts withheld pursuant to the Code or any provisions of any state
or local tax law and SECTION 10.5 hereof with respect to any payment or
distribution to the Partners or Assignees shall be treated as amounts
distributed to the 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 and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership shall be distributed to the Partners in accordance with SECTION
13.2.
Section 5.4 OTHER DISTRIBUTION ISSUES.
A. In addition to distributions pursuant to SECTION 5.1, with respect to
any Limited Partner from whom the General Partner receives an Exchange Exercise
Notice to exercise Rights in accordance with the provisions of the Exchange
Rights Agreement for which the General Partner elects to pay the Cash Exchange
Price pursuant to the terms thereof, the General Partner shall cause the
Partnership to distribute to such Limited Partner, with respect to the
Partnership Units for which the Cash Exchange Price is paid, the following
amounts (which amounts shall be distributed on the Partnership Payment Date
corresponding to the applicable calendar quarter): (i) if a Partnership Payment
Date occurs after the Cash Exchange Price is paid and the Limited Partner owned
such Partnership Units for the entire calendar quarter prior to the Partnership
Payment Date, an amount equal to a full pro rata share of any Available Cash
such Limited Partner would have been entitled to receive pursuant to SECTION 5.1
had such Limited Partner held such Partnership Units on the Partnership Payment
Date; and (ii) in all cases (including cases to which clause (i) applies), with
respect to the calendar quarter in which the Cash Exchange Price is paid, an
amount equal to the Available Cash such Limited Partner would have been entitled
to receive pursuant to SECTION 5.1 had such Limited Partner held such
Partnership Units on the Partnership Payment Date occurring during the
succeeding calendar quarter in which the Cash Exchange Price is paid, multiplied
by a fraction, the numerator of which is the number of days in the preceding
calendar quarter (based on three 30-day months) that the Limited Partner held
such Partnership Units and the denominator of which is 90.
B. Notwithstanding any other provision in this Agreement, from time to
time and at such times as the General Partner shall determine, and prior to any
determination or distribution of Available Cash pursuant to SECTION 5.1, there
shall be distributed to the General Partner from the revenues, proceeds or other
funds of the Partnership, an amount equal to any expenses to be reimbursed to
the General Partner hereunder to the extent not paid or payable by the General
Partner from cash distributions which the General Partner has received directly
from a subsidiary of the General Partner on account of any interest in the
subsidiary which it holds directly or through a wholly-owned subsidiary (as
opposed to through the Partnership).
C. If the Partnership issues Partnership Interests in accordance with
other provisions of this Agreement, the distribution priorities set forth in
SECTION 5.1 shall be amended, as necessary, to reflect the distribution priority
of such Partnership Interests; provided however that, except as provided in
SECTION 4.2E., no distribution shall have a higher priority than a distribution
to which a Limited Partner is entitled under SECTION 5.1A without the consent of
the affected Limited Partner.
ARTICLE 6
ALLOCATIONS
Section 6.1 ALLOCATIONS OF NET INCOME AND NET LOSS
For purposes of maintaining the Capital Accounts and in determining the
rights of the General and Limited Partners among themselves, the Partnership's
items of income, gain, loss and deduction shall be computed and allocated among
the General and Limited Partners in each taxable year (or portion thereof) as
provided in this ARTICLE 6.
A. Net Loss for a particular period shall be allocated as follows:
(1) First 100% to the General Partner, until the amount of Net Loss
allocated under this SECTION 6.1A(1) equals the aggregate amount of all gross
income theretofore allocated pursuant to SECTION 6.1C.
(2) Second, to the Partners that have previously been allocated Net
Income pursuant to SECTION 6.1B in amounts and among such Partners in the
reverse order (and in the corresponding amounts) of all Net Income previously
allocated to them until the amount of Net Loss allocated pursuant to this
SECTION 6.1A(2) equals the aggregate amount of all Net Income theretofore
allocated pursuant to SECTION 6.1B.
(3) Third, to the General and Limited Partners in proportion to and
to the extent of their positive Adjusted Capital Account balances, if any.
(4) Fourth, to the General Partner.
B. Net Income for a particular period shall be allocated as follows:
(1) First, to the Partners that have previously been allocated Net
Loss pursuant to SECTION 6.1A in amounts and among such Partners in the reverse
order (and in the corresponding amounts) of all Net Loss previously allocated to
them until the amount of Net Income allocated pursuant to this SECTION 6.1B(1)
equals the aggregate amount of all Net Loss theretofore allocated pursuant to
SECTION 6.1A.
(2) Second, to the Limited Partners in proportion to their
respective Partnership Interests until the aggregate Net Income allocated
pursuant to this SECTION 6.1B(2) for the current taxable period and all previous
taxable periods equals ninety percent (90%) of the aggregate amount of Available
Cash distributed to the Limited Partners pursuant to SECTION 5.1A.
(3) Thereafter, to the General Partner.
C. In the event a Limited Partner's distributive share of taxable income
is greater than such Limited Partner's distributive share of Net Income
(calculated before application of this SECTION 6.1C), gross income in the amount
of such excess shall be specially allocated from such Limited Partner to the
General Partner.
Section 6.2 OTHER ALLOCATIONS . Any gain allocated to the General Partner
and the Limited 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 "C", 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.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 MANAGEMENT
A. Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the 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 shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of the
Partnership, to exercise all powers set forth in SECTION 3.2 hereof and to
effectuate the purposes set forth in SECTION 3.1 hereof, including without
limitation (but in all cases subject to the terms of this Agreement):
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on loans and borrowing
money to permit the Partnership to make distributions to its Partners in such
amounts as will permit the General Partner (so long as the General Partner
qualifies as a REIT) to avoid the payment of any federal income tax (including,
for this purpose, any excise tax pursuant to Section 4981 of the Code) and to
make distributions to its shareholders in amounts sufficient to permit the
General Partner to maintain REIT status), the assumption or guarantee of, or
other contracting for, indebtedness and other liabilities, the issuance of
evidence of indebtedness (including the securing of the same by deed, mortgage,
deed of trust or other lien or encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for the conduct of the
activities of the Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership (including the
exercise or grant of any conversion, option, privilege, or subscription right or
other right available in connection with any assets at any time held by the
Partnership) or the merger or other combination of the Partnership with or into
another entity;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the terms of this
Agreement and on any terms it sees fit, including, without limitation, the
financing of the conduct of the operations of the General Partner, the
Partnership or any of the Partnership's Subsidiaries, the lending of funds to
other Persons (including, without limitation, the Subsidiaries of the
Partnership and/or the General Partner) and the repayment of obligations of the
Partnership and its Subsidiaries and any other Person in which it has an equity
investment, and the making of capital contributions to its Subsidiaries, the
holding of any real, personal and mixed property of the Partnership in the name
of the Partnership or in the name of a nominee or trustee and the creation, by
grant or otherwise, of easements or servitude;
(5) the management, operation, leasing, collection of rents,
marketing, landscaping, repair, alteration, renovation, rehabilitation,
demolition or improvement of the Northport Property or any other real property
or improvements owned by the Partnership or any subsidiary of the Partnership
and the performance of any and all other acts necessary or appropriate to the
operation of the Northport Property, including, without limitation, applications
for rezoning or objections to rezoning of the Northport Property;
(6) 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, without
limitation, the execution and delivery of leases on behalf of or in the name of
the Partnership, contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and other agents and the
payment of their expenses and compensation out of the Partnership's assets;
(7) the opening and closing of bank accounts, the investment of
Partnership funds in securities, certificates of deposit and other instruments,
and the distribution of Partnership cash or other Partnership assets in
accordance with this Agreement;
(8) the holding, managing, investing and reinvesting cash and
other assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer" of the Partnership), and agents, outside attorneys,
accountants, consultants and contractors of the Partnership, and the
determination of their compensation and other terms of employment or hiring
(whether or not any of the foregoing are also employed by, consultants to,
independent contractors for, or otherwise do business with the General Partner
or its Affiliates in related or unrelated matters);
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or appropriate (whether or
not such is done as part of a group, combined or other policy or policies under
which the Partnership and the General Partner (or its Affiliates) are also
insured, so long as the General Partner fairly allocates the expense thereof
among the covered parties);
(12) the formation of, or acquisition of an interest in, and the
contribution of some or all of property (or any part thereof or interest
therein) to, any further limited or General Partnerships, joint ventures or
other relationships that it deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity investment from time
to time);
(13) the control of any and all 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, arbitration or other forms of dispute resolution,
and the representation of the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of dispute resolution,
the incurring of legal expense, and the identification of any Person against
liabilities and contingencies to the extent permitted by law and consistent with
the terms of this Agreement, including in each and all of the foregoing
instances any such matter or thing in which the General Partner or its
Affiliates have a direct interest;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries or any other
Person (including without limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of valuation as the
General Partner may adopt;
(16) the exercise, directly or indirectly, through any
attorney-in-fact acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or investment held
by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with any subsidiary
of the Partnership or any other Person in which the Partnership has a direct or
indirect interest, or jointly with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the Partnership
does not have an interest pursuant to contractual or other arrangements with
such Person;
(19) the making, execution and delivery of any and all deeds,
leases, notes, mortgages, deeds of trust, security agreements, conveyances,
contracts, guarantees, warranties, indemnities, waivers, releases or legal
instruments or agreements in writing necessary or appropriate, in the judgment
of the General Partner, for the accomplishment of any of the powers of the
General Partner enumerated in this Agreement; and
(20) the issuance of additional Partnership Units or Partnership
Interests, as appropriate, in connection with Capital Contributions by
Additional Limited Partners and additional Capital contributions by Partners
pursuant to ARTICLE 4 hereof.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the fullest extent permitted
under the Act or other applicable law, rule or regulation. The execution,
delivery or performance by the General Partner or the Partnership of any
agreement authorized or permitted under this Agreement shall not constitute a
breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement or
of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General Partner may
cause the Partnership to establish and maintain at any and all times working
capital accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion exercised in good faith,
deems appropriate and reasonable from time to time.
Section 7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has filed the Certificate with the Secretary of State
of Delaware as required by the Act. The General Partner shall use all reasonable
efforts to cause to be filed such other certificates or documents as may be
reasonable and necessary or appropriate for the 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,
or the District of Columbia, in which the Partnership may elect to do business
or own property. To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all of the things
to maintain the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) under the laws of the State of
Delaware and each other state, or the District of Columbia, in which the
Partnership may elect to do business or own property. Subject to the terms of
SECTION 8.5A.(4) hereof, the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the Certificate or any amendment
thereto to any Limited Partner.
Section 7.3 TAX CONSEQUENCES
Except as provided in this Agreement or the Contribution Agreement, in
exercising its authority under this Agreement, the General Partner may, but
shall be under no obligation to, take into account the tax consequences to any
Partner of any action taken by it. The General Partner and the Partnership shall
not have liability to a Limited Partner under any circumstances as a result of
an income tax liability incurred by such Limited Partner as a result of an
action (or inaction) by the General Partner taken pursuant to its authority
under this Agreement and in accordance with the terms hereof.
Section 7.4 MANAGEMENT FEE AND REIMBURSEMENT OF THE GENERAL PARTNER
A. Except as provided below, the General Partner and/or its Affiliates
shall have the right, but not the obligation, in the sole and absolute
discretion, exercised in good faith, of the General Partner, to perform all or
any of the property management and asset management services ("Advisory
Services") on account of the property owned or managed by the Partnership. If
the General Partner elects to so perform, or to have an Affiliate so perform the
Advisory Services, then the General Partner or its Affiliate shall be reimbursed
expenses and otherwise compensated therefor by the Partnership in amounts
determined by the General Partner, in its good faith discretion, to be
comparable to amounts which would be charged by reputable unrelated third party
property management and advisory service companies which have substantial
experience in performing such services for properties of the type owned or
managed by the Partnership for institutional owners with portfolios under
management which are substantially similar in size, nature, and condition of
property owned or managed by the Partnership. The Limited Partners agree that
any of the arrangements set forth in this SECTION 7.4A, or any other
arrangements with the General Partner or its Affiliates that are substantially
similar to the arrangements set forth in this SECTION 7.4A, shall be deemed
conclusively to satisfy the foregoing requirements. It is agreed that the
Northport Property shall be managed for a period of two (2) years after the
Effective Date by Cupertino Capital pursuant to a Management Agreement to be
entered into between the Partnership and Cupertino Capital, substantially in the
form set forth in EXHIBIT "7.00" to the Contribution Agreement. Thereafter, the
Northport Property will be managed in the manner in which the General Partner,
in its sole and absolute discretion, exercised in good faith, decides. It is
further agreed that the property being contributed by the General Partner shall
be managed by Continental Property Management Company upon terms substantially
similar to the terms of other management contracts between the General Partner
and Continental Property Management Company. It is further agreed that the
General Partner or its Affiliates may charge an annualized advisory fee of
one-half of one percent (0.5%) of gross the real estate assets, defined
generally as the book value of such assets before depreciation. The
reimbursements and fees payable to the General Partner or its Affiliates under
this SECTION shall be paid no less frequently than in quarterly installments, in
the case of the advisory fee, and monthly payments, in the case of all other
reimbursements and fees. If and to the extent any reimbursements to the General
Partner are determined for federal income tax purposes not to constitute payment
of expenses of the Partnership, the amount so determined shall constitute
guaranteed payments within the meaning of Section 707(c) of the Code, shall be
treated as distributions by the Partnership and all Partners, and shall not be
treated as distributions for purposes of computing Capital Account balances.
Except as provided in this SECTION 7.4A and elsewhere in this Agreement
(including the provisions of ARTICLES 5 and 6 regarding distributions, payments,
and allocations to which it may be entitled), the General Partner shall not be
compensated for its services as General Partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as it may determine in its sole and absolute discretion exercised in
good faith, for all expenses that it incurs relating to the ownership and
operation of, or for the benefit of, the Northport Property, the Partnership or
any of its assets. After (but not before) consummation of the transactions
described in SECTION 4.2E of this Agreement as a result of which the assets of
the General Partner are conveyed to the Partnership and distributions are made
pro rata in relation to Partnership Units, such reimbursement shall include
reimbursement to the General Partner for all general and administrative costs,
fees, and expenses incurred by the General Partner due to its status as a public
company, a qualified real estate investment trust, or otherwise, and any and all
other expenses incurred by the General Partner for any matter, reason or things
whatsoever. Any reimbursement under this SECTION shall be in addition to any
reimbursement made as a result of indemnification pursuant to SECTION 7.7
hereof.
C. It is also acknowledged and agreed that, after (but not before)
consummation of the transactions described in SECTION 4.2E of this Agreement as
a result of which the assets of the General Partner are conveyed to the
Partnership and distributions are made pro rata in relation to Partnership
Units, the General Partner will directly or indirectly incur costs and expenses,
and may issue stock or other securities, or both, to persons employed or not
employed, or retained or not retained, directly by the Partnership. Such costs,
expenses, and issuances may include, but not be limited to, payment of general
and administrative expenses by the General Partner, including compensation and
bonuses to its officers and directors, and the award of stock grants
and options to purchase securities of the General Partner. In light of the
foregoing, it is agreed that, after (but not before) consummation of the
transactions described in SECTION 4.2E of this Agreement, appropriate actions
shall be taken by the Partnership, as determined by the General Partner, in its
sole and absolute discretion exercised in good faith, to either (i) reimburse
the General Partner an appropriate portion of any such cost, expense, or
issuance, or (ii) adjust the General Partner's Interest in the Partnership so as
to prevent dilution of the General Partner's Interest.
D. Without limiting the generality of SECTION 7.4C above, it is agreed
that if at any time or from time to time after (but not before) consummation of
the transactions described in SECTION 4.2E of this Agreement options to purchase
REIT Shares or any other securities granted to employees, consultants or
advisors of the General Partner or any "Equity Affiliate" under the "Plan" (as
such terms are defined below) or otherwise as compensation or incentive are
exercised, or REIT Shares or any other securities are granted or awarded to
employees, consultants or advisors of the General Partner or any Equity
Affiliate under any Plan or otherwise as compensation or incentive, then the
Partnership promptly shall issue to the General Partner Partnership Units or
other interests in the Partnership with comparable rights, benefits, and
privileges in an amount equal to the REIT Shares or other securities granted
and/or issued, as the case may be. If Partnership Units or other interests in
the Partnership are issued to the General Partner as a result of the exercise of
options to purchase REIT Shares or other securities, then concurrently with the
issuance of the Partnership Units or other interests to the General Partner, the
General Partner shall pay to the Partnership the cash consideration received by
the General Partner on account of such exercise.
For purposes of this SECTION 7.4D, the following terms have the following
meanings:
(1) "Equity Affiliate" means any Subsidiary of the General Partner,
and any entity in which the General Partner has a direct or indirect equity
interest, or in which an Affiliate of the General Partner has a direct or
indirect equity interest.
(2) "Plan" means any plan or arrangement, whether or not approved by
shareholders or partners, and whether formal or informal, utilized by the
General Partner to provide incentives, benefits or other compensation to its
employees, consultants or advisors, or the employees, consultants or advisors of
any Equity Affiliate.
E. After, but not before, consummation of the transactions described in
SECTION 4.2E of this Agreement, in the event that the General Partner shall
elect to purchase from its shareholders REIT Shares for the purpose of
delivering such REIT Shares to satisfy an obligation under any dividend
reinvestment program adopted by the General Partner, any employee stock 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 such REIT 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 reimbursed to the General Partner, subject to the
conditions that: (I) if such REIT 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 such REIT Shares (provided that a transfer
of REIT Shares for Partnership Units pursuant to the Exchange Rights Agreement
would not be considered a sale for such purposes); and (ii) if such REIT Shares
are not re-transferred by the General Partner within 30 days after the purchase
thereof, the General Partner shall cause the Partnership to cancel a number of
Partnership Units held by the General Partner equal to the number of such REIT
Shares (adjusted for stock dividends, stock splits, reorganizations,
reclassifications, mergers, and the like with regard to the REIT Shares prior to
such cancellation of Partnership Units).
Section 7.5 OUTSIDE ACTIVITIES OF THE GENERAL PARTNER
The General Partner and its Affiliates shall be permitted to purchase,
own, operate, manage and otherwise deal with and profit from any property, real,
personal or mixed, now owned by the Partnership for their own account and
benefit, whether or not competitive with the business and affairs of the
Partnership, and neither the Partnership, any Limited Partner, or any other
Person shall have any right, claim, interest or cause of action therein or as a
result thereof. Without limiting the generality of the above, nothing in this
Agreement shall obligate the General Partner or its Affiliates to first offer
the Partnership an opportunity to invest in any investment which has been
offered to or found by the General Partner or its Affiliates, whether or not
such investment is of a nature that may be invested in by the Partnership or
would compete directly or indirectly with the business of the Partnership. The
Limited Partners hereby acknowledge that the General Partner currently owns a
variety of real estate investments and may in the future acquire additional real
estate investments that may be competitive with the business of the Partnership.
Section 7.6 CONTRACTS WITH AFFILIATES
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion, exercised in good faith, of the
General Partner. The foregoing authority shall not create any right or benefit
in favor of any Subsidiary or any other Person.
B. The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole and
absolute discretion exercised in good faith, believes are advisable.
C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase or otherwise acquire any property from, the Partnership,
directly or indirectly, except pursuant to transactions that are determined by
the General Partner in good faith to be fair and reasonable.
D. The General Partner, in its sole and absolute discretion, exercised in
good faith and without the approval of the Limited Partners, may propose and
adopt, on behalf of the Partnership, employee benefit plans, stock option plans,
and similar plans funded by the Partnership for the benefit of employees of the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership or any Subsidiaries of the Partnership. Any or all of the foregoing
may be jointly established with the General Partner or its Affiliates, provided
that in such case the allocation of expense shall be shared among the parties on
whose behalf such plans exist as determined by the General Partner in good faith
to be fair and reasonable.
Section 7.7 INDEMNIFICATION
A. To the fullest extent permitted by Delaware law, the Partnership shall
indemnify each Indemnitee (which shall also inlcude the Northport Company and
the Northport Parties as defined in the Contribution Agreement but for a term
limited to three (3) years after the Closing) 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 any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative, that relate to the operations of the Partnership or the
General Partner in its capacity as general partner of the Partnership as set
forth in this Agreement, in which such Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, whether or not a suit or
other legal proceedings are commenced, unless it is established by a court of
competent jurisdiction and all appeals relating thereto have been fully
completed or the applicable appeal periods have expired that: (i) the act or
omission of the Indemnitee was material to the matter giving rise to the
proceedings and either was committed in intentional bad faith or was the result
of active and deliberate dishonesty; (ii) the Indemnitee actually received an
improper and unpermitted personal benefit in money, property or services; or
(iii) in the case of any criminal proceeding, the Indemnitee knew, or was
reckless in not knowing, that the act or omission was unlawful. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee pursuant to a loan guaranty, recourse obligation, general partner
liability, 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
as a presumption that the Indemnitee did not meet the requisite standard of
conduct as set forth in this SECTION 7.7A. The termination of
any proceeding by conviction of any Indemnitee, or an entry of an order of
probation against an Indemnitee prior to judgment, in each case after all
appeals relating thereto have been fully completed or the applicable appeal
periods have expired, creates as a rebuttal presumption that such Indemnitee
acted in as a manner contrary to that specified in this SECTION 7.7A 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
neither the General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership to fund its obligations under this
SECTION 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding shall be paid or reimbursed by the Partnership in advance of the
final disposition of the proceeding.
C. The indemnification provided by this SECTION 7.7 shall be in addition
to any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue to an Indemnitee who has ceased to serve in such
capacity unless otherwise provided in a written agreement pursuant to which such
Indemnities are indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnities and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this SECTION 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by it, to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of SECTION 7.7; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the Indemnification provision set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this SECTION 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
H. The provisions of this SECTION 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators, and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this SECTION 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the Partnership's
liability to any Indemnitee under this SECTION 7.7, as in effect immediately
prior to such amendment, modification, or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
Section 7.8 LIABILITY OF THE GENERAL PARTNER
A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner and its officers and directors shall not be liable for
monetary damages to the Partnership, any Partners or any Assignees for losses
sustained or liabilities incurred as a result of errors in judgment or any act
or omission if the General Partner acted in good faith.
B. Except as expressly provided in this Agreement, the Limited Partners
expressly acknowledge that the General Partner is acting on behalf of the
Partnership and the shareholders of the General Partner collectively, that the
General Partner is under no obligation to consider the separate interests of the
Limited Partners (except as otherwise provided herein) 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, made either at the Partnership or General Partner level,
provided that the General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in
SECTION 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
D. Any amendment, modification or repeal of this SECTION 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's and its officers' and directors' liability
to the Partnership 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. The General Partner may rely and shall be protected in acting, or
refraining from acting, upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it in good faith to be genuine and to have been
signed or presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and duly appointed attorneys-in-fact. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full power
and authority to do and perform all and every act and duty which is permitted or
required to be done by the General Partner hereunder.
D. Notwithstanding any other provisions of this Agreement or the Act, any
action of the General Partner on behalf of the Partnership or any decision of
the General Partner to refrain from acting on behalf of the Partnership,
undertaken in the good faith belief that such action or omission is necessary or
advisable in order: (i) to protect the ability of the General Partner to
continue to qualify as a REIT; or (ii) to avoid the General Partner incurring
any taxes under Section 857 or Section 4981 of the Code, is expressly authorized
under this Agreement and is deemed approved by all of the Limited Partners.
Section 7.10 TITLE TO PARTNERSHIP ASSETS
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is being held in
the name of the General Partner or any nominee or Affiliate of the General
Partner shall be held by the General Partner for the use and benefit of the
Partnership in accordance with the provisions of this Agreement; PROVIDED,
HOWEVER, that the General Partner shall use its best efforts to cause beneficial
and record title to such assets to be vested in the Partnership as soon as
reasonably practicable. All Partnership assets shall be recorded as the property
of the Partnership in its books and records, irrespective of the name in which
legal title to such Partnership assets is held.
Section 7.11 RELIANCE BY THIRD PARTIES
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Persons to contest, engage 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.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 LIMITATION OF LIABILITY
The Limited Partners shall have no liability under this Agreement, except
as expressly provided in this Agreement (including SECTION 10.5 hereof) or under
the Act.
Section 8.2 MANAGEMENT OF BUSINESS
Except as provided in this Agreement, no Limited Partner or Assignee (other
than the General Partner, any of its Affiliates or any officer, director,
employee, 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 the terms and provisions hereof, it is agreed that any Partner
(General and/or Limited) and any Affiliate of any Partner (including any
officer, director, employee, agent, or representative of any 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 that are in direct competition with the Partnership or that are
enhanced by the activities of the Partnership. Neither the Partnership nor any
Partners shall have any rights, claims, or interests by virtue of this Agreement
or any relationships, duties or obligations hereunder (including, but not
limited to, any fiduciary or similar duties created by this Agreement, under the
Act, or otherwise existing at law or in equity) in any business ventures or
investments of any General Partner or Limited Partner, or any Affiliate of any
of the foregoing. None of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the Partnership relationship
established hereby in any business ventures of any other Person, 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 as a character which, if presented to the
Partnership, any Limited Partner or such other Person could be taken by such
Person.
Subject to the terms and provisions hereof, it is further agreed that none
of the Partners, General or Limited, or any of their Affiliates, have any duty,
obligation, or liability to present to the Partnership any business or
investment opportunity which may arise in the course of activity for or on
behalf of the Partnership, or otherwise, for investment by the Partnership or
any of the Partners (even if within the line and scope of the business and
affairs of the Partnership), and instead any Partner, General or Limited, and
any Affiliate may pursue such opportunity for such Partner's or Affiliate's own
benefit and account, without any participation, right, or claim therein by the
Partnership or any other Partner, and without notification or disclosure to the
Partnership or any other Partner.
Section 8.4 RETURN OF CAPITAL
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 by
EXHIBIT C hereof or as otherwise expressly provided in this Agreement, no
Limited Partner or Assignee, either as to the return of Capital Contributions or
as to profits, losses or distributions.
Section 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP
A. In addition to the other rights provided by this Agreement or by the
Act, and except as limited by SECTION 8.5B hereof, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at such Limited Partner's own
expense (including such copying and administrative charges as the General
Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and quarterly balance
sheet, income statement, and related financial statements prepared by the
Partnership;
(2) to obtain a copy of the Partnership's federal, state and local
income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of attorney
pursuant to which this Agreement, the Certificate and all amendments thereto
have been executed; and
(5) to obtain true and full information regarding the amount of cash
and a description and statement of any other property or services contributed by
each Partner and which each Partner has agreed to contribute in the future, and
the date on which each became a Partner to the extent the foregoing is
materially different from information contained in financial statements or other
reports provided to Limited Partners.
The request by a Limited Partner of quarterly and annual balance sheets
and income statements regularly prepared by the Partnership in order to verify
the correctness of distributions of cash, if any, to the Limited Partner in
accordance with the terms and provisions of this Agreement shall be considered
as a purpose reasonably related to the Limited Partner's interest as a limited
partner in the Partnership.
B. 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, exercised
in good faith, to be reasonable, desirable or necessary 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
agreement with an unaffiliated third party to keep confidential. If the General
Partner desires to disclose any information of the type described in the
preceding PARAGRAPHS (I) OR (II) to a Limited Partner, the General
Partner may require, as a condition to such disclosure, that the Limited Partner
agree in writing that such information will be held in strictest confidence and
no distribution of such information will be made.
Section 8.6 NO REDEMPTION RIGHT
No Limited Partner (other than the General Partner) shall have the right
to require the Partnership to redeem all or a portion of the Partnership Units
held by such Limited Partner.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 RECORDS AND ACCOUNTING
The General Partner shall keep or cause to be kept at the principal office
of the Partnership those records and documents required to be maintained by the
Act and other books and records deemed by the General Partner to be appropriate
with respect to the Partnership's business, including without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to SECTIONS 8.5A
and 9.3 hereof. Any records maintained by or on behalf of the Partnership in the
regular course of its business may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, micrographics or any other information
storage device, PROVIDED THAT the records so maintained are convertible into
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or such other basis as the General Partner determines to be necessary or
appropriate.
Section 9.2 FISCAL YEAR
The fiscal year of the Partnership shall be the calendar year.
Section 9.3 REPORTS
A. The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each Partnership Year an annual report containing
financial statements of the Partnership, or of the General Partner if such
statements are prepared solely on a consolidated basis with the General Partner,
for such Partnership Year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally recognized
firm of independent public accountants selected by the General Partner in its
discretion (such selection may include any such accountants who also perform
accounting or auditing work for the General Partner and its Affiliates).
B. The Partnership shall mail to each Limited Partner no later than ninety
(90) days after the close of each calendar quarter (except the last calendar
quarter of each year), a report containing unaudited financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, and such other information as may
be required by applicable law or regulation, or as the General Partner
determines to be appropriate.
C. All accounting and other professional fees associated with the
preparation, compilation, review, audit, and any other matters relating to the
Partnership's records, financial statements and reports, tax returns, and any
other Partnership items described in the preceding paragraphs shall be at the
expense of the Partnership, not the General Partner.
ARTICLE 10
TAX MATTERS
Section 10.1 PREPARATION OF TAX RETURNS
The General Partner shall arrange for the preparation and timely filing of
all returns of Partnership income, gains, deductions, losses and other items
required of the Partnership for federal and state income tax purposes and shall
use all reasonable efforts to furnish, within ninety (90) days of the close of
each taxable year, the tax information reasonably required by the 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 exercised in good faith, determine whether to make
any available election pursuant to the Code; provided, however, that if
requested by a transferee of a Partnership Interest, the General Partner shall
file an election on behalf of the Partnership pursuant to Section 754 of the
Code to adjust the basis of the Partnership property in the case of a transfer
of a Partnership Interest made in accordance with the provisions of this
Agreement. The General Partner agrees to elect the so-called "traditional
method" of making Section 704(c) allocations pursuant to Regulations Section
1.704-3 with respect to the Northport Property contributed as of the date hereof
and the traditional method with respect to the property contributed by the
General Partner. The General Partner shall have the right to seek to revoke any
tax election it makes (including, without limitation, the election under Section
754 of the Code) upon the General Partner's determination, in its sole and
absolute discretion, exercised in good faith, that such revocation is in the
best interest of the Partners.
Section 10.3 TAX MATTERS PARTNER
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners and the Assignees; PROVIDED,
HOWEVER, that such information is provided to the Partnership by the Limited
Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such agreement shall
bind all Partners, except that such settlement agreement shall not bind any
Partner: (i) who (within the time period prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a settlement agreement on
behalf of such Partner; or (ii) who is a "notice partner" (as defined in Section
6231(a)(8) of the Code) or a member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the tax matters
partner, to seek judicial review of such final adjustment, including the filing
of a petition for readjustment with the Tax Court or the District Court of the
United States for the district in which the Partnership's principal place of
business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
and, if any part of such request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for judicial review with respect to
such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken account
of by a partner for tax purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding to
the extent permitted by applicable law or regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion, exercised in
good faith, of the tax matters partner and the provisions relating to
indemnification of the General Partner set forth in Section 7.7 of this
Agreement shall be fully applicable to the tax matters partner in its capacity
as such.
C. The tax matters partner shall receive no special compensation for its
services as such. 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 or reimbursed by the Partnership. Nothing herein
shall be construed to restrict the Partnership from engaging an accounting firm
to assist the tax matters partner in discharging its duties hereunder, including
an accounting firm which also renders services to the General Partner and its
Affiliates.
Section 10.4 ORGANIZATION EXPENSES
The Partnership shall elect to deduct expenses, if any, incurred by it in
organizing the Partnership ratably over a sixty (60) month period as provided in
Section 709 of the Code.
Section 10.5 WITHHOLDING
A. Each Limited Partner hereby authorizes the Partnership to withhold
from, or pay on behalf of or with respect to, such Limited Partner any amount of
federal, state, local or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made, unless: (i) the Partnership withholds
such payment from a distribution which would otherwise be made to the Limited
Partner; or (ii) the General Partner determines, in its sole and absolute
discretion exercised in good faith, 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.
B. Each Limited Partner hereby unconditionally and irrevocably grants to
the Partnership a security interest in such Limited Partner's Partnership
Interest to secure such Limited Partner's obligation to pay to the Partnership
any amounts required to be paid pursuant to this Section 10.5. In the event that
a Limited Partner fails to pay any amounts owed to the Partnership pursuant to
this Section 10.5 when due, the General Partner may, in its sole and absolute
discretion exercised in good faith, elect to make the payment to the Partnership
on behalf of such defaulting Limited Partner, and shall succeed to all rights
and remedies of the Partnership as against such defaulting Limited Partner.
Without limitation, in such event the General Partner shall have the right to
receive distributions that would otherwise be distributable to such defaulting
Limited Partner until such time as such loan, together with all interest
thereon, has been paid in full, and any such distributions so received by the
General Partner shall be treated as having been distributed to the defaulting
Limited Partner and immediately paid by the defaulting Limited Partner to the
General Partner in repayment of such loan. Any amounts payable by a Limited
Partner hereunder shall bear interest at the lesser of (A) the base rate on
corporate loans at large United States money center commercial banks, as
published from time to time in the WALL STREET JOURNAL, plus four (4) percentage
points, or (B) the maximum lawful rate of interest on such obligation, such
interest to accrue from the date such amount is due (i.e., fifteen (15) days
after demand) until such amount is paid in full. Each Limited Partner shall at
its own expense take such actions as the Partnership or the General Partner
shall request in order to perfect or enforce the security interest created
hereunder.
ARTICLE 11
TRANSFER AND WITHDRAWALS
Section 11.1 TRANSFER
A. The term "transfer" when used in this Article 11 shall be deemed to
refer to a transaction by which the General Partner purports to assign all or
any part of its General Partner Interest to another Person or by which a Limited
Partner purports to assign all or any part of its Limited Partner Interest 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 11 does not include any
acquisition by the General Partner from any Limited Partner of any Partnership
Units, nor does it include any grant of a security interest or any related
action involving levy, execution, or the like contemplated under SECTION 10.5 of
this Agreement.
B. No Partnership Interest shall be transferred, in whole or in part
(including any interest therein), except in accordance with the terms and
conditions set forth in this Article 11. Any transfer or purported transfer of a
Partnership Interest not made in accordance with this Article 11 shall be null
and void AB INITIO, and the Partnership shall have no duty or obligation to
recognize the transferee as a partner or holder of any interest whatsoever in
the Partnership, and the transferee shall have no rights, interests or claims in
or against the Partnership or any Partner.
Section 11.2 TRANSFER OF THE GENERAL PARTNER'S PARTNER INTEREST AND LIMITED
PARTNER INTEREST
The General Partner may transfer any of its General Partner Interest or
withdraw as General Partner, or transfer any of its Limited Partner Interest,
without consent or approval from any Limited Partners; PROVIDED HOWEVER that the
consent of a majority of the Percentage Interests of the Limited Partners shall
be required unless either: (i) the transferee has a net worth that is equal to
or greater than the net worth of the General Partner measured at the Closing, or
(ii) the General Partner guaranties the transferee's obligations under this
Agreement. Such transfer includes, but is not limited to, a transfer to an
entity which is wholly-owned by the General Partner and is a Qualified REIT
Subsidiary under Section 856(d) of the Code.
Section 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER
A. Subject to the provisions of the remainder of this Article 11, a
Limited Partner (other than the General Partner) may transfer, with or without
the consent of the General Partner, all or any portion of its Partnership
Interest, or any of such Limited Partner's economic rights as a Limited Partner.
In addition, those Limited Partners which are themselves partnerships or limited
liability companies shall have the right to transfer, assign, and convey their
Partnership Units to their constituent partners, provided that such constituent
partners shall first have executed and delivered adequate documentation to
assure compliance with applicable federal and state securities laws and a
written agreement to be bound by the terms, provisions, and conditions of the
Registration Rights Agreement, the Exchange Rights Agreement, and the
Contribution Agreement, and that at the time of such transfer, assignment, and
conveyance to such constituent partners, the representations and warranties made
by such constituent partners in the aforementioned documentation and the related
agreements are true and correct in all material respects.
B. If a Limited Partner is subject to Incapacity, the partners, executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all of the rights of a Limited Partner, but
not more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited Partner of
its Partnership Units if, in the opinion of legal counsel to the Partnership
(which may also be legal counsel to the General Partner), such transfer would
require filing of a registration statement under the Securities Act of 1933 or
would otherwise violate any federal or state securities laws or regulations
applicable to the Partnership or the Partnership Units.
D. No transfer by a Limited Partner of its Partnership Units may be made
to any Person if: (i) in the opinion of legal counsel for the Partnership (which
may also be legal counsel to the General Partner), it would result in the
Partnership being treated as an association taxable as a corporation; (ii) such
transfer is effectuated through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code; (iii) such transfer 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); (iv) such transfer would,
in the opinion of legal counsel for the Partnership (which may also be legal
counsel to the General Partner), or the General Partner, cause any portion of
the assets of the Partnership to constitute assets of any employee benefit plan
pursuant to Department of Labor Regulations Section 2510.2-101; (v) such
transfer would subject the Partnership to be regulated under the Investment
Company Act of 1940, the Investment Advisors Act of 1940 or the Employee
Retirement Income Security Act of 1974, each as amended; or (vi) in the opinion
of legal counsel for the Partnership (which may also be legal counsel to the
General Partner), it would adversely affect the ability of the General Partner
to continue to qualify as a REIT or subject the General Partner to any
additional taxes under Section 857 or Section 4981 of the Code.
E. No transfer of any Partnership 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, without the consent of the General Partner,
in its sole and absolute discretion exercised in good faith; PROVIDED THAT as a
condition to such consent the lender will be required to enter into an
arrangement with the Partnership or the General Partner to exchange or redeem at
a price agreeable to the lender, the General Partner, and the transferring
Partner (each in their respective discretion) any Partnership Units in which a
security interest is held immediately prior to 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 LIMITED PARTNERS
A. No Limited Partner shall have the right to substitute a transferee as a
Limited Partner in his 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 Limited Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion. The General Partner's failure or refusal to permit a transferee of
any such interests to become a Substituted Limited Partner shall not give rise
to any cause of action against the Partnership or any Partner. In the event of
transfers of Partnership Units by Limited Partners in accordance with the second
sentence of SECTION 11.3A, the General Partner hereby exercises its discretion
and consents such transferees being admitted as Substituted Limited Partners.
Specifically, the General Partner hereby consents to the admission of the
"Northport Parties" as that term is used in the Contribution Agreement,
as Substituted Limited Partners as soon as practicable after they sign
appropriate documentation.
B. A transferee who has been admitted as a Substituted Limited Partner in
accordance with this Article 11 shall have all the rights and powers and be
subject to all the restrictions and liabilities of a Limited Partner under this
Agreement.
C. Upon admission of a Substituted Limited Partner, the General Partner
shall amend Exhibit A to reflect the name, address, number of Partnership Units,
and the Percentage Interest of such Substituted Limited Partner.
Section 11.5 ASSIGNEES
If the General Partner, in its sole and absolute discretion exercised in
good faith, does not consent to the admission of any permitted transferee of a
Substituted Limited Partner, as described in SECTION 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any other items, gains, loss deduction and credit of the
Partnership attributable to the Partnership Units assigned to such transferee,
but shall not be deemed to be a holder of Partnership Units for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Units for any other purpose under this Agreement, and shall not be entitled to
vote such Partnership Units in any matter presented to the Limited Partners for
a vote (such Partnership Units being deemed to have been voted on such matters
in the same proportion as all other Partnership Units held by Limited Partners
are voted). In the event any such transferee desires to make a further
assignment of any such Partnership Units, such transferee shall be subject to
all of the provisions of this Article 11 to the same extent and in the same
manner as any Limited Partner desiring to make an assignment of Partnership
Units.
Section 11.6 GENERAL PROVISIONS
A. No Limited Partner may withdraw from the Partnership other than as a
result of a permitted transfer of all such Limited Partner's Partnership Units
in accordance with this Article 11 or pursuant to any agreement consented to by
the Partnership pursuant to which the Limited Partner's interests in the
Partnership are conveyed and the Limited Partner's withdrawal is provided for.
B. Any Limited Partner who shall transfer all of its Partnership Units in
a transfer permitted pursuant to this Article 11 shall cease to be a Limited
Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of its Partnership Units pursuant to any agreement of the type referred to
in the preceding paragraph shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on the first day
of a fiscal quarter of the Partnership, unless the General Partner otherwise
agrees.
D. If any Partnership Interest is transferred or assigned during any
quarterly segment of the Partnership's fiscal year in compliance with the
provisions of this Article 11 on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such Partnership Year shall be divided
and allocated between the transferor Partner and the transferee Partner 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. Solely for purposes of making such allocations, each of such items
for the calendar month in which the transfer or assignment occurs shall be
allocated to the transferee Partner, and none of such items for the calendar
month in which a redemption occurs shall be allocated to a redeeming Partner.
All distributions of Available Cash attributable to such Partnership Unit with
respect to which the Partnership Payment Date is before the date of such
transfer, assignment, or redemption shall be made to the transferor Partner, all
distributions of Available Cash thereafter attributable to such Partnership Unit
shall be made to the transferee Partner.
Section 11.7 RESTRICTIONS ON TRANSFER
Notwithstanding anything in this Article 11 to the contrary, each of the
Limited Partners hereby agrees that, except as set forth below, from the date
hereof until one (1) year following the Effective Date (the "No Exchange
Period"), without the prior written consent of the General Partner (which may be
granted or withheld in its sole and absolute discretion exercised in good
faith), it shall be prohibited from transferring any Partnership Units except to
another Limited Partner as stated in SECTION 11.3A; provided, however, that
where a Limited Partner is a natural person and such Limited Partner dies (or,
in the case of Partnership Units owned as community property by the Limited
Partner and its spouse, then when either the Limited Partner or its spouse dies)
prior to the expiration of the No Exchange period, the No Exchange period shall,
as to such Limited Partner only, expire on the death of such Limited Partner (or
such Limited Partner's spouse, as the case may be).
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor to all of the General Partner Interest pursuant to SECTION 11.2
hereof who is proposed to be admitted as successor General Partner shall be
admitted to the Partnership as the General Partner, effective upon such
transfer. The admission of any such transferee shall not cause a dissolution of
the Partnership and such transferee shall carry on the business of the
Partnership in accordance with the forms and provisions of this Agreement. In
each case, the admission shall be subject to the successor General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect the admission. In the case of such admission on any day
other than the first day of a Partnership Year, all items attributable to the
General Partner Interest for such Partnership Year shall be allocated between
the transferring General Partner and such successor as provided in SECTION 11.6D
hereof.
Section 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS
A. Except as otherwise provided elsewhere in this Agreement, after the
admission to the Partnership of the initial Limited Partners on the date hereof,
a Person who makes a Capital Contribution to the Partnership in accordance with
this Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney granted
in SECTION 2.4 hereof, and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this SECTION 12.2, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole and absolute discretion. The admission of any person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and record of the Partnership,
following the consent of the General Partner to such admission.
C. If any Additional Limited 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 Limited 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. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
of the Partners and Assignees, including such Additional Limited Partner. All
distributions of Available Cash with respect to which the Partnership Payment
Date is before the date of such admission shall be made solely to Partners and
assignees, other than the Additional Limited Partner, and all distributions of
Available Cash thereafter shall be made to all of the Partners and Assignees,
including such Additional Limited Partner.
Section 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment to this Agreement (including an amendment of Exhibit "A") and, if
required by law, shall prepare and file an amendment to the Certificate and may
for this purpose exercise the power of attorney granted pursuant to SECTION 2.4
hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 DISSOLUTION
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the withdrawal of the General Partner, any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs be wound up, only upon the first to occur of any of the following
("Liquidating Event"):
A. the expiration of its term as provided in SECTION 2.5 hereof;
B. an event of withdrawal of the General Partner, as defined in the Act
(other than an event of bankruptcy), unless within ninety (90) days after such
event of withdrawal a majority of the Percentage Interests of the remaining
Partners agree in writing to continue the business of the Partnership to the
appointment, effective as of the date of withdrawal of a successor General
Partner;
C. on or before December 31, 2096, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion exercised in
good faith;
D. entry of a decree of judicial dissolution of the Partnership pursuant to
the provisions of the Act;
E. the sale of all or substantially all of the assets and properties of the
Partnership; or
F. 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 the entry of such order or judgment all of the remaining Partners agree in
writing to continue the business of the Partnership and to the appointment,
effective as of a date prior to the date of such order or judgment of a
substitute General Partner.
Section 13.2 WINDING UP
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the winding up of the Partnership's business and affairs.
The General Partner, or in the event there is no remaining General Partner, any
Person elected by a majority of the Percentage Interests of the Limited Partners
(the General Partner or such other Person being referred to herein as the
"Liquidator"), shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and property and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of common stock in the General Partner) shall be applied and
distributed in the following order:
(1) First, to the satisfaction of all of the Partnership's debts and
liabilities to creditors other than the Partners (whether by payment or the
reasonable provision for payment thereof);
(2) Second, to the satisfaction of all of the Partnership's debts
and liabilities to the Partners and their Affiliates (whether by payment or the
reasonable provision for payment thereof); and
(3) The balance, if any, to the General Partner and Limited Partners
in accordance with their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The General Partner shall receive compensation for such services
performed pursuant to this Article 13 in accordance with such standard and usual
fees for such similar activities.
B. Notwithstanding the provisions of SECTION 13.2A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion exercised in
good faith, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including to those
Partners and their Affiliates as creditors) and/or distribute to the Partners,
in lieu of cash, as tenants in common and in accordance with the provisions of
SECTION 13.2A hereof, undivided interests in such Partnership assets as the
Liquidator deems not suitable for liquidation. Any such distributions in kind
shall be made only if, in the good faith judgment of the Liquidator, such
distributions in kind are in the best interest of the Partners, and shall be
subject to such conditions relating to the disposition and management of such
properties as the Liquidator deems reasonable and equitable and to any
agreements governing the operation of such properties at such time. The
Liquidator shall determine the fair market value of any property distributed in
kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made pursuant to this ARTICLE 13 may be:
(1) distributed to one or more trust(s) established for the benefit
of the creditors and the General Partner and Limited Partners for the purposes
of liquidating Partnership assets, collecting amounts owed to the Partnership,
and paying any contingent, conditional or unmatured liabilities or obligations
of the Partnership or the General Partner arising out of or in connection with
the Partnership. The assets of any such trust(s) shall be distributed to the
creditors and General Partner and Limited Partners from time to time, in the
reasonable direction of the Liquidator, in the same manner and proportions as
the amount distributed to such trust(s) by the Partnership would otherwise have
been distributed to the creditors and General Partner and Limited Partners
pursuant to this Agreement; and
(2) withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Partnership, PROVIDED THAT
such withheld or escrowed amounts shall be distributed to the creditors and
General Partner and Limited Partners in the manner and order of priority set
forth in SECTION 13.2A as soon as practicable.
Section 13.3 COMPLIANCE WITH TIMING REQUIREMENTS OF REGULATIONS
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2)
(provided, however, in no event shall the Partnership be liquidated prior to the
date which would be the Settlement Date within the meaning of the Exchange
Rights Agreement for Partners who tender an Exchange Notice (within the meaning
of the Exchange Rights Agreement) on or before the fifth (5th) day after the
date of receipt of this notice of liquidation by the Partnership).
Section 13.4 DEEMED DISTRIBUTION AND RECONTRIBUTION
Notwithstanding any other provision of this Article 13, in the event the
Partnership is considered "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 the purposes of maintaining
Capital Accounts pursuant to EXHIBIT "B" hereto, the Partnership shall be deemed
to have distributed the property in kind to the Partnership and Limited
Partners, who shall be deemed to have assumed and taken such property subject to
all Partnership liabilities, all in accordance with their respective Capital
Accounts (the amount of such liabilities assumed by each Partner to be equal to
the Partner's share of such liabilities immediately prior to the event causing
the "liquidation"). Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken such
property subject to all such liabilities.
Section 13.5 RIGHTS OF LIMITED PARTNERS
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right, power or claim to demand or receive
property other than cash from the Partnership. Except as otherwise provided in
this Agreement, no Limited Partner shall have priority over any other Partner as
to the return of its Capital Contributions, distributions, or allocations.
Section 13.6 NOTICE OF DISSOLUTION
In the event a Liquidating Event occurs or an event occurs that would, but
for the provisions of an election or objection by one or more Partners pursuant
to SECTION 13.1, result in a dissolution of the Partnership, the General Partner
shall, within thirty (30) days thereafter, provide written notice thereof to
each of the Partners.
Section 13.7 TERMINATION OF PARTNERSHIP AND CANCELLATION OF CERTIFICATE OF
LIMITED PARTNERSHIP
Upon the completion of the liquidation of the Partnership's assets, as
provided in SECTION 13.2 hereof, a certificate of cancellation shall be filed,
the Partnership shall be terminated, and all qualifications of the Partnership
as a foreign limited partnership in jurisdictions other than the State of
Delaware shall be canceled and such other actions as may be necessary to
terminate the Partnership shall be taken.
Section 13.8 REASONABLE TIME FOR WINDING-UP
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to SECTION 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.9 WAIVER OF PARTITION
Each Partner hereby waives any right to partition of the Partnership
property.
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 AMENDMENTS
A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners (other than the General Partner) holding twenty-five
percent (25%) or more of the Partnership Interests. Following such proposal, the
General Partner shall submit any proposed amendment to the Limited Partners. The
General Partner shall seek the written vote of the Partners on the proposed
amendment or shall call a meeting to vote thereon and to transact any other
business that it may deem appropriate. For purposes of obtaining a written vote,
the General Partner may require a response within a reasonable specified time,
but not less than fifteen (15) days, and failure to respond in such time period
shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in SECTION
13.1C, 14.1B, 14.1C OR 14.1D, 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 Percentage Interests
of all Partners; provided, however, that, except as otherwise provided in
SECTION 4.2 hereof, any amendment which materially and adversely alters the
rights of a Limited Partner to receive distributions of Available Cash or
allocations of Net Income, Net Loss or any other items in the amounts, in the
priorities or at the times described in this Agreement shall require the consent
of such Limited Partner in order to become effective.
B. Notwithstanding SECTION 14.1A, the General Partner shall have the
power, without the consent or approval of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the following
purposes:
(1) to add to the obligations of the General Partner or surrender
any right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of other holders of any additional Partnership Interests issued
pursuant to SECTION 4.2, or otherwise pursuant to the terms of this Agreement;
(4) to reflect a change that is of an inconsequential nature and
does not adversely affect the Limited Partners in any material respect, or to
cure any ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions of this Agreement, or make any
other changes with respect to matters arising under this Agreement that will not
be inconsistent with law or with the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines,
contained in any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners
when any action under this SECTION 14.1B is taken.
C. Notwithstanding SECTION 14.1A and 14.1B hereof, this Agreement shall
not be amended without Consent of each Partner adversely affected if such
amendment would: (i) convert a Limited Partner's interest in the Partnership
into a General Partner Interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner; (iii) alter rights of the
Partner to receive distributions pursuant to ARTICLE 5 or ARTICLE 13, or the
allocations specified in ARTICLE 6 (except as permitted pursuant to SECTION 4.2
and SECTION 14.1B(3) hereof); (iv) cause the termination of the Partnership
prior to the time set forth in SECTIONS 2.5 or 13.1 (unless otherwise permitted
under SECTION 13.1; or (v) amend this SECTION 14.1C.
D. Notwithstanding SECTION 14.1A and 14.1B hereof, the General Partner
shall not amend SECTIONS 7.5, 7.6, 14.1A, 14.1C or 14.2 without Consent of
Limited Partners holding a majority of the Percentage Interests of the Limited
Partners, excluding Limited Partner Interests held by the General Partner; and,
to the extent that any such amendment would affect the amount, priority, or
timing of distributions to any of the Limited Partners or their successors and
assigns under this Agreement, the General Partner shall not amend SECTIONS 7.5,
7.6, 14.1A, 14.1C, or 14.2 without Consent of Limited Partners holding a
majority of the Percentage Interests of the Limited Partners (in each case
including their successors and assigns), unless the transactions described in
SECTION 4.2E of this Agreement has occurred and been made, in which case the
special Consent of the Limited Partners as herein provided shall not be
required.
Section 14.2 MEETINGS OF THE PARTNERS
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a written request by
Limited Partners (other than the General Partner) holding twenty-five percent
(25%) or more of the Partnership Interests. The request shall state the nature
of the business to be transacted. Notice of any such meeting shall be given to
all Partners not less than seven (7) days nor more than thirty (30) days prior
to the date of such meeting. Partners may vote in person or by proxy at such
meeting. Whenever the vote or consent of the Partners is permitted or required
under this Agreement, such vote or consent may be given at a meeting of the
Partners or may be given in accordance with the procedures prescribed in
SECTIONS 14.1A or 14.2B hereof. Except as otherwise expressly provided in this
Agreement, the Consent of the Limited Partners shall occur upon the Consent of
holders of a majority of the Percentage Interests held by Limited Partners
(including Limited Partnership Interests held by the General Partner). Except
as otherwise expressly provided in this Agreement, the Consent of the Partners
shall occur upon the consent of a majority of the Percentage Interests held by
the Partners.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement).
Such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date hereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it, such
revocation to be effective upon the Partnership's receipt of written notice of
such revocation from the Limited Partner executing such proxy.
D. Each meeting of the Partners shall be conducted by the General Partner
or such other Person as the General Partner may appoint pursuant to such rules
for the conduct of the meeting as the General Partner or such other Person deems
appropriate. Without limitation, meetings of Partners may be conducted in the
same manner as meetings of the shareholders of the General Partner and may be
held at the same time, and as part of, meetings of the shareholders of the
General Partner.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 ADDRESSES AND NOTICES
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee at the address set forth in Exhibit "A" or such other address of which
the Partner shall notify the General Partner in writing.
Section 15.2 TITLES AND CAPTIONS
All article or section titles or captions in this Agreement are for
convenience only. They shall be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 PRONOUNS AND PLURALS
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.4 FURTHER ACTION
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 CREDITORS
Other than as expressly set forth herein with respect to the Indemnities,
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 covenant, duty, agreement or condition.
Section 15.8 COUNTERPARTS
This Agreement may be executed in counterparts, all of which together
shall constitute one agreement binding on all of the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 APPLICABLE LAW
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
or iconflicts of law. The venue for any legal action taken in connection with
this Agreement shall be San Mateo County, California.
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 or enforceability of other
remaining provisions contained herein shall not be affected thereby.
Section 15.11 ENTIRE AGREEMENT
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes the Prior
Agreement and any other prior written or oral understandings or agreements among
them with respect thereto.
Section 15.12 NO RIGHTS AS SHAREHOLDERS
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Partnership Units any rights whatsoever as shareholders of
the General Partner, including, without limitation, any right to receive
dividends or other distributions made to shareholders of the General Partner or
to vote or to consent or to receive notice as shareholders in respect of any
meeting of shareholders for the election of directors of the General Partner or
any other matter.
Section 15.13 AGREEMENTS READ TOGETHER
This Agreement, including its exhibits and the other documents and
agreements referred to herein, are intended by the parties to be entered into
contemporaneously with the Contribution Agreement, the Registration Rights
Agreement, and the Exchange Rights Agreement. All of these agreements when read
together shall constitute a final expression of the agreement and are intended
to be the complete and exclusive statement of the agreement and understanding of
the parties hereto and thereto in respect of the subject matters contained
herein and therein. There are no covenants, agreements, promises, warranties or
understandings other than those set forth referred to herein, and therein, with
respect to such subject matters. This Agreement, as well as the other agreements
entered into contemporaneously with this Agreement together with their exhibits
and the other documents and agreements referred to, supersede all prior
agreements and understandings between the parties with respect to the subject
matters hereof and thereof. All of the agreements referred to in this SECTION
15.13 shall be read together to obtain a consistency with no one agreement
controlling in the event of a conflict.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first above written.
GENERAL PARTNER:
FRANKLIN SELECT REALTY TRUST,
a California corporation
By:/s/ David P. Goss
Its: President
(Print Name) David P. Goss
LIMITED PARTNER:
NORTHPORT ASSOCIATES NO. 18
a California limited liability company by its
Managing Member:
Lakeside II - Northport Associates, L.P.,
a California limited partnership
/s/ Barry C. L. Fernald
---------------------------------
By: Barry C. L. Fernald, General Partner
/s/ Gary Filizetty
---------------------------------
By: Gary Filizetti, General Partner
/s/ G. Gerald Engles
---------------------------------
By: G. Gerald Engles, General Partner
/s/ Larry D. Russel
---------------------------------
By: Larry D. Russel, Limited Partner
EXHIBIT "A"
Partners and Partnership Units
NAME AND ADDRESS PARTNERSHIP UNITS PERCENTAGE INTEREST
Franklin Select Realty Trust N/A The Franklin REIT
Net Value
1800 Gateway Drive divided by the Combined
San Mateo, California 94404 Net Values
Northport Associates No. 18, a 1,625,000 The Northport
California limited liability company Property Net Value
divided by the Combined
c/o Devcon Investments Net Values
555 Los Coches Street
Milpitas, California 95035
EXHIBIT "B"
Capital Account Maintenance
1. CAPITAL ACCOUNTS OF THE PARTNERS
A. The Partnership shall maintain for each Partner a separate Capital
Account in accordance with the rules Regulations Sections 1.704-(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 1.B hereof and allocated to such Partner pursuant to SECTION 6.1A and
SECTION 6.1C of the Agreement and EXHIBIT "C" hereof, 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 1.B hereof
and allocated to such Partner pursuant to SECTION 6.1B of the Agreement and
EXHIBIT "C" hereof.
B. 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 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) of
the Code shall be included in taxable income or loss), with the following
adjustments:
(1) 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 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 1.704-1(b)(2)(iv)(m)(4).
(2) 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)(1)(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.
(3) 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.
(4) In lieu of 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.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to SECTION 1.D hereof, the amount of any such adjustment shall
be taken into account as gain or loss from the disposition of such asset.
(6) Any items specifically allocated under SECTION 2 of EXHIBIT "C"
hereof shall not be taken into account.
C. Generally, a transferee (including an Assignee) of a Partnership Unit
shall succeed to a pro rata portion of the Capital Account of the transferor;
provided, however, that if the transfer causes a termination of the Partnership
under Section 708(b)(1)(B) of the Code, the Partnership's properties shall be
deemed solely for federal income tax purposes, to have been distributed in
liquidation of the Partnership to the holders of Partnership Units (including
such transferee) and re-contributed by such Persons in reconstitution of the
Partnership. In such event, the Carrying Values of the Partnership properties
shall be adjusted immediately prior to such deemed distribution pursuant to
SECTION 1.D(2) hereof. The Capital Accounts of such reconstituted Partnership
shall be maintained in accordance with the principles of this EXHIBIT "B".
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in SECTION 1.D.(2), the Carrying Value 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 1.D.(2) 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.
(2) 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
1.704-1(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 economic interests of the
Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(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.
(4) 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 13 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 value among the
assets of the Partnership in such manner as it determines in its sole and
absolute discretion, exercised in good faith, to arrive at a fair market value
for individual properties.
E. The provisions of this agreement (including this EXHIBIT "B" and other
Exhibits to this Agreement) 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 (i) 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; or (ii) the manner in
which items are allocated among the Partners for federal income tax purposes in
order to comply with such Regulations or to comply with Section 704(c) of the
Code, the General Partner may make such modification with regard to ARTICLE 14
of the Agreement, provided that it is not likely to have a material effect on
the amounts distributable to any Person pursuant to ARTICLE 13 of the Agreement
upon the dissolution of the Partnership. The General Partner also shall (i)
where appropriate, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q),
make any adjustments that are necessary or appropriate to maintain equality
between Capital Accounts of the Partners and the amount of Partnership capital
reflected on the Partnership's balance sheet, as computed for book purposes; and
(ii) make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b). In addition, the General Partner may adopt and employ such methods
and procedures for (i) the maintenance of book and tax capital accounts; (ii)
the determination and allocation of adjustments under Sections 704(c), 734 and
743 of the Code; (iii) the determination of Net Income, Net Loss, taxable loss
and items thereof under this Agreement and pursuant to the Code; (iv)
conventions for the determination of cost recovery, depreciation and
amortization deductions, as it determines in its sole and absolute discretion
exercised in good faith are necessary or appropriate to execute the provisions
of this Agreement, to comply with federal and state tax laws, and are in the
best interest of the Partners.
2. NO INTEREST
No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
3. NO WITHDRAWAL
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in ARTICLES 4, 5, 7 AND 13 of the Agreement.
Exhibit "C"
Special Allocation Rules
1. SPECIAL ALLOCATION RULES
Notwithstanding any other provision of the Agreement or any EXHIBIT, the
following special allocations shall be made in the following order:
A. MINIMUM GAIN CHARGEBACK. Notwithstanding the provisions of SECTION 6.1
of the Agreement or any other provisions of this EXHIBIT "C", if there is a net
decrease in Partnership Minimum Gain during any Partnership taxable 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
Partners' 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
1.A is intended to comply with the minimum gain chargeback requirements in
Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.
Solely for purposes of this SECTION 1.A, each Partner's Adjusted Capital Account
Deficit shall be determined prior to any other allocations pursuant to SECTION
6.1 of Partner Minimum Gain during such Partnership taxable year.
B. PARTNER MINIMUM GAIN CHARGEBACK. Notwithstanding any other provision of
SECTION 6.1 of this Agreement or any other provisions of this EXHIBIT "C"
(except SECTION 1.A hereof), if there is a net decrease in Partner Minimum Gain
attributable to a Partner Nonrecourse Debt during any Partnership taxable year,
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.702-2(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 Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). This SECTION 1.B is intended to comply
with the minimum gain chargeback requirement in such Section of the Regulations
and shall be interpreted consistently therewith. Solely for purposes of this
SECTION 1.B, 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 taxable year, other than allocations
pursuant to SECTION 1.A hereof.
C. QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly receives
any adjustments, allocations or distributions described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5), or (6), and after giving effect to the allocations
required under SECTIONS 1.A and 1.B hereof 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 taxable 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.
D. NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any Partnership
taxable year shall be allocated to the Partners in accordance with the
allocations of Net Income under the Agreement. 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
to the numerically closest ratio for such Partnership taxable year which satisfy
such requirements.
E. PARTNER NONRECOURSE DEDUCTIONS. Any partner Nonrecourse Deductions for
any partnership taxable 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 Section 1.704-2(i).
F. 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 1.704-1(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 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.
G. CURATIVE ALLOCATIONS. The allocations set forth in SECTION 1.A through
1.F of this EXHIBIT "C" (the "Regulatory Allocations") are intended to comply
with certain requirements of the Regulations under Section 704(b) of the Code.
The Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership distributions. Accordingly, the General
Partner is hereby authorized to divide other allocations of income, gain,
deduction and loss among the Partners so as to prevent the Regulatory
Allocations from distorting the manner in which Partnership distributions will
be divided among the Partners. In general, the Partners anticipate that this
will be accomplished by specially allocating other items of income,
gain, loss and deduction among the Partners so that the net amount of the
Regulatory Allocations and such special allocations to each person is zero.
However, the General Partner will have discretion to accomplish this result in
any reasonable manner; PROVIDED, HOWEVER, that no allocation pursuant with this
SECTION 1.G shall cause the Partnership to fail to comply with the requirements
of Regulations Sections 1.704-1(b)(2)(ii)(d), - 2(e) or -2(i).
2. ALLOCATIONS FOR TAX PURPOSES
A. Except as otherwise provided in this SECTION 2, 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 1 of this EXHIBIT "C".
B. 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:
(1) (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 of the Regulations thereunder, to
take into account the variation between the 704(c) Value
of such property and its adjusted basis at the time of
contribution; and
(b) any items 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 1 of this EXHIBIT "C".
(2) (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 and the Regulations thereunder to take into account
the Unrealized Gain or Unrealized Loss attributable to
such property and the allocations thereof pursuant to
EXHIBIT "B"; and
2) second, in the event such property was originally a
Contributed Property, be allocated among the Partners
in a manner consistent with SECTION 2.B(1) of this
EXHIBIT "C"; 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 1 of this EXHIBIT "C".
(3) all other items of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as their
correlative item of "book" gain or loss is allocated pursuant
to SECTION 6.1 of the Agreement and SECTION 1 of this EXHIBIT
"C".
C. To the extent that the Regulations promulgated pursuant to Section
704(c) of the Code permit the Partnership to utilize alternative methods to
eliminate the disparities between the Carrying Value of property and its
adjusted basis, the General Partner shall have the authority, subject to SECTION
10.2, to elect the method to be used by the Partnership and such election shall
be binding on all Partners.
3. NO WITHDRAWAL
No Partner shall be entitled to withdrawal any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in ARTICLES 4, 5, 8 AND 11 of the Agreement.
Exhibit "D"
Value of Contributed Property
Agreed Value
UNDERLYING PROPERTY 704(C) VALUE (704(C) VALUE LESS DEBT)
- ------------------- ------------ ------------------------
Franklin REIT Gross The Franklin REIT The Franklin REIT
Assets Depreciated Asset Value Net Value
Northport Property $25.5 Million The Northport Property
Net Value
CONTRIBUTION AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS....................................................1
ARTICLE II CONTRIBUTIONS/CLOSING..........................................8
2.1 Northport Company's Contribution...............................8
2.2 Consideration For Northport Company Contribution...............8
2.3 Franklin REIT Contribution.....................................9
2.4 Consideration for the Franklin REIT Contribution...............9
2.5 Calculation of Ownership Interests.............................9
2.6 Closing Time and Place.........................................9
2.7 Title..........................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE FRANKLIN REIT...........10
3.1 Organization, Power and Authority, and Qualification..........10
3.2 Authority Relative to this Agreement..........................10
3.3 Binding Obligation............................................10
3.4 No Violation..................................................10
3.5 Bankruptcy....................................................10
3.6 Disclosure....................................................11
3.7 Reports.......................................................11
3.8 Brokers.......................................................11
3.9 Franklin REIT's Financial Statements and Title................11
3.10 Inspections...................................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE NORTHPORT
COMPANY AND THE NORTHPORT PARTIES.............................11
4.1 Organization, Power and Authority, and Qualification..........11
4.2 Authority Relative to this Agreement..........................12
4.3 Consents and Approvals........................................12
4.4 Binding Obligation............................................12
4.5 No Violation..................................................12
4.6 Adequate Disclosure...........................................13
4.7 Absence of Undisclosed Liabilities............................13
4.8 Compliance with Laws..........................................13
4.9 Licenses, Permits, Certificates of Occupancy, Zoning, etc.....13
4.10 Environmental Matters.........................................13
4.11 Taxes and Assessments.........................................14
4.12 Physical Condition............................................14
4.13 Leases........................................................14
4.14 No Litigation or Adverse Events...............................14
4.15 Contracts and Agreements......................................14
4.16 No Other Agreements...........................................15
4.17 Non-Foreign Person............................................15
4.18 Intentionally Omitted.........................................15
4.19 Brokers.......................................................15
4.20 Operating Statements..........................................15
4.21 Secured Debt..................................................16
4.22 Security Deposits.............................................16
4.23 Deposits and Reimbursements...................................16
4.24 Bankruptcy....................................................16
4.25 Intentionally Deleted.........................................16
4.26 Solvency and Equivalency of Value Representations.............16
4.27 Inspections...................................................17
4.28 Best Knowledge................................................17
ARTICLE V COVENANTS AND AGREEMENTS OF THE NORTHPORT COMPANY
AND THE NORTHPORT PARTIES.....................................17
5.1 Actions Affecting Assets......................................17
5.2 Access to Property and Records................................17
5.3 License and Entitlements......................................18
5.4 No Extraordinary Transactions.................................18
5.5 Solicitation or Negotiation...................................18
5.6 Insurance.....................................................18
5.7 Taxes and Assessments.........................................18
5.8 Binding Commitments...........................................18
5.9 Operation of Property.........................................18
5.10 Closing Information...........................................19
5.11 Board Seats...................................................19
ARTICLE VI COVENANTS AND AGREEMENTS OF THE FRANKLIN REIT
REGARDING OPERATING PARTNERSHIP...............................19
6.1 No Property Transfer Period...................................19
6.2 No Pay Down Period............................................19
6.3 No Dissolution Action.........................................20
6.4 Actions Affecting Assets......................................20
6.5 Access to Property and Records................................20
6.6 License and Entitlements......................................20
6.7 No Extraordinary Transactions.................................21
6.8 Solicitation or Negotiation...................................21
6.9 Insurance.....................................................21
6.10 Taxes and Assessments.........................................21
6.11 Binding Commitments...........................................21
6.12 Operation of Property.........................................21
6.13 Closing Information...........................................21
6.14 Board Seats...................................................22
ARTICLE VII COVENANTS AND AGREEMENTS OF THE FRANKLIN REIT
REGARDING PARTNERSHIP INTEREST................................22
ARTICLE VIII COVENANTS AND AGREEMENTS OF THE OPERATING
PARTNERSHIP...................................................22
ARTICLE IX FRANKLIN REIT'S CONDITIONS PRECEDENT..........................22
9.1 Representations, Warranties and Covenants.....................22
9.2 No Material Adverse Change....................................22
9.3 Delivery of Closing Requirements..............................23
9.4 No Order or Injunction........................................23
9.5 Assumption of Secured Debt....................................23
9.6 Full Participation............................................23
9.7 Franklin REIT's Approval of Secured Debt Instruments..........23
ARTICLE X NORTHPORT COMPANY CONDITIONS PRECEDENT........................23
10.1 Representations, Warranties and Covenants.....................23
10.2 Delivery of Closing Requirements..............................23
10.3 No Order or Injunction........................................23
10.4 The Franklin REIT Capital Contribution........................24
10.5 Assignment and Assumption of Secured Debt.....................24
10.6 No Material Adverse Change....................................24
ARTICLE XI THE CLOSING...................................................24
11.1 Deliveries by the Northport Company...........................24
11.2 Deliveries by the Franklin REIT...............................26
11.3 Closing Prorations............................................27
11.4 Deposits and Reimbursements...................................29
11.5 Closing Costs.................................................29
11.6 Other Costs...................................................29
11.7 Possession....................................................30
11.8 Notices to Tenants............................................30
ARTICLE XII INDEMNITY.....................................................31
12.1 Indemnity by Northport Company................................31
12.2 Indemnity by Franklin REIT....................................31
ARTICLE XIII GENERAL PROVISIONS............................................31
13.1 Survival of Indemnities, Representations and Warranties.......31
13.2 Confidentiality...............................................31
13.3 Notices.......................................................32
13.4 Successors and Assigns........................................33
13.5 Amendments....................................................33
13.6 Governing Law.................................................33
13.7 Enforcement...................................................33
13.8 Time of the Essence...........................................33
13.9 Severability..................................................34
13.10 Exhibits......................................................34
13.11 Further Assurances............................................34
13.12 Risk of Loss..................................................34
13.13 Counterparts..................................................34
13.14 No Waiver.....................................................34
13.15 Legal Representation..........................................35
13.16 Agreements Read Together......................................35
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is between FSRT, L.P., a
Delaware limited partnership (the "Operating Partnership"), Franklin Select
Realty Trust, a California corporation (the "Franklin REIT"), and the "Northport
Parties" (hereinafter defined) and Northport Associates No. 18, a California
limited liability company ("Northport Company").
RECITALS
A. The Franklin REIT and the Northport Company desire to enter into the
transactions herein described for, among other things, the formation of the
"Operating Partnership" and the contribution by the Northport Company to the
Operating Partnership at a "Closing" of (hereinafter defined) two (2) parcels of
land identified on Exhibit A (the "Land"), each improved with a research and
development building and related improvements. The parcels of Land and all
"Appurtenances," "Improvements," "Tangible Personal Property" and "Intangible
Personal Property" (as those terms are hereafter defined) located thereon or
associated therewith are individually referred to as a "Northport Property" and
collectively referred to as the "Northport Properties." It is the intention of
the parties that the contributions referred to in this Agreement shall be tax
deferred.
B. Pursuant hereto, the parties wish to provide for, among other things,
the contribution of a parcel of real property (with the real property referred
to as the "Franklin REIT Property") by the Franklin REIT to the Operating
Partnership.
C. Concurrently with the Closing (as defined below), the Franklin REIT and
the Northport Company are forming the Operating Partnership by entering into an
Operating Partnership Agreement (the "OP Agreement"), with the Franklin REIT as
the sole general partner and the Northport Parties as the sole limited partners.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Certain of the terms used in this Agreement that are not otherwise defined
herein shall have the meanings set forth below.
1.1 "Approved Title Form" shall mean title insurance policies to be issued
in the form of, and containing only the Permitted Exceptions, all approved by
the Franklin REIT for the Northport Properties and the Franklin REIT Property,
but described in the form of a preliminary title report on Exhibits 1.1 and 3.9.
1.2 "Appurtenances" shall mean all rights, privileges, interests,
licenses, claims, easements, benefits, covenants, conditions and servitude of
any type or nature which are appurtenant to or otherwise benefit a parcel of
Land and/or the Improve ments located thereon, including without limitation, all
minerals, oil, gas and other hydrocarbon substances on or under the Land which
are owned by Northport Company and the Franklin REIT, respectively, if any, as
well as all development rights, air rights, water, water rights and water stock
relating to a parcel of Land and any other easements, rights of way or
appurtenances and used in connection with the beneficial operation, use and
enjoyment of such land and/or Improvements or any other appurtenance, together
with all rights of the Northport Company and the Franklin REIT, respectively, in
and to streets, sidewalks, alleys, driveways, parking areas and areas adjacent
thereto or used in connection therewith, and all rights of the Northport Company
and the Franklin REIT, respectively in any land lying in the bed of any existing
or proposed street adjacent to any land. Notwithstanding the above, such
appurtenances are limited to whatever Northport Company and the Franklin REIT,
respectively actually owns.
1.3 "Assignment of Intangible Property" shall have the meaning set forth
in Sections 11.1(d) and 11.2(h).
1.4 "Assignment of Leases" shall have the meaning set forth in Sections
11.1(e) and 11.2(f).
1.5 "Assignment of Secured Debt Instruments" shall have the meaning set
forth in Section 11.1(g).
1.6 "Assumed Contracts" shall mean those contracts identified on Exhibit
1.6 that the Northport Company or the Franklin REIT will assign to, and that the
Operating Partnership will assume, or take subject to, as of the Closing Date.
Such Assumed Contracts shall include bonds and assessments as stated on the
Permitted Exceptions for the Northport Properties and bonds and assessments for
the Franklin REIT Property.
1.7 "Conditions Precedent" shall mean collectively, the Franklin REIT
Conditions Precedent and the Northport Company Conditions Precedent, each set
forth in Article IX and Article X, respectively, of this Agreement.
1.8 "Contributing Party" shall mean the Northport Company and the Franklin
REIT with respect to the Northport Properties and Franklin REIT Property to be
contributed.
1.9 "Closing" shall mean the date and time at which title to the Northport
Properties and to the Franklin REIT Property have vested in the Operating
Partnership.
1.10 "Closing Date" shall mean the date on which the closing of the
Northport Properties and to the Franklin REIT Property occurs upon the mutual
agreement of the Franklin REIT and the Northport Company, provided that such
date is no later than October 31, 1996.
1.11 "Closing Secured Debt" shall mean the total amount of all principal,
interest and other amounts outstanding under the Secured Debt encumbering the
Northport Properties calculated as of the Closing Date.
1.12 "Contracts" shall mean all written or oral management, insurance,
indemnity, service, maintenance, operating, repair, professional service, and
other contracts and commitments (excluding the Leases) in any way relating to
the Northport Properties and the Franklin REIT Property or any part thereof.
1.13 "Deposits and Reimbursements" shall mean (a) deposits made by or for
Northport Company and the Franklin REIT, respectively, if any, with or tendered
to utility companies to secure service or to permit the Northport Company and
the Franklin REIT, respectively or their predecessors in interest to tie in to
existing service grids or to cause a utility company to install connections or
extensions necessary to provide service, (b) deposits made by or for Northport
Company and the Franklin REIT, respectively, if any, or their predecessors in
interest with any bonding or surety company or deposits, bonds or other
financial security devices posted with or for the benefit of any governmental or
quasi-governmental agency in connection with subdivision or public improvement
bonds obtained by the Northport Company and the Franklin REIT, respectively or
their predecessors in interest or in connection with any development agreement,
subdivision agreement, parcel map or tract map, and (c) any refundable fees,
payments or reimbursements which the Northport Company and the Franklin REIT,
respectively or their predecessors in interest or the then-current owner or
occupant of the Properties and the Franklin REIT Property is entitled to receive
from any governmental or quasi-governmental or private body in respect of the
ownership and development of the Land or Improvements or any public improvements
made in connection with the Land or Improvements.
1.14 "Environmental Requirements" shall mean all applicable statutes,
regulations, rules, ordinances, codes, licenses, permits, orders, approvals,
plans, authorizations, concessions, franchises and similar items, of all
governmental agencies, departments, commissions, boards, bureaus or
instrumentalities of the United States, states and political subdivisions
thereof and all applicable judicial and administrative and regulatory decrees,
judgments and orders relating to the protection of human health or the
environment, including, without limitation: (i) all requirements, including but
not limited to those pertaining to reporting, licensing, permitting,
investigation and remediation of emissions, discharges, releases or threatened
releases of hazardous materials (as such term is defined below), chemical
substances, pollutants, contaminants or hazardous or toxic substances, materials
or wastes whether solid, liquid or gaseous in nature, into the air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substance,
materials, or wastes, whether solid, liquid or gaseous in nature; and (ii) all
requirements pertaining to the protection of the health and safety of the
employees or the public.
1.15 "Escrow Holder" shall mean Stewart Title Insurance Company.
1.16 "Exchange Rights Agreement" shall mean that certain Exchange Rights
Agreement attached hereto as Exhibit 1.16.
1.17 "Franklin REIT Capital Contribution" shall mean the Data General
property (and also referred to as the "Franklin REIT Property") described on
Exhibit 1.17 hereto to be contributed at Closing by the Franklin REIT to the
Operating Partnership with an agreed upon net contribution as described in
Article II and as described in the Operating Partnership Agreement.
1.18 "Franklin REIT Conditions Precedent" shall mean the conditions
precedent described in Article IV.
1.19 "Franklin REIT Property" shall mean the Real and Personal Property
contributed by the Franklin REIT.
1.20 Intentionally Deleted.
1.21 "Hazardous Materials" shall mean (i) any flammables, explosive or
radioactive materials, contaminants or hazardous or toxic wastes, materials or
substances or related materials whether solid, liquid or gaseous in nature,
including, without limitation, substances defined as "hazardous substances,"
"hazardous materials," "toxic substances" or "solid waste" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Sec. 9601, ET SEQ.; the hazardous materials Transportation Act, 49 U.S.C.
Section 1801, ET SEQ.; the Toxic Substances Control Act, 15 U.S.C., Section 2601
ET SEQ.; The Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section
6901 ET SEQ.; and in the regulations adopted and publications promulgated
pursuant to said laws; (ii) those substances listed in the United States
Department of Transportation Table (49 C.F.R. 172.101 and amendments thereto) or
by the Environmental Protection Agency (or any successor agency) as hazardous
substances (40 C.F.R. part 302 and amendments thereto); (iii) those substances
defined as "hazardous wastes," "hazardous substances" or "toxic substances" in
any similar federal, state or local laws or in the regulations adopted and
publications promulgated pursuant to any of the foregoing laws or which
otherwise are regulated by any governmental authority, agency, department,
commission, board or instrumentality of the United States of America, the State
of California or any political subdivision thereof; (iv) any pollutant or
contaminant or hazardous, dangerous or toxic chemicals, materials, or substances
within the meaning of any other applicable federal, state, or local law,
regulation, ordinance, or requirement (including consent decrees and
administrative orders) relating to or imposing liability or standards of conduct
concerning any hazardous, toxic, or dangerous waste, substance or material all
as amended; (v) petroleum or any by-products thereof; (vi) any
radioactive material, including any source, special nuclear or by-product
material as defined at 42 U.S.C. Section 2001 ET SEQ., as amended, and in the
regulations adopted and publications promulgated pursuant to said law; (vii)
asbestos in any form or condition; and (viii) polychlorinated biphenyls.
1.22 "Improvements" shall mean all improvements, structures or fixtures
constructed upon the Land and/or Appurtenances, including without limitation,
all buildings and structures presently located on the Land and/or Appurtenances,
all apparatus, equipment and appliances presently located on the Land and/or
Appurtenances, and used in connection with the operation or occupancy thereof,
such as heating and air conditioning systems and facilities used to provide any
utility services, parking services, refrigeration, ventilation, garbage
disposal, recreation or other services thereto, and all landscaping and
leasehold improvements of Tenants, if any, which become the property of the
lessor upon termination of a Lease.
1.23 "Intangible Personal Property" shall mean with respect to the
Northport Properties and the Franklin REIT Property, all of such Northport
Company's and the Franklin REIT's right, title, claim, interest and estate in,
to and under any and all (i) intangible personal property owned by the Northport
Company and the Franklin REIT, respectively, which relates in any manner to or
arises from or in connection with the Real Property and/or Tangible Personal
Property and any and all other property, rights in or to property, general
intangibles and contractual rights which the Northport Company and the Franklin
REIT may have which are necessary or useful in connection with, or otherwise
affect or relate to, the acquisition, development, improvement, holding, use,
operation, maintenance, leasing or sale of the Real Property and/or Tangible
Personal Property, including, but not limited to, any and all plans,
specifications, subdivision maps and filings with respect thereto, entitlements,
Licenses and Entitlements, subdivision or other bonds, Deposits and
Reimbursements, engineering or soil reports, environmental and hazardous and
toxic waste reports and studies, surveys, maps, inspection reports, all contract
rights, warranties from contractors, architects, engineers and material and
labor suppliers whether written or implied, all original Leases and Lease files,
all claims, chooses in action, judgments, remedies, damages and causes of
action, all easements, licenses and rights-of-way, occupancy or use agreements
and all other documents affecting or relating to the Real Property and/or
Tangible Personal Property; (ii) insurance proceeds received after Closing on
account of a pre-Closing event, but only to the extent of costs or liabilities
not covered by a Contributing Party's indemnity; (iii) any trademark, service
mark, trade name or name customarily used or associated with the Real Property
and/or Tangible Personal Property, and (iv) any and all other warranties,
guarantees, permits, entitlements and other intangible rights of any type or
nature.
1.24 "Land" shall mean the parcels of real property described on Exhibits
A and 1.17 attached hereto which shall include the Northport Properties and the
Franklin REIT Property, respectively.
1.25 "Law(s)" shall mean all applicable housing and building codes,
environ mental and life safety laws, rules and regulations including without
limitation, those related to handicapped or disabled (including without
limitation ADA and the Fair Housing Amendments Act of 1988) and land use and
zoning laws and regulations, and other applicable local, state and federal laws
and regulations.
1.26 "Leases" shall mean all leases, occupancy agreements and other
similar agreements, together with all modifications, extensions and renewals
thereof, and any guarantees of any of the foregoing with respect to or demising
any part of the Northport Properties and the Franklin REIT Property,
respectively which are described on Exhibit 1.26 and attached hereto as part
thereof.
1.27 "Licenses and Entitlements" shall mean all licenses, franchises,
certifications, authorizations, approvals, rights, privileges, entitlements and
permits issued or approved by any governmental or quasi-governmental authority
or other person or entity having authority over the Northport Property and the
Franklin REIT Property, respectively, and all applications, filings and
submittals therefor, in each case relating to the operation, ownership,
subdivision, development, use or maintenance of the Northport Property and the
Franklin REIT Property, respectively or any part thereof, including, without
limitation, subdivision, parcel and tract maps and approvals thereof, plans
and/or permits required under the applicable zoning regulations, variances,
utility agreements and commitments, improvement agreements, certificates of
occupancy and the like, but excluding therefrom for all purposes of this
Agreement any licenses issued to or solely on behalf of any Tenant.
1.28 "Northport Company Capital Contribution" shall mean the aggregate
capital contribution of Northport Associates #18, a California limited liability
company, described in Article II and as described in the Operating Partnership
Agreement.
1.29 "Northport Company Conditions Precedent" shall have the meaning
contained in Article X.
1.30 "Northport Parties" shall mean collectively those members and/or
shareholders and/or owners, and their respective spouses, of Northport
Associates No. 18, a California limited liability company and who are listed on
Exhibit 1.30 hereto.
1.31 "Northport Property" or "Northport Properties" shall mean the Real
and Personal Property contributed by the Northport Company.
1.32 "OP Agreement" shall have the meaning contained in Recital C.
1.33 "OP Units" shall mean units in the Operating Partnership.
1.34 "Operating Partnership" shall mean FSRT, L.P., a Delaware limited
partnership.
1.35 "Permitted Exceptions" shall mean with respect to each Northport
Property and the Franklin REIT Property, those exceptions (including, but not
limited to, all taxes, assessments and bonds) to title reflected in the Approved
Title Form.
1.36 "Personal Property" shall mean the Tangible Personal Property and the
Intangible Personal Property for the property contributed by the Northport
Company and the Franklin REIT, respectively.
1.37 "Property" or "Properties" shall mean the Real Property and the
Personal Property contributed by the Northport Company and the Franklin REIT,
respectively.
1.38 "Real Property" shall mean the Land, Improvements and Appurtenances
for the Northport Company and Franklin REIT Real Property, respectively.
1.39 "Registration Rights Agreement" shall mean that certain Registration
Rights Agreement attached hereto as Exhibit 1.39.
1.40 "Secured Debt" shall mean collectively the existing financing
encumbering the Northport Properties totaling in the aggregate approximately
$16,158,969.00, as described on Exhibit 1.40.
1.41 "Secured Debt Instruments" shall mean the agreements and other
instruments described on Exhibit 1.41 entered into or evidencing the Secured
Debt.
1.42 "Tangible Personal Property" shall mean and include any and all
tangible personal property owned by the Northport Company and the Franklin REIT,
respectively located at, upon or about, or affixed or attached to, or installed
in the Northport Properties and the Franklin REIT Property respectively, or used
or to be used in connection with or incorporated into or otherwise relating to
the Northport Properties and the Franklin REIT Property respectively or its
ownership, use, development, construction, maintenance, management, operation,
or occupancy, including, but not limited to, fixtures, furniture, furnishings,
tools, machinery, appliances and other apparatus and equipment, and any
information relating to taxes imposed on the Northport Property and the Franklin
REIT Property respectively, including without limitation, the Personal Property
identified on Exhibit 1.42.
1.43 "Tenant" or "Tenants" shall mean Lam Research Corporation which
occupies all of the Property and collectively the tenants occupying the Franklin
REIT Property.
1.44 "Title Company" shall mean Stewart Title Insurance Company.
1.45 "Title Policy" shall mean an ALTA Owner's Extended Coverage Policy of
Title Insurance for the Northport Properties and the Franklin REIT Property in
the form of the Approved Title Form for such Property issued to the Operating
Partnership by the Title Company promptly after Closing. All such policies are
sometimes collectively referred to as the "Title Policies."
1.46 "Transactions" shall mean all the transactions contemplated under
this Agreement and the other agreements referred to herein.
ARTICLE II
CONTRIBUTIONS/CLOSING
2.1 NORTHPORT COMPANY'S CONTRIBUTION. Subject to the terms and conditions
set forth herein, on the Closing Date, the Northport Company shall contribute to
the Operating Partnership and the Operating Partnership shall acquire from the
Northport Company all of Northport Company's right, title and interest in and to
the Northport Company Properties.
2.2 CONSIDERATION FOR NORTHPORT COMPANY CONTRIBUTION. In consideration of
the contribution of the Northport Properties to the Operating Partnership, at
Closing the Northport Company shall receive limited partner OP Units calculated
as hereinafter provided.
(a) NORTHPORT COMPANY CAPITAL CONTRIBUTION.
(1) CLOSING. At the Closing, there shall be issued by the
Operating Partnership One Million Six Hundred Twenty Five Thousand (1,625,000)
limited partner OP Units issued to the Northport Company.
Any prorations, credits, and other items which are otherwise payable
at Closing by Northport Company, in cash, if any, may instead be assumed and
discharged by the Operating Partnership and the amount thereof will be deducted
from the Northport Company Capital Contribution of the Northport Company by a
reduction of the number of OP Units to be received if the Franklin REIT and the
Northport Company in their respective sole discretion, mutually agree in writing
to make this adjustment at Closing. The parties have also agreed as follows:
security deposits, if any, heretofore received by the Northport Company from
Tenants and all other items which result in a net debit to the Northport Company
at Closing will be paid in cash to the Operating Partnership at Closing.
(b) ALLOCATION OF NORTHPORT COMPANY OP UNITS. The aggregate number
of OP Units received by the Northport Company shall initially be allocated among
the Northport Parties as determined by the Northport Parties provided that the
Operating Partnership agrees to issue the OP Units to the Northport Parties in
accordance with a schedule provided to the Operating Partnership by the
Northport Company and the Northport Parties at least five (5) business days
prior to Closing. Neither the Operating Partnership nor the Franklin REIT shall
have any liability, obligation, duty, or responsibility to the Northport Company
or the Northport Parties for allocation of OP Units (whether pursuant to the
schedule provided by the Northport Company and the Northport Parties or
otherwise) or for any tax, economic, contractual, or other consequence, impact,
or effect resulting, directly or indirectly, from the foregoing allocation of OP
Units among Northport Parties; all such liability, obligation, duty and
responsibility shall be that of the Northport Company and the Northport Parties,
and the Northport Company (and the Northport Parties) hereby indemnify, defend,
save, and hold harmless the Franklin REIT and its officers, directors,
employees, agents, attorneys, advisors, and the like from and against any
damage, loss, expense, cost (including reasonable attorneys' fees), liability or
obligation with respect thereto or as a result thereof. Among other things, it
is acknowledged that all state and federal income tax considerations, issues,
analyses, and consequences relevant to the Northport Company and/or the
Northport Parties are not the responsibility of the Franklin REIT or the
Operating Partnership or the agents or representatives (including legal counsel
and accountants) of the Franklin REIT or the Operating Partnership, and none of
the Northport Company or the Northport Parties have relied or will rely on the
Franklin REIT or the Operating Partnership or the agents or representatives of
such parties with regard thereto, but instead will rely on their own tax,
business and legal advisors therefor and with respect thereto. However, the
Franklin REIT shall use its good faith efforts so that the Northport Company and
the Northport Parties can achieve their tax objectives.
(c) Intentionally Deleted.
2.3 FRANKLIN REIT CONTRIBUTION. In the event all Properties are acquired
at the Closing, the Franklin REIT shall contribute the Franklin REIT Property to
the Operating Partnership in the amount of the Franklin REIT Capital
Contribution. The Franklin REIT Contribution shall be equal to the value of the
Franklin REIT Net Value as defined in the OP Agreement.
2.4 CONSIDERATION FOR THE FRANKLIN REIT CONTRIBUTION. In consideration of
the Franklin REIT Capital Contribution made by the Franklin REIT to the
Operating Partnership, the Franklin REIT shall receive the "Percentage Interest"
as defined and set forth in the OP Agreement.
2.5 CALCULATION OF OWNERSHIP INTERESTS. The "ownership interest" of each
partner of the Operating Partnership (general and limited) shall be determined
in accordance with the OP Agreement. Without establishing the final calculation
of OP Units, the parties anticipate that the Northport Partners shall receive
approximately 1,625,000 OP Units in the aggregate.
2.6 CLOSING TIME AND PLACE. The Closing shall occur on October 17, 1996,
or at such other time as agreed upon by the parties; provided, however, that if
the Closing cannot occur by said date, then the Closing Date shall be extended
to not later than October 31, 1996.
2.7 TITLE. On the Closing Date, the Northport Company and the Franklin
REIT, respectively will convey to the Operating Partnership marketable, fee
simple title to the Northport Properties and the Franklin REIT Property. Title
to only the Northport Properties will be insured by issuance at Closing by the
Title Company to the Operating Partnership. Title Policies shall be issued for
each Northport Property in the form of the Approved Title Form and subject to
only those exceptions which have been approved by all parties prior to Closing.
No title policy shall be obtained for the Franklin REIT Property.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE FRANKLIN REIT
3.1 ORGANIZATION, POWER AND AUTHORITY, AND QUALIFICATION. The Franklin
REIT is a corporation duly organized, validly existing and in good standing
under the laws of the State of California, and has the requisite power and
authority to carry on its business as it is now being conducted.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Franklin REIT has taken all
actions necessary to authorize the execution, delivery and performance of this
Agreement by the Franklin REIT, and no other actions on the part of the Franklin
REIT are necessary in this regard.
3.3 BINDING OBLIGATION. This Agreement has been duly and validly executed
and delivered by the Franklin REIT and constitutes a valid and binding agreement
of the Franklin REIT enforceable against the Franklin REIT in accordance with
its terms.
3.4 NO VIOLATION. The execution and delivery of this Agreement by the
Franklin REIT and the consummation of the Transactions will not result in or
constitute any of the following: (i) a default, breach, or violation, or an
event that, with notice or lapse of time or both, would be a default, breach, or
violation, of the corporate organizational documents of the Franklin REIT or any
promissory note, conditional sales contract, commitment, indenture, mortgage,
deed of trust, or other agreement, instrument or arrangement to which the
Franklin REIT is a party; (ii) an event that would permit any party to
accelerate the maturity of any indebtedness or other obligation of the Franklin
REIT; or (iii) a violation or conflict with any term or provision of any
judgment, decree, order, statute, injunction, rule or regulation of a
governmental unit applicable to the Franklin REIT.
3.5 BANKRUPTCY. There are no attachments, executions or assignments for
the benefit of creditors, or voluntary or involuntary proceedings in bankruptcy,
or under any other debtor relief laws, contemplated by or pending or threatened
against the Franklin REIT. Without limiting the generality of the foregoing,
none of the following have been done by, against or with respect to the Franklin
REIT: (A) the commencement of a case under Title 11 of the U.S. Code as now
constituted or hereafter amended, or under any other applicable federal or state
bankruptcy law or other similar law; (B) the appointment of a trustee or
receiver of any property interest; (C) an assignment for the benefit of
creditors; (D) an attachment, execution or other judicial seizure of a
substantial property interest; (E) the taking of, failure to take, or submission
to, any action indicating an inability to meet its financial obligations as they
accrue; or (F) a dissolution or liquidation.
3.6 DISCLOSURE. To its best knowledge, no representation or warranty of
the Franklin REIT in this Agreement, or any information, statement or
certificate furnished or to be furnished by or on behalf of the Franklin REIT
pursuant to this Agreement or in connection with the Transactions contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained therein not misleading. All documents delivered
by the Franklin REIT to the Northport Company, or made available to the
Northport Company for review in connection with the Transactions, were at the
time delivered or made available, and will be at the time of Closing, true,
correct and complete copies of all such documents in the Franklin REIT's
possession or control.
3.7 REPORTS. The Franklin REIT has filed all reports required by the
Securities Exchange Act of 1934 and the information contained therein is
materially true and correct as of the date of each such filing. There have been
no material adverse developments in the business and operations of the Franklin
REIT since the last of such reports so filed.
3.8 BROKERS. The Franklin REIT has not employed any broker or finder, or
incurred any liability therefor, in connection with the Transactions with the
exception of Prudential Securities who shall be paid a fee by the Franklin REIT.
3.9 FRANKLIN REIT'S FINANCIAL STATEMENTS AND TITLE. The Franklin REIT's
financial statements reflect all real and personal property owned by Franklin
REIT, and to the best knowledge of the Franklin REIT, it has good and marketable
title to the Franklin REIT Property as reflected on the preliminary title report
on Exhibit 3.9.
3.10 INSPECTIONS. The Franklin REIT acknowledges that it has been provided
an adequate opportunity to inspect the Northport Properties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE NORTHPORT COMPANY
AND THE NORTHPORT PARTIES
The Northport Company and the Northport Parties hereby make the
following representations, warranties, and covenants, with respect to all
Properties and the Northport Company subject to Sections 12.1 and 13.1 below.
4.1 ORGANIZATION, POWER AND AUTHORITY, AND QUALIFICATION. The Northport
Company is a limited liability company duly organized, validly existing, and in
good standing under the laws of the State of California, and has the power to
own all of the Northport Properties and other assets and to carry on its
business as presently conducted.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. The Northport Parties have
approved the Transactions. The Northport Company has taken all action necessary
to authorize the execution, delivery and performance of the Transactions and
this Agreement by the Northport Company, and no other proceedings, consents or
approvals on the part of the Northport Company are needed to authorize the
execution and delivery of this Agreement and the consummation by the Northport
Company of the Transactions contemplated hereunder. The Northport Company has
delivered to the Franklin REIT true and correct copies of all documentation
governing the existence and operation of the Northport Company, including any
modifications thereof (collectively the "Operating Agreement of the Northport
Company") and the same correctly recites all of the terms and conditions
governing the Northport Company and it has been duly and validly authorized,
executed and delivered by the Northport Parties, and is binding and effective.
The parties executing this Agreement have obtained all consents for such
execution and have been duly authorized to so execute.
4.3 CONSENTS AND APPROVALS. To the best knowledge of the Northport Company
and the Northport Parties, the Northport Company has obtained all consents and
approvals of third parties necessary to the consummation of the Transactions,
including without limitation all consents and approvals (including holders of
unsecured and secured debt, and any issuer and credit enhancer consents)
required in connection with the transfer of the Northport Properties to the
Operating Partnership and assignment to and the assumption by the Operating
Partnership of the Closing Secured Debt.
4.4 BINDING OBLIGATION. This Agreement has been duly and validly executed
and delivered by the Northport Company and constitutes a valid and binding
agreement of the Northport Company enforceable against the Northport Company in
accordance with its terms.
4.5 NO VIOLATION. To the Northport Company's and the Northport Parties'
best knowledge, the execution and delivery of this Agreement by the Northport
Company and the consummation of the Transactions will not result in or
constitute any of the following: (i) a default, breach, or violation, or an
event that, with notice or lapse of time or both, would be a default, breach, or
violation, of the Operating Agreement of the Northport Company or any Contract
or any Lease, License or Entitlement, promissory note, conditional sales
contract, commitment, indenture, mortgage, deed of trust, or other agreement,
instrument or arrangement to which the Northport Company is a party or by which
it or the Property is bound; (ii) an event that would permit any party to
terminate any Assumed Contract or to accelerate the maturity of any indebtedness
or other obligation of the Northport Company; (iii) a violation or conflict with
any term or provision of any judgment decree, order, statute, injunction, rule
or regulation of a governmental unit applicable to the Northport Company or a
Northport Property; or (iv) the creation or imposition of any lien, charge or
encumbrance on a Northport Property except property tax reassessments due to the
transfers hereunder.
4.6 ADEQUATE DISCLOSURE. To the Northport Company's and the Northport
Parties' best knowledge, the Northport Parties have been provided with, and have
given their consents and approvals on the basis of, disclosure materials
prepared by the Northport Company, setting forth all relevant, material facts
concerning the Northport Company and the Properties, the Operating Partnership,
and the Transactions.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. To the Northport Company's and the
Northport Parties' best knowledge, except for the Secured Debt, obligations
under the Contracts and Leases, exceptions as stated in the Permitted Exceptions
and liabilities arising in the ordinary course of business, the Northport
Company has no material liabilities of any nature, whether matured or unmatured,
fixed or contingent, regardless of whether the disclosure thereof would
otherwise be required by generally accepted accounting principles, which
liabilities could or would remain with the Northport Property or be binding on
the Operating Partnership of which would have an adverse effect upon the
Operating Partnership or the Northport Property.
4.8 COMPLIANCE WITH LAWS. To Northport Company's and the Northport
Parties' best knowledge, the use and operation of each Northport Property now
are, and at the time of Closing will be, in compliance with all Laws which are
material to the ownership and operation of each Northport Property. To Northport
Company's and the Northport Parties' best knowledge, there are no facts which
would prevent the Operating Partnership from using and operating the Northport
Property after Closing in the manner in which it is intended to be operated.
4.9 LICENSES, PERMITS, CERTIFICATES OF OCCUPANCY, ZONING, ETC. To
Northport Company's and the Northport Parties' best knowledge, all Licenses and
Entitlements required in connection with the construction, use or occupancy of
each Northport Property have been obtained and are in full force and effect and
in good standing.
4.10 ENVIRONMENTAL MATTERS. Other than the hazardous materials described
with the Leases and which have been, or are presently being employed by the
Tenant in its business operations and the Phase I and Phase II hazardous
material reports and all the other reports related to hazardous materials, all
listed and referred to on Exhibit 4.10 delivered to the Franklin REIT prior to
Closing by the Northport Company, (i) neither the Northport Company nor, to the
best knowledge of the Northport Company, any current or previous owner, tenant,
occupant, user of a Northport Property, or any other person, has engaged in or
permitted any operations or activities upon, or any use or occupancy of a
Northport Property, or any portion thereof, for the purpose of or in any way
involving the handling, manufacture, treatment, storage, use, generation,
release, discharge, refining, dumping or disposal of any Hazardous Materials
(whether legal or illegal, accidental or intentional) on, under, in or about a
Northport Property, or transported any Hazardous Materials to, from or across a
Northport Property, except in all cases in compliance with Environmental
Requirements; and (ii) to the best knowledge of the Northport Company, no
Hazardous Materials are presently constructed, deposited, stored, or otherwise
located on, under, in or about a Northport Property, except in all cases in
compliance with Environmental Requirements.
4.11 TAXES AND ASSESSMENTS. The Northport Company has not received notice
of and does not have any knowledge of (i) any proposed increase in the assessed
valuation of a Northport Property, or (ii) any existing or proposed assessment
that has or may become a lien on a Northport Property except possible
reassessment as a result of the transfers hereunder and improvements made by the
Tenant.
4.12 PHYSICAL CONDITION. To the best knowledge (but without investigation)
of the Northport Company, it has received no notice that there are structural
defects or deficiencies in the Improvements which individually or in the
aggregate would have a material adverse effect on the Northport Company or on
the value of a Northport Property. To the best knowledge (but without
investigation) of the Northport Company, it has received no notice that the
Improvements and Tangible Personal Property (including, without limitation,
plumbing equipment, HVAC, electric wiring and fixtures, gas distribution
systems, and water and sewage systems presently on or in a Northport Property)
are not in good working order and condition and are not sufficient to serve the
needs of a Northport Property. To the best knowledge (but without investigation)
of the Northport Company, it has received no notice that all water, sewer, gas,
electric, telephone, and drainage facilities and all other utilities required by
law or by the normal use and operation of a Northport Property, including,
without limitation, cable television service, and waste water treatment
facilities permanently dedicated to and reserved for a Northport Property, have
not been installed to the property lines of the Northport Properties, are not
connected pursuant to the valid unconditional permits, and are not adequate to
service a Northport Property and to permit compliance with all Laws.
4.13 LEASES. The Leases for the Northport Properties described on Exhibit
1.26 attached hereto are true, complete and accurate. Except for the Leases, to
the best knowledge of the Northport Company, there are no other leases, licenses
or other agreements affecting the occupancy of the Northport Properties which
would become an obligation of the Operating Partnership after the Closing. With
respect to each Lease: (i) there is no default by the Northport Company under
any Lease, and (ii) all Leases are assignable by the Northport Company to the
Operating Partnership.
4.14 NO LITIGATION OR ADVERSE EVENTS. To the best knowledge of the
Northport Company, there are no investigations, actions, suits, proceedings or
claims pending or, to the best knowledge of the Northport Company, threatened
against or affecting the Northport Company or a Northport Property, at law or in
equity or before or by any federal, state, municipal or other governmental
department, commission, board, agency, or instrumentality, domestic or foreign.
To the best knowledge of the Northport Company, the Northport Company has not
received notice of any, and to the best knowledge of the Northport Company is
not subject to any, order, writ, injunction or decree of any court or federal,
state, municipal or other governmental agency or department, commission, board,
agency or instrumentality.
4.15 CONTRACTS AND AGREEMENTS. The Northport Company shall terminate at or
prior to Closing all Contracts (other than Leases) affecting a Northport
Property that are not Assumed Contracts. On the Closing Date, to the best
knowledge of the Northport Company, there will be no outstanding written or oral
Contracts made by the Northport Company in connection with a Northport Property
which in any way binds or affects a Northport Property or the Operating
Partnership other than the Assumed Contracts and Leases. To the best knowledge
of the Northport Company, there are no Contracts for any improvements to a
Northport Property which have not been fully paid for, and the Northport Company
shall cause to be discharged all mechanics' and materialmen's liens, if any,
arising from any labor or materials furnished to a Northport Property prior to
the Closing Date. With respect to each Assumed Contract to the best knowledge of
the Northport Company, (i) it has been duly and validly executed and delivered
by the Northport Company; (ii) it is in full force and effect; (iii) the copy of
the Assumed Contract delivered by the Northport Company to the Operating
Partnership is true and accurate and is unmodified; (iv) the Northport Company
is not in default under any Assumed Contract and no event exists which, with the
passage of time or the giving of notice or both, would become a default
thereunder on the part of the Northport Company; (v) to the knowledge of the
Northport Company, no other party to any Assumed Contract is in default under
the Assumed Contract and nor has any event occurred which, with the passage of
time or the giving of notice or both, would become a default thereunder; and
(vi) each Assumed contract may validly be assigned to and assumed by the
Operating Partnership, and any and all consents to such assignment and
assumption have been obtained by the Northport Company.
4.16 NO OTHER AGREEMENTS. To the knowledge of the Northport Company, there
are no obligations in connection with a Northport Property which will be binding
upon the Operating Partnership or affect a Northport Property after Closing and
which are not disclosed by the Approved Title Form.
4.17 NON-FOREIGN PERSON. The Northport Company is not a "foreign person"
as such term is defined in Section 1445(f) of the Internal Revenue Code of 1986,
as amended, and the Northport Company are not subject to withholding under
Section 26131 of the California Revenue and Taxation Code.
4.18 INTENTIONALLY OMITTED.
4.19 BROKERS. The Northport Company has not employed any broker or finder,
or incurred any liability therefor, in connection with the Transactions.
4.20 OPERATING STATEMENTS. To the best knowledge of the Northport Company,
all operating statements and other financial statements provided by the
Northport Company to the Franklin REIT fully reflect the matters stated therein,
including operation of the Northport Properties for the periods covered and, in
all material respects, accurately reflect all rents and other gross receipts,
and all amounts paid by the Northport Company for electricity, water, sewer,
other utility services, insurance, fuel, maintenance and repairs (whether
capitalized or expensed), real estate taxes, payroll and payroll taxes and all
other operating and other expenses associated with the Property. Since the end
of the latest period covered by such financial statements, there have been no
transactions or occurrences materially affecting the operating expenses (or
items thereof) associated with the Northport Properties.
4.21 SECURED DEBT. To the best knowledge of the Northport Company, all
Secured Debt Instruments are reflected on Exhibit 1.40. All of the information
contained on the foregoing Exhibits is true, accurate, and complete in all
material respects.
4.22 SECURITY DEPOSITS. All Tenant security deposits, if any, are
reflected in Exhibit 4.22. There are no other deposits held by the Northport
Company in connection with the Northport Properties.
4.23 DEPOSITS AND REIMBURSEMENTS. To the best knowledge of the Northport
Company, all Deposits and Reimbursements are reflected on Exhibit 4.23.
4.24 BANKRUPTCY. To the best knowledge of the Northport Company, there are
no attachments, executions or assignments for the benefit of creditors, or
voluntary or involuntary proceedings in bankruptcy, or under any other debtor
relief laws, contemplated by or pending or threatened against the Northport
Company. Without limiting the generality of the foregoing, none of the following
have been done by, against, or with respect to the Northport Company and the
Northport Parties, as concerns any right, claim or interest of such Northport
Party in or to any assets or property of any Northport Company, or any affiliate
of any general partner as concerns any right, claim or interest of such
affiliate in or to any assets or property of any Northport Company: (A) the
commencement of a case under Title 11 of the U.S. Code, as now constituted or
hereafter amended (the "Bankruptcy Code"), or under any other applicable federal
or state bankruptcy law or other similar law (collectively, "Insolvency Laws");
(B) the appointment of a custodian, agent, trustee or receiver of any property
interest; (C) an assignment for the behalf of creditors; (D) an attachment,
execution or the taking of, failure to take, or submission to, any action
indicating an inability to meet its financial obligations as they accrue; (F) a
dissolution or liquidation; or (G) any property transferred, concealed, or
removed with intent to hinder, delay, or defraud creditors.
4.25 INTENTIONALLY DELETED.
4.26 SOLVENCY AND EQUIVALENCY OF VALUE REPRESENTATIONS.
(a) Neither the Northport Company or any of the Northport Parties,
nor any person or entity owning directly or indirectly any interest in the
Northport Company, is or, by virtue of the transactions contemplated by this
Agreement, will be rendered any of the following:
(1) insolvent, as that term is used or defined under any
applicable insolvency law;
(2) possessed of debts greater than the fair or salable
value of all of its property;
(3) generally not paying or unable to pay its debts as they
become due or mature;
(4) engaged in any business or transaction, or is about to
engage in any business or transaction, for which any property remaining with it
after the Transactions is an unreasonably small amount of capital;
(b) The Transactions constitute a contemporaneous exchange for fair
and equivalent new value given to the Northport Company, any of the Northport
Parties and any person or entity owning directly or indirectly any interest in
the Northport Company, and are, according to ordinary business terms, receiving
fair value.
4.27 INSPECTIONS. The Northport Company and the Northport Parties
acknowledge that they have been provided an adequate opportunity to inspect the
Franklin REIT Property.
4.28 BEST KNOWLEDGE. As used herein the words "to the best knowledge" or
other similar words with respect to the Northport Company or any of the
Northport Parties shall mean the best of their actual knowledge based upon the
actual knowledge of the four principal members of the Northport Company and not
the knowledge of any Northport Company employee, agent, or other party.
ARTICLE V
COVENANTS AND AGREEMENTS OF THE NORTHPORT COMPANY
AND THE NORTHPORT PARTIES
The Northport Company and the Northport Parties hereby covenant and agree
as follows:
5.1 ACTIONS AFFECTING ASSETS. The Northport Company shall not sell,
assign, lease, pledge, transfer or encumber any of the Northport Properties, or
enter into any other consent, commitment, understanding or other agreement, or
incur any obligation or liability (contingent or absolute) with respect to the
Northport Properties or merge or consolidate with or into any other entity or
enter into any agreements relating thereto.
5.2 ACCESS TO PROPERTY AND RECORDS. Upon reasonable notice and during
regular business hours, the Northport Company shall give the Franklin REIT, and
authorized representatives full access to the Northport Properties, the
Northport Company's personnel, properties, documents, contracts, facilities,
books, equipment and records and shall also give and shall cause its Tenants
pursuant to the Leases to give them access to the Property.
5.3 LICENSE AND ENTITLEMENTS. Through the Closing, the Northport Company
shall maintain all Licenses and Entitlements in full force and effect, and to
its best knowledge shall file timely all reports, statements, renewal
applications and other filings, and to its best knowledge shall pay timely all
fees and charges in connection therewith that are required to keep the Licenses
and Entitlements in full force and effect.
5.4 NO EXTRAORDINARY TRANSACTIONS. Until the Closing, the Northport
Company will conduct its business in the ordinary and usual course as such
business was conducted prior to the date hereof and not engage in any
extraordinary transactions without the Franklin REIT's prior written consent.
Extraordinary transactions shall include, without limitation, the sale of any
real property or any material asset, borrowing of any funds under existing
credit arrangements or otherwise, entering into any new contract or agreement
(or extending any existing contract or agreement) unless such is cancelable by
the Northport Company (and after the Closing, by the Operating Partnership) in
their discretion on a maximum of thirty (30) days' notice.
5.5 SOLICITATION OR NEGOTIATION. Neither the Northport Company nor the
Northport Parties shall initiate or solicit any inquiries or offers with respect
to, and shall not agree to, any merger, acquisition or other offer involving the
Northport Company, any interest in the Northport Company, or any of its
Properties or securities prior to October 31, 1996.
5.6 INSURANCE. Through the Closing, the Northport Company shall cause to
be maintained in full force and effect substantially the same public liability
and casualty insurance coverage now in effect with respect to a Northport
Property, at its own expense.
5.7 TAXES AND ASSESSMENTS. Except as otherwise provided in this Agreement,
the Northport Company shall pay or discharge before delinquent all tax
liabilities and obligations, including, without limitation, those for federal,
state or local income, property, sales, use and other taxes that are payable
prior to the Closing Date.
5.8 BINDING COMMITMENTS. Prior to Closing, the Northport Company shall not
make any material commitments or representations to any applicable government
authorities, any adjoining or surrounding property owners, any civic
association, any utility or any other similar person or entity that would in any
manner be binding upon the Operating Partnership or a Northport Property without
the Franklin REIT's prior written consent in each case.
5.9 OPERATION OF PROPERTY. Subject to any loss provided in Section 13.12,
the Northport Company shall continue to operate and maintain the Northport
Properties in the ordinary course of its business, consistent with past
practice, and will maintain each Northport Property in substantially its present
order and condition and make all reasonably necessary repairs and replacements
consistent with a reasonably prudent maintenance and repair program followed by
owners of similar property in the vicinity of the Northport Properties, and
deliver the Northport Properties on the Closing in substantially the same
condition it was on the date this Agreement was executed by the Operating
Partnership, reasonable wear and tear excepted. Without limiting the generality
of the foregoing, no fixtures, equipment or other Personal Property shall be
removed from a Northport Property unless prior to the Closing Date the same are
replaced with similar items of at least equal quality and value.
5.10 CLOSING INFORMATION. Prior to Closing, the Northport Company shall
deliver to the Franklin REIT: (i) the Leases for each Northport Property to the
Operating Partnership; and (ii) such information as may be required to calculate
the Closing Secured Debt.
5.11 BOARD SEATS. At the written request of the Franklin REIT, one of the
Northport Parties who is made a member of the Franklin's REIT's Board of
Directors shall agree to resign from such a position when such Northport Party
receives notice to so resign at any time after one (1) year from the date of
Closing.
ARTICLE VI
COVENANTS AND AGREEMENTS OF THE FRANKLIN REIT
REGARDING OPERATING PARTNERSHIP
The Franklin REIT hereby covenants and agrees as follows (and
notwithstanding anything to the contrary in the OP Agreement):
6.1 NO PROPERTY TRANSFER PERIOD. The Franklin REIT covenants and agrees
not to cause without the Northport Parties' consent pursuant to the Operating
Partnership Agreement, the Operating Partnership to sell, transfer or otherwise
dispose of any of the Real Property, or any interest therein, directly or
indirectly, whether as a result of a "Terminating Capital Transaction" as
defined in the OP Agreement or otherwise (collectively referred to as a
"Property Transfer") which was contributed pursuant to this Agreement by the
Northport Company, nor distribute to the Northport Company or their successors
and assigns any property if such distribution would trigger tax liability under
Internal Revenue Code Section 737, or under any other provision of the Internal
Revenue Code, for a period of five (5) years after contribution of such Property
to the Operating Partnership upon the Closing, unless and until, on a Property-
by-Property basis, either (i) during said five (5) year period there has been an
"Excess Transfer" (as hereinafter defined) of the OP Units received by the
Northport Company, or (ii) the Property Transfer occurs in a manner which, upon
such transfer, is fully tax free to , and as such does not produce any income
taxation upon, the Northport Company or its successors and assigns as to whose
Property a Property Transfer is proposed to be made. Further, after such five
(5) year period, Franklin REIT will continue to exercise good faith efforts to
defer taxable gain from sale of the Real Property.
6.2 NO PAY DOWN PERIOD. During a period of ten (10) years after the
Closing the Franklin REIT shall not cause the Operating Partnership to pay down
(other than pursuant to loan amortization terms) any of the secured loans nor
take any other action to the extent that it would result in an income tax
liability under the Internal Revenue Code, or result in a reduction of the
allocation of debt to the Northport Company or its successors or assigns for
purposes of computing such parties' basis for income tax purposes, unless either
(i) simultaneously with such pay down the Operating Partnership refinances the
full amount paid down with non-recourse debt, and such refinanced debt shall not
result in a reduction of the allocation of debt to the Northport Company and its
successors or assigns for purposes of computing such parties' basis for income
tax purposes, or (ii) during said ten (10) year period there has been an Excess
Transfer of the OP Units received by the contributing Northport Company as to
whose Property or replacement the pay down is proposed to occur.
6.3 NO DISSOLUTION ACTION. Without limiting the provisions of Section 6.2
for the ten (10) year period immediately following the Closing the Franklin REIT
will not cause the Operating Partnership to take any action which results in
dissolution of the Operating Partnership. Further, after such ten-year (10)
period, the Franklin REIT will continue to exercise good faith efforts to defer
taxable gain from the paydown of loans related to the Northport Properties.
For purposes of the foregoing, the term "Excess Transfer" shall mean the
sale or transfer or conversion of at least eighty (80%) percent of the OP Units
received by the Northport Company and/or (in the aggregate) its respective
successors and assigns in transactions not constituting transfers permitted
under Paragraph 9(b) of the Registration Rights Agreement entered into
concurrently herewith between the Franklin REIT and the Northport Company. For
purposes of the foregoing, a pledge, encumbrance or hypothecation of an OP Unit
or an interest therein shall not constitute a sale, transfer or conversion. The
provisions of this Article VI shall survive Closing.
6.4 ACTIONS AFFECTING ASSETS. Prior to Closing, the Franklin REIT shall
not sell, assign, lease, pledge, transfer or encumber the Franklin REIT Property
or enter into any other consent, commitment, understanding or other agreement,
or incur any obligation or liability (contingent or absolute) with respect to
the Franklin REIT Property.
6.5 ACCESS TO PROPERTY AND RECORDS. Prior to Closing, upon reasonable
notice and during regular business hours, the Franklin REIT shall give the
Northport Company, and authorized representatives full access to the Franklin
REIT Property and records and shall also give and shall cause its Tenants
pursuant to the Leases to give them access to the Franklin REIT Property.
6.6 LICENSE AND ENTITLEMENTS. Through the Closing, the Franklin REIT shall
maintain all Licenses and Entitlements in full force and effect, and to its best
knowledge shall file timely all reports, statements, renewal applications and
other filings, and to its best knowledge shall pay timely all fees and charges
in connection therewith that are required to keep the Licenses and Entitlements
in full force and effect.
6.7 NO EXTRAORDINARY TRANSACTIONS. Until the Closing, the Franklin REIT
will conduct its business in the ordinary and usual course as such business was
conducted prior to the date hereof and not engage in any extraordinary
transactions without the Northport Company's prior written consent.
Extraordinary transactions shall include, without limitation, the sale of any
real property or any material asset, borrowing of any funds under existing
credit arrangements or otherwise, entering into any new contract or agreement
(or extending any existing contract or agreement) unless such is cancelable by
the Franklin REIT (and after the Closing, by the Operating Partnership) in their
discretion on a maximum of thirty (30) days' notice.
6.8 SOLICITATION OR NEGOTIATION. The Franklin REIT shall not initiate or
solicit any inquiries or offers with respect to, and shall not agree to any
acquisition involving the Franklin REIT Property prior to October 31, 1996.
6.9 INSURANCE. Through the Closing, the Franklin REIT shall cause to be
maintained in full force and effect substantially the same public liability and
casualty insurance coverage now in effect with respect to the Franklin REIT
Property, at its own expense.
6.10 TAXES AND ASSESSMENTS. Except as otherwise provided in this
Agreement, the Franklin REIT shall pay or discharge before delinquent all tax
liabilities and obligations, including, without limitation, those for federal,
state or local income, property, sales, use and other taxes that are payable
prior to the Closing Date.
6.11 BINDING COMMITMENTS. Prior to Closing, the Franklin REIT shall not
make any material commitments or representations to any applicable government
authorities, any adjoining or surrounding property owners, any civic
association, any utility or any other similar person or entity that would in any
manner be binding upon the Operating Partnership without the Northport Company's
prior written consent in each case.
6.12 OPERATION OF PROPERTY. Subject to any loss provided in Section 13.12,
the Franklin REIT shall continue to operate and maintain the Franklin REIT
Property in the ordinary course of its business, consistent with past practice,
and will maintain the Franklin REIT Property in substantially its present order
and condition and make all reasonably necessary repairs and replacements
consistent with a reasonably prudent maintenance and repair program followed by
owners of similar property in the vicinity of the Franklin REIT Property, and
deliver the Franklin REIT Property on the Closing in substantially the same
condition it was on the date this Agreement was executed by the Operating
Partnership, reasonable wear and tear excepted. Without limiting the generality
of the foregoing, no fixtures, equipment or other Personal Property shall be
removed from the Franklin REIT Property unless prior to the Closing Date the
same are replaced with similar items of at least equal quality and value.
6.13 CLOSING INFORMATION. Prior to Closing, the Franklin REIT shall
deliver to the Northport Company the Leases for the Franklin REIT Property to
the Operating Partnership.
6.14 BOARD SEATS. Upon the Closing, and subject to Section 5.11 above, two
(2) seats on the Board of Directors of the Franklin REIT shall be made available
to two (2) of the Northport Parties who shall be Barry Fernald and Larry Russel
for terms in accordance with the corporate governance documents.
ARTICLE VII
COVENANTS AND AGREEMENTS OF THE FRANKLIN REIT REGARDING
PARTNERSHIP INTEREST
The Franklin REIT hereby covenants and agrees that it will take all
actions consistent with the provisions of Article VI.
ARTICLE VIII
COVENANTS AND AGREEMENTS OF THE OPERATING PARTNERSHIP
The Operating Partnership hereby covenants and agrees that Cupertino
Management shall manage the Properties for two (2) years after the Closing
pursuant to an agreement attached in Exhibit 7.00.
ARTICLE IX
FRANKLIN REIT'S CONDITIONS PRECEDENT
The obligation of the Franklin REIT to consummate the Transactions shall
be subject to fulfillment (or waiver) at or prior to the Closing of the
following conditions precedent (the "Franklin REIT Conditions Precedent"):
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations,
warranties and covenants made in this Agreement or in any document delivered by
any of them pursuant to this Agreement by any person or entity other than the
Franklin REIT shall be true and correct in all material respects when made on
and as of the Closing Date as though such representations, warranties and
covenants were made on and as of the Closing Date.
9.2 NO MATERIAL ADVERSE CHANGE. None of the following shall have occurred
with respect to the Northport Properties: (i) any actual, pending, or threatened
taking of any portion of any Property by condemnation or eminent domain; (ii)
destruction of any portion of any Property regardless of cause; (iii) the
discovery of any Hazardous Materials on any Property other than as disclosed in
writing to the Franklin REIT (including but not limited to the Leases) prior to
the date hereof or discussed in any environmental audit approved by the Franklin
REIT for the Northport Properties prior to the date hereof; (iv) if any data,
information, facts or material provided to or obtained by the Franklin REIT
regarding the Northport Parties, the Northport Company, any Property, the
Existing Secured Debt proves to be false or misleading in any material respect,
or if any new material adverse fact concerning the same comes to the attention
of the Operating Partnership, or (v) the Northport Company or the Northport
Partners fail to comply with the provisions of this Agreement.
9.3 DELIVERY OF CLOSING REQUIREMENTS. Prior to or concurrently with
Closing, the Northport Company shall have executed and delivered, or caused to
be executed and delivered, to Escrow each of the documents and items identified
in Article XI, below to be executed and delivered by it, and the Title Company
shall be prepared to issue to the Operating Partnership title policies in the
Approved Title Form.
9.4 NO ORDER OR INJUNCTION. The consummation of the Transactions shall not
have been restrained, enjoined or prohibited by any order or injunction of any
court or governmental authority of competent jurisdiction.
9.5 ASSUMPTION OF SECURED DEBT. Effective on the Closing Date, subject to
receipt of written Lender consent and assumption terms acceptable to the
Franklin REIT, the Operating Partnership shall assume all obligations of the
Northport Company under the Secured Debt Instruments arising on and after the
Closing Date, pursuant to the Assignment of the Secured Debt Instruments. The
assignment of the Secured Debt Instruments shall have been approved by the
applicable lender of the Secured Debt.
9.6 FULL PARTICIPATION. All the Northport Properties are transferred to
the Operating Partnership at Closing.
9.7 FRANKLIN REIT'S APPROVAL OF SECURED DEBT INSTRUMENTS. The Franklin
REIT shall have received all of the Secured Debt Instruments and approved the
terms, and the fees and costs of transfer or assignment thereof.
ARTICLE X
NORTHPORT COMPANY CONDITIONS PRECEDENT
The obligation of the Northport Company to consummate the Transactions
shall be subject to fulfillment (or waiver) at or prior to the Closing Date of
the following conditions precedent (the "Northport Company Conditions
Precedent"):
10.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations,
warranties, and covenants made by the Franklin REIT in this Agreement or in any
document delivered by any of them pursuant to this Agreement shall be true and
correct in all material respects when made and on and as of the Closing Date as
though such representations, warranties and covenants were made on and as of the
Closing Date.
10.2 DELIVERY OF CLOSING REQUIREMENTS. Prior to or concurrently with
Closing, the Franklin REIT shall have executed and delivered, or caused to be
executed and delivered, to Escrow each of the documents and items identified in
Article XI, below to be executed and delivered by it.
10.3 NO ORDER OR INJUNCTION. The consummation of the Transactions shall
not have been restrained, enjoined or prohibited by any order or injunction of
any court or governmental authority of competent jurisdiction.
10.4 THE FRANKLIN REIT CAPITAL CONTRIBUTION. Concurrently with Closing,
the Franklin REIT shall contribute the Franklin REIT Property to the Operating
Partnership in the amount of the Franklin REIT Capital Contribution.
10.5 ASSIGNMENT AND ASSUMPTION OF SECURED DEBT. Effective on the Closing
Date, the Northport Company shall assign to the Operating Partnership all of
their rights under the Secured Debt Instruments, and the Operating Partnership
shall assume all obligations of such Northport Company under the Secured Debt
Instruments arising on and after the Closing Date. In connection with such
assumption, the applicable Northport Company and the Northport Parties shall be
released from their obligations under any applicable guaranties relating to the
Properties contributed.
10.6 NO MATERIAL ADVERSE CHANGE. None of the following shall have
occurred: (i) any actual, pending, or threatened taking of any portion of the
Franklin REIT Property by condemnation or eminent domain; (ii) destruction of
any portion of the Franklin REIT Property regardless of cause; (iii) the
discovery of any Hazardous Materials on the Franklin REIT Property other than as
disclosed in writing to the Northport Parties prior to the date hereof or
discussed in any environmental audit approved by the Northport Parties for the
Franklin REIT Property prior to the date hereof; (iv) if any data, information,
facts or material provided to or obtained by the Northport Parties regarding the
Franklin REIT, or the Franklin REIT Property, proves to be false or misleading
in any material respect, or if any new material adverse fact concerning the same
comes to the attention of the Northport Company or (v) the Franklin REIT fails
to comply with the provisions of this Agreement.
ARTICLE XI
THE CLOSING
Subject to the terms and conditions of this Agreement, the Closing, which
shall be conducted with the services of the Escrow and in accordance with the
terms of this Agreement (and any other reasonable and standard escrow provisions
required by the Escrow) shall take place promptly after satisfaction or waiver
of the conditions set forth in Articles IX and X and this Article XI.
11.1 DELIVERIES BY THE NORTHPORT COMPANY. At Closing, the Northport
Company shall deliver or cause to be delivered to Escrow (except where specified
to remain at the management office of the applicable Property) the following:
(a) The duly executed OP Agreement by all appropriate parties;
(b) A grant deed conveying to the Operating Partnership good and
marketable fee simple title to the Northport Properties (subject only to
Permitted Exceptions), in the form attached hereto as Exhibit 11.1(b);
(c) A duly executed warranty bill of sale in the form attached
hereto as Exhibit 11.1(c), conveying to the Operating Partnership title to its
Tangible Personal Property, such title to be free of any liens, encumbrances or
interests;
(d) A duly executed assignment to the Operating Partnership of its
Intangible Personal Property in the form attached hereto as Exhibit 11.1(d) (the
"Assignment of Intangible Property");
(e) A duly executed assignment and assumption of Leases affecting
its Property to the Operating Partnership in the form of Exhibit 11.1(e) (the
"Assignment of Leases"), such title to be free to any liens, encumbrances or
interests;
(f) A duly executed affidavit that the Northport Company is not a
"foreign person" within the meaning of Section 1445(e)(3) of the Internal
Revenue Code of 1986 (the "Internal Revenue Code") in the form of Exhibit
11.1(f);
(g) If applicable, a duly executed assignment and assumption of
Secured Debt Instruments affecting the Northport Properties to the Operating
Partnership in the Form of Exhibit 11.1(g) (the "Assignment of Secured Debt
Instruments") and written documents evidencing consents in form and content
satisfactory to the Operating Partnership from all applicable lenders of the
Secured Debt to the Assignment of Secured Debt Instruments;
(h) A certified copy of a duly executed Operating Agreement for
the Northport Company;
(i) A duly executed California Real Estate Withholding Exemption
Certificates (Form 590-RE);
(j) A full release and reconveyance of all monetary encumbrances
affecting the Property other than the Permitted Exceptions, including, without
limitation, any mechanics' liens and such bond, indemnity or other arrangements,
and any other documents or agreements as shall be necessary to cause the Title
Company to insure title to each Northport Property as vested in the Operating
Partnership without any exception for such matters and in the form of the
Approved Title Form;
(k) Originals of all Assumed Contracts and all Leases (each of
which may be left at the applicable Property management office);
(l) Cash in the amount of any net credits owed by the Northport
Company to the Operating Partnership as a result of the proration described
below. Any cash sums not paid and agreed to by the Franklin REIT to not be paid
in cash at Closing shall be deducted in the calculation of the Northport Company
Capital Contribution;
(m) Evidence of termination of any Contracts (including the Devcon
Contract for management) affecting the Northport Properties and that are not
assumed contracts, if any;
(n) Any as-built architectural and engineering plans, warranties,
permits and other similar items relating to the operation of the Properties;
(o) Intentionally Deleted.
(p) Estoppel statements from all Tenants of the Northport
Properties in the form of Exhibit 11.1(p);
(q) Duly executed assumption agreements regarding the Secured Debt
and Secured Debt Instruments and all applicable consents;
(r) Evidence reasonably satisfactory to the Franklin REIT that the
Northport Company will comply with the covenant contained in Section 4.26
hereof;
(s) A duly executed Registration Rights Agreement in the form of
Exhibit 1.39 attached hereto.
(t) A duly executed Exchange Rights Agreement in the form of
Exhibit 1.16 attached hereto; and
(u) Such other documents and instruments as are necessary or
appropriate to consummate the Transactions in accordance with this Agreement.
11.2 DELIVERIES BY THE FRANKLIN REIT. At Closing, the Franklin REIT, as
the newly constituted general partner of the Operating Partnership, shall
deliver to Escrow the following on behalf of the Operating Partnership; and
(a) The duly executed OP Agreement by all appropriate parties;
(b) A grant deed conveying to the Operating Partnership good and
marketable fee simple title to the Franklin REIT Property (subject only to
permitted exceptions), in the form attached hereto as Exhibit 11.2(b);
(c) A duly executed warranty bill of sale in the form attached
hereto as Exhibit 11.2(c) , conveying to the Operating Partnership title to its
Tangible Personal Property, such title to be free of any liens, encumbrances or
interests;
(d) A duly executed assignment to the Operating Partnership of its
Intangible Personal Property in the form attached hereto as Exhibit 11.2(d) (the
"Assignment of Intangible Property");
(e) A duly executed affidavit that the Franklin REIT is not a
"foreign person" within the meaning of Section 1445(e)(3) of the Internal
Revenue Code of 1986 (the "Internal Revenue Code") in the form of Exhibit
11.2(e);
(f) A duly executed Assignment of Leases in the form of Exhibit
11.2(f);
(g) A duly executed Assignment of Secured Debt Instruments in the
form of Exhibit 11.1(g);
(h) Cash in the amount of any net credits owed by the Operating
Partnership as a result of the prorations described below, if any, limited,
however, by the Franklin REIT Capital Contribution;
(i) Certificates evidencing ownership of the OP Units;
(j) A duly executed (by both the Operating Partnership and the
Franklin REIT) Registration Rights Agreement in the form of Exhibit 1.39
attached hereto;
(k) A duly executed (by both the Operating Partnership and the
Franklin REIT) Exchange Rights Agreement in the form of Exhibit 1.16 attached
hereto; and
(l) Such other documents and instruments as are necessary or
appropriate to consummate the Transactions in accordance with this Agreement.
11.3 CLOSING PRORATIONS. The items below are to be apportioned as of 12:01
AM on the Closing Date. No prorations or credits shall be considered an advance
by any Northport Company or the Franklin REIT to the Operating Partnership. All
prorations shall be settled at Closing in cash, unless otherwise agreed by the
parties.
(a) RENT. Rent under the Leases shall be apportioned as of the
Closing Date, regardless of whether or not such rent has been received by the
Northport Company and the Franklin REIT. All rent and other income for the
period preceding the Closing Date for a Northport Property or the Franklin REIT
Property shall be deemed to be the property of the then owner, and all rent and
other income for the period commencing on the Closing Date shall be the property
of the Operating Partnership. The Operating Partnership shall not be obligated
to take any steps to recover any rent arrearages on behalf of the Northport
Company and the Franklin REIT. The Northport Company and the Franklin REIT,
respectively shall be permitted to pursue their remedies for collection of any
rent arrearages applicable to the period prior to the Closing Date, provided
that the Operating Partnership shall incur no cost, expense or liability in
connection therewith, but the Northport Company only shall not be permitted to
enforce any other legal or equitable remedies specifically including commencing
eviction procedures.
(b) LEASING COSTS. The Northport Company shall pay as of the Closing
Date all leasing commissions and tenant improvement costs, if any, in connection
with any Lease executed on or before the Closing whether due or to become due
before or after the Closing Date.
(c) SECURITY DEPOSITS. The Northport Company and the Franklin REIT
shall be obligated and liable to the Operating Partnership for all security
deposits paid by Tenants under any Leases, and any interest earned thereon,
which by law or the terms of such Leases are or could become refundable to
Tenants. The obligation and liability of the Northport Company and the Franklin
REIT in this regard shall be discharged at Closing by the Operating Partnership
assuming the obligation of the respective parties therefor, and the payment of
cash by the Northport Company and the Franklin REIT for same.
(d) UTILITY CHARGES. Utility charges in the Northport Properties
shall not be prorated as the Tenant pays for such charges under the Lease.
However, utility charges shall be prorated for the Franklin REIT Property
at Closing.
(e) REAL ESTATE TAXES AND SPECIAL ASSESSMENTS. While all unpaid real
estate taxes, special assessments, bonds and personal property taxes for the
Northport Properties shall not be prorated as the tenant pays for such charges
under the Lease, the parties hereto shall prorate said items after the Closing
pursuant to Section 11.3(h) in the event that the Tenant of the Northport
Properties fails to pay said items. However, such items shall be prorated with
regard to the Franklin REIT Property.
(f) OTHER APPORTIONMENTS. Amounts payable under the Assumed
Contracts, annual or periodic permit and/or inspection fees (calculated on the
basis of the period covered), and liability for other property operation and
maintenance expenses and other recurring costs shall be apportioned as of the
day of the Closing Date. Premiums on any policy of insurance maintained by the
Northport Company and the Franklin REIT Property in connection with each
contributed Property shall also be prorated as of the Closing Date. Payments of
interest on the Secured Debt shall be prorated as of the Closing Date with such
interest accruing prior to the Closing Date being deemed an expense of the
Northport Company. Interest accruing thereafter shall be an expense of the
Operating Partnership. Interest and principal on bonds and assessments as stated
on the Permitted Exceptions shall be prorated as of the day of the Closing Date.
(g) PRELIMINARY CLOSING ADJUSTMENT. The Northport Company, the
Franklin REIT, and Operating Partnership shall jointly prepare and approve a
preliminary Closing adjustment on the basis of the Leases, Assumed Contracts and
other sources of income and expenses, and shall deliver such computation to
Escrow Holder prior to Closing.
(h) POST-CLOSING RECONCILIATION. If any of the aforesaid prorations
cannot be definitely calculated on the Closing Date, then they shall be
estimated at the Closing and definitely calculated as soon after the Closing
Date as feasible, but in any event within forty-five (45) days after the Closing
Date. As soon as the necessary information is available, the Operating
Partnership, the Franklin REIT, and the Northport Company shall conduct a
post-Closing audit to determine the accuracy of all prorations made to the
Purchase Price (the "Post-Closing Audit"). Either party owing the other party a
sum of money based on such subsequent proration(s) or the Post-Closing Audit
shall promptly pay said sum to the other party, together with interest thereon
at the rate of two percent (2%) over the "reference rate" established by Bank of
America (as announced from time to time by said bank) per annum from the Closing
Date to the date of payment if payment is not made within ten (10) days after
delivery of a bill therefor.
11.4 DEPOSITS AND REIMBURSEMENTS. The Northport Company and the Franklin
REIT respectively shall be entitled to any credit for any Deposits and
Reimbursements, but such items shall remain in place for the benefit of the
Operating Partnership with such utility companies, bonding or surety companies
or other governmental or private bodies.
11.5 CLOSING COSTS. The Franklin REIT shall pay with respect to each
Northport Property and the Franklin REIT Property, contributed to the Operating
Partnership the premium for the Title Policy, the cost of any endorsements to
the Title Policy set forth in Exhibit 11.5, and with respect to all Properties
contributed the cost of any applicable transfer taxes, escrow fees and costs,
and recording fees, and for all costs incurred in connection with the loan
assumption fees, prepayment or satisfaction of any loan or bond secured by the
Property including, without limitation, any prepayment fees, penalties or
charges. Any of the other costs and charges of the Escrow shall be allocated as
follows: In the event this Agreement is terminated for any reason other than a
breach or default by the Operating Partnership or the Franklin REIT, or by the
Northport Company, or the Northport Parties, each party shall pay one half (1/2)
of the Escrow or Title Company fees and costs. Otherwise, the defaulting Party
shall pay all of the Escrow or Title fees and costs.
11.6 OTHER COSTS. The following shall apply to all costs and expenses not
otherwise specifically addressed above.
(a) Each party hereto agrees to pay all of its own fees, costs and
expenses (including legal and accounting) incurred in connection with the
negotiation, drafting and completion of the (I) OP Agreement, and (ii) all
agreements, documents, and other instruments (e.g., the Contribution Agreement
and the conveyancing documents prepared in connection therewith, the
Registration Rights Agreement, the Exchange Rights Agreement, and certificates
for OP Units), as well as the conduct and completion of an audit of the
financial and operating statements for each of the Properties for the year ended
December 31, 1995, relating to the acquisition of the Properties by the
Operating Partnership and/or the issuance of OP Units in connection therewith.
The foregoing fees, costs and expenses are referred to collectively as the
"Separate Expenses."
Such Separate Expenses include (and such included expenses shall be the
separate liability and obligation of the respective incurring parties), among
other things, the following: (i) the Franklin REIT's and/or the Northport
Company's costs, fees, and expenses associated with its due diligence review of
the Properties and the Franklin REIT's properties, (ii) the Franklin REIT's
and/or the Northport Company's costs, fees, and expenses associated with the
analysis of the tax, economic, or other impact of the Transactions upon any of
the respective parties, and (iii) any sales, income, or any other tax arising
from the Transactions.
(b) In the event the Closing does not occur due to the breach or
default by the Northport Company and/or the Northport Parties, or any of them,
or any act or omission within the control of such entity or parties, then
notwithstanding the provisions of paragraph (a) above, the Northport Company and
the Northport Parties, jointly and severally, agree to pay all costs and
expenses incurred by the Franklin REIT (including legal and accounting) in
connection with the negotiation, due diligence, documentation and the like
relating to the Transactions, which shall be limited to fifty thousand dollars
($50,000). In the event the Closing does not occur due to the breach or default
of the Franklin REIT, or any act or omission within the control of the Franklin
REIT, then, notwithstanding the provisions of paragraphs (a) above, the Franklin
REIT agrees to pay all costs and expenses incurred by the Northport Company in
connection with the Transactions, which shall be limited to fifty thousand
dollars ($50,000). In the event this Agreement is terminated due to the failure
of a Condition Precedent which does not result from an act of omission within
the control of any party hereto, and absent any breach or default by any of the
parties hereto, then the provisions of (a) above shall apply.
11.7 POSSESSION. Subject to Section 13.12, at Closing, the Northport
Company and the Franklin REIT shall deliver possession of its Property to the
Operating Partnership (subject to the rights of Tenants under the Leases), which
Property shall be in the same condition as of the date of execution of this
Agreement, reasonable wear and tear excepted.
11.8 NOTICES TO TENANTS. The Northport Company and the Franklin REIT,
respectively shall cause the manager of each parcel of Property to mail via
first-class mail (postage prepaid) or personally deliver to each Tenant under
such Leases, within five (5) days after the Closing, a letter in substantially
the form attached hereto as Exhibit 11.8 advising each Tenant of the applicable
change of ownership and the holding of security deposits. If the notice to the
Tenant is made by personal delivery, the manager shall use good faith efforts to
cause the Tenant to acknowledge receipt of the notice and sign his or her name
on the Northport Company's copy of the notice.
ARTICLE XII
INDEMNITY
12.1 INDEMNITY BY NORTHPORT COMPANY. The Northport Company and the
Northport Parties jointly and severally shall save, hold harmless, indemnify and
defend the Franklin REIT and the Operating Partnership, their respective
successors and assigns and their respective officers, directors, employees,
partners, agents and representatives, from and against any and all obligations,
liabilities, claims, liens or encumbrances, demands, losses, damages, causes of
action, judgments, costs and expenses (including attorneys' fees), whether
direct, contingent or consequential, and no matter how arising, incurred or
suffered by any of them ("Losses and Liabilities"): (i) resulting from the
ownership or operation of the Northport Properties prior to the Closing; (ii)
resulting from any misrepresentation or inaccuracy in or breach of any
representation and warranty, or covenant made by the Northport Company and any
Northport Party in this Agreement; and (iii) resulting from any claim, cause of
action, or the like, by the Northport Company or by any Northport Party which
does not relate directly to the Franklin REIT or the Franklin REIT Property or
the Operating Partnership, but does relate solely to matters between or among
the Northport Company and the Northport Parties. Notwithstanding anything herein
contained to the contrary, however, none of the Northport Parties shall have any
personal liability in connection with this Contribution Agreement unless and
only to the extent such Northport Parties, respectively, receive assets from the
Northport Company following the Closing.
12.2 INDEMNITY BY FRANKLIN REIT. Except for Losses and Liabilities covered
by paragraph 12.1, the Franklin REIT shall save, hold harmless, indemnify and
defend the Northport Company, their respective successors and assigns and their
respective members, officers, directors, employees, partners, agents and
representatives and the Operating Partnership from and against any and all
Losses and Liabilities in any way: (i) resulting from the ownership or operation
of the Franklin REIT Property prior to the Closing; or (ii) resulting from any
misrepresentation or inaccuracy in or breach of any representation and warranty,
or covenant made by the Operating Partnership in this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
13.1 SURVIVAL OF INDEMNITIES, REPRESENTATIONS AND WARRANTIES. All
indemnities, representations and warranties in this Agreement shall survive the
Closing. Any claim, action, suit or proceeding with respect to the truth,
accuracy or completeness of the representations and warranties in Articles IV
and V above, and the indemnity in Sections 12.1(ii) and 12.2(ii) shall be
commenced or made, if at all, within six (6) months after the Closing. With
regard to the indemnity in Sections 12.1(i) and 12.2(i), such claim, action,
suit or proceeding shall be commenced or made, if at all, within thirteen (13)
months after the Closing and as to Section 12.1(iii), it shall survive if at all
for thirty six (36) months after the Closing. There shall be no limitation on
the survivability of the covenants made in Articles VI, VII and VIII.
13.2 CONFIDENTIALITY. Prior to the Closing, the Northport Company, and the
Northport Parties agree to maintain as confidential and, except as required by
law, to not disclose to any third parties, other than their partners, attorneys,
and accounting and business advisors, all information in their possession
concerning the Transactions. Prior to the Closing, none of the Northport Parties
shall make any public announcement by way of press release or otherwise of the
Transactions, but they shall be entitled to describe the Transactions
contemplated hereunder to their other members and advisors. The Franklin REIT
and the Operating Partnership shall have the right to disclose any and all
information in its possession (confidential or otherwise) concerning the
Northport Company and/or the Transactions for purposes of making any press
release concerning the Transactions as the Operating Partnership deems necessary
or appropriate in its sole and absolute discretion.
13.3 NOTICES. Any notice, consent or approval required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
given upon (i) hand delivery, (ii) one (1) business day after being deposited
with Federal Express or another reliable overnight courier service or next day
delivery or transmitted by facsimile telecopy, or (iii) two (2) business days
after being deposited in the United States mail, registered or certified mail,
postage prepaid, return receipt required, and addressed as follows:
If to the NORTHPORT
COMPANY: Devcon Investments
c/o Barry Fernald
555 Los Coches Street
Milpitas, California 95035
Fax No.: (408) 263-9711
Telephone No.: (408) 942-8200
WITH A COPY TO: Paul D. Marienthal, Esq.
Miller, Starr & Regalia
1331 No. California Blvd.
Walnut Creek, California 94596
Fax No.: (510) 933-4126
Telephone No.: (510) 935-9400
IF TO THE OPERATING
PARTNERSHIP: Franklin Select Realty Trust
1800 Gateway Drive
San Mateo, California 94404
Attention: Mr. David P. Goss
Fax No.: (415) 312-5830
Telephone No.: (415) 312-5824
With a copy to: Kaye, Scholer, Fierman, Hays & Handler, LLP
1999 Avenue of the Stars, 16th Floor
Los Angeles, California 90067
Attention: Barry H. Lawrence, Esq.
Fax No.: (310) 788-1200
Telephone No.: (310) 788-1010
IF TO THE
NORTHPORT PARTIES:To their addresses as stated on Exhibit 13.3.
or such other address as either party may from time to time specify in writing
to the other.
13.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
insure to the benefit of, the parties hereto and their respective successors,
heirs, administrators and permitted assigns. Any assignee of OP Units shall also
be an assignee hereunder and shall have the benefits of and be bound by the
terms and provisions of this Agreement (including those relating to indemnities
as hereinabove provided). Neither the Northport Company nor the Operating
Partnership shall assign its right, title or interest in or to this Agreement.
13.5 AMENDMENTS. Except as otherwise provided herein, this Agreement may
be amended or modified only by a written instrument executed by the Northport
Company and the Operating Partnership.
13.6 GOVERNING LAW. This Agreement, and all documents and instruments
executed and delivered in connection herewith (except the OP Agreement, which
shall be governed by Delaware law), shall be governed by and construed in
accordance with the laws of the State of California.
13.7 ENFORCEMENT. If any party hereto institutes any action or proceeding
to interpret or enforce any provision of this Agreement or for an alleged breach
of any provision of this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and all fees, costs and expenses incurred
in connection with such action or proceeding. Such attorneys' fees, fees, costs
and expenses shall include post judgment attorneys' fees, fees, costs and
expenses incurred on appeal or in collection of any judgment. This provision is
separate and several and shall survive the merger of this provision into any
judgment on this Agreement. No person or entity other than the parties hereto is
or shall be entitled to bring any action to enforce any provision of this
Agreement against any of the parties hereto, and the covenants and agreements
set forth in this Agreement shall be solely for the benefit of, and shall be
enforceable only by, the parties hereto or their respective successors and
assigns as permitted hereunder. Venue for such actions shall be in San Mateo
County.
13.8 TIME OF THE ESSENCE. Time is of the essence for this Agreement.
13.9 SEVERABILITY. If any provision of this Agreement, or the application
thereof to any person, place, or circumstance, shall be held by a court of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other persons, places and
circumstances shall remain in full force and effect.
13.10 EXHIBITS. All exhibits attached hereto are incorporated herein as
though fully set forth herein.
13.11 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to prepare, execute, and deliver such further instruments of
conveyance, contribution, assignment, or transfer and shall take or cause to be
taken such other or further action as either party shall reasonably request at
any time or from time to time in order to consummate the terms and provisions
and to carry into effect the intents and purposes of this Agreement.
13.12 RISK OF LOSS. In the event of any of loss or damage to all or any
part of any Northport Property or the Franklin REIT Property by fire or other
casualty prior to the Closing that the Franklin REIT or the Northport Company,
respectively reasonably believes could be $240,000 or more to the other parties'
contributed properties, or which materially impedes access to such Property,
then notwithstanding the existence of any casualty insurance, the Franklin REIT
or the Northport Company, respectively shall have the option in its sole
discretion to: (I) terminate this Agreement in its entirety; or (ii) continue
this Agreement, whereupon the Northport Company or the Franklin REIT shall
assign to the Operating Partnership all available insurance but the Operating
Partnership shall pay any deductible amount thereunder. In the event loss or
damages as stated herein are less than $240,000 for each respective parties'
Properties in the aggregate, the Operating Partnership shall be entitled to all
insurance proceeds and shall further be required to pay deductibles. The
provisions of subsection (ii) above shall apply (and survive Closing) in the
event of any loss or damage in an amount less than $240,000. The parties intend
that all of the Properties contemplated by this Agreement be contributed to the
Operating Partnership or none be contributed.
13.13 COUNTERPARTS. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required. It shall not be necessary
that the signatures of, or on behalf of, each party, or that the signatures of
all persons required to bind any party, appear on each counterpart, but it shall
be sufficient that the signature of, or on behalf of, each party, appear on one
or more of the counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties thereof.
13.14 NO WAIVER. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any other
instrument or document given in connection with or pursuant to this Agreement
shall impair any such right, power or privilege or be construed as a waiver of
any default or any acquiescence therein. No single or partial exercise of any
such right, power or privilege shall preclude the further exercise of such
right, power or privilege. No waiver shall be valid against any party hereto
unless made in writing and signed by the party against whom enforcement of such
waiver is sought and then only to the extent expressly specified herein.
13.15 LEGAL REPRESENTATION. Each party has been represented by legal
counsel in connection with the negotiation of the Transactions herein
contemplated and the drafting and negotiation of this Agreement. Kaye, Scholer,
Fierman, Hays & Handler, LLP ("KSFHH") has represented solely the Franklin REIT,
and Miller, Starr & Regalia ("MSR") has represented solely the Northport Company
and the Northport Parties, in connection with the negotiation and drafting of
transactions and matters contemplated under this Agreement and any other
agreements previously existing among the parties relating to the transactions or
matters covered hereby, the OP Agreement and all matters, things, documents and
transactions contemplated under the OP Agreement and under this Agreement. KSFHH
has not provided legal services to or been legal counsel for the Operating
Partnership, the Northport Company and the Northport Parties, and none of the
foregoing has relied on KSFHH in that regard. The normal rule of construction
that ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement.
13.16 AGREEMENTS READ TOGETHER. This Agreement, including its exhibits and
the other documents and agreements referred to herein, are intended by the
parties to be entered into contemporaneously with the Operating Partnership
Agreement, the Registration Rights Agreement, and the Exchange Rights Agreement.
All of these Agreements when read together shall constitute a final expression
of their agreement and are intended to be the complete and exclusive statement
of the agreement and understanding of the parties hereto in respect of the
subject matters contained herein and therein. There are no covenants,
agreements, promises, warranties or understandings other than those set forth
referred to herein, and therein, with respect to such subject matters. This
Agreement, as well as the other agreements entered into contemporaneously with
this Agreement together with their exhibits and the other documents and
agreements referred to, supersede all prior agreements and understandings
between the parties with respect to the subject matters hereof and thereof. All
these referred to agreements shall be read together to obtain a consistency with
no one agreement controlling in the event of a conflict.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered on its behalf as of October __,
1996.
OPERATING PARTNERSHIP
FSRT, L.P., a Delaware limited partnership
by Franklin Select Realty Trust, a
California corporation
By:/s/ David P. Goss
David P. Goss, President
FRANKLIN REIT
Franklin Select Realty Trust, a
California corporation
By:/s/ David P. Goss
David P. Goss, President
NORTHPORT COMPANY
Northport Associates No. 18, a
California limited liability company
by it Managing Member:
Lakeside II - Northport Associates, L.P.,
a California limited partnership
By: /s/ Barry C. L. Fernald
Barry C. L. Fernald, General Partner
By: /s/ Gary Filizetti
Gary Filizetti, General Partner
By: /s/ G. Gerald Engles
G. Gerald Engles, General Partner
By: /s/ Larry D. Russel
Larry D. Russel, Limited Partner
FRANKLIN REIT - NORTHPORT NO. 18
LIST OF EXHIBITS
EXHIBIT DESCRIPTION
A Legal Description - Northport
1.1 Preliminary Title Report - Northport Properties
1.6 Assumed Contracts
1.16 Exchange Rights Agreement
1.17 Legal Description - Franklin REIT Property
1.26 Leases - Northport Properties and Franklin REIT Property
1.30 Northport Parties - Names and Addresses
1.39 Registration Rights Agreement
1.40 Northport Properties - Secured Debt
1.42 List of Tangible Personal Property - Northport Properties and
ranklin REIT Property
3.9 Preliminary Title Report - Franklin REIT Property
4.10 List of Hazardous Material Reports
4.22 Security Deposits - Northport Properties
4.23 Deposits and Reimbursements - Northport Properties
7.00 Cupertino Management Agreement
11.1(b) Grant Deed - Northport Properties
11.1(c) Warranty Bill of Sale - Northport Properties
11.1(d) Assignment of Intangible Property - Northport Properties
11.1(e) Assignment of Leases - Northport Properties
11.1(f) Affidavit of Non-Foreign Person - Northport Company
11.1(g) Assignment of Secured Debt Instruments
11.1(p) Estoppel Statements - Northport Properties
11.2(b) Grant Deed - Franklin REIT Property
11.2(c) Warranty Bill of Sale - Franklin REIT Property
11.2(d) Assignment of Intangible Property - Franklin REIT Property
11.2(e) Affidavit of Non-Foreign Person - Franklin REIT Property
11.2(f) Assignment of Leases
11.2(g) Assignment of Secured Debt
11.5 Title Policy Endorsements - Northport Properties and Franklin REIT
Property
11.8 Form Letter to Tenants - Northport and Franklin REIT Properties
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as
of October __, 1996 by and between Franklin Select Realty Trust, a California
corporation (the "Company"), and certain holders of units of limited partnership
interest ("Units") in FSRT, L.P., a Delaware limited partnership, who have
executed a signature page to this Agreement (each a "Holder" and collectively
the "Holders").
WHEREAS, the Holders own Units which may be exchanged for Series A common
shares ("Common Shares") issued by the Company without registration under the
Securities Act of 1933, as amended (the "Securities Act"), under an Exchange
Rights Agreement (the "Exchange Agreement") dated the date hereof by and between
the same parties hereto; and
WHEREAS, under the Exchange Agreement, the Holders will not have the right
to exchange Units for Common Shares until the end of the No Exchange Period, as
defined in the Exchange Agreement (the "No Exchange Period");
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, and other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. REGISTRATION.
A. SHELF REGISTRATION
(i) On and subject to the terms and conditions of this
Agreement, the Company shall file at least sixty (60) days prior to the end of
the No Exchange Period a shelf registration statement on Form S-3 (or any
similar successor or replacement form) (the "Shelf Registration Statement")
pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Securities Act"), providing for the sale by the Holders of all the Common
Shares which are or may be issued by the Company to the Holders under the
Exchange Agreement (the "Registrable Shares") and shall use its best efforts to
cause such Shelf Registration Statement to be declared effective by the
Securities and Exchange Commission on or prior to the last day of the No
Exchange Period.
(ii) The Company agrees to use its best efforts to keep the
Shelf Registration Statement continuously effective until the earliest of (a)
the date on which the Holders no longer hold any Registrable Shares or Units,
(b) the date on which the Company has caused to be delivered to the Holders an
opinion of counsel stating that all the Registrable Shares issued or issuable
upon exchange of Units may be immediately sold pursuant to Rule 144 promulgated
under the Securities Act or any successor thereto or replacement therefor or (c)
the date on which the aggregate number of Registrable Shares held by, or
issuable under the Exchange Agreement, to the Northport Company and the
Northport Parties (as such terms are defined in the Contribution Agreement,
dated as of the date hereof, among the same parties hereto) is equal to or less
than five percent (5%) of the number of Registrable Shares issuable under the
Exchange Agreement to the Northport Company and the Northport Parties on the
date hereof (assuming that the No Exchange Period has expired (the "Five Percent
Date")). For purposes of determining whether the Five Percent Date has occurred,
the number of Registrable Shares shall be adjusted to take into account any
stock split, recapitalization, reclassification, reorganization or the like
affecting the outstanding number of Common Shares. The Company will give any of
the Northport Company and the Northport Parties who still hold Registrable
Shares or Units at the time at least 60 days advance notice of its intention to
terminate the Shelf Registration Statement pursuant to clause (c) of the second
preceding sentence. In the event of any termination of the Shelf Registration
Statement other than pursuant to clause (a), (b) or (c) of this Section 1A(ii),
the Company will use its best efforts to reinstate the Shelf Registration
Statement.
(iii) The Company agrees to supplement or amend the 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 or if reasonably requested by the
Holders or an underwriter of Registrable Shares, including to reflect any
specific plan of distribution or method of sale, and shall use its best efforts
to have such supplements and amendments declared effective as soon as possible
after filing.
B. DEMAND REGISTRATION
(i) On and subject to the terms and conditions of this
Agreement, in the event that the Company is not permitted by applicable law to
file the Shelf Registration Statement or if the Shelf Registration Statement is
terminated prior to the date specified in Section 1A(ii) above and not
reinstated within 90 days thereafter, the Company will promptly notify the
Holders of such circumstances and Holders of at least an aggregate of 200,000
Registrable Shares (including Registrable Shares issuable in exchange for Units
under the Exchange Agreement) may request in writing by delivery of a notice to
the Company (the "Demand Notice") that the Company file as soon as practicable a
registration statement which is not a shelf registration statement under Rule
415 under the Securities Act (a "Demand Registration Statement") relating to the
sale by the Holders of such number of Registrable Shares as is specified in the
Demand Notice. The reference in this Section 1B(i) to 200,000 shares shall be
adjusted to take into account any stock split, recapitalization,
reclassification, reorganization or the like affecting the outstanding number of
Common Shares.
(ii) Within fifteen (15) days of the Company's receipt of the
Demand Notice, the Company shall give written notice of such demand to all
Holders of the Registrable Shares and Units as shown in the Company's books and
records. All Holders of Registrable Shares shall have the right, by giving
written notice to the Company (the "Inclusion Notice") within fifteen (15) days
after the Demand Notice has been given to them, to have included in the Demand
Registration Statement such of their Registrable Shares as such Holders may
specify in the Inclusion Notice. Within sixty days of receipt of the Demand
Notice, the Company shall file the Demand Registration Statement with the
Securities and Exchange Commission (the "SEC"). The Company shall use its best
efforts to have such Demand Registration Statement declared effective by the
SEC.
(iii) The Company shall not be required to file and effect
more than one (1) Demand Registration Statement pursuant to this Section 1B in
any period of twenty-four (24) consecutive months.
(iv) It is further agreed that prior to the effective date of
the Demand Registration Statement, the persons who requested the preparation of
same may direct the Company in writing not to request that the Registration
Statement become effective, but instead terminate all efforts regarding same. In
such case, such persons shall pay within ten (10) days after receipt of written
request therefor from the Company all Registration Expenses incurred by the
Company in connection with all efforts relating to the Demand Registration
Statement. If so paid, such Demand Registration Statement will be disregarded
for the purpose of Section 1B(iii) above. Notwithstanding the direction
described above not to request that the Registration Statement become effective
and the payment of the Registration Expenses, the Company may nonetheless seek
and obtain effectiveness of such Registration Statement with or without
inclusion of the Common Shares of the persons who made the demand, but such
shall not be counted as use of the Demand Registration Right of such persons
hereunder.
(v) The Company agrees to use its best efforts to keep the
Demand Registration Statement continuously effective until the earliest of (a)
the date one (1) year from the effective date of the Demand Registration
Statement, (b) the date on which the Holders no longer hold any Registrable
Shares covered by the Demand Registration Statement or (c) the date on which the
Company has caused to be delivered to the Holders an opinion of counsel stating
that all the Registrable Shares covered by the Demand Registration Statement may
be immediately sold pursuant to Rule 144 promulgated under the Securities Act or
any successor or replacement therefor.
(vi) The Company shall be entitled to postpone for periods of
up to sixty (60) days the filing of any Demand Registration Statement pursuant
to the foregoing provisions if such filing would either (y) require disclosure
of material information the Company has a bona fide business purpose of
retaining as confidential or (z) have a material adverse effect on the Company
or its shareholders in relation to any financing, acquisition, corporate
reorganization or other material transaction contemplated by the Board of
Directors of the Company, involving the Company or any of its affiliates, in
each case as determined by the Board of Directors of the Company using
its good faith judgement.
C. PIGGYBACK REGISTRATION.
(i) On and after the date which is one (1) year after the
Closing under the Contribution Agreement, and continuing to the earliest of (a)
the date on which the Holders no longer hold any Registrable Shares or Units or
(b) the date on which the Company has caused to be delivered to the Holders an
opinion of counsel stating that all the Registrable Shares may be immediately
sold pursuant to Rule 144 promulgated under the Securities Act or any successor
thereto or replacement therefor, if at any time the Company proposes to file a
registration statement under the Securities Act with respect to an offering of
Common Shares solely for cash (or shall determine to sell any of its Common
Stock under a shelf registration statement already on file solely for cash),
other than (a) the Shelf Registration Statement or a Demand Registration
Statement, or (b) a registration statement (i) on Form S-8 or any successor form
to such Form or in connection with any employee or director welfare, benefit or
compensation plan, (ii) on Form S-4 or any successor form to such Form or in
connection with an exchange offer, (iii) in connection with a rights offering
exclusively to existing holders of Common Shares,(iv) in connection with an
offering solely to employees under an employee benefit, share dividend, share
ownership or dividend reinvestment plan by the Company or its affiliates or (v)
relating to a transaction pursuant to Rule 145 of the Securities Act (a
"Piggyback Registration Statement"), the Company shall give prompt written
notice of such proposed filing to the Holders (a "Piggyback Notice").
(ii) Subject to the provisions and limitations of this
Agreement, the Piggyback Notice shall offer Holders the opportunity to register
such amount of Registrable Shares as each Holder may request (a "Piggyback
Registration"). All such Holders shall have the right, by giving written notice
to the Company (the "Piggyback Inclusion Notice") within ten (10) days after the
Piggyback Notice has been given to them, to have included in the Piggyback
Registration Statement such of their Registrable Shares as such Holders may
specify in the Piggyback Inclusion Notice, subject to the limitations and
provisions of this Agreement. Holders of Registrable Shares shall be permitted
to withdraw all or part of the Registrable Shares from a Piggyback Registration
Statement at any time prior to the effective date of such Piggyback Registration
Statement.
(iii) If a Piggyback Registration Statement is a registration
on behalf of the Company and the Company determines that, or in the case of an
underwritten registration, the managing underwriters advise the Company in
writing that in their opinion, the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
within a price range acceptable to the Company, the Company shall include in
such registration (i) first, the securities the Company proposes to sell, and
(ii) second, the Registrable Shares requested to be included in such
registration and any other securities requested to be included in such
registration, pro rata among the Holders of Registrable Shares requesting such
registration and the holders of such other securities on the basis of the number
of shares requested for inclusion in such registration by each such holder.
Nothing herein shall affect the right of the Company to withdraw any such
Registration in its sole discretion.
(iv) If a Piggyback Registration Statement is a registration
on behalf of holders of the Company's securities other than the Holders of
Registrable Shares hereunder, and the Company determines that, or in the case of
an underwritten offering, the managing underwriters advise the Company in
writing that in their opinion, the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the holders initially
requesting such registration, the Company will include in such registration (i)
first, the securities requested to be included therein by the holders requesting
such registration, and (ii) second, the Registrable Shares requested to be
included in such registration, pro rata among the Holders of Registrable Shares
requesting such registration on the basis of the number of shares requested for
inclusion in such registration by each such Holder.
D. GENERAL
(i) For purposes of this Agreement, the term "Registration
Statement" shall include a Shelf Registration Statement, a Demand Registration
Statement and a Piggyback Registration Statement, as the case may be.
(ii) If any Registrable Shares are to be sold under the Shelf
Registration Statement or a Demand Registration Statement in an underwritten
offering and the managing underwriters advise the Company in writing that in
their opinion the number of Registrable Shares and other securities requested to
be included in such offering, exceeds the number of Registrable Shares and other
securities, if any, which can be sold in an orderly manner in such offering
within a price range acceptable to the holders of a majority of the Registrable
Shares seeking to participate in such offering, the Company will include in such
offering, prior to the inclusion of any securities which are not Registrable
Shares hereunder, the number of Registrable Shares requested to be included
hereunder which in the opinion of such underwriters can be sold in an orderly
manner within the price range of such offering, pro rata among the respective
Holders thereof on the basis of the amount of Registrable Shares which each such
Holder seeks to include in the offering. In the case of participation in such
offering by any other investors or their permitted transferees who at any time
have been granted piggyback registration rights outside of this Agreement and
who are seeking to include any of their securities as part of the offering (the
"Other Investors"), the shares held by them which are requested to be included
in such offering will be treated together on a pro rata basis among such Other
Investors on the basis of the number of shares requested for inclusion in such
Registration Statement by each such Other Investor.
(iii) In the case of an underwritten offering pursuant to a
Registration Statement, the Company shall have the right to select the
investment banker(s) and manager(s) to administer the offering.
(iv) No person may participate in any registration hereunder
which is underwritten unless such person (a) agrees to sell such person's
securities on the basis provided in any underwriting arrangement approved by the
person or persons entitled hereunder to approve such arrangements, and (b)
completes, executes, and delivers all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of such underwriting arrangements.
(v) On and subject to the terms and limitations contained in
this Agreement, the Company may register the Registrable Shares required to be
registered under this Agreement by means of any applicable SEC registration
statement form available from time to time, and any applicable filings with any
state securities commissions available from time to time, as the Company may
deem desirable and appropriate, in its sole discretion; provided that form is
available for the sale of the Registrable Shares in accordance with the intended
method or methods of distribution by the selling Holders.
(vi) The Company shall notify each Holder whose shares are
covered by a Registration Statement of the effectiveness of the Registration
Statement and shall furnish to each such Holder without charge such number of
copies of the Registration Statement as such Holder may reasonably request
(including any amendments, supplements and exhibits), and the prospectus
contained therein (including each preliminary prospectus) in order to facilitate
such Holder's sale of the Registrable Shares in the manner described in the
Registration Statement.
(vii) The Company shall prepare and file with the SEC from
time to time such amendments and supplements to the Registration Statement and
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective for the periods prescribed hereby and to comply
with the provisions of the Securities Act with respect to the disposition of all
the Registrable Shares covered thereby until the earlier of (a) such time as all
of the Registrable Shares have been disposed of, or (b) the date on which the
Registration Statement ceases to be effective in accordance with the terms of
this Agreement.
(viii)The Company shall use its best efforts to cause all
Registrable Shares to be listed on any securities exchange on which similar
securities issued by the Company are then listed.
(ix) The Company shall promptly notify each Holder of shares
covered by a Registration Statement, and confirm in writing, any request by the
SEC for amendments or supplements to such Registration Statement or the
prospectus related thereto or for additional information. In addition, the
Company shall promptly notify each such Holder of, and confirm in writing, the
filing of such Registration Statement, any prospectus supplement related thereto
or any post-effective amendment to such Registration Statement and the
effectiveness of such Registration Statement and of any post-effective
amendments or supplements thereto. The Company shall respond as promptly as
possible to any comments received from the SEC with respect to any Registration
Statement filed pursuant to this Agreement or any amendment, post-effective
amendment or supplement relating thereto.
(x) The Company shall comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by each
Registration Statement or Shelf Registration Statement during the applicable
period in accordance with the intended method or methods of distribution by the
selling Holders thereof.
(xi) The Company shall promptly notify each Holder of shares
covered by a Registration Statement, at any time when a prospectus relating to
such Registration Statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. In such event, the
Company shall, as and when such is completed and available, promptly prepare and
furnish to each such Holder a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of Registrable Shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading;
(xii) The Company shall cooperate with the selling Holders of
Registrable Shares to facilitate the timely preparation and delivery of
certificates representing Registrable Shares to be sold and not bearing any
Securities Act legend; and enable certificates for such Registrable Shares to be
issued for such numbers of shares and registered in such names as the selling
Holders may reasonably request at least two business days prior to any sale of
Registrable Shares;
(xiii)Within a reasonable time prior to the filing of any
Registration Statement, any Prospectus, any amendment to a Registration
Statement or amendment or supplement to a Prospectus, the Company shall provide
copies of such document (not including any documents incorporated by reference
therein unless requested) to the Holders who have Registrable Shares covered by
such Registration Statement or Prospectus.
2. STATE SECURITIES LAWS. In connection with the filing of a Registration
Statement with the SEC and subject to the conditions set forth in this
Agreement, the Company shall file such documents as may be reasonably necessary
to register or qualify Registrable Shares covered by a Registration Statement
hereunder under the securities or "Blue Sky" laws of such states as any such
Holder may reasonably request; PROVIDED, HOWEVER, that the Company shall not be
obligated to: (a) qualify to do business under the laws of any such state in
which it is not then qualified; (b) file any general consent to service of
process in any such state; (c) subject itself to taxation in any such
jurisdiction; and (d) qualify such Registrable Shares in a given jurisdiction
where expressions of investment interest are not sufficient in such jurisdiction
to reasonably justify the expense of qualification in that jurisdiction or where
such qualification would require the Company to register as a broker or dealer
in such jurisdiction. Once effective, the Company shall use its reasonable
commercial efforts to keep such filings effective until the earlier of (a) such
time as all of the Registrable Shares covered by a Registration Statement
hereunder have been disposed of in accordance with the intended methods of
disposition by the Holders as set forth in such Registration Statement, (b) in
the case of a particular state, a Holder has notified the Company that it no
longer requires an effective filing in such state in accordance with its
original request for filing, or (c) the date on which the Registration Statement
ceases to be effective. The Company shall promptly notify each such Holder of,
and confirm in writing, the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Shares for
sale under the securities or "Blue Sky" laws of any jurisdiction.
3. REGISTRATION EXPENSES. The Company, shall pay all "Registration
Expenses" (as hereinafter defined) in connection with any Registration
Statement. For purposes of this Agreement, the term "Registration Expenses"
shall include, but not be limited to, all costs, fees, expenses, and charges
incident to the Company's performance of or compliance with its registration
obligations under this Agreement, including, without limitation, all
registration, qualification and filing fees, fees and expenses of compliance
with securities or "Blue Sky" laws, printing expenses, messenger and delivery
expenses, escrow fees, all fees and expenses incurred in connection with the
listing of any of the Registrable Shares on any securities exchange or exchanges
pursuant to Section 1.D(vii), hereof, fees and disbursements and expenses of
counsel for the Company and all independent certified public accountants
relating to the registration, and all other costs, fees, and expenses incurred
by the Company in connection with the Registration Statement. Registration
Expenses shall not include underwriting discounts or commissions or stock
transfer taxes relating to the Registrable Shares or the fees and disbursements
of any counsel retained by the Holders. Such non-includable Registration
Expenses shall be paid by the Holders in their entirety as to the shares they
are selling and shall not be paid by the Company, but shall be paid out of the
proceeds of the offering or on any other basis required by the underwriters, or
required by the Company, if for any reason or under any circumstance the Company
believes it could become liable therefor.
4. INDEMNIFICATION BY THE COMPANY.
A. INDEMNITY BY COMPANY. The Company agrees, to the extent permitted
by law, to indemnify each of the Holders, the officers, directors, and employees
of Holders which are themselves entities, and the agents and representatives of
the Holders, and each person or entity, if any, that controls a Holder within
the meaning of the Securities Act ("Holder Indemnitees") against any and all
losses, claims, damages, actions, liabilities, reasonable costs and expenses
incurred or suffered by such Holder Indemnitees (including without limitation,
reasonable attorneys' fees, expenses and disbursements documented in writing),
arising out of or based upon any untrue or alleged untrue statement of material
fact contained in a Registration Statement or any prospectus contained therein
(or any amendment or supplement thereto), including all documents incorporated
by reference therein. In addition, such indemnity shall be for any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as and to the extent that
such statement or omission arose out of or was based upon information which was
furnished to the Company by the person seeking indemnification in writing
expressly for use therein. In addition, the Company agrees to indemnify such
Holder Indemnitees (i) against any and all loss, liability, claim, damage and
expense 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 (ii) against any expense, 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, 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 pursuant to the preceding sentences of this Section. However, the Company
shall not be liable to any Holder Indemnitees in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission made in such
Registration Statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with information furnished to the Company in writing for use in connection with
a Registration Statement or the prospectus contained herein by such Holder
Indemnitees seeking indemnification, or (ii) the failure of Holder Indemnitees
to send or give a copy of the final prospectus (or any amendment or supplement
thereto) furnished to it by the Company at or prior to the time such action is
required by the Securities Act to the person claiming non-compliance with the
securities laws due to such failure or claiming an untrue statement or alleged
untrue statement or omission or alleged omission if such statement or omission
was corrected in such final prospectus.
B. INFORMATION FROM HOLDERS; INDEMNITY. In connection with any
Registration Statement, each Holder shall furnish to the Company in writing such
information relating to such Holder or otherwise known to such Holder as the
Company reasonably requests for use in connection with such Registration
Statement or prospectus (and any amendment or supplement) and, to the extent
permitted by law, each such Holder shall severally indemnify the Company and its
subsidiaries (including corporations, partnerships, and other subsidiaries), and
the directors, officers, employees, partners, agents, representatives, and
affiliates of such persons, and each person who controls (within the meaning of
the Securities Act) any such person against any losses, claims, damages,
actions, liabilities, reasonable costs and expenses incurred or suffered by such
persons (including, without limitation, reasonable attorneys' fees, expenses and
disbursements documented in writing), arising out of or based upon any untrue or
alleged untrue statement of material fact contained in such Registration
Statement, or any prospectus contained therein (or any amendment or supplement
thereto), or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, but only
to the extent that such statement or omission is contained in any written
information furnished by the Holder to the Company expressly for inclusion in
such Registration Statement or any prospectus (or amendment or supplement
thereto).
C. REPRESENTATION. Any person entitled to indemnification hereunder
shall (i) give reasonably prompt written notice to the indemnifying party of any
claim with respect to which it seeks indemnification (it being understood that
failure to so notify an indemnifying party shall not relieve the indemnifying
party from any liability which it may have under the indemnity agreement in
Section 4.A. or 4.B. above, 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 and defense) and (ii)
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with respect to such
claim or that there may be legal defenses available to it which are different
from or in addition to those available to the indemnifying party, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
5. COVENANTS OF HOLDERS. Each of the Holders hereby agrees (a) to
cooperate with the Company and to furnish to the Company all such information in
connection with the preparation of any Registration Statement and any filings
with any securities commission as the Company may reasonably request, (b) to
deliver or cause delivery of the prospectus contained in a Registration
Statement to any purchaser of the shares covered by such Registration Statement
from the Holder and (c) to indemnify the Company, its officers, directors,
employees, agents, representatives and affiliates, and each person, if any, who
controls the Company within the meaning of the Securities Act, and each other
person, if any, subject to liability because of his connection with the Company,
against any and all losses, claims, damages, actions, liabilities, costs and
expenses arising out of or based upon the failure by the Holder to deliver or
cause to be delivered the prospectus contained in any Registration Statement (as
amended or supplemented, if applicable) furnished by the Company to the Holder
to any purchaser of the shares covered by such Registration Statement from the
Holder.
6. SUSPENSION OF REGISTRATION STATEMENT.
A. The Company shall promptly notify each Holder whose Registrable
Shares are covered by a Registration Statement of, and confirm in writing, the
issuance by the SEC of any stop order suspending the effectiveness of any
Registration Statement or the initiation of any proceedings for that purpose.
The Company shall use its best efforts to obtain the prompt withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement.
B. Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to use its best efforts
to cause any Registration Statement and any filings with any state securities
commission to become effective or to amend or supplement such Registration
Statement shall be suspended (and, if the Registration Statement has become
effective, each Holder agrees that it will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement) in the event and
during such period as circumstances exist (including, without limitation (i) an
underwritten offering by the Company if the Company is advised by the
underwriters that sale of the shares under the Registration Statement would have
a material adverse effect on the Company's offering or (ii) pending negotiations
relating to, or consummation of, a transaction, or the occurrence of an event or
the existence of facts and circumstances that would require additional
disclosure of material information by the Company in the Registration Statement
or such filing, as to which the Company has a bona fide business purpose for
preserving confidentiality or which renders the Company unable to comply with
SEC requirements) (such circumstances being hereinafter referred to as a
"Suspension Event") that would make it impractical or unadvisable in the
Company's good faith judgment, to cause the Registration Statement or such
filings to become effective or to amend or supplement the Registration Statement
(or, if the Registration has become effective, to permit dispositions of
Registrable Securities under the Registration Statement), but such suspension
shall continue only for so long as such event or its effect is continuing. The
Company shall notify such Holder of the existence and, in the case of
circumstances referred to in clause (i) of this Section 6B, of the nature of any
Suspension Event. If so directed by the Company, each Holder will deliver to the
Company all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Shares that was current
at the time of receipt of such notice.
C. Each Holder of Registrable Shares agrees, if requested by the
Company in the case of a non-underwritten offering or if requested by the
managing underwriter or underwriters in an underwritten offering, not to effect
any public sale or distribution of any of the securities of the Company of any
class included in any Registration Statement, including a sale pursuant to Rule
144 or Rule 144A under the Securities Act (except as part of such underwritten
registration), during the 15-day period prior to, and during the 60-day period
beginning on, the date of effectiveness of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; PROVIDED, HOWEVER, that
such 60-day period shall be extended by the number of days equal to the number
of days which elapse during the period from and including the date of the giving
of any notice pursuant to Section 1D(ix) or (xi) hereof to and including the
date when each seller of Registrable Shares covered by such Registration
Statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 1D(ix) or (xi) hereof.
7. BLACK-OUT PERIOD. Following the effectiveness of any Registration
Statement and the filing with any state securities commissions, the Holders
agree that they will not effect any sales of the Registrable Shares pursuant to
the Registration Statement or any such filings at any time after they have
received notice from the Company to suspend sales as a result of the occurrence
or existence of any Suspension Event so that the Company may correct or update
the Registration Statement or such filing. The Holder may recommence effecting
sales of the Common Shares pursuant to the Registration Statement or such
filings following further notice to such effect from the Company, which notice
shall be given by the Company not later than five (5) days after the conclusion
of any Suspension Event.
After the end of any Suspension Event, the Company shall use its
best efforts to prepare and file a supplement or prepare, file and obtain
effectiveness of a post-effective amendment to a Registration Statement or the
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.
8. CONTRIBUTION. If the indemnification provided for in Sections 4 and 5
(or either of them) is unavailable to an indemnified party with respect to any
losses, claims, damages, actions, liabilities, costs or expenses referred to
therein or is insufficient to hold the indemnified party harmless as
contemplated therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such claims, damages, actions, liabilities,
costs or expenses in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, actions, liabilities, costs or expenses as well as any other
relevant equitable considerations. The relative fault of the Company, on the one
hand, and of the Holders (in such proportion that the Holders are severally, not
jointly, responsible for the balance), on the other hand, shall be determined by
reference to, among other factors, whether the untrue or alleged untrue
statement of a material fact or omission to state a material fact relates to
information supplied by the Company or by the Holder and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; PROVIDED, HOWEVER, that in no event shall the
obligation of any indemnifying party to contribute under this Section 8 exceed
the amount that such indemnifying party would have been obligated to pay by way
of indemnification if the indemnification provided for under Sections 4 or 5
hereof had been available under the circumstances.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
9. RESTRICTIONS ON TRANSFER OF SHAREHOLDER SHARES.
A. In addition to any restrictions which may be contained in the
Agreement of Limited Partnership of FSRT, L.P., as amended from time to time
(the "Operating Partnership Agreement"), without the Company's prior written
consent, each of the Holders severally agrees that, except as set forth in
Section 9B below, it shall not, directly or indirectly, offer, sell, contract to
sell or otherwise dispose of (or announce any offer, sale, contract of sale or
other disposition) (collectively, "Transfer") any Common Shares, or any
securities, directly or indirectly, convertible into or exchangeable for Common
Shares, including, without limitation, Units (all of such securities being
hereinafter referred to herein as "Restricted Securities"), until the end of the
No Exchange Period. Except as set forth in Section 9B below, each of the Holders
agrees that it shall not voluntarily dissolve, liquidate, wind up its affairs or
otherwise voluntarily distribute or Transfer its assets to its constituent
partners for a period of one (1) year, and nothing herein shall be construed as
permitting any such dissolution, liquidation, winding up, distribution or
transfer.
B. The restrictions contained in this Section 9 shall not apply with
respect to any Transfer of the Restricted Securities (i) from the Northport
Company to the Northport Parties, (ii) by operation of law, testamentary
disposition, gift (outright or in trust) or by sale, in each case to or for the
benefit of a Holder or any partner or person listed on Exhibit A or the
parent(s), spouse or descendants of any such partners or persons, or to any
other Holder subject to the approval of the Company which approval cannot
unreasonably be withheld, (iii) by the exchange of Units for Common Shares in
the Company (as provided in any written agreement between the Company and any
Holder), and (iv) by the distribution of Restricted Securities by a Holder that
is a partnership to any of its constituent partners, or among any of the
constituent partners, subject, however, to compliance with applicable state and
federal securities laws; provided that (x) the restrictions contained in this
Section 9 shall continue to be applicable to the Restricted Securities after any
such Transfer; (y) the transferees of such Restricted Securities prior to any
Transfer shall have agreed in writing to be bound by the provisions of this
Agreement affecting the Restricted Securities so transferred; and (z) any
Transfers shall be subject to the restrictions on transfer contained in the
Company's Articles of Incorporation, as amended from time to time (or the
Operating Partnership Agreement, if applicable).
C. Subject to the foregoing restrictions, the Company and the
Holders hereby agree that any subsequent holder of Registrable Shares shall be
entitled to all benefits hereunder as a holder of Registrable Shares, provided,
however, that, in any event, if the Company's Articles of Incorporation (or the
Operating Partnership Agreement, if applicable) prohibits the acquisition of the
desired number of shares by such holder, such number shall be reduced to the
amount of shares of Registrable Shares such holder may acquire and such holder's
transferees shall also be entitled to all benefits hereunder as a holder of
Registrable Shares.
10. RULE 144 SALES.
A. The Company covenants that it will file the reports required to
be filed by the Company under the Securities Act and the Securities Exchange Act
of 1934, as amended, so as to enable any Holder to sell Registrable Shares
pursuant to Rule 144 under the Securities Act.
B. In connection with any sale, transfer or other disposition by any
Holder of any Registrable Shares which is permitted by Rule 144 under the
Securities Act, the Company shall cooperate with such Holder to facilitate the
timely preparation and delivery of certificates representing Registrable Shares
to be sold and not bearing any Securities Act legend.
C. The Company agrees to furnish to the Holders, so long as the
Holders own any Units or Registrable Shares, forthwith upon written request, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as the Holder may reasonably
request in availing itself of any rule or regulation of the SEC permitting
Holders to sell securities without regulation.
11. NO OTHER OBLIGATION TO REGISTER. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to the Holders
to register the Registrable Shares under the Securities Act.
12. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date
hereof, the Company shall not enter into an agreement granting any holder or
perspective holder of any securities of the Company registration rights with
respect to such securities unless such new registration rights, including
standoff obligations, are no more favorable to such holder than the registration
rights granted Holders hereunder.
13. AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented without the prior written consent of the
Company and Holders holding in excess of 50% of the Registrable Shares; and any
such amendment so approved shall be fully binding upon and enforceable against
all holders of Registrable Shares, whether or not they approved such amendment.
14. NOTICES. Except as set forth below, all notices and other
communications provided for or permitted hereunder shall be in writing and shall
be deemed to have been duly given if delivered personally or sent by telex or
telecopier, registered or certified mail (return receipt requested), postage
prepaid or courier or overnight delivery service to the Company at the following
address and to the Holder at the business address set forth on the signature
page to this Agreement (or at such other address for any party as shall be
specified by like notice, provided that notices of a change of address shall be
effective only upon receipt thereof).
If to the Company: Franklin Select Realty Trust
1800 Gateway Drive
San Mateo, California 94404
Attn: David P. Goss, President
In addition to the manner of notice permitted above, notices given
pursuant to Sections 1, 6 and 7 hereof may be effected telephonically and
confirmed in writing thereafter in any manner as described above.
15. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of the
purchasers or Holders of Registrable Shares are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Shares, including any
assigns pursuant to the Operating Partnership Agreement. Subject to the
foregoing, the parties agree that any subsequent holder of Registrable Shares
shall be entitled to all benefits hereunder as a Holder of Registrable Shares.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and to be performed wholly within said State.
18. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
19. ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be the complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to such subject matter. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
20. PUBLIC COMPANY. Nothing herein shall be deemed to create an obligation
on the part of the Company to remain a reporting company under the provisions of
the Securities Exchange Act of 1934, as amended, or limit the right of the
Company to "go private" at any time during the term thereof.
21. SPECIFIC PERFORMANCE. The parties hereto 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 each party, 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 any other party 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
FRANKLIN SELECT REALTY TRUST, a
California Corporation
By: /s/ David P. Goss
David P. Goss, President
REGISTRATION RIGHTS AGREEMENT
HOLDER SIGNATURE PAGE
By: /s/ Barry C. L. Fernald
Barry C. L. Fernald
By: /s/ Gary Filizetti
Gary Filizetti
By: /s/ G. Gerald Engles
G. Gerald Engles
By: /s/ Larry D. Russel
Larry D. Russel
EXCHANGE RIGHTS AGREEMENT
This Exchange Rights Agreement (this "Agreement") is made as of October
__, 1996 among Franklin Select Realty Trust, a California corporation (the
"Company"), FSRT, L.P., a Delaware limited partnership (the "Operating
Partnership"), and each of the limited partners of the Operating Partnership
listed on EXHIBIT A hereto (each a "Unitholder" and collectively, the
"Unitholders").
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
The following terms shall have the following meanings:
"ACT" means the Securities Act of 1933, as amended, and the rules
and regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the relevant time.
"BOARD OF DIRECTORS" means the board of directors of the Company and
any committee thereof duly granted specific authority with respect to this
Agreement.
"CALIFORNIA GCL" means the California General Corporation Law, as
amended, as the same shall be in effect at the relevant time.
"COMMON STOCK" means the Series A common stock of the Company,
without par value per share.
"COMPANY" means Franklin Select Realty Trust, a California
corporation.
"CONTRIBUTION AGREEMENT" means that certain Contribution Agreement
by and between the parties hereto and to which a form of this Agreement is
attached as an exhibit.
"EXCHANGE ACT" means the Securities Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder, all
as the same shall be in effect at the relevant time.
"EXCHANGE FACTOR" means the number used to calculate the amount of
cash and/or Common Stock to be delivered by the Company pursuant to Section 2 or
Section 3 upon the valid delivery to the Company by a Unitholder of an Exercise
Notice and an election by the Company to pay in cash or Common Stock as herein
provided, and shall initially be equal to one (1); PROVIDED, HOWEVER, that the
Exchange Factor shall be subject to adjustment, from time to time, as follows:
(a) In the event the Company (i) shall issue rights or warrants to
all holders of Common Stock entitling them to subscribe for or purchase Common
Stock at a price per share less than the Value per share on the date fixed for
the determination of shareholders entitled to receive such rights or warrants
and (ii) shall not issue similar rights or warrants to all Unitholders entitling
them to subscribe for or purchase Common Stock or Partnership Units at a
comparable price and in comparable amounts per share (determined, in the case of
Partnership Units, by reference to the Exchange Factor) in the event Unitholders
receive Common Stock under this Agreement, then the Exchange Factor in effect
immediately after the time fixed for the determination of shareholders entitled
to receive such rights or warrants shall be increased by multiplying such
Exchange Factor then in effect by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding at the time fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, and the denominator of which shall be the number of
shares of Common Stock outstanding at the time fixed for such determination plus
the number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered for subscription would
purchase at the Value on such day.
(b) In the event the Company shall, by dividend or otherwise (in
either case not involving the Company's receipt of consideration therefor),
distribute to all holders of Common Stock (i) shares of capital stock of any
Class other than Common Stock or other than shares of Capital Stock convertible
into Common Stock, (ii) evidences of its indebtedness or (iii) assets (excluding
any regular cash dividend or distribution lawfully paid under the laws of the
state of incorporation of the Company, any regular dividend or distribution on
outstanding Common Stock, in Common Stock (or any capital stock of the Company
convertible into Common Stock), and any rights or warrants referred to in
paragraph (a) of this definition) and shall not cause a corresponding
distribution to be made to all Unitholders, then the Exchange Factor in effect
immediately after the time fixed for the determination of shareholders entitled
to receive such distribution shall be increased by multiplying such Exchange
Factor then in effect by a fraction, the numerator of which shall be the Value
on the day fixed for such determination, and the denominator of which shall be
such Value less the fair market value (as determined by the Board of Directors,
whose determination shall be conclusive, and as described in a resolution of the
Board of Directors, a copy of which shall be certified by the Secretary of the
Company and promptly delivered to the holders of the Partnership Units) of the
portion of the aggregate shares of capital stock, evidences of indebtedness or
assets so distributed attributable to one share of Common Stock.
(c) In the event that the Company (i) declares or pays a dividend on
its outstanding Common Stock with Common Stock or makes a distribution to all
holders of its outstanding Common Stock in Common Stock, (ii) subdivides its
outstanding Common Stock or (iii) combines its outstanding COMMON STOCK into a
smaller number of Common Stock, the Exchange Factor shall be adjusted by
multiplying the Exchange Factor by a fraction, the numerator of which shall be
the number of shares of Common Stock issued and outstanding on the record date
for such dividend, distribution, subdivision or combination (assuming for such
purpose 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 of Common Stock (determined without the above assumption)
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination. Any adjustment to the Exchange Factor so made shall
become effective immediately after the effective date of such event, retroactive
to the record date, if any, for such event.
(d) In the event of any reclassification of the Common Stock into
securities other than Common Stock (other than a distribution, subdivision or
combination provided for elsewhere in this definition of "Exchange Factor") then
(i) the "Value" shall thereafter be the exchange price, quoted price, or value
as determined by the Board of Directors, as applicable, of a share or other unit
of the kind of such securities receivable upon such reclassification by a holder
of Common Stock and (ii) the Exchange Factor in effect immediately after the
effective time of such reclassification shall be adjusted by multiplying such
Exchange Factor then in effect by a number equal to the number of shares or
other units of such securities receivable upon such reclassification by a holder
of one share of Common Stock. In the event of any such reclassification,
appropriate adjustment shall be made in the application of this definition of
"Exchange Factor" after the reclassification to the end that the provisions of
this definition shall be applicable after the reclassification as nearly
equivalent as may be practicable.
(e) If the number of outstanding shares of Common Stock of the
Company are exchanged for a different number or kind of shares or securities of
the Company through reorganization, merger, recapitalization, combination of
shares, or other similar transaction, the Exchange Factor shall be appropriately
and proportionately adjusted to give effect thereto upon consummation of such
event.
All determinations of the Exchange Factor will be made by the Board
of Directors, in its sole and absolute discretion but in accordance with the
provisions hereof, and any such determination shall, in the absence of manifest
error, be binding upon each tendering Unitholder.
"EXERCISE NOTICE" means an exercise notice in substantially the same
form as EXHIBIT C attached hereto.
"EXERCISE RIGHTS" shall mean the delivery by a Unitholder of an
Exercise Notice to the Company, pursuant to which such Unitholder elects to
exchange all or any portion of his or her Partnership Units into cash or shares
of Common Stock as provided for in this Agreement.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as the same shall be in effect at the relevant time.
"NO EXCHANGE PERIOD" means a period expiring one (1) year after the
Closing Date (as defined in the Contribution Agreement -- such definition shall
have the same meaning herein) has occurred under the Contribution Agreement.
"OPERATING PARTNERSHIP" means FSRT, L.P., a Delaware limited
partnership.
"PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership
of the Operating Partnership, as the same may be amended from time to time.
"PARTNERSHIP UNIT" shall have the meaning ascribed to such term in
the Partnership Agreement.
"PERSON" means an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"SETTLEMENT DATE" means, with respect to any tender pursuant to
which the Company exercises its rights hereunder, that date which is the later
of either of the following:
(a) seven (7) calendar days after the Tender Date; PROVIDED,
HOWEVER, that if the Company does not elect to deliver shares of Common Stock to
the tendering Unitholder (or such other Person designated in the Exercise Notice
relating to the tender) in satisfaction of all or any portion of the Company's
obligation to deliver cash under Section 3, this subparagraph (a) shall read
"fifteen (15) calendar days after the Tender Date"; or
(b) the expiration or termination of the waiting period
applicable to such tender, if any, under the HSR.
"TENDER DATE" means the date an Exercise Notice in proper form is
received by the Company.
"UNIT CASH AMOUNT" means, with respect to any tender pursuant to
which the Company exercises its rights hereunder, the Value, as of the Tender
Date, multiplied by the Exchange Factor, as of the Tender Date; PROVIDED,
HOWEVER, that if a Tender Date shall occur after the record date and prior to
the effective date of any event giving rise to an adjustment to the Exchange
Factor pursuant to the definition thereof, an appropriate adjustment in the Unit
Cash Amount shall be made to reflect the fact that the Tender Date has occurred
prior to the effective date of such event.
"VALUE" means, with respect to the Common Stock, subject to
paragraph (c) of the definition of "Exchange Factor," the average of the daily
market price for the ten (10) consecutive trading days immediately preceding the
applicable valuation date. The market price for each such trading day shall be:
(a) if the Common Stock is listed or admitted to trading on any national
securities exchange or the NASDAQ-National Market System, the closing price,
regular way, on such day, or if no such sale takes place on such day, the
average of the closing bid and asked prices on such day, (b) if the Common Stock
is not listed or admitted to trading on any national securities exchange or the
NASDAQ-National Market System, the last reported sale price on such day or, if
no sale takes place on such day, the average of the closing bid and asked prices
on such day, as reported by a reliable quotation source designated by the
Company or (c) if the Common Stock is not listed or admitted to trading on any
national securities exchange or the NASDAQ-National Market System and no such
last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by the Company, or if there shall be
no bid and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than ten (10) days
prior to the date in question) for which prices have been so reported; PROVIDED
that if there are no bid and asked prices reported during the ten (10) days
prior to the date in question, the Value of the Common Stock shall be determined
by the Company acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate.
2. EXERCISE RIGHTS. After the No Exchange Period, Unitholders may
exercise their Exercise Rights at any time and from time to time. Each
Unitholder shall have Exercise Rights as long as such Unitholder holds any
Partnership Units.
3. COMPANY'S OPTION TO ACQUIRE PARTNERSHIP UNITS FOR CASH. After the No
Exchange Period, subject to the provisions of this Agreement, upon the valid
delivery to the Company by a Unitholder of an Exercise Notice, the Company shall
have the right and option, in its sole and absolute discretion, but not the
obligation, to acquire from the Unitholder all, but not less than all, of the
Unitholder's validly tendered Partnership Units in exchange for payment, on the
Settlement Date, in immediately available United States funds, of an amount
equal to the Unit Cash Amount as of the Tender Date, multiplied by the number of
Partnership Units specified in the Exercise Notice and tendered to the Company.
4. COMPANY'S OPTION TO DELIVER COMMON STOCK
(a) After the No Exchange Period, subject to the provisions of this
Agreement, if the Company elects not to exercise its right to purchase for cash
pursuant to Section 3, then following valid delivery of an Exercise Notice and
tender of the Partnership Units, the Company shall deliver shares of Common
Stock to the tendering Unitholder (or such other Person designated in the
Exercise Notice relating to the tender) in full and complete satisfaction and
discharge of the Company's obligation to deliver cash under Section 3 hereof. In
the event the Company so elects to deliver Common Stock, then the number of
shares of Common Stock which shall so be delivered by the Company shall be equal
to the number of Partnership Units tendered in accordance with the Exercise
Notice, multiplied by the then applicable Exchange Factor. The Common Stock so
delivered shall be duly authorized, validly issued, fully paid and
nonassessable, and free of any pledge, lien, encumbrance or restriction created
or imposed by the Company or the Operating Partnership, other than as provided
in the Company's Articles of Incorporation or Bylaws, the Securities Act, the
California GCL and relevant Blue Sky or other state securities or real estate
syndication laws and this Agreement. No fractional share of Common Stock will be
issued upon exchange of Partnership Units. Any fractional interest in a share of
Common Stock resulting from exchange of Partnership Units will be paid in cash
to the tendering Unitholder (computed to the nearest cent) based on the Value of
the Common Stock on the Tender Date.
(b) In the event of any reclassification of Common Stock into
securities other than Common Stock, the Company's option to deliver Common Stock
pursuant to paragraph (a) of this Section 4 shall be an option to deliver shares
or other units of such securities receivable upon such reclassification by a
holder of Common Stock.
(c) The Unitholders acknowledge that (i) the exchange of Partnership
Units into cash or Common Stock is subject to certain substantial restrictions
contained in the Partnership Agreement, and (ii) the Common Stock which may be
received upon such an exchange will be restricted, and not freely transferrable,
in accordance with the terms and conditions of this Agreement, the Registration
Rights Agreement entered into concurrently herewith, and such other documents,
agreements, or the like which may be executed by the recipients of the
Partnership Units or the Common Stock.
(d) The Unitholders also acknowledge that each certificate or
instrument representing Partnership Units shall bear the following legend and
any other legend required under any applicable state securities law:
"NEITHER THE PARTNERSHIP UNITS IN THE PARTNERSHIP REPRESENTED BY
THIS CERTIFICATE OR INSTRUMENT NOR ANY PART THEREOF OR INTEREST
THEREIN MAY BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, UNLESS SUCH TRANSFER,
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
COMPLIES WITH THE PROVISIONS OF THE AGREEMENT OF LIMITED PARTNERSHIP
OF FSRT, L.P., AS AMENDED FROM TIME TO TIME (A COPY OF WHICH IS ON
FILE WITH THE OPERATING PARTNERSHIP) AND THE REGISTRATION RIGHTS
AGREEMENT, DATED ___________, ENTERED INTO UPON ISSUANCE OF THESE
PARTNERSHIP INTERESTS; AND, IN ALL EVENTS, NO TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE (OR ANY SECURITY
ISSUED ON ACCOUNT HEREOF OR WITH RESPECT HERETO) MAY BE MADE EXCEPT
(A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) IF THE PARTNERSHIP
HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL (WHICH COUNSEL AND
OPINION BOTH MUST BE ACCEPTABLE TO THE PARTNERSHIP IN ITS SOLE
DISCRETION) FOR THE HOLDER THAT NO SUCH REGISTRATION IS REQUIRED
BECAUSE OF THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER
THE ACT OR OTHERWISE, AND QUALIFICATION OR OTHER COMPLIANCE UNDER
APPLICABLE BLUE SKY OR STATE SECURITIES LAWS."
(e) The Unitholder further acknowledges that each certificate or
instrument obtained under the terms of this Agreement shall bear substantially
the same legend as above.
5. PROCEDURE FOR EXERCISING COMPANY'S RIGHT TO ACQUIRE PARTNERSHIP UNITS.
(a) Promptly upon receipt of an Exercise Notice from a tendering
Unitholder (and in no event later than three (3) business days after such
receipt), the Company shall exercise its right to acquire the validly tendered
Partnership Units by delivering to the tendering Unitholder a completed and duly
executed Response Notice, substantially in the form of EXHIBIT B hereto. The
Company shall simultaneously deliver to the Operating Partnership a copy of such
duly executed Response Notice.
(b) Unless an exception applies under applicable law and
regulations, the Company, if it exercises its rights hereunder, will be required
to withhold, and will withhold, ______ percent (___%) (or such other amount as
subsequent law may require) of the gross proceeds (including the dollar
equivalent of shares of Common Stock) paid to a tendering Unitholder pursuant to
this Agreement unless the Unitholder provides his, her or its tax identification
number (employer identification number or Social Security Number) and certifies
that such number is correct. Therefore, unless such an exception exists and is
provided in a manner satisfactory to the Company, each tendering Unitholder
should complete and sign the main signature form on the Exercise Notice and sign
the Substitute Form W-9 included as part of the Exercise Notice, so as to
provide the information and certification necessary to avoid backup withholding.
6. PAYMENT.
(a) On the Settlement Date, the Company shall deliver to the
tendering Unitholder (or such other Person designated in the Exercise Notice),
pursuant to the instructions in the Exercise Notice, the cash or Common Stock
required to be delivered pursuant to this Agreement. If any shares of Common
Stock are so delivered, the Company shall deliver a stock certificate or
certificates evidencing the Common Stock to be issued and registered in the name
of the tendering Unitholder or its designee.
(b) In all cases, payment for the Partnership Units tendered
pursuant to this Agreement shall be made only after timely receipt by the
Company of the partnership interest certificate(s) relating to such Partnership
Unit, a properly completed and duly executed Exercise Notice, appropriate
investment representations concerning the recipient's investment intent with
regard to any Common Stock received hereunder, and any other documents required
by the Exercise Notice.
(c) The Company agrees to use its reasonable best efforts to obtain
an early termination of the waiting period applicable to each tender, if any,
under the HSR.
(d) Anything in this Agreement to the contrary notwithstanding, the
Company shall not be required to tender or deliver cash, or to issue, tender or
deliver any Common Stock, if to do so would cause any violation of the
Securities Act, the Exchange Act, the California GCL, or any applicable Blue Sky
or other state securities or real estate syndication laws. Upon reasonable
request by the Company, a tendering Unitholder shall deliver to the Company such
other and further documents to ensure compliance with such laws. Both the
Company and the tendering Unitholder shall use commercially reasonable efforts
to permit such tender and delivery to be in compliance with all of the foregoing
laws. If the Company is unable to tender or deliver any Common Stock due to
operation of law or otherwise, the Company shall, to the extent permitted by
law, purchase the tendered Partnership Units for cash as provided in Section 3
hereof.
7. RIGHTS AS A PARTNER.
(a) Until the Settlement Date, each tendering Unitholder shall
continue to own such Unitholder's tendered Partnership Units, and will continue
to be treated as the holder of such tendered Partnership Units for all purposes
of the Partnership Agreement, including, without limitation, for purposes of
voting, consent, allocations and distributions.
(b) On the Settlement Date, all Partnership Units acquired by the
Company pursuant to this Agreement shall automatically, and without further
action required, be converted into and deemed to be an equal number of general
partner interests in the Operating Partnership owned by the Company, and all
rights, title, interest, claim, causes of action, and the like of the Unitholder
arising out of such Unitholder's Partnership Units so acquired and/or status and
interest as a partner as a result thereof shall become the property of the
Company in its entirety, and the Unitholder shall have no further claim of
interest therein or thereto.
8. RIGHTS AS A SHAREHOLDER. No tendering Unitholder (or other Person
designated in the Exercise Notice, if applicable) shall have any rights as a
shareholder of the Company with respect to shares of Common Stock, if any, to be
received pursuant to this Agreement until the Settlement Date, at which time
such tendering Unitholder (or other Person designated in the Exercise Notice, if
applicable) shall become the holder of record of such shares of Common Stock.
9. CONSISTENT TREATMENT. Each of the Company, any tendering Unitholder,
and the Operating Partnership shall treat the transaction between the tendering
Unitholder and the Company for Federal income tax purposes as a sale of the
tendering Unitholder's Partnership Units to the Company.
10. REPRESENTATIONS AND WARRANTIES OF UNITHOLDERS. On the date hereof and
on each date that a Unitholder receives Common Stock or other securities or cash
under this Agreement, each Unitholder represents and warrants to the Company as
follows (and each such representation and warranty also constitutes a condition
precedent to the Company's obligation to pay the cash or issue the Common Stock
as provided under this Agreement):
(a) Unitholder has the authority to exercise all rights and powers
under this Agreement, including the right and power to deliver the Exercise
Notice, tender Partnership Units and receive all consideration provided
hereunder, and has obtained all consents, approvals, permits and other
clearances required to complete the transactions contemplated hereunder.
(b) Unitholder is delivering good and marketable title to each and
every Partnership Unit tendered hereunder, free and clear of any liens, claims,
encumbrances, restrictions, interests or rights of any other Person, except for
the restrictions on transfer of Partnership Units described in this Agreement.
(c) Unitholder is either (i) an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Act, or (ii) a person who
either alone or with his or her purchaser representative (as defined in Rule
501(h) of Regulation D under the Act) has such knowledge and experience in
financial and business matters that he, she or it is capable of evaluating the
merits and risks of an investment in the Partnership Units, Common Stock or any
other security acquired hereunder. The Unitholder has such knowledge and
experience in financial and business matters as to be capable of evaluating
alone, or together with his, her or its purchaser representative or personal
advisor the merits and risks of an investment in the Partnership Units, Common
Stock or any other security delivered hereunder and protecting his, her or its
own interests in connection with the investment and has obtained, in his, her or
its judgment, alone, or together with his, her or its purchaser representative
or personal advisor, sufficient information from the Company to evaluate the
merits and risks of an investment in the Partnership Units, Common Stock or any
other security delivered hereunder. The Unitholder acknowledges that he, she or
it has the financial ability to bear the economic risk of his, her or its
investment in the Company, has adequate means for providing for his, her or its
current needs and personal contingencies and has no need for liquidity with
respect to the investment in the Company. If other than an individual, the
Unitholder also represents it has not been organized solely for the purpose of
acquiring the Partnership Units, Common Stock or other security acquired under
this Agreement.
11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.. On the date hereof,
the Company represents and warrants as follows to each Unitholder and on each
date that a Unitholder receives Common Stock or other securities or cash under
this Agreement, the Company represents and warrants as follows to each such
Unitholder on each such date:
(a) The Company has the authority to exercise all rights and powers
under this Agreement, including the right and power to deliver the Response
Notice, issue Common Stock and provide any and all consideration to be provided
hereunder, and has obtained all consents, approvals, permits and other
clearances required to complete the transactions contemplated hereunder. The
Company has due authority to purchase the Partnership Units tendered pursuant to
this Agreement.
(b) Any shares of Common Stock delivered by the Company pursuant to
this Agreement shall be duly authorized, validly issued, fully paid and
nonassessable, and free of any pledge, lien, encumbrance or restriction created
or imposed by the Company or the Operating Partnership, other than as provided
in the Company's Articles of Incorporation or Bylaws, the Securities Act, the
California GCL and relevant Blue Sky or other state securities or real estate
syndication laws and this Agreement.
12. COVENANTS OF THE COMPANY. To facilitate the Company's ability to
fully perform its obligations hereunder, the Company covenants and agrees as
follows:
(a) As long as any Partnership Units are outstanding, the Company
agrees to have authorized but unissued that number of shares of Common Stock
equal to the number of outstanding Partnership Units ans multiplied by Exchange
Factor then effect.
(b) As long as the Company shall be obligated to file periodic
reports under the Exchange Act, the Company will timely file such reports in
such manner as shall enable any recipient of Common Stock issued to Unitholders
hereunder in reliance upon an exemption from registration under the Securities
Act to continue to be eligible to utilize Rule 144 promulgated by the SEC
pursuant to the Securities Act, or any successor rule or regulation or statute
thereunder, for the resale thereof.
(c) During the pendency of the Exercise Rights, the Unitholders
shall receive in a timely manner all reports filed by the Company with the SEC
and all other communications transmitted from time to time by the Company to its
stockholders generally.
13. INDEMNIFICATION.
(a) Each Unitholder agrees to severally, and not jointly, indemnify
the Company, the Operating Partnership and their affiliates, officers,
directors, partners, employees, agents and representatives against all losses,
claims, damages, liabilities and expenses whatsoever and reasonable fees and
expenses of counsel incurred in investigating, preparing or defending against,
and aggregate amounts paid in settlement of, any litigation, action,
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, arising from or in connection with any third party's claim against such
Unitholder's Partnership Units, or based upon, rising from or in connection with
the breach of any representation or warranty made by the Unitholder under this
Agreement.
(b) The Company agrees to indemnify each Unitholder against all
losses, claims, damages, liabilities and expenses whatsoever and reasonable fees
and expenses of counsel incurred in investigating, preparing or defending
against, and aggregate amounts paid in settlement of any litigation, action,
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, arising from or in connection with the breach of any representation or
warranty made by the Company under this Agreement.
14. MISCELLANEOUS.
14.1 GOVERNING LAW. This Agreement shall be governed, construed and
enforced in all respects by the laws of the State of California applicable to
contracts made and wholly performed within the State of California by persons
domiciled in California, without regard to choice of law rules.
14.2 ENTIRE AGREEMENT. This Agreement and the provisions of the
forms of Exercise Notice and Response Notice attached hereto, together with the
Partnership Agreement, Registration Rights Agreement, and other agreements and
documents specifically referred to herein, constitute the full and entire
understanding and agreement with regard to the subjects hereof and thereof, and
supersede any previous agreements regarding the matters covered herein.
14.3 NOTICES. Each notice, demand, request, request for approval,
consent, approval, disapproval, designation or other communication (each of the
foregoing being referred to herein as a "notice") required or desired to be
given or made under this Agreement shall be in writing (except as otherwise
provided in this Agreement) and shall be effective and deemed to have been
received (a) when delivered in person or (b) when sent by facsimile transmission
with receipt acknowledged (i) if to a Unitholder, at such Unitholder's address
set forth in EXHIBIT A hereto or, if not set forth in EXHIBIT A, in the records
of the Operating Partnership, or at such other address or to the telefax number
as such Unitholder shall have furnished to the Company and the Operating
Partnership in writing, (ii) if to the Company, the address of the Company's
principal executive offices and addressed to the attention of the President and
Chief Executive Officer, or at such other address or to the telefax number as
the Company shall have furnished to each Unitholder and the Operating
Partnership in writing or (iii) if to the Operating Partnership, at the address
of the General Partner's principal executive offices and addressed to the
attention of the Corporate Secretary, or at such other address or to the telefax
number as the Operating Partnership shall have furnished to each Unitholder and
the Company in writing.
14.4 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; PROVIDED, HOWEVER, that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
Person.
14.5 CONSTRUCTION. The words such as "herein," "hereinafter,"
"hereof" and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
Whenever the context so indicates, the singular or plural number shall each be
deemed to include the other.
14.6 USE OF TERM "ASSIGNEE." Whenever in this Agreement the term
"assignee" is used, it shall include each assignee, transferee, distributee
(whether or not in liquidation of the distributing Person), assignee of an
assignee through one or more predecessor assignments and, by way of illustration
and not limitation, each Person who becomes an assignee as a result of a secured
creditor exercising its rights under a security agreement and/or applicable law,
in each case, whether the assignment creating the assignee was effected with or
without consideration, by gift or bequest, by operation of law or otherwise. The
terms "assign," "assigned" and "assignment" shall be similarly construed.
14.7 EFFECTIVENESS AND BINDING EFFECT. This Agreement shall become
effective once counterparts are signed and delivered by the Company, the
Operating Partnership and any Unitholder, and upon the further requirement of
the Closing to occur as referred to in the Contribution Agreement, and shall
thereafter be binding upon and inure to the benefit of the Company, the
Operating Partnership and all Unitholders who sign and deliver counterparts of
this Agreement. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefits of all parties and their successors, assigns, heirs,
executors, administrators and legal representatives.
14.8 ADDITIONAL UNITHOLDERS. If the Operating Partnership issues
Partnership Units to Persons who are not parties to this Agreement, the Company
may elect to cause such Persons to become parties to this Agreement, in which
case (a) this Agreement shall be amended without the consent of any other party
to make such Persons parties to this Agreement and (b) such persons shall
execute a counterpart of this Agreement.
14.9 SECTION TITLES. Section titles are for descriptive purposes
only and shall not control or alter the meaning of this Agreement as set forth
in the text.
14.10 ATTORNEY FEES. In the event of any litigation among the
parties hereto to enforce or interpret any provision or right hereunder, the
unsuccessful party to such litigation covenants and agrees to pay the successful
party all costs and expenses reasonably incurred, including, without limitation,
reasonable attorneys' fees. For the purpose of this Agreement, the term
"attorneys' fees" shall mean the fees and expenses of counsel to the parties
hereto, which may include printing, photostating, duplicating and other
expenses, air freight charges and fees billed for law clerks, paralegals,
librarians and others not admitted to the bar but performing services under the
supervision of an attorney. Such term shall also include all such fees and
expenses incurred with respect to appeals, arbitrations, reference out and
bankruptcy proceedings, and whether or not any action or proceeding is brought
with respect to the matter for which said fees and expenses were incurred.
14.11 UNITHOLDERS' OPTION TO PUT PARTNERSHIP UNITS. Notwithstanding
anything to the contrary contained herein, in the event that a "Rule 13e-3
transaction" (as such term is used in Rule 13e-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended) in which the
Company is the "issuer" (as such term is used in such Rule) and in which the
consideration to be received for the shares of Common Stock held by a holder
thereof is not all cash occurs at any time on or before the fifth (5th)
anniversary of the Closing Date, any Unitholder shall have the right at his sole
option to sell to the Company immediately prior to consummation of the Rule
13e-3 transaction all or any portion of his Partnership Units for a cash amount
per Partnership Unit equal to the sum of (i) the amount of cash and (ii) the
Fair Market Value of any non-cash consideration, in each case which a Unitholder
would have received had he exchanged a Partnership Unit for shares of Common
Stock and exchanged or tendered such shares of Common Stock in the Rule 13e-3
transaction. For purposes of the preceding sentence, the Fair Market Value of
any non-cash consideration shall be such amount or amounts as are determined no
earlier than five (5) days prior to the consummation of the Rule 13e-3
transaction by the investment advisor engaged by the Company in connection with
the Rule 13e-3 transaction.
FRANKLIN SELECT REALTY TRUST,
a California corporation
By: /s/ David P. Goss
David P. Goss, President
FSRT, L.P.,
a Delaware limited partnership
By: FRANKLIN SELECT REALTY TRUST,
a California corporation
Its: General Partner
By: /s/ David P. Goss
David P. Goss, President
EACH UNITHOLDER SET FORTH ON EXHIBIT A
NORTHPORT ASSOCIATES NO. 18,
a California limited liability company
By: Its Managing Member
LAKESIDE II - NORTHPORT ASSOCIATES, L.P.,
a California limited partnership
/s/ Barry C.L. Fernald
By: Barry C.L. Fernald, General Partner
/s/ Gary Filizetti
By: Gary Filizetti, General Partner
/s/ G. Gerald Engles
By: G. Gerald Engles, General Partner
/s/ Larry D. Russel
By: Larry D. Russel, Limited Partner
EXHIBIT A
UNITHOLDER
NORTHPORT ASSOCIATES NO. 18,
a California limited liability company
EXHIBIT B
RESPONSE NOTICE
[Date] ___________, _____
TO: [Tendering Unitholder] and Franklin Select Realty Trust
On and subject to the terms, provisions and conditions of that certain
Exchange Rights Agreement ("Agreement") dated as of _______, 1996 among Franklin
Select Realty Trust, a California corporation (the "Company"), FSRT, L.P., a
Delaware limited partnership (the "Operating Partnership"), and each of the
limited partners of the Operating Partnership listed on Exhibit A thereto, the
Company hereby exercises its right to acquire ___________ Partnership Units from
___________ (the "Unitholder") pursuant to that certain Notice of Exercise
delivered to the Company by the Unitholder, by delivery of $_______ in cash or
_________ shares of Series A Common Stock of the Company.
FRANKLIN SELECT REALTY TRUST,
a California corporation
By:____________________________
Its:____________________________
Print Name:_____________________
EXHIBIT C
EXERCISE NOTICE
[Date] ___________, _____
TO: Franklin Select Realty Trust
On and subject to the terms, provisions and conditions of that certain
Exchange Rights Agreement ("Agreement") dated as of October __, 1996 among
Franklin Select Realty Trust, a California corporation (the "Company"), FSRT,
L.P., a Delaware limited partnership (the "Operating Partnership"), and each of
the limited partners of the Operating Partnership listed on Exhibit A thereto,
the undersigned Unitholder hereby exercises such Unitholder's right to tender
__________ Partnership Units owned by such Unitholder pursuant to this Notice of
Exercise. The undersigned Unitholder hereby affirms each of the representations
and warranties contained in the Agreement, intending that the Company shall rely
hereon as a material inducement to pay the cash or issue the shares of Common
Stock called for under the Agreement. Such representations and warranties are
true and correct as of the date hereof, and shall be true and correct as of the
"Settlement Date" (as such term is defined in the Agreement).
___________________, 199__
TO: FSRT, L.P.
Description of Partnership Units
Name(s) and Partnership Interest Certificate(s) Enclosed
Address(es) of (Attach additional list if necessary)
Registered Owner(s)
Partnership Units of Units of
Interest Partnership Partnership
Certificate Interests Interests
Number(s) Represented by Being
Partnership Tendered
Interest
Certificate(s)
Total
Unless otherwise indicated, it will be assumed that all Partnership Units
evidenced by any Partnership Interest Certificate(s) delivered to the Company
are being tendered.
See instruction 4.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
The undersigned hereby provides notice to the Company of the undersigned's
tender of the above-described Partnership Units. All capitalized terms used
herein but not defined herein are used as defined in the Partnership Agreement
or Exchange Rights Agreement.
Subject to, and effective upon, payment (i.e., payment of cash or issuance
of shares of Series A common stock of the Company ("Common Stock")), for the
Partnership Units tendered herewith, the undersigned hereby sells, assigns,
transfers, and conveys to the Company, in the event the Company exercises its
rights to purchase the above-described Units pursuant to the Exchange Rights
Agreement, all right, title and interest in and to all the Partnership Units
that are being tendered, hereby, together with all rights, claims, interests,
privileges, entitlements, rights to distributions of any and all kinds, causes
of action, and the like in, to, and against the Operating Partnership and any of
its general or limited partners, and hereby irrevocably constitutes and appoints
the Company its attorney in fact, with full power of substitution and
resubstitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), (a) to present such Partnership Units for transfer on
the Operating Partnership's books and (b) to receive all benefits and otherwise
exercise all rights of beneficial ownership of such Partnership Units all in
accordance with the terms and conditions of the Exchange Rights Agreement.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer Partnership Units
and that, upon payment, the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, claims, restrictions,
charges and encumbrances whatsoever, and the same will not be subject to any
adverse claim. The undersigned will, upon reasonable request, execute any
additional documents deemed by the Company to be necessary or desirable to
complete the sale, assignment and transfer of the tendered Partnership Units.
The undersigned acknowledges that if the Company exercises its right to
issue Common Stock in exchange for the above-described Units, such Common Stock
will be issued without registration under the Securities Act of 1933, as amended
(the "Act"), and applicable state securities laws in reliance on exemptions
therefrom. The undersigned represents and warrants that the undersigned will
acquire such Common Stock solely for the undersigned's own account for the
purpose of investment and not as a nominee or agent for any other person and not
with a view to, or for offer or sale in connection with, any distribution of any
part thereof. The undersigned agrees and acknowledges that the undersigned will
not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate
or otherwise dispose of ("Transfer") any of such Common Stock, or any part
thereof or interest therein, unless either (a) the Transfer is pursuant
to an effective registration statement under the Act and the rules and
regulations in effect thereunder and qualification or other compliance under
applicable Blue Sky or state securities laws or (b) counsel for the undersigned
(which counsel shall be reasonably acceptable to the Company) shall have
furnished the Company with an opinion, reasonably satisfactory in form and
substance to the Company in its sole discretion to the effect that no such
registration is required because of the availability of an exemption from
registration under the Act and qualification or other compliance under
applicable Blue Sky or state securities laws, and, in all cases, subject to any
provisions in the Company's Articles of Incorporation, Bylaws, the Registration
Rights Agreement, or any other agreement affecting the transfer or ownership of
the Common Shares. A legend relating to the foregoing restrictions on Transfer
will be placed on the certificate for the Common Stock.
The undersigned further represents that he, she or it is either (a) an
"accredited investor" within the meaning of Rule 501(a) or Regulation D under
the Act or (b) a person who either alone or with his, her or its purchaser
representative (as defined in Rule 501(h) of Regulation D under the Act) has
such knowledge and experience in financial and business matters that he, she or
it is capable of evaluating the merits and risks of an investment in the
Partnership Units, Common Stock or any other security acquired under the
Exchange Rights Agreement. The Unitholder has such knowledge and experience in
financial and business matters as to be capable of evaluating alone, or together
with his, her or its purchaser representative or personal advisor the merits and
risks of an investment in the Partnership Units, Common Stock or any other
security delivered under the Exchange Rights Agreement and protecting his, her
or its own interests in connection with the investment and has obtained, in his,
her or its judgment, alone, or together with his, her or its purchase
representative or personal advisor sufficient information from the Company to
evaluate the merits and risks of an investment in the Partnership Units, Common
Stock or any other security delivered under the Exchange Rights Agreement. The
Unitholder acknowledges that he, she or it has the financial ability to bear the
economic risk of his, her or its current needs and personal contingencies and
has no need for liquidity with respect to the investment in the Company. If
other that an individual, the Unitholder also represents it has not been
organized solely for the purpose of acquiring the Partnership Units, Common
Stock or other security acquired under the Exchange Rights Agreement.
The effectiveness of this Notice of Exercise shall not be affected by, and
shall survive, the death or incapacity of the undersigned, and any obligation of
the undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators and legal representatives of the undersigned. Except
as provided in the Exchange Rights Agreement, this tender is irrevocable.
The undersigned understands that a tender of Partnership Units pursuant to
the Exchange Rights Agreement constitutes a binding agreement between the
undersigned and the Company, upon the terms and subject to the conditions of the
Exchange Rights Agreement.
Unless otherwise indicated under "Special Delivery Instructions," please
mail the cash or shares of Common Stock for the purchase price and, if
applicable, return the Partnership Interest Certificate(s) for Partnership Units
not tendered (and accompanying documents, as appropriate) to the address(es) of
the registered holder(s) appearing under "Description of Partnership Units
Tendered." In the event that the Special Delivery Instructions are completed,
please issue and deliver the cash and/or the shares of Common Stock for the
purchase price, and any Partnership Interest Certificate for Partnership
Interests not tendered, if applicable, in the name of the registered holder(s)
and transmit the same to the Person(s) so indicated.
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 5 and 6)
To be completed ONLY if Partnership Interest Certificate(s) for
Partnership Units not tendered and/or cash and/or shares of Common Stock for the
purchase price of Partnership Units purchased are to be sent to someone other
than the undersigned or to the undersigned at an address other than that above.
Mail / / certificate(s) for shares
of Common Stock
/ / Partnership Interest Certificate(s) for Partnership Units not tendered to:
Name
---------------------------------------------------------------------------
(Please Print)
Address
------------------------------------------------------------------------
(Include Zip Code)
- -------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
SIGN HERE
Complete Substitute Form W-9 Included
- -------------------------------------------------------------------------------
(Signature(s) of holder of Partnership Units)
(Must be signed by registered holder(s) as name(s) appear(s) on Partnership
Interest Certificate(s). If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please set forth full title and see
Instruction 5.)
Dated
--------------------------------------------------------------------------
Name(s)
------------------------------------------------------------------------
(Please Print)
Capacity
(Full Title)
-------------------------------------------------------------------
Address
------------------------------------------------------------------------
(Include Zip Code)
Area Code and Tel. No.
---------------------------------------------------------
Tax Identification or
Social Security No.
------------------------------------------------------------
(Complete Substitute Form W-9)
Guarantee of Signature(s)
(See Instruction 1)
Authorized
Signature
----------------------------------------------------------------------
Name of Firm
-------------------------------------------------------------------
Dated
--------------------------------------------------------------------------
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Rights Agreement
1. GUARANTEE OF SIGNATURE. No signature guarantee on this Notice of
Exercise is required unless the registered holder of the Partnership Units has
completed the box entitled "Special Delivery Instructions." In such case all
signatures on this Notice of Exercise must be guaranteed by a member firm of any
registered national securities exchange in the United States or of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
(not a savings bank or a savings and loan association) having an office, branch
or agency in the United States.
2. DELIVERY OF NOTICE OF EXERCISE AND PARTNERSHIP INTEREST CERTIFICATE(S).
This Notice of Exercise is to be completed by the holder of Partnership Units.
Partnership Interest Certificate(s) for all Partnership Units as well as a
properly completed and duly executed Notice of Exercise, and any other documents
required by this Notice of Exercise, must be received by the Company.
No alternative, conditional or contingent tenders will be accepted.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
Partnership Interest Certificate number(s) and/or other information required
should be listed on a separate schedule attached hereto.
4. PARTIAL TENDERS. If fewer than all the Partnership Units evidenced by
any Partnership Interest Certificate(s) submitted are to be tendered, fill in
the number of Partnership Units which are to be tendered in the box entitled
"Partnership Units Being Tendered." In such case, a new Partnership Interest
Certificate for the remainder of the Partnership Interests that was evidenced by
old certificate(s) will be sent to the registered holder, unless otherwise
provided in the appropriate box on this Notice of Exercise, as soon as
practicable. All Partnership Units represented by Partnership Interest
Certificate(s) delivered to the Company will be deemed to have been tendered
unless otherwise indicated.
5. SIGNATURES ON NOTICE OF EXERCISE. The signature(s) must
correspond with the name as written on the face of the Partnership Interest
Certificate(s) without any change whatsoever.
If any of the Partnership Units tendered hereby are owned or recorded by
two or more joint owners, all such owners must sign the Notice of Exercise.
If this Notice of Exercise is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, each person should so indicate
when signing, and proper evidence satisfactory to the Company of the authority
of each such person so to act must be submitted.
6. SPECIAL DELIVERY INSTRUCTIONS. If Partnership Interest Certificate(s)
for unpurchased Partnership Units are to be returned to a person other than the
signer of this Notice of Exercise or if a certificate for shares of Common Stock
is to be sent to someone other than the signer of this Notice of Exercise or to
an address other than that shown above, the appropriate boxes on this Notice of
Exercise should be completed.
7. WAIVER OR CONDITIONS. The Company reserves the absolute right to
waive any of the specified conditions of the Offer in the case of the
Partnership Units tendered.
8. BACKUP WITHHOLDING. Under Federal income tax law, a person surrendering
Partnership Units must provide the Company with his, her or its correct taxpayer
identification number ("TIN") on Substitute Form W-9 below unless an exemption
applies. If the correct TIN is not provided, a $50 penalty may be imposed by the
Internal Revenue Services and payments made in exchange for the surrendered
Partnership Units may be subject to backup withholding of that rate provided by
Federal income tax law (such rate being on the date of the Partnership Agreement
and the Exchange Rights Agreement, ________ percent (___%).
The TIN that must be provided is that of the registered holder of the
Partnership Units. The TIN for an individual is his or her social security
number.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance for additional copies of the Partnership Agreement, the
Exchange Rights Agreement and the Notice of Exercise may be directed to the
Company.
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a holder whose tendered Partnership
Units are accepted for payment is required by law to provide the Company (as
payer) with his, her or its correct taxpayer identification number on Substitute
Form W-9 below. If such holder is an individual, the taxpayer identification
number is his or her social security number. If the Operating Partnership or the
Company, as applicable, is not provided with the correct taxpayer identification
number, the holder may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, payments that are made to such holder with respect
to Partnership Units purchased pursuant to the Offer may be subject to backup
withholding.
If backup withholding applies, the Company is required to withhold that
rate provided by the Federal income tax law (such rate being on the date of the
Partnership Agreement and the Exchange Rights Agreement, ______ percent (___%)
of any such payments made to the holder of Partnership Units. Backup withholding
is not an additional tax; rather, the tax liability of a person subject to
backup withholding will be reduced by the amount of tax withheld and, if
withholding results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a holder of
Partnership Units purchased pursuant to the Offer, the holder is required to
notify the Company of his, her or its correct taxpayer identification number by
completing the form below certifying that the taxpayer identification number
provided on Substitute Form W-9 is correct.
WHAT NUMBER TO GIVE THE COMPANY
The holder is required to give the Company the social security number or
employer identification number of the record owner of the Partnership Units.