Exhibit 99.4
OPERATING AGREEMENT
OF
LEXINGTON ACQUIPORT COMPANY II, LLC
Dated as of December 5, 2001
ARTICLE I
DEFINITIONS
Section 1.1 Definitions....................................................1
ARTICLE II
FORMATION, DURATION AND PURPOSES
Section 2.1 Formation.....................................................13
Section 2.2 Name; Registered Agent and Registered Office..................14
Section 2.3 Principal Office..............................................14
Section 2.4 Purposes and Business.........................................14
Section 2.5 Term..........................................................14
Section 2.6 Other Qualifications..........................................14
Section 2.7 Limitation on the Rights of Members...........................14
ARTICLE III
MANAGEMENT RIGHTS, DUTIES, AND POWERS OF THE MANAGER;
TRANSACTIONS INVOLVING MEMBERS
Section 3.1 Management....................................................15
Section 3.2 Meetings of the Members.......................................17
Section 3.3 Authority of the Manager......................................18
Section 3.4 Major Decisions...............................................19
Section 3.5 Preliminary and Annual Plans..................................22
Section 3.6 Tranche II Property Acquisitions..............................23
Section 3.7 Sale of Tranche II Properties; Right of First Refusal.........27
Section 3.8 Limitation On Company Indebtedness............................29
Section 3.9 Business Opportunity..........................................29
Section 3.10 Payments to LXP or the Asset Manager..........................31
Section 3.11 Other Duties and Obligations of the Manager...................32
Section 3.12 Exculpation...................................................34
Section 3.13 Indemnification...............................................34
Section 3.14 Fiduciary Responsibility......................................35
ARTICLE IV
BOOKS AND RECORDS; REPORTS TO MEMBERS
Section 4.1 Books.........................................................35
Section 4.2 Monthly and Quarterly Reports.................................36
Section 4.3 Annual Reports................................................37
Section 4.4 Appraisals; Additional Reports................................37
Section 4.5 Accountants; Tax Returns......................................38
Section 4.6 Accounting and Fiscal Year....................................38
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TABLE OF CONTENTS
(continued)
Page
Section 4.7 Company Funds.................................................38
Section 4.8 Insurance.....................................................38
Section 4.9 Attorneys and Accountants.....................................39
ARTICLE V
CONTRIBUTIONS
Section 5.1 Tranche II Capital Contributions..............................39
Section 5.2 Return of Tranche II Capital Contribution.....................43
Section 5.3 Liability of the Members......................................43
Section 5.4 No Third Party Beneficiaries..................................43
ARTICLE VI
MAINTENANCE OF CAPITAL ACCOUNTS; ALLOCATION OF PROFITS AND
LOSSES FOR BOOK AND TAX PURPOSES
Section 6.1 Capital Accounts..............................................43
Section 6.2 Profits and Losses............................................45
Section 6.3 Regulatory Allocations........................................46
Section 6.4 Allocation of Tax Items for Tax Purposes......................47
Section 6.5 Tax Matters Member............................................48
Section 6.6 Adjustments...................................................49
Section 6.7 Segregation of Funds..........................................49
ARTICLE VII
DISTRIBUTIONS
Section 7.1 Cash Available for Distributions..............................50
ARTICLE VIII
TRANSFER; REMOVAL OF MANAGER
Section 8.1 Prohibition on Transfers and Withdrawals by Members...........50
Section 8.2 Prohibition on Transfers by and Resignation of Manager........51
Section 8.3 Removal of the Manager........................................51
ARTICLE IX
TERMINATION
Section 9.1 Dissolution...................................................53
Section 9.2 Termination...................................................54
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TABLE OF CONTENTS
(continued)
Page
Section 9.3 Certificate of Cancellation...................................55
Section 9.4 Acts in Furtherance of Liquidation............................56
ARTICLE X
REPRESENTATIONS OF THE MEMBERS
Section 10.1 Representations of the Fund...................................56
Section 10.2 Representations of LXP........................................57
ARTICLE XI
SPECIAL MEMBER RIGHTS AND OBLIGATIONS
Section 11.1 Buy/Sell......................................................58
Section 11.2 Convertibility................................................61
Section 11.3 Remuneration To Members.......................................63
Section 11.4 Equality of Shares............................................63
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Notices.......................................................63
Section 12.2 Governing Laws................................................65
Section 12.3 Entire Agreement..............................................66
Section 12.4 Waiver........................................................66
Section 12.5 Validity......................................................66
Section 12.6 Terminology; Captions.........................................66
Section 12.7 Remedies Not Exclusive........................................66
Section 12.8 Action by the Members.........................................67
Section 12.9 Further Assurances............................................67
Section 12.10 Liability of the Members......................................67
Section 12.11 Binding Effect................................................67
Section 12.12 Amendments....................................................67
Section 12.13 Counterparts..................................................67
Section 12.14 Waiver of Partition...........................................67
Section 12.15 No Third Party Beneficiaries..................................67
Section 12.16 Affirmative Action Policy.....................................67
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Schedules and Exhibits
----------------------
Schedule 1: Names and Tranche II Capital Commitments of Members
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Schedule 2: Acquisition Parameters Checklist
Schedule 3: Form of Acquisition Memorandum
Schedule 3.5: Model of an Annual Plan
Schedule 3.6(i): Leveraged Sale/Leaseback Transactions
Schedule 4.8: Insurance Standards
Schedule 5: Tranche II Redemption Rights
Schedule 6: AIMR Returns
Schedule 7: Registration Rights Agreement
Schedule 10.2(ii): LXP Non-qualified Jurisdictions
Schedule 10.2(viii): Exceptions to No Material Adverse Change
Exhibit A: Form of Annual Budget
Exhibit B: Form of Agreement between Company and Asset Manager
Exhibit C: Form of IPC Questionnaire
OPERATING AGREEMENT OF
LEXINGTON ACQUIPORT COMPANY II, LLC
THIS OPERATING AGREEMENT (as may be amended, modified,
supplemented or restated from time to time, this "Agreement") of LEXINGTON
ACQUIPORT COMPANY II, LLC (the "Company"), made and entered into as of the 5th
day of December, 2001 by Lexington Corporate Properties Trust, a Maryland real
estate investment trust ("LXP") and The Comptroller of the State of New York, as
Trustee of the Common Retirement Fund (the "Fund"). LXP and the Fund are
sometimes individually referred to herein as a "Member" and collectively
referred to herein as the "Members".
In consideration of the covenants and agreements set forth
herein, the Members hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Definitions. For the purposes of this Agreement,
initially capitalized terms used herein shall have the following meanings:
"Acquisition Activities" is defined in Section 3.6(f) hereof.
"Acquisition Fee" is defined in Section 3.6(g) hereof.
"Acquisition Memorandum" shall mean a memorandum in the form
attached as Schedule 3 hereto with respect to any Proposed Tranche II Property
as provided in Section 3.6(b) hereof.
"Acquisition Parameters" shall mean the guidelines and
requirements for any Proposed Tranche II Property as set forth in the
Acquisition Parameter Checklist attached as Schedule 2 hereto.
"Acquisition Parameters Checklist" is attached as Schedule 2
hereto and made a part hereof.
"Act" is defined in Section 2.1 hereof.
"Additional Tranche II Capital Contribution" is defined in
Section 5.1(b) hereof.
"Adjusted Capital Account Deficit" shall mean the deficit
balance, if any, in a Member's Capital Account at the end of any fiscal year,
with the following adjustments: (i) credit to such Capital Account any amount
that such Member is obligated or deemed obligated to restore under Regulations
Section 1.704-1(b)(2)(ii)(c), as well as any additions thereto pursuant to the
next to last sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
after taking
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into account thereunder any changes during such year in Partnership Minimum Gain
and in the minimum gain attributable to any Partner Nonrecourse Debt; and (ii)
debit to such Capital Account the items described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of Adjusted
Capital Account Deficit is intended to comply with the provisions of Regulations
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted in a manner consistent
with such intent.
"Advisor" shall mean Clarion Partners or any successor thereto
designated by the Fund as provided in Section 12.1(c) hereof that serves as
advisor to the Fund regarding the Company.
"Affiliate" when used with respect to any particular Person,
shall mean (a) any Person or group of Persons acting in concert that directly or
indirectly through one or more intermediaries controls or is controlled by or is
under common control with such particular Person, (b) any Person that is an
officer, partner, member or trustee of, or serves in a similar capacity with
respect to, such particular Person or of which such particular Person is an
officer, partner, member or trustee or with respect to which such particular
Person serves in a similar capacity, (c) any Person that, directly or
indirectly, is the beneficial owner of 10% or more of any class of voting
securities of, or otherwise has an equivalent beneficial interest in, such
particular Person or of which such particular Person is directly or indirectly
the owner of 10% or more of any class of voting securities or in which such
particular Person has an equivalent beneficial interest or (d) any relative or
spouse of such particular Person. Notwithstanding the foregoing, neither LXP nor
the Fund shall be deemed to be an Affiliate of the other party. The definition
of "Affiliate" as used in this Agreement shall not be affected by the
Regulations under Code Section 752 describing certain "related" parties.
"Agreement" is defined in the Preamble hereto. This Agreement
shall be the "limited liability company agreement" for the Company within the
meaning of Section 18-101(7) of the Act.
"AIMR Returns" shall mean the financial ratios set out on
Schedule 6 hereto the calculation of which is required under Section 4.2(b)
hereof.
"Amending Member" is defined in the Section 3.5(c) hereof.
"Annual Budget" shall mean the annual budget for the Company and
each Tranche II Property and each Tranche II LSL Loan for any fiscal year,
including without limitation a reasonable description of the amount, source and
character of each item of gross income, expense and services to be rendered in
the form attached hereto as Exhibit A, approved by the Members as provided in
Section 3.5 hereof.
"Annual Plan" is defined in Section 3.5(a) hereof.
"Approved Tranche II Property" is defined in Section 3.6(d)
hereof.
"Asset Manager" shall mean a corporation, the capital stock of
which is held from time to time either wholly by LXP or partly by LXP with the
voting stock and value held in a manner so as to satisfy LXP in its sole
discretion that such ownership will meet any
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requirements imposed on LXP with respect to its status as a real estate
investment trust under the Code.
"Bankruptcy" of the Company or a Member shall be deemed to have
occurred upon the happening of any of the following: (i) the filing of an
application by the Company or such Member for, or a consent to, the appointment
of a trustee, receiver or liquidator of its assets; (ii) the filing by the
Company or such Member of a voluntary petition or answer in bankruptcy or the
filing of a pleading in any court of record admitting in writing its inability
to pay its debts as such debts come due or seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation; (iii) the making by the Company or such Member of a
general assignment for the benefit of creditors; (iv) the filing by the Company
or such Member of an answer admitting the material allegations of, or its
consenting to or defaulting in answering, a bankruptcy or insolvency petition
filed against it in any bankruptcy or similar proceeding; or (v) the expiration
of sixty (60) days following the entry by any court of competent jurisdiction of
an order for relief in any bankruptcy or insolvency proceeding involving the
Company or such Member or of an order, judgment or decree adjudicating the
Company or such Member a bankrupt or insolvent or appointing a trustee, receiver
or liquidator of its assets.
"Base Interest" is defined in Paragraph 7(g) of Schedule 3.6(i).
"Bona Fide Offer" is defined in Section 3.7(b) hereof.
"Book Depreciation" shall mean all deductions attributable to the
depreciation, amortization or other cost recovery, including additions, of any
Tranche II Property or other asset (whether tangible or intangible) acquired by
the Company that has a useful life in excess of one year, as such deductions are
computed for federal income tax purposes; provided, that with respect to any
Company asset the tax basis of which differs from the Book Value of such asset,
Book Depreciation for any period shall equal (x) the sum total of all deductions
taken during such period attributable to depreciation, amortization or other
cost recovery deduction for federal income tax purposes with respect to such
asset, multiplied by (y) the Book Value of such asset divided by the tax basis
thereof; provided further, that if the depreciation, amortization or other cost
recovery deduction for federal income tax purposes with respect to any Company
asset for any period is zero ($0.00), Book Depreciation shall be determined by
the Tax Matters Member using any reasonable method selected by the Tax Matters
Member that is based on the Book Value of such asset.
"Book Value" shall mean, with respect to any Company asset at any
time, the adjusted basis of such asset for federal income tax purposes, except
that (i) the initial Book Value of any asset contributed by a Member to the
Company shall be the Fair Market Value of such asset, and (ii) the Book Value of
all Company assets shall be adjusted to equal their Fair Market Values, as
determined in good faith by the Manager, upon the occurrence of certain events
as described below. In either case, the Book Value of Company assets shall
thereafter be adjusted for Book Depreciation taken into account with respect to
such asset. Provided the Tax Matters Member makes an election to do so as
provided under Section 1.704-1(b)(2)(iv)(f) of the Regulations, the Book Value
of Company assets shall be adjusted to equal their Fair Market Value, as
determined in good faith by the Manager, as of the following times to which the
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election relates: (1) the admission of a new Member to the Company or
acquisition by an existing Member of an additional interest in the Company,
provided that the consideration contributed to the Company upon such admission
or acquisition is more than a de minimis amount of money or property; (2) the
distribution by the Company to a Member of more than a de minimis amount of
money or other property; and (3) the termination of the Company for federal
income tax purposes pursuant to Code Section 708(b)(1)(B).
The Book Value of all Company assets shall also be increased (or
decreased) to the extent that adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b) have been taken into
account for purposes of determining Capital Accounts in accordance with
Regulation Section 1.704-1(b) (2) (iv) (m), unless such adjustments have already
been accounted for pursuant to the preceding paragraph. If the Book Value of an
asset has been determined or adjusted pursuant hereto, such value shall
thereafter be the basis for, and be adjusted by, the depreciation taken into
account with respect to, such asset for purposes of computing Profits and
Losses. Moreover, notwithstanding the foregoing, the Book Value of any Company
asset distributed to any Member shall be the gross Fair Market Value of such
asset on the date of distribution.
"Business Day" shall mean any day other than a Saturday, Sunday
or any day on which national banks in New York, New York are not open for
business.
"Capital Account" shall mean, with respect to any Member, the
separate "book" account which the Company shall establish and maintain for such
Member as provided in Section 6.1 hereof and in accordance with Section 704(b)
of the Code and Regulations Section 1.704-1(b)(2)(iv) and such other provisions
of Section 1.704-1(b) of the Regulations as must be complied with in order for
the Capital Accounts to be determined in accordance with the provisions of said
Regulations. In furtherance of the foregoing, the Capital Accounts shall be
maintained in compliance with Section 1.704-1(b)(2)(iv) of the Regulations, and
the provisions hereof shall be interpreted and applied in a manner consistent
therewith.
"Capital Call" is defined in Section 5.1(b) hereof.
"Cash Flow Interest" is defined in Paragraph 7(g) of Schedule
3.6(i).
"Cash Purchase Price" is defined in Section 11.2(c) hereof.
"Cause" is defined in Section 8.3(a) hereof.
"Challenging Member" is defined in Section 11.1(d) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
or corresponding provisions of future laws.
"Company" is defined in the Preamble hereto.
"CPI" shall mean the Revised Consumer Price Index for All Urban
Consumers published by the Bureau of Labor Statistics of the United States
Department of Labor, U.S. City Average, All Items, based on 1993-95 as 100. If
the CPI hereafter ceases to use the 1993-95
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Base as 100, then the CPI with the new base shall be used. If the Bureau of
Labor Statistics ceases to publish the CPI, then the successor or most nearly
comparable index shall be used. In the event that the U.S. Department of Labor,
Bureau of Labor Statistics, changes the publication frequency of the CPI so that
it is not available when required under the Agreement, then the CPI for the
closest preceding month for which a CPI is available shall be used in place of
the CPI no longer available.
"Default Amount" is defined in Section 5.1(e) hereof.
"Development Property" shall mean any property that is either (i)
under construction or (ii) not ready for immediate occupancy (including not
having all government approvals or certifications for use of the property by a
tenant), at the time the Manager shall consider such property as a candidate for
acquisition by the Company or as candidate for a Tranche II LSL Loan to be made
by the Company .
"Defaulting Member" is defined in Section 5.1(e) hereof.
"Distributable Cash" shall mean the Net Cash Flow from Operations
of the Company, less the sum of working capital and other cash reserves provided
for in the Annual Plan or otherwise established and maintained by the Manager
pursuant to Section 3.11(e) hereof, and less indemnities and other extraordinary
payments made pursuant to this Agreement. Distributable Cash attributable to any
Tranche II LSL Loan (or property underlying the corresponding Warrant if such
Warrant has been exercised) shall be determined separately from, segregated from
and not commingled with Distributable Cash attributable to any of the Tranche II
Properties or any other Tranche II LSL Loan (or property underlying the
corresponding Warrant if such Warrant has been exercised), and in determining
the amount of Distributable Cash from any Tranche II LSL Loan (or property
underlying the corresponding Warrant if such Warrant has been exercised), any
reductions for expenses, fees or other items shall be made only for such
expenses, fees or other items of reduction that are directly attributable to
such Tranche II LSL Loan (or property underlying the corresponding Warrant if
such Warrant has been exercised).
"Economic Interest" shall mean, with respect to any Tranche II
Percentage Interest, (a) all income, profits, cash flow, proceeds of sales
and/or refinancing of the Tranche II Properties, fees or payments of whatever
nature and all distributions to which any Member would be entitled, now or at
any time hereafter, of whatsoever description or character; (b) all of any
Member's present and future rights to and in its Capital Account, whether by way
of liquidating distributions or otherwise, and all of such Member's right to
receive or share in any surplus of the Company in the event of the dissolution
of the Company; and (c) all damages, awards, money and considerations of any
kind or character to which any Member would be entitled, now or at any time
hereafter, arising out of or derived from any proceeding by or against such
Member in any federal or state court, under any bankruptcy or insolvency law or
under any law relating to assignments for the benefit of creditors,
compositions, extensions or adjustments of indebtedness, or to any other relief
of debtors, or otherwise in connection with its interest in the Company.
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"Economic Risk of Loss" shall have the meaning specified in
Regulations Section 1.752-2.
"Election Notice" is defined in Schedule 5 hereto.
"Environmental Assessment" shall mean with respect to any
Proposed Tranche II Property, a phase one environmental site assessment
performed by a qualified environmental consultant selected by the Manager in
accordance with the then current ASTM Standard Practice for Environmental Site
Assessments, E1527 and, if required by the Manager, any additional Phase II
sampling, investigation, monitoring or other activities performed by a qualified
environmental consultant.
"Environmental Law" shall mean every federal, state, county or
other governmental law, statute, ordinance, rule, regulation, requirement, order
(including any consent order), or other binding obligation, injunction, writ or
decision relating to or addressing the environment or hazardous materials,
including, but not limited to, those federal statutes commonly referred to as
the Clean Air Act, Clean Water Act, Resource Conservation Recovery Act, Toxic
Substances Control Act, Comprehensive Environmental Response, Compensation and
Liability Act and the Endangered Species Act as well as all regulations
promulgated thereunder and all state laws and regulations equivalent thereto, as
each such statute, regulation or state law or regulation equivalent may be
amended from time to time.
"Exercise Notice" is defined in Schedule 5 hereof.
"Extraordinary Call" is defined in Section 5.1(c) hereof.
"Extraordinary Tranche II Capital Contribution" is defined in
Section 5.1(c) hereof.
"Extraordinary Funding" is defined in Section 5.1(c) hereof.
"Extraordinary Loan" is defined in Section 5.1(c) hereof.
"Fair Market Value" shall mean an amount (in cash) that a bona
fide, willing buyer under no compulsion to buy and a bona fide, willing and
unrelated seller under no compulsion to sell would pay and accept, respectively,
for the purchase and sale of a Tranche II Property (or a Tranche II LSL
Property), taking into account any liens, restrictions and agreements then in
effect and binding upon the Tranche II Property (or a Tranche II LSL Property)
or any successor owner thereof and any options, rights of first refusal or offer
or other rights or options that either burden the Tranche II Property (or a
Tranche II LSL Property) or run to the benefit of the owner of the Tranche II
Property (or a Tranche II LSL Property); provided, however, that in determining
the Fair Market Value of any Tranche II Property, none of the options, rights of
first refusal or offer or other rights of the Members hereunder shall be taken
into consideration.
"Fee Disclosure" is defined in Section 3.11(h) hereof.
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"FFO" shall mean net income or loss (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus real estate depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis.
"Financing Fee" is defined in Section 3.6(g) hereof.
"First Mortgage Loan" is defined in Paragraph 3(b) of Schedule
3.6(i) hereof.
"Fund" is defined in the Preamble hereto.
"Indemnified Party" is defined in Section 3.13(a) hereof.
"Initial Tranche II Capital Contribution" shall mean, with
respect to each Member, an amount equal to the sum of (x) the amount of cash and
(y) the Fair Market Value of any property (determined as of the date such
property is contributed by such Member and net of any liabilities secured by
such property that the Company is considered to assume or take subject to under
Section 752 of the Code), that has in each case been contributed to the Company
by such Member at such time as the Members have agreed.
"Interest Price" is defined in Section 11.1(a) hereof.
"Investment Advisors Act" shall mean the Investment Advisors Act
of 1940, as amended, or any corresponding provisions of future laws.
"Investment Grade Tenant" shall mean a tenant of a property that
has a current credit rating by Standard & Poor's of at least BBB or higher or a
comparable credit rating by Moody's Investors Services, Inc., Duff & Phelps
Credit Rating Co. or Fitch IBCA.
"LAC I" shall mean Lexington Acquiport Company, LLC, a Delaware
limited liability company.
"LAC I Operating Agreement" shall mean the Operating Agreement of
LAC I dated July 14, 1999 between the Fund and LXP, as amended.
"Liquidating Events" is defined in Section 9.1 hereof.
"Liquidation" shall mean (a) when used with respect to the
Company, the earlier of (i) the date upon which the Company is terminated under
Section 708(b)(1) of the Code and (ii) the date upon which the Company ceases to
be a going concern, and (b) when used with respect to any Member, the earlier of
(i) the date upon which there is a Liquidation of the Member and (ii) the date
upon which such Member's entire interest in the Company is terminated other than
by transfer, assignment or other disposition to a Person other than the Company.
"Liquidator" shall mean the Manager, unless the Manager's
Bankruptcy, insolvency, removal, withdrawal or liquidation or default hereunder
shall have preceded the
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Liquidation of the Company, in which case the Liquidator shall be any Person
designated as such by the remaining Member.
"Losses" and "Profits" are defined in Section 6.2(b) hereof.
"LXP" is defined in the Preamble hereto.
"LXP Board" shall mean the Board of Trustees of LXP.
"LXP LLC" is defined in Paragraph 1 of Schedule 3.6(i) hereto.
"LXP Tranche II LSL Contribution" is defined in Paragraph 3(a) of
Schedule 3.6(i) hereto.
"Major Decision" is defined in Section 3.4 hereof.
"Management Agreement" shall mean the agreement between the Asset
Manager and the Company which shall be substantially in the form attached hereto
as Exhibit B.
"Manager" shall mean the Person in whom the management of the
Company is vested pursuant to the terms of this Agreement. LXP shall be the
Manager until LXP (x) transfers its membership interest in the Company or
withdraws as a Member from the Company, (y) transfers or assigns its rights and
obligations as the Manager or resigns as the Manager, or (z) is removed as
Manager, each as provided in Article VIII hereof.
"Material Modification" shall mean a modification relating to the
treatment of Capital Accounts, distributions and/or allocations hereunder which,
when considered on a cumulative basis with the effect of all other such
modifications previously made, is likely to adversely affect the amount
ultimately distributable or paid to any Member hereunder as determined by the
independent accountants of the Company.
"Member or Members" is defined in the Preamble hereto.
"Net Cash Flow from Operations" shall mean the gross proceeds
from Company operations (including interest on Tranche II LSL Loans but
excluding sales or other dispositions or refinancings of Tranche II Properties
and excluding repayments of Tranche II LSL Loans or proceeds from the exercise
of any Put Option or in the event a Warrant has been exercised, the proceeds
from the sale or other disposition of the underlying Tranche II LSL Property)
less any portion thereof used to pay Operating Expenses, capital improvements,
replacements or debt payments, any acquisition fees payable to the Manager or
Asset Manager under Section 3.6(g) hereof, any management fees payable to the
Manager or Asset Manager pursuant to Section 3.10(c) hereof or to establish
reasonable reserves for Operating Expenses, capital improvements, replacements,
debt payments and contingencies as provided in the Annual Plan, as such reserves
are calculated by the Manager. Net Cash Flow from Operations attributable to any
Tranche II LSL Loan (or property underlying the corresponding Warrant if such
8
Warrant has been exercised) shall be determined separately from, segregated from
and not commingled with Net Cash Flow from Operations attributable to any of the
Tranche II Properties or any other Tranche II LSL Loan (or property underlying
the corresponding Warrant if such Warrant has been exercised), and in
determining the amount of Net Cash Flow from Operations from any Tranche II LSL
Loan (or property underlying the corresponding Warrant if such Warrant has been
exercised), any reductions for expenses, fees or other items shall be made only
for (i) such expenses, fees or other items of reduction that are directly
attributable to such Tranche II LSL Loan (or property underlying the
corresponding Warrant if such Warrant has been exercised), and (ii) such
expenses, fees or other items not so directly attributable, such as general
overhead expenses, based on an arm's length allocation of such indirect expenses
as though the Tranche II LSL Loan investment were made through a separate
partnership and such partnership is to be charged on a cost basis. "Net Cash
Flow from Operations" shall not be reduced by real estate depreciation or by
cost amortization, cost recovery deductions or similar allowances, but shall be
increased by any reduction of reserves previously described in an Annual Plan.
"Net Cash from Sales or Refinancings" shall mean the gross cash
proceeds from the sale or other disposition or refinancing of Tranche II
Properties plus repayments of Tranche II LSL Loans plus proceeds from the
exercise of any Put Option (or in the event a Warrant has been exercised, the
proceeds from the sale or other disposition of the underlying Tranche II LSL
Property) , less (a) any closing, transaction and other costs incurred by the
Company in connection with such sale or other disposition or refinancing or
repayment or exercise, as the case may be; (b) the amount required to retire any
debt outstanding against such Tranche II Properties; and (c) any amounts
required to fund any related reserves up to the levels required by the Annual
Plan, as calculated by the Manager. Net Cash from Sales or Refinancings shall be
increased by reductions of reserves originally funded from Net Cash from Sales
or Refinancings. "Net Cash from Sales or Refinancings" shall include all
principal and interest payments made with respect to any note or other
obligation received by the Company in connection with the sale or other
disposition of any Tranche II Property.
"Net Rents" for any period shall mean the rents actually received
by the Company from all of the tenants of the Tranche II Properties during such
period less any Operating Expenses for the Tranche II Properties not paid by the
tenants thereof.
"Nonrecourse Liability" shall mean any Company liability (or
portion thereof) the Economic Risk of Loss of which is not borne by any Member
or any party related to any Member, as such related party is described in the
applicable Regulations under Code Section 752.
"Non-Investment Grade Tenant" shall mean a tenant of a Tranche II
Property that is not an Investment Grade Tenant.
"Non-Sale Member" is defined in Section 3.7(b) hereof.
"Offer Notice" is defined in Section 11.1(a) hereof.
"Offer Price" is defined in Section 11.1(a) hereof.
"Offered Agreement" is defined in Section 11.1(a) hereof.
"Offering Member" is defined in Section 11.1(a) hereof.
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"Operating Expenses" shall mean (x) all reasonable and customary
costs and expenses of Third Parties retained in connection with the ownership,
leasing, operation, repair and maintenance of the Tranche II Properties and (y)
real estate taxes, insurance premiums, utility charges, rent collection and
lease enforcement costs, brokerage commissions to the extent applicable to the
period in question (but excluding any acquisition fees payable to the Manager or
the Asset Manager under Section 3.6(g) hereof), maintenance expenses, costs of
repairs and replacements (which, under generally accepted accounting principles
consistently applied, may be expensed during the period when made) and
management fees (but excluding any management fees or the Oversight Fee payable
to the Manager or Asset Manager pursuant to Section 3.10(c) hereof) in
connection with the ownership, leasing, operation, repair and maintenance of the
Tranche II Properties. Operating Expenses shall not include general and
administrative costs and overhead of the Company and debt payments.
"O.P. Unit" shall mean a partnership interest in a partnership in
which LXP is a partner.
"Oversight Fee" is defined in Section 3.10(c) hereof.
"Partner Nonrecourse Debt" shall have the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning
set forth in Regulations Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" is defined in Section 6.3(d)
hereof.
"Partnership Minimum Gain" shall have the meaning set forth in
Section 1.704-2(b)(2) and (d) of the Regulations.
"Permitted Expenses" shall mean, for each annual period covered
by an Annual Plan, Operating Expenses, capital improvements, replacements and
debt payments as set forth therein plus, with respect to each budget line item
in the Annual Budget portion of such Annual Plan, the greater of (w) five
percent (5%) of each such budget line item or (x) Twenty Thousand Dollars
($20,000.00); provided, however, that Permitted Expenses shall not include any
Operating Expenses, capital improvements, replacements and debt payments which,
when added to all other obligations incurred or reserve amounts accrued in
excess of the applicable budget line items in such Annual Budget portion of the
Annual Plan, exceed (x) One Hundred Thousand Dollars ($100,000) in any fiscal
year for a particular Tranche II Property or (y) an average (taking into account
all Tranche II Properties then owned by the Company) of Fifty Thousand Dollars
($50,000) per Tranche II Property. Permitted Expenses shall also mean (i) all
reasonable and customary costs and expenses of Third Parties retained in
connection with the Acquisition Activities as provided in Section 3.6(f) hereof,
(ii) any reasonable costs or expenses incurred in implementing a Major Decision
agreed to by the Members as provided in Section 3.4 hereof and not otherwise
already included in an Annual Plan, (iii) costs and expenses incurred by the
Members in connection with the formation of the Company, including legal fees,
(iv) the legal fees and costs referred to in the last sentence of Section
3.11(c) hereof, (v) the acquisition fees
10
payable pursuant to Section 3.6(g) hereof, (vi) Financing Fees payable pursuant
to Section 3.6(g) hereof and (vii) the management fees payable pursuant to
Section 3.10(c) hereof.
"Person" shall mean any individual, trust (including a business
trust), unincorporated association, corporation, limited liability company,
joint stock company, general partnership, limited partnership, joint venture,
governmental authority or other entity.
"Physical Inspection Report" shall mean a report prepared by a
qualified independent third party engineer, architect or other real estate
inspector selected by the Manager and reasonably acceptable to LXP and the Fund
concerning the physical condition of any Proposed Tranche II Property.
"Plan Amendment" is defined in Section 3.5(c).
"Profits" and "Losses" are defined in Section 6.2(b) hereof.
"Proposed Plan" is defined in Section 3.5(a) hereof.
"Proposed Tranche II Property" is defined in Section 3.6(a)
hereof.
"Proposed Tendered Tranche II Properties" is defined in Section
11.2(b) hereof.
"Put Option" is defined in Paragraph 10(d) of Schedule 3.6(i)
hereto.
"Put Price" is defined in Paragraph 10(d) of Schedule 3.6(i)
hereto.
"Redemption Right Shares" is defined in Section 11.4 hereof.
"Regulations" shall mean the income tax regulations promulgated
under the Code, whether temporary, proposed or finalized, as such regulations
may be amended from time to time (including corresponding provisions of future
regulations).
"Regulatory Allocations" is defined in Section 6.3(f) hereof.
"Removal Amount" is defined in Section 8.3(b) hereof.
"Removal Notice" is defined in Section 8.3(a) hereof.
"Responding Interest Price" is defined in Section 11.1(c) hereof.
"Responding Member" is defined in Section 11.1(a) hereof.
"Response Notice" is defined in Section 11.1(a) hereof.
"Retained Tranche II Properties" is defined in Section
11.2(b)(ii).
"Right of First Refusal" is defined in Section 3.7(b) hereof.
11
"Sale Notice" is defined in Section 3.7(b) hereof.
"Sale Member" is defined in Section 3.7(b) hereof.
"Section 704(c) Property" shall mean (x) each item of property to
which Section 704(c) of the Code or Section 1.704-3(a)(3) of the Regulations
applies that is contributed to the Company, and (y) any property owned by the
Company which is governed by the principles of Section 704(c) of the Code, as
contemplated by Section 1.704-1(b)(4)(i) and other analogous provisions of the
Regulations.
"Shares" shall mean the common shares of beneficial interest, par
value $.0001 per share, of LXP.
"Share Purchase Price" is defined in Schedule 5 hereof.
"Special Purpose LLC" is defined in Paragraph 1 of Schedule
3.6(i) hereto.
"SP Subsidiary" shall mean an entity selected by the Manager and
approved by the Members which shall be wholly-owned by the Company, the purpose
of which is limited to acquiring, financing, holding for investment, preserving,
managing, operating, improving, leasing, selling, exchanging, transferring and
otherwise using or disposing of a Tranche II Property or Tranche II Properties.
"Tax Matters Member" is defined in Section 6.5 hereof.
"Tax Depreciation" shall mean with respect to any property owned
by the Company depreciation, accelerated cost recovery, or modified cost
recovery, and any other amortization or deduction allowed or allowable for
federal, state or local income tax purposes.
"Tendered Tranche II Properties" shall mean all of the Company's
Tranche II Properties owned by the Company at the time the Fund exercises the
Tranche II Redemption Right pursuant to Section 11.2 hereof or, if the Fund or
LXP, or both, exercise their rights to exclude Tranche II Properties under
Section 11.2(b) hereof, the Tranche II Properties remaining after the Fund has
excluded Tranche II Properties pursuant to Clause (ii) of Section 11.2(b) hereof
and after LXP has excluded certain Tranche II Properties pursuant to Clause
(iii) of Section 11.2(b) hereof.
"Third Parties" shall mean consultants, engineers, environmental
consultants, accountants, attorneys, contractors and subcontractors, brokers or
managers, but excluding the Asset Manager or any Affiliate of LXP.
"Tranche II Buy/Sell Property" is defined in Section 11.1(a)
hereof.
"Tranche II Capital Commitment" shall mean, with respect to each
Member, the amount set forth opposite its name on Schedule 1 hereto, as such
Schedule may be amended or modified from time to time upon the Members'
unanimous consent.
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"Tranche II Capital Contribution" shall mean, at any particular
time and with respect to any Member, an amount equal to the sum of (x) the total
amount of cash and (y) the Fair Market Value of any property (determined as of
the date such property is contributed by such Member and net of any liabilities
secured by such property that the Company is considered to assume or take
subject to under Section 752 of the Code), that has in each case been
contributed to the Company by such Member pursuant to Section 5.1 hereof.
"Tranche II LSL Capital Call" is defined in Section 5.1(d)
hereof.
"Tranche II LSL Capital Contribution" is defined in Section
5.1(d) hereof.
"Tranche II LSL Loan" is defined in Paragraph 3(c) of Schedule
3.6(i) hereto.
"Tranche II LSL Note" is defined in Paragraph 3(c) of Schedule
3.6(i) hereto.
"Tranche II LSL Property" is defined in the first unnumbered
paragraph of Schedule 3.6(i) hereto.
"Tranche II Percentage Interest" shall mean the entire undivided
ownership interest in the Company of any Member at any particular time, (x)
expressed as a percentage rounded to the nearest one one-hundredth (0.01%), (y)
determined at such time by dividing the total Tranche II Capital Contributions
made by such Member by the total Tranche II Capital Contributions made in the
Company by all Members and (z) as may be adjusted from time to time in
accordance with Section 5.1(e) hereof. The Tranche II Percentage Interest as of
the date hereof shall be as described on Schedule 1 hereto.
"Tranche II Property" or "Tranche II Properties" shall mean the
interest of the Company in each parcel of real property acquired as provided in
Section 3.6 hereof, together with all buildings, structures and improvements
located thereon, fixtures contained therein, appurtenances thereto and all
personal property owned in connection therewith.
"Tranche II Redemption Right" is defined in Section 11.2(a)
hereof.
"Tranche II Rights Trigger Date" shall mean the date of January
2, 2004.
"UBTI" is defined in Section 3.11(c) hereof.
"Warrant" is defined in Paragraph 10(a) of Schedule 3.6(i)
hereto. The term "Warrant" shall include the Put Option which is included within
the Warrant, unless the context requires otherwise.
Capitalized terms used herein but not defined herein shall have
the meanings assigned to such terms in Schedule 3.6(i) and in Schedule 5 hereto,
unless the context requires otherwise.
ARTICLE II
FORMATION, DURATION AND PURPOSES
13
Section 2.1 Formation. Pursuant to the Delaware Limited Liability
Company Act, codified in the Delaware Code Annotated, Title 6, Sections 18-101
to 18-1109, as the same may be amended from time to time (the "Act"), the
Members agree to form and hereby form the Company by entering into this
Agreement. The Members hereby acknowledge that a Certificate of Formation has
been executed by an authorized person (as such term is used in Section 18-201 of
the Act), and filed in the office of the Delaware Secretary of State on the date
hereof. The execution and filing of such Certificate of Formation with the
Delaware Secretary of State is hereby authorized, ratified and approved by the
Members. The rights, liabilities and obligations of any Member with respect to
the Company shall be determined in accordance with the Act and this Agreement.
To the extent anything contained in this Agreement modifies, supplements or
otherwise affects any such right, liability, or obligation arising under the
Act, this Agreement shall supercede the Act to the extent not restricted
thereby.
Section 2.2 Name; Registered Agent and Registered Office. The
name of the Company and the name under which the business of the Company shall
be conducted shall be Lexington Acquiport Company II, LLC. The registered agent
of the Company shall be The Corporation Trust Company, and the registered office
of the Company shall be at Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle, Delaware. The Manager may select
another such registered agent or registered office from time to time upon ten
(10) Business Days prior written notice thereof to, and the consent of, the
Members.
Section 2.3 Principal Office. The principal place of business and
office of the Company shall be located at 355 Lexington Avenue, New York, New
York 10017-6603, or at such other place as the Members may determine from time
to time. The business of the Company may also be conducted at such additional
place or places as the Members may determine.
Section 2.4 Purposes and Business.
(a) Properties. The business of the Company is to acquire,
finance, refinance, hold for investment, preserve, manage, operate,
improve, lease, sell, exchange, transfer and otherwise use or dispose of
the Tranche II Properties as may be acquired by the Company from time to
time pursuant to the terms hereof, which Tranche II Properties may be
located anywhere in the United States and shall not be used primarily for
agricultural, horticultural, ranch, mining, recreational, amusement or
club purposes. In connection therewith and without limiting the
foregoing, the Company shall have the power to dispose of the Tranche II
Properties in accordance with the terms of this Agreement and to engage
in any and all activities related or incidental thereto, all for the
benefit of the Members.
(b) Tranche II LSL Loans. The business of the Company is also to
make Tranche II LSL Loans and, through the exercise of Warrants, to
acquire equity interests in Special Purpose LLCs that own Tranche II LSL
Properties. In connection therewith and without limiting the foregoing,
the Company shall have the power to engage in any and all activities
related or incidental thereto, all for the benefit of the Members.
14
Section 2.5 Term. The term of the Company shall commence on the
date of this Agreement and shall continue in full force and effect until ten
(10) years from the date hereof, unless sooner terminated pursuant to the terms
hereof. No Member may withdraw from the Company without the prior consent of the
other Member, other than as expressly provided in this Agreement.
Section 2.6 Other Qualifications The Company shall file or record
such documents and take such other actions under the laws of any jurisdiction in
which the Company does business as are necessary or desirable to permit the
Company to do business in any such jurisdiction and to promote the limitation of
liability for the Members in any such jurisdiction.
Section 2.7 Limitation on the Rights of Members. Except as
otherwise specifically provided in this Agreement, (a) no Member shall have the
right to withdraw or retire from, or reduce its contribution to the capital of,
the Company; (b) no Member shall have the right to demand or receive property
other than cash in return for its Tranche II Capital Contribution; and (c) no
Member shall have priority over any other Member either as to the return of its
Tranche II Capital Contribution or as to profits or distributions.
ARTICLE III
MANAGEMENT RIGHTS, DUTIES,
AND POWERS OF THE MANAGER;
TRANSACTIONS INVOLVING MEMBERS
Section 3.1 Management.
(a) Management by the Manager. LXP shall be the Manager until LXP
(x) transfers its membership interest in the Company or withdraws as a
Member from the Company, (y) transfers or assigns its rights and
obligations as the Manager or resigns as the Manager, or (z) is removed
as the Manager, each as provided in Article VIII hereof. The Manager
shall manage the investments, business and day-to-day affairs of the
Company and shall be responsible for acquisitions and dispositions of
Tranche II Properties and the making and managing of Tranche II LSL
Loans, subject, however, to the provisions of Section 3.4 hereof with
respect to Major Decisions, of Section 3.6 and Section 3.7 hereof with
respect to the acquisition or sale of Tranche II Properties, the making
of Tranche II LSL Loans and any other provisions of this Agreement
concerning the investments, business and day-to-day affairs of the
Company. The Manager shall use reasonable efforts to manage the
investments, business and day-to-day affairs of the Company in accordance
with the Annual Plan approved in accordance with Section 3.5 hereof.
Except as provided in this Agreement, the Manager shall have all the
rights and powers of a manager as provided in the Act and as otherwise
provided by law, and any action taken by the Manager shall constitute the
act of and serve to bind the Company. The Manager may delegate certain of
the tasks that are to be performed in connection with the acquisition of
properties, the management of the Tranche II Properties, the making and
managing of Tranche II LSL Loans or the business and day-to-day affairs
of the Company. Any such delegation to third parties provided in the
previous sentence shall be supervised by the Manager and such delegation
shall not relieve the Manager of any of its obligations hereunder. Any
right of either of the Members to consent to any
15
action requiring its consent hereunder shall not be diminished or
otherwise affected by such delegation.
(b) Delegation to the Asset Manager. LXP in its capacity as
Manager shall have the right to retain the Asset Manager and delegate
(pursuant to Section 3.1(a) above) to the Asset Manager any of the
following duties and responsibilities: the management of the Tranche II
Properties and Tranche II LSL Loans and the performance of the tasks
necessary for the evaluation of Proposed Tranche II Properties and the
acquisition of Approved Tranche II Properties or the making of Tranche II
LSL Loans as contemplated in Section 3.6 hereof. The Asset Manager shall
be qualified to do business in all jurisdictions in which the Company
does business or owns properties or in which Tranche II LSL Properties
are located. If LXP in its capacity as Manager elects to retain the Asset
Manager, the Company and the Asset Manager shall enter into a Management
Agreement substantially in the form attached hereto as Exhibit B and made
a part hereof. The Manager may replace the Asset Manager at any time and
from time to time, provided that as a condition to such replacement of
the Asset Manager, (x) the Fund and the Advisor shall have received
written notice of such replacement and (y) the replacement Asset Manager
shall have entered into an agreement substantially in the form attached
hereto as Exhibit B. Any other property management or operating agreement
between the Company and any Asset Manager shall be acceptable to the
Members and shall by its terms terminate without penalty at the election
of the Fund upon five (5) Business Days' written notice to such Asset
Manager if LXP is removed as Manager. The Asset Manager shall have no
interest in or rights under this Agreement, shall not be admitted as a
substitute for LXP and shall not have any of the rights of a Member under
the Act or this Agreement. The Asset Manager may be authorized to perform
such tasks of the Manager specified in Section 3.3 hereof that LXP in its
capacity as Manager reasonably deems necessary or appropriate in
connection with the management of the Tranche II Properties and Tranche
II LSL Loans, the evaluation of Proposed Tranche II Properties or the
acquisition of Approved Tranche II Properties or the making of Tranche II
LSL Loans, but in all cases in accordance with the Annual Plan and the
requirements of Section 3.4, Section 3.6 and Section 3.7 hereof and any
other provisions of this Agreement concerning the investments, business
and affairs of the Company. The Asset Manager shall not have the
authority to execute or deliver documents on behalf of the Company or to
bind the Company, except as expressly set forth in the Management
Agreement between the Company and the Asset Manager. Notwithstanding
anything to the contrary contained in Section 3.3 hereof, the Asset
Manager shall not have any authority to borrow or draw down funds or
finance or refinance any part of any purchase price or incur indebtedness
secured by any Tranche II Property or any unsecured indebtedness. Any
delegation to the Asset Manager provided in this Section 3.1(b) shall be
supervised by LXP in its capacity as Manager and such delegation shall
not relieve LXP of any of its obligations hereunder as Manager.
(c) Right to Rely on Authority of the Manager. Any action taken by LXP in
its capacity as Manager, acting on behalf of the Company pursuant to the
authority conferred thereon in this Agreement, shall be binding on the
Company. In no event shall any Person dealing with LXP with respect to
the conduct of the affairs of the Company while LXP is the Manager be
obligated to ascertain whether the terms of this Agreement have
16
been complied with, or be obligated to inquire into the necessity or
expediency of any action of LXP.
(d) No Management by Fund. The Fund shall have the authority to
approve the Annual Plan and to approve Major Decisions. The Fund shall
also have the authority to consent to certain acts of the Manager, the
Asset Manager and the Company, in each case as and to the extent provided
in this Agreement. The Fund shall not participate in the control of the
business of the Company or transact any business for the Company or have
the power to sign documents for or otherwise bind the Company and shall
not perform and shall have no authority to perform any act, thing or deed
in the name of or on behalf of the Manager, the Asset Manager or the
Company (except appointment of a replacement Manager pursuant to Section
8.3(a)). The Fund may give any consents, approvals or other
authorizations described in this Agreement without being deemed to have
participated in the control of the Company.
Section 3.2 Meetings of the Members
(a) Meetings of the Members. The Members of the Company may hold
meetings, both regular and special, within or outside the State of
Delaware. Regular meetings of the Members shall be held at least annually
with written notice to the Members at such time and at such place as
shall from time to time be reasonably determined by the Manager subject
to consent by the Members. Regular or special meetings of the Members may
be called by either Member on not less than ten (10) Business Day's
written notice to the other Member. The Advisor may attend meetings of
the Members but shall not vote on behalf of the Fund.
(b) Acts of the Members. All Members must be present at any
meeting of the Members, and all acts of the Members must be approved by
an unanimous vote of the Members. Each Member present at a meeting and
entitled to participate in such meeting shall be entitled to one vote
with respect to any action. If any Member shall not be present at any
meeting of the Members, the other Member present at such meeting shall
adjourn the meeting from time to time, without notice other than
announcement of the date and location of the adjourned meeting, until all
Members shall be present. Any action required or permitted to be taken at
any meeting of the Members may be taken without a meeting if all Members
consent thereto in writing, and the writing or writings are filed with
the minutes of such proceedings of the Members.
(c) Electronic Communication. Members may participate in meetings
of the Members by means of telephone conference or similar communications
equipment that allows all persons participating in the meeting to hear
each other, and such participation in a meeting shall constitute presence
in person at the meeting. If all the participants are participating by
telephone conference or similar communications equipment, the meeting
shall be deemed to be held at the principal place of business of the
Company.
(d) Authorized Representatives. Prior to the first annual meeting
of the Members and prior to the time the Fund casts a vote, the Fund
shall deliver to LXP a list of individuals who are authorized to attend
meetings of the Members and to cast votes on
17
behalf of the Fund and shall update such list to reflect any changes in
authorized individuals. LXP shall deliver to the Fund an incumbency
certificate naming all of LXP's executive officers and shall replace such
certificate whenever there is a change in LXP's executive officers. LXP's
executive officers are authorized to attend meetings of the Members and
to cast votes on behalf of LXP.
(e) Informational Meetings. The Manager shall hold informational
meetings with the Members and the Advisor to review and discuss the
Company's activities and business upon ten (10) Business Days' prior
written notice by any Member. The Fund may, but shall not be obligated
to, attend informational meetings that are attended by the Advisor. Such
meetings shall be held at a mutually convenient time at the New York City
offices of LXP or the Fund unless the Members otherwise agree. LXP, the
Fund and the Advisor may each designate any number of representatives to
attend such meetings.
Section 3.3 Authority of the Manager. Except as otherwise
provided in this Article III, the Manager is hereby authorized to do the
following, for and in the name and on behalf of the Company, as may be
necessary, convenient or incidental to the implementation of the Annual Plan or
to the accomplishment of the purposes of the Company; provided, that if any of
the following constitutes a Major Decision that is not specifically set forth in
the Annual Plan, the Manager shall first obtain the consent of the Fund pursuant
to Section 3.4 hereof:
(i) acquire by purchase, exchange or otherwise, any
Proposed Tranche II Property consistent with the purposes of the Company,
but only in accordance with Section 3.6 hereof;
(ii) operate, manage and maintain each of the Tranche II
Properties;
(iii) take such action as is necessary to form, create
or set up any SP Subsidiary that has been approved by the Members in
accordance with Section 3.6 hereof;
(iv) dissolve, terminate or wind-up any SP Subsidiary,
provided that any Tranche II Property held by such SP Subsidiary has been
disposed of in accordance with Section 3.7 or Section 11.1 hereof or
transferred to the Company or any other SP Subsidiary;
(v) enter into, amend, extend or renew any lease of any
Tranche II Property or any part thereof or interest therein approved by
the Members as part of the Annual Plan;
(vi) initiate legal proceedings or arbitration with
respect to any lease of any Tranche II Property or part thereof or
interest therein; provided that the initiation of such legal proceedings
or arbitration shall have arisen (x) in connection with any matter of an
emergency nature, (y) for the collection of rent or (z) involving an
uninsured claim of less than $100,000;
18
(vii) dispose of any or all of the Tranche II Properties
by sale, lease, exchange or otherwise, and grant an option for the sale,
lease, exchange or otherwise of any or all the Tranche II Properties, but
only in accordance with Section 3.7 hereof;
(viii) employ and dismiss from employment any and all
employees, agents, independent contractors and, subject to Section 4.9
hereof, attorneys and accountants for the Company;
(ix) pay all Permitted Expenses;
(x) execute and deliver any and all agreements,
contracts, documents, certifications and instruments necessary or
convenient in connection with the management, maintenance and ownership
of the Tranche II Properties and in connection with any other matters
with respect to which the Manager has authority to act pursuant to the
Annual Plan or as set forth in this Section 3.3;
(xi) draw down funds as needed under any approved lines
of credit or other financing previously approved under Section 3.4
hereof;
(xii) subject to Section 3.4 hereof, finance or
refinance a portion of the purchase price of any Tranche II Property and
incur (and refinance) indebtedness secured by any Tranche II Property, or
any portion thereof or any interest or estate therein and incur any other
secured or unsecured borrowings or other indebtedness;
(xiii) make Tranche II LSL Loans, but only in accordance
with Section 3.6(i) hereof, and manage Tranche II LSL Loans;
(xiv) implement those Major Decisions that are
specifically set forth in the Annual Plan or that have been approved by
the Fund pursuant to Section 3.4 below; and
(xv) subject to any conditions expressly provided in
this Agreement, engage in any kind of activity and perform and carry out
contracts of any kind necessary or incidental to or in connection with
the accomplishment of the purposes of the Company as may be lawfully
carried out or performed by a limited liability company under the laws of
each state in which the Company is then formed or registered or qualified
to do business.
Section 3.4 Major Decisions. Notwithstanding anything to the
contrary contained in this Agreement, the Manager shall not take, on behalf of
the Company, and shall not permit the Company or the Asset Manager to take, any
action, make any decision, expend any sum or undertake or suffer any obligation
which comes within the scope of any Major Decision unless such Major Decision is
approved by the Fund in advance in writing (including any written approval
delivered at a meeting in accordance with Section 3.2 hereof) or is specifically
set forth in the Annual Plan. As used herein, "Major Decision" shall mean a
decision to take any of the following actions:
19
(i) the acquisition by purchase, exchange or otherwise
of any Tranche II Property except in accordance with Section 3.6 hereof;
(ii) the disposition by sale, lease, exchange or
otherwise, and the granting of an option for the sale, lease, exchange or
other disposition of any or all of the Tranche II Properties except in
accordance with Section 3.7(b) and Section 11.1 hereof;
(iii) the financing or refinancing of, or the increasing
of any mortgage indebtedness encumbering, any Tranche II Property, or any
portion thereof or any interest or estate therein, whether recourse or
non-recourse to the Company, or the incurrence of indebtedness secured by
any Tranche II Property, or any portion thereof or any interest or estate
therein, or the incurrence of any other secured or unsecured borrowings
or other indebtedness by the Company, including determination of the
terms and conditions thereof, and any amendments to such terms and
conditions except as contemplated in an Annual Plan or in accordance with
Section 3.4 hereof;
(iv) the formation, creation or setting up of any SP
Subsidiary except in accordance with Section 3.6 hereof;
(v) the making of any loan except in accordance with
Section 3.6(i);
(vi) the determination of the gross Fair Market Value of
any Tranche II LSL Property in connection with the exercise of a Put
Option, and the selection by the Company of an appraiser in connection
therewith;
(vii) the consent by the Company to any Transfer of a
Tranche II LSL Property by the corresponding Special Purpose LLC or any
other consent or approval that the Company is requested to grant as
lender of any Tranche II LSL Loan;
(viii) the entering into of any transaction or agreement
with or for the benefit of, or the employment or engagement of, LXP or
any Affiliate of LXP, or the Manager or any Affiliate of the Manager or
the Asset Manager or any Affiliate of the Asset Manager, except as
expressly contemplated in Sections 3.1(b) and 3.10 hereof;
(ix) the causing or permitting of an encumbrance of any
Tranche II Percentage Interest or any portion thereof;
(x) an Extraordinary Call to the Members to fund an
operating deficit of the Company, which Extraordinary Call shall be made
only in accordance with Section 5.1(c) hereof;
(xi) the construction, alteration, improvement, repair,
rehabilitation, razing, rebuilding or replacement of any building or
other improvements or the making of any capital improvements,
replacements, repairs, alterations or changes in, to or on any Tranche II
Property, or any part thereof, except to the extent provided for in the
Annual Plan; provided that repairs of emergency nature may be undertaken
without prior approval of the Fund provided the Manager notifies the
Advisor in writing thereof within two (2) Business Days following the
commencement of such emergency repairs;
20
(xii) the incurring of any cost or expense for any
fiscal year which, (x) when added to all other costs and expenses for
such fiscal year, exceeds the applicable budget line in the Annual Budget
portion of the Annual Plan by the greater of Twenty Thousand Dollars
($20,000) or five percent (5%) thereof or, (y) when added to all other
costs and expenses in excess of their applicable budget line items in the
Annual Budget portion of the Annual Plan, exceeds (i) One Hundred
Thousand Dollars ($100,000) in any fiscal year for any Tranche II
Property or (ii) an average (taking into account all Tranche II
Properties then owned by the Company) of Fifty Thousand Dollars ($50,000)
per Tranche II Property; provided that, notwithstanding the foregoing,
repairs of emergency nature may be undertaken without prior approval of
the Fund provided the Manager notifies the Advisor in writing thereof
within two (2) Business Days following the commencement thereof;
(xiii) the incurring of any expense other than a
Permitted Expense; provided that, notwithstanding the foregoing, repairs
of emergency nature may be undertaken without prior approval of the Fund
provided the Manager notifies the Advisor in writing thereof within two
(2) Business Days following the commencement thereof;
(xiv) the reinvestment for restoration purposes of (i)
insurance proceeds in excess of $500,000 received by the Company in
connection with the damage or destruction of any Tranche II Property or
(ii) condemnation proceeds in excess of $500,000 received by the Company
in connection with the taking or settlement in lieu of a threatened
taking of all or any portion of any Tranche II Property; provided that
(x) if the determination is made not to reinvest any such insurance or
condemnation proceeds, then so much thereof as may be necessary shall be
applied to the razing or other disposition of the remaining improvements
as may be required by law or by a reasonably prudent property manager and
the balance of such insurance or condemnation proceeds shall be
distributed in accordance with this Agreement and (y) any reinvestment of
insurance or condemnation proceeds that is contractually required under
any lease or the terms of any financing or refinancing of a Tranche II
Property approved in each case by the Members shall not be a Major
Decision subject to this Section 3.4;
(xv) the approval of the Annual Plan;
(xvi) the initiation of legal proceedings or arbitration
with respect to any lease of any Tranche II Property or part thereof or
interest therein; provided that the initiation of such legal proceedings
or arbitration (x) in connection with any matter of an emergency nature,
or (y) for the collection of rent, shall not be a Major Decision subject
to this Section 3.4;
(xvii) the commencement of any litigation by the Company
or the settlement of any litigation against the Company involving an
uninsured claim of $100,000 or more;
(xviii) the commencement of any case, proceeding or
other action seeking protection for the Company as debtor under any
existing or future law of any jurisdiction relating to Bankruptcy,
insolvency, reorganization or relief of debtors; any consent to the
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entry of an order for relief in or institution of any case, proceeding or
other action brought by any third party against the Company as a debtor
under any existing or future law of any jurisdiction relating to
Bankruptcy, insolvency, reorganization or relief of debtors; the filing
of an answer in any involuntary case or proceeding described in the
previous clause admitting the material allegations of the petition
therefor or otherwise failing to contest any such involuntary case or
proceeding; the seeking of or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator, custodian or any similar
official for the Company or for a substantial portion of its Tranche II
Properties; any assignment for the benefit of the creditors of the
Company; or the admission in writing that the Company is unable to pay
its debts as they mature or that the Company is not paying its debts as
they become due;
(xix) with respect to any lease of any Tranche II
Property, or part thereof or interest therein, the entering into,
amending, extending or renewing thereof, in each case not already
approved by the Members as part of the Annual Plan;
(xx) the execution of any agreement, contract,
understanding or other arrangement to effectuate a Major Decision;
provided that the execution of a non-binding letter of intent in
accordance with Section 3.6(a) hereof shall not be a Major Decision
subject to this Section 3.4;
(xxi) the extension of the statute of limitations for
assessing or computing any tax liability against the Company or the
amount of any Company tax item or to settle any dispute with respect to
any income, or any other material, tax; and
(xxii) any other action which requires the consent or
approval of the Fund under this Agreement.
Section 3.5 Preliminary and Annual Plans.
(a) Preparation and Approval of Plans. The Manager shall prepare
and deliver to the Members and the Advisor for the Members' approval or
disapproval a proposed annual plan for the next fiscal year of the
Company (as further described below, a "Proposed Plan"). The Proposed
Plan shall cover the Company, each Tranche II Property and each Tranche
II LSL Loan and shall include: a proposed Annual Budget covering the
Company, each Tranche II Property and each Tranche II LSL Loan and a
brief narrative description of the material portions thereof; a plan of
operations for each Tranche II Property, including anticipated repairs
and improvements; estimated financing needs and estimated financing
costs; estimated cash flow projections; a description of tenants then in
occupancy in each Tranche II Property; a schedule of Tranche II
Properties, any leases which are expiring during such fiscal year and the
plans for the re-leasing of such Tranche II Properties and any lease
restructures (such as subleasing or expansion by a tenant) of which the
Manager is aware; projected capital improvements and capital repairs; a
description of any Proposed Tranche II Properties to the extent
identified, including the terms of acquisition, provided that nothing in
the Proposed Plan shall affect or limit the provisions of Section 3.6
hereof; a statement as to the status of any Tranche II LSL Loans made to
the date of such Proposed Plan, including whether
22
such Tranche II LSL Loans are current and the status of the net leases on
the related Tranche II LSL Property, and a description of any Tranche II
LSL Loans to be made in the next year; and any other information relative
to the management of the Tranche II Properties or the Tranche II LSL
Loans or the Company reasonably requested by either of the Members. The
Manager shall prepare and submit a Proposed Plan to the Members and the
Advisor on or before September 15th of the year prior to such fiscal
year. Each Member shall provide the Manager with any comments or
requested changes such Member may have to such Proposed Plan within
fifteen (15) days after its receipt thereof. The Manager shall submit a
revised Proposed Plan to the Members and the Advisor incorporating or
otherwise addressing the Member's requested changes no later than October
15th of the year prior to the fiscal year covered by such revised
Proposed Plan; provided that if a Member provides comments on a Proposed
Plan to the Manager on any date after October 1st, then the Manager's
deadline for submitting a revised Proposed Plan as described in this
sentence shall be extended one day for each day after October 1st that
such Member shall have delayed providing comments to the Manager. Each
Member shall approve or disapprove such revised Proposed Plan within
fifteen (15) days after its receipt thereof. Any Proposed Plan approved
by the Members in accordance with this Section 3.5(a) shall become the
annual plan for the next fiscal year of the Company (any Proposed Plan
approved by the Members for any fiscal year of the Company, and as may be
amended from time to time by a Plan Amendment in accordance with Section
3.5(c) hereof, an "Annual Plan"). A model of an Annual Plan is attached
as Schedule 3.5 and made a part hereof.
(b) Dispute Concerning an Annual Budget. If, prior to the
commencement of any fiscal year, the Manager and the Members have not
reached an agreement as to the amount to be allocated to any budget line
item set forth in the Annual Budget portion of the Proposed Plan for such
fiscal year, then (i) as to any such disputed budget line item, the
Annual Budget portion of the Annual Plan for the immediately preceding
fiscal year (exclusive of any non-recurring capital expenditures) shall
be controlling but only with respect to such disputed budget line item
(in each case adjusted to reflect the increases in the CPI for September
of such fiscal year over the CPI for September of such immediately
preceding fiscal year) and only until such time as the Manager and the
Members reach an agreement on the amount to be allocated to such budget
line item, and (ii) as to any budget line item or items that are not in
dispute, the Annual Budget portion of the Proposed Plan shall control.
(c) Amendments to Annual Plans. If in any Member's judgment an
Annual Plan requires amendment, such Member (the "Amending Member") shall
deliver to the other Member (and, if the Amending Member is LXP, to the
Advisor) and to the Manager a written notice setting forth the proposed
amendment to the Annual Plan and the basis therefor. The Non-Amending
Member shall approve or disapprove such proposed amendment within ten
(10) Business Days after receipt thereof, and, upon approval by such
non-Amending Member (any such amendment, a "Plan Amendment"), the Annual
Plan (including, without limitation any amendments to the Annual Budget
portion thereof) shall be amended by the Plan Amendment as set forth in
the written notice described in the preceding sentence.
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Section 3.6 Tranche II Property Acquisitions.
(a) Generally; Approval by the Fund. The Manager shall originate
net-leased properties as candidates for acquisition by the Company or as
candidates for Tranche II LSL Loans to be made by the Company to LXP LLCs
in connection with the acquisition of Tranche II LSL Properties (any such
property, a "Proposed Tranche II Property") and shall consult regularly
with the Advisor regarding each Proposed Tranche II Property. The Manager
or Asset Manager may, with the consent of the Advisor, enter into a
non-binding letter of intent concerning the acquisition of a Proposed
Tranche II Property. After entering into a good faith non-binding letter
of intent with respect to a Proposed Tranche II Property and performing
such underwriting and other property analysis as the Manager deems
appropriate with respect thereto, the Manager or Asset Manager shall
submit to the Advisor and the LXP Board any Proposed Tranche II Property
that the Manager recommends for acquisition by the Company or a Special
Purpose LLC. Upon approval of the Proposed Tranche II Property by the LXP
Board, the Manager shall provide or cause the Asset Manager to provide to
the Advisor and the Fund notice of such approval, the Acquisition
Memorandum described in Section 3.6(b) hereof and the Acquisition
Parameters Checklist described in Section 3.6(c) hereof; provided however
that the Manager shall not recommend to the Members the acquisition of
any Proposed Tranche II Property that does not satisfy or comply with the
Acquisition Parameters set forth in Parts 2 and 3 of the Acquisition
Parameters Checklist. The Fund shall have fifteen (15) Business Days
after its receipt of the documents described in the preceding sentence to
approve or disapprove, in its sole and absolute discretion, a Proposed
Tranche II Property. If the Fund fails to respond to the Manager's
recommendation within such fifteen (15) Business Days, the Manager may
send to the Fund and the Advisor a second notice requesting a response
within ten (10) Business Days after actual receipt by the Fund and the
Advisor. Any failure by the Fund to approve a Proposed Tranche II
Property within such ten (10) Business Day period shall be deemed to be a
disapproval of such Proposed Tranche II Property.
(b) Acquisition Memorandum. For each Proposed Tranche II
Property, the Manager or Asset Manager shall deliver to the Fund and the
Advisor an Acquisition Memorandum stating that such Proposed Tranche II
Property is a net-leased facility and describing such Proposed Tranche II
Property in reasonable detail, including without limitation: the size and
location thereof, the improvements thereon, the operating history and
financial status thereof and the material findings of all due diligence
undertaken to date with respect thereto, including the material findings
to date of any Environmental Assessment and/or Physical Inspection
Report; the structure of the contemplated transaction, including whether
an SP Subsidiary will take title to the Proposed Tranche II Property or
whether a Tranche II LSL Loan will be made by the Company in connection
with the acquisition of such Proposed Tranche II Property by a Special
Purpose LLC in accordance with Section 3.6(i) hereof, the cost to the
Company, including the purchase price, the amount and material terms of
any mortgage indebtedness to be assumed, incurred or taken subject to or
the amount and terms of the Tranche II LSL Loan; the terms of the
Disposition Fee; and the material provisions of the net lease or leases
thereon and copies of such leases (or in the case of proposed leases,
drafts or reasonably detailed abstracts of proposed leases), the
identification of each tenant thereon and financial
24
information relating to each such tenant and setting forth such other
information as the Advisor may reasonably request. The Acquisition
Memorandum shall include a credit analysis of any tenant net-leasing such
property, including the credit rating of any such tenant by Standard &
Poor's, Moody's Investors Services, Inc., Duff & Phelps Credit Rating Co.
or Fitch IBCA, or, if a credit rating of any such tenant is not available
from the foregoing credit-rating companies, a credit analysis thereof by
KDP or any other credit rating entity agreed to by the Members.
(c) Acquisition Checklist. With respect to any Proposed Tranche
II Property that complies in all respects with the Acquisition
Parameters, the Manager or Asset Manager shall deliver to the Fund and to
the Advisor the Acquisition Parameters Checklist indicating that such
Proposed Tranche II Property complies in all respects therewith. With
respect to any Proposed Tranche II Property that does not comply in all
respects with the Acquisition Parameters set forth in Part 1 of the
Acquisition Parameters Checklist and that the Manager elects to submit to
the Fund for approval pursuant to Section 3.6(a) hereof, the Manager or
Asset Manager shall deliver to the Fund and the Advisor, (x) the
Acquisition Parameters Checklist indicating the items in Part 1 with
which such Proposed Tranche II Property either complies or fails to
comply and (y) a reasonably detailed description of the ways in which
such Proposed Tranche II Property does not comply with said Part 1. Any
Proposed Tranche II Property that does not comply with the Acquisition
Parameters set forth in Part 4 of the Acquisition Parameters may only be
acquired by a Special Purpose LLC in accordance with Section 3.6(i).
(d) Acquisition of Approved Tranche II Properties. Upon receipt
of the written approval of the Fund as provided in Section 3.6(a) above
of the acquisition by the Company of a Proposed Tranche II Property or
the making of a Tranche II LSL Loan by the Company to a LXP LLC to
finance the acquisition of a Proposed Tranche II Property (any Proposed
Tranche II Property so approved, an "Approved Tranche II Property"), the
Manager or Asset Manager shall take all commercially reasonable efforts
on behalf of the Company to negotiate and execute all documents necessary
to acquire the Approved Tranche II Property pursuant to and in accordance
with the terms approved by the Members (including formation of an SP
Subsidiary, if applicable) or to make the Tranche II LSL Loan and to
complete due diligence that the Manager deems reasonably necessary,
including (to the extent not already completed) obtaining an
Environmental Assessment and a Physical Inspection Report. The Manager or
Asset Manager shall keep LXP and the Advisor reasonably informed of the
progress of the Company's acquisition of any Approved Tranche II Property
or making of any Tranche II LSL Loan, including the material findings of
all due diligence and of any material matters that arise during the
course thereof. Upon completion of all due diligence undertaken as
specified above with respect to an Approved Tranche II Property and as a
condition to completing the acquisition of the Approved Tranche II
Property or making of any Tranche II LSL Loan, the Manager or Asset
Manager shall deliver to LXP and the Advisor a memorandum summarizing the
material findings of the completed due diligence and any changes in the
status of such Approved Tranche II Property since the date of the
Acquisition Memorandum described in Section 3.6(b) above. Upon request,
the Manager or Asset Manager will provide to LXP, the Fund or the Advisor
copies of the Environmental Assessment, the Physical Inspection Report
and the survey after completion thereof.
25
Notwithstanding such deliveries, the Manager and Asset Manager shall
remain solely responsible for such due diligence, and neither the Fund
nor the Advisor shall be obligated to read or review such memorandum,
Environmental Assessment, Physical Inspection Report or Survey. The Fund
shall have the right to withdraw its approval of any Approved Tranche II
Property at any time if the terms of the acquisition change in any
material respect from the terms described in the Acquisition Memorandum.
Within five (5) Business Days after the closing of an Approved Tranche II
Property or Tranche II LSL Loan, the Manager shall deliver to LXP and the
Advisor (x) a closing statement acknowledging the receipt of and setting
forth the application of the Members' Tranche II Capital Contributions
and any other funds of the Company used to acquire such Approved Tranche
II Property or to make such Tranche II LSL Loan or to pay closing costs
(including an estimate of costs not finalized at closing, including legal
fees and costs) associated therewith and (y) copies of all certificates
of insurance delivered in connection with such closing as requested by
the Fund or the Advisor.
(e) Disapproved Tranche II Properties. If the Fund disapproves
(or is deemed to have disapproved as provided in Section 3.6(a) hereof)
any Proposed Tranche II Property or withdraws its approval of an Approved
Tranche II Property as provided in Section 3.6(d) above, the Manager
shall not cause or permit the Company to acquire such Proposed Tranche II
Property or Approved Tranche II Property or cause or permit the Company
to make a Tranche II LSL Loan, and LXP shall have the right to acquire
such Proposed Tranche II Property or Approved Tranche II Property for its
own account or with or in connection with any other Person.
(f) Acquisition Costs. Except as provided in the following
sentence and in Section 3.6(g) hereof, LXP or the Asset Manager (as the
case may be) shall be liable for all costs and expenses arising in
connection with the identification or evaluation of, the bidding on and
the structuring and negotiation of the acquisition or attempted
acquisition of, any Proposed Tranche II Property or Approved Tranche II
Property or the making of any Tranche II LSL Loan (such activities, the
"Acquisition Activities"). The Company shall be liable for all reasonable
and customary costs and expenses of Third Parties retained in connection
with the Acquisition Activities; provided that if for any reason other
than pursuant to Section 3.6(i) or Section 3.7(b) or Section 11.1 hereof
LXP or the Asset Manager, or any Affiliate of LXP or of the Asset Manager
(instead of the Company or an SP Subsidiary or a Special Purpose LLC)
acquires title to any Proposed Tranche II Property or Approved Tranche II
Property, LXP shall pay all of the costs and expenses incurred or to be
incurred in connection with the Acquisition Activities relating to such
Proposed Tranche II Property or Approved Tranche II Property (it being
understood that the proviso in this sentence applies only in those
circumstances in which LXP or the Asset Manager or any Affiliate of LXP
or the Asset Manager (rather than the Company or an SP Subsidiary)
acquires a Proposed Tranche II Property or an Approved Tranche II
Property and therefore LXP would not pay such costs and expenses in the
case of LXP's exercise of the Right of First Refusal or a buy/sell under
this Agreement).
(g) The Acquisition Fee; Financing Fee. Upon the acquisition of
any Approved Tranche II Property by the Company or by an SP Subsidiary
(including any Approved Tranche II Property contributed in whole or in
part by LXP to the Company) or upon the
26
making by the Company of a Tranche II LSL Loan to an LXP LLC, pursuant to
this Section 3.6 (including any Tranche II LSL Loan related to a Tranche
II LSL Property acquired by a Special Purpose LLC from LXP), the Company
shall pay the Manager or the Asset Manager an acquisition fee (the
"Acquisition Fee") equal to (x) the purchase price of such acquired
Approved Tranche II Property multiplied by (y) three quarters of one
percent (0.75%). In addition, if the Asset Manager shall arrange
financing for the purchase of an Approved Tranche II Property without the
use of a third-party broker then the Company shall pay the Asset Manager
a fee equal to one half of one percent (0.50%) of the loan amount
arranged (the "Financing Fee").
(h) Further Restrictions on Acquisitions. Under no circumstances
whatsoever shall the Company acquire (other than indirectly through the
exercise of a Warrant pursuant to Section 3.6(i)) any property (i) that
does not satisfy or comply with the Acquisition Parameters set forth in
Parts 2 and 3 of the Acquisition Parameters Checklist, (ii) that the Fund
would be prohibited by applicable law or public policy from acquiring if
the Fund were to make such acquisition directly in its own name or (iii)
that would give rise to UBTI, including any property that will fail to
qualify as real property of a qualified organization within the meaning
of Section 514(c)(9) of the Code (and any Regulations promulgated
thereunder) by virtue of the application of any of the exceptions
contained in subparagraph (B) thereof, including, but not limited to, (x)
the acquisition price of such property not being a fixed amount
determined as of the date of the acquisition, (y) the amount or time for
paying any indebtedness on or related to such property being dependent
upon any revenue derived from such property, or (z) such property being
leased back to the seller (or any related person) of such property, or
(iv) except as otherwise expressly authorized in this Agreement, the
acquisition of which would be prohibited under Section 406(b) of the
Employee Retirement Income Security Act of 1974, as amended (assuming
that the Fund and its investments were subject thereto), or (v) that is
or will be subject to any leases that would not be treated at "true
leases" for federal income tax purposes.
(i) Tranche II LSL Loans. The Company shall not directly acquire
or own any Tranche II LSL Property, but shall, if the Members elect, make
Tranche II LSL Loans in accordance with Schedule 3.6(i) hereto. If the
Members elect to make a Tranche II LSL Loan, the related Tranche II LSL
Property shall be acquired by a Special Purpose LLC in accordance with
the provisions of this Section 3.6 and Schedule 3.6(i) hereto. Unless and
until the Company exercises a Warrant to acquire, and does acquire, an
equity interest in a Special Purpose LLC, the Company shall not be liable
for any costs and expenses relating to the holding for investment,
preservation, management, operation, improvement, leasing, selling,
exchange or transfer of, the financing or refinancing of the First
Mortgage Loan with respect to, or any other use of, any Tranche II LSL
Property, except as expressly set forth in this Agreement. If the Company
makes one or more Tranche II LSL Loans, the Members agree that, with
respect to each Tranche II LSL Loan made by the Company, in the event of
default on a Tranche II LSL Note, the Members will agree to vote in favor
of the Company's exercise of its right to foreclose on the security
securing such Tranche II LSL Note unless there is clearly demonstrable
good cause for not doing so based on reasonable commercial standards of a
real estate investment creditor.
27
Section 3.7 Sale of Tranche II Properties; Right of First
Refusal.
(a) Authority to Sell. The Manager shall have no authority to and
shall not initiate the sale of any Tranche II Property without approval
by the Fund (except as provided in Section 3.7(b) and Section 11.1
hereof) and shall not exercise any Warrant to acquire membership
interests in any Special Purpose LLC without approval by the Fund. From
and after the earlier of (i) the Tranche II Rights Trigger Date and (ii)
the date on which the Company shall have invested all of the Members'
Tranche II Capital Commitment, the Fund or LXP may each require the sale
of any or all of the Tranche II Properties as provided in Section 3.7(b)
below, or the Fund may require the Company to call for prepayment of any
one or more Tranche II LSL Loans as provided in Paragraph 7(e)(i) of
Schedule 3.6(i) or may require the exercise of any Warrant or Put Option
(in accordance with its terms). Additionally, in the event that any Put
Option becomes exercisable prior to the Tranche II Rights Trigger Date,
or the date on which the Company shall have invested all of the Members'
Tranche II Capital Commitment, the Manager shall immediately notify the
Members, and the Fund shall have the right to require the Company to
exercise such Put Option.
(b) Required Sales; the Right of First Refusal. The Fund or LXP
shall each have the right, at any time after the earlier of (i) the
Tranche II Rights Trigger Date and (ii) the date on which the Company
shall have invested all of the Members' Tranche II Capital Commitment,
and from time to time thereafter, to require the Company to sell any or
all of the Tranche II Properties to a third party or parties, in each
instance by written notice (a "Sale Notice") to the other Member and to
the Manager; provided, however, that a Member's right to require a sale
under this Section 3.7(b) is subject to and limited by a Member's ability
to exercise its Right of First Refusal set forth below or its rights
under Section 11.1. Upon receipt of any Sale Notice, the Manager shall
commence promptly to market and sell to third parties on behalf of the
Company such Tranche II Property or Tranche II Properties specified in
the Sale Notice. If the Company receives a Bona Fide Offer, as defined
below, the Manager shall inform the Fund and LXP in writing of the terms
and conditions thereof and the Member that delivered the Sale Notice (the
"Sale Member") shall respond in writing as to whether it will accept or
reject such Bona Fide Offer within fifteen (15) days of receipt of such
notification from the Manager. If the Sale Member fails to respond in
writing within the above-referenced fifteen day period, the Sale Member
shall be deemed to have accepted such Bona Fide Offer. If the Sale Member
has accepted or has been deemed to have accepted such Bona Fide Offer,
the other Member (the "Non-Sale Member") or an Affiliate of the Non-Sale
Member shall have the absolute right to purchase such Tranche II Property
or Tranche II Properties upon the same terms and conditions as set forth
in such Bona Fide Offer for cash or its equivalent (such right, the
"Right of First Refusal"). The Non-Sale Member shall, within fifteen (15)
days after the Sale Member's decision to accept such Bona Fide Offer,
indicate in writing to the Sale Member whether or not the Non-Sale Member
has elected to exercise its Right of First Refusal. Failure to send such
notification within fifteen (15) days shall constitute an election by the
Non-Sale Member to waive its Right of First Refusal with respect to such
Tranche II Property and the Company may sell the Tranche II Property to
the third party making the Bona Fide Offer, but only (x) upon
substantially the same terms and conditions contained in such Bona Fide
Offer and (y) within one
28
hundred fifty (150) days after the Non-Sale Member waived its Right of
First Refusal. If the Non-Sale Member exercises its Right of First
Refusal, the Sale Member Fund shall consent to the sale of the Tranche II
Property or Tranche II Properties to the Non-Sale Member on substantially
the same terms and conditions contained in the Bona Fide Offer. A "Bona
Fide Offer" shall mean, with respect to the Tranche II Property or
Tranche II Properties described in the Sale Notice, an offer made in good
faith by a financially responsible, stable party having adequate
financial worth, not having a reputation in the community for criminal,
immoral or unconscionable behavior, and having substantial experience in
the ownership or operation of real property.
(c) Properties in Foreclosure. In the event a lender to the
Company has initiated or threatens to initiate a foreclosure proceeding
with respect to any Tranche II Property securing such lender's loan to
the Company (it being understood that any such loan shall be non-recourse
to the Company and the Members), and the Members disagree as to whether
such Tranche II Property shall be transferred to the lender in
satisfaction of such loan, the Member not in favor of such transfer shall
have the right to purchase such Tranche II Property from the Company for
One Dollar ($1.00) provided such Member assumes such loan in full and
such lender releases the Company therefrom. No adjustments to the Tranche
II Capital Contributions or Capital Account shall be made on account of a
transfer made in accordance with this Section 3.7(c).
(d) Tranche II LSL Properties. Notwithstanding anything in the
foregoing to the contrary, the disposition of Tranche II LSL Properties
shall be governed by the provisions contained in Schedule 3.6(i) hereto.
(e) Time of the Essence. The parties agree that time is of the
essence with respect to the rights and obligations described in this
Section 3.7.
Section 3.8 Limitation On Company Indebtedness.
(a) Maximum Debt. The total debt of the Company at any time shall
not exceed sixty-five percent (65%) of the Company's capitalization
which, when all Tranche II Capital Commitments have been fully
contributed, shall be $371,700,000 of maximum debt.
(b) Non-Recourse to the Members. Notwithstanding anything to the
contrary contained in this Agreement, the Company shall not incur debt
that is recourse to the Members, and the Members shall not be liable for
any debts or other obligations or liabilities incurred by the Company.
Section 3.9 Business Opportunity.
(a) LXP. LXP, any Affiliate of LXP and the Asset Manager may each
engage in or possess any interest in other business ventures of any kind,
independently or with others, including but not limited to the ownership,
operation and management of net-leased real property, except as provided
herein.
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(i) Prior to the expenditure of $750,000,000 by the Company and
LAC I in the aggregate for the purchase of (A) Tranche II
Properties and the making of Tranche II LSL Loans, and (B)
Properties and the making of LSL Loans (as each term is defined
in the LAC I Operating Agreement), LXP shall make available for
purchase by the Company, and the Company shall have the right to
purchase (or make Tranche II LSL Loans in respect of) pursuant to
Section 3.6 hereof, (s) all properties satisfying or complying
with the Acquisition Parameters set out on the Acquisition
Parameters Checklist net-leased to Investment Grade Tenants or
Non-Investment Grade Tenants that LXP or its Affiliates would be
willing to purchase or the LXP Board has approved for acquisition
by LXP or its Affiliates and the purchase price of which (as
agreed to by LXP and the seller of such property) is equal to or
greater than Twenty Million Dollars ($20,000,000) and (t) one
half of all properties satisfying or complying with the
Acquisition Parameters set out on the Acquisition Parameters
Checklist regardless of whether such properties are net-leased to
Investment Grade Tenants or Non-Investment Grade Tenants that LXP
or its Affiliates would be willing to purchase or the LXP Board
has approved for acquisition by LXP or its Affiliates and the
purchase price of which (as agreed to by LXP and the seller of
such property) is less than Twenty Million Dollars ($20,000,000)
but greater than or equal to Fifteen Million Dollars
($15,000,000). LXP may acquire (u) the properties it is required
to offer to the Company in accordance with this Section 3.9(a)(i)
only after the Fund or the Advisor has disapproved such
acquisitions or Tranche II LSL Loans as provided in Section 3.6
hereof and (v) properties that it is not required to offer to the
Company under this Section 3.9. Notwithstanding anything to the
contrary contained in this Section 3.9(a)(i), LXP or any
Affiliate of LXP may acquire any property (w) the seller of which
will accept only O.P. Units in exchange therefor and (x) the
purchase price of which (as agreed to by LXP and the seller of
such property) is less than Fifteen Million Dollars
($15,000,000). Additionally, if the Company elects not to acquire
any property (y) the seller of which will accept only O.P. Units
in exchange therefor and (z) the purchase price of which is
Fifteen Million Dollars ($15,000,000) or greater, LXP or an
Affiliate of LXP may acquire the property, provided the purchase
price is paid in O.P. Units; and
(ii) After the expenditure of $750,000,000 by the Company
and LAC I in the aggregate for the purchase of (A) Tranche II
Properties and the making of Tranche II LSL Loans, and (B)
Properties and the making of LSL Loans (as each term is defined
in the LAC I Operating Agreement), LXP shall make available for
purchase by the Company, and the Company shall have the right to
purchase (or make Tranche II LSL Loans in respect of) pursuant to
Section 3.6 hereof, fifty percent (50%) of all properties
satisfying or complying with the Acquisition Parameters set out
on the Acquisition Parameters Checklist regardless of whether
such properties are net-leased to Investment Grade Tenants or
Non-Investment Grade Tenants that LXP or its Affiliates would be
willing to purchase or the LXP Board has approved for acquisition
by LXP or its Affiliates, provided, the purchase price of such
Tranche II Property or the Tranche II LSL Loan (as agreed to by
LXP and the seller of such property) is greater than or equal to
Fifteen Million Dollars ($15,000,000).
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Notwithstanding the foregoing, the Company shall have no right to
purchase (or make Tranche II LSL Loans in respect of) pursuant to
Section 3.6 hereof or this Section 3.9(a), any Development Property
unless LXP, in its sole discretion, makes such property available for
purchase by the Company.
(b) The Fund. The Fund and any of its Affiliates may engage in or
possess any interest in other business ventures of any kind,
independently or with others, including but not limited to the ownership,
operation and management of net-leased real property.
(c) Duties and Conflicts. Subject to the Manager's obligation to
present net-leased properties to the Company pursuant to Section 3.6 and
Section 3.9(a) hereof, each Member recognizes that the other Member and
its Affiliates have or may have other business interests, activities and
investments, some of which may be in conflict or competition with the
business of the Company, and that such Persons are entitled to carry on
such other business interests, activities and investments. The Members
and their Affiliates may engage in or possess an interest in any other
business or venture of any kind, independently or with others, on their
own behalf or on behalf of other entities with which they are affiliated
or associated, and such Persons may engage in any activities, whether or
not competitive with the Company, without any obligation (except as
expressed in Sections 3.6 and 3.9(a)) to offer any interest in such
activities to the Company or to any Member. Neither the Company nor any
Member shall have any right, by virtue of this Agreement, in such
activities, or the income or profits derived therefrom, and the pursuit
of such activities, even if competitive with the business of the Company,
shall not be deemed wrongful or improper.
Section 3.10 Payments to LXP or the Asset Manager.
(a) Manager Expenses. The Manager shall pay (i) the salaries of
all of its officers and regular employees and all employment expenses
related thereto, (ii) general overhead expenses, (iii) record-keeping
expenses, (iv) the costs of the office space and facilities which it
requires, (v) the costs of such office space and facilities as the
Company reasonably requires, (vi) all out of pocket costs and expenses
incurred in connection with the management of the Tranche II Properties,
the Tranche II LSL Loans and the Company (other than Operating Expenses)
and (vii) costs and expenses relating to Acquisition Activities as set
forth in and limited by Section 3.6(f).
(b) Company Expenses. The Company shall pay all Permitted
Expenses. The Manager is authorized, in the name and on behalf of the
Company, to reimburse itself for Permitted Expenses paid by the Manager
or to reimburse the Asset Manager for Permitted Expenses paid by the
Asset Manager; provided, that if for any reason LXP or the Asset Manager,
or any Affiliate of LXP or of the Asset Manager (instead of the Company
or an SP Subsidiary or a Special Purpose LLC, which (for the purpose of
this sentence) shall not be deemed to be an Affiliate of LXP or of the
Asset Manager) acquires title to any Proposed Tranche II Property or
Approved Tranche II Property, LXP shall pay all of the costs and expenses
incurred or to be incurred in connection with the Acquisition Activities
relating to such Proposed Tranche II Property or Approved Tranche II
Property.
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(c) Management Fee; Oversight Fee. The Manager shall cause the
Company to pay to the Asset Manager (or to the Manager in the event the
Management Agreement is terminated) an annual management fee equal to two
percent (2%) of Net Rents, payable monthly. Such fee shall be calculated
monthly, based on Net Rents received by the Company for such month, and
adjusted as provided herein. Within thirty (30) days of the Company's
receipt of the annual reports described in Section 4.3 hereof for a
fiscal year, the Asset Manager shall provide to the Advisor and the Fund
a written statement of reconciliation setting forth (a) the Net Rents for
such fiscal year and the management fee payable to the Asset Manager in
connection therewith, pursuant to this Agreement, (b) the management fee
already paid by the Company to the Asset Manager during such fiscal year,
and (c) either the amount owed to the Asset Manager by the Company (which
shall be the excess, if any, of the management fee payable to the Asset
Manager for such fiscal year pursuant to this Agreement over the
management fee actually paid by the Company to the Asset Manager for such
fiscal year) or the amount owed to the Company by the Asset Manager
(which shall be the excess, if any, of the management fee actually paid
by the Company to the Asset Manager for such fiscal year over the
management fee payable to the Asset Manager for such fiscal year pursuant
to this Agreement). The Asset Manager or the Company, as the case may be,
shall pay to the other the amount owed pursuant to clause (c) above
within five (5) Business Days of the receipt by the Advisor and the Fund
of the written statement of reconciliation described in this Section
3.10(c). In addition, in those cases in which a tenant of any Tranche II
Property requests that the Company provide property management services
at such tenant's expense, Asset Manager shall be entitled to an oversight
fee for such property management services for the tenant of such Tranche
II Property equal to one half of one percent (0.50%) of the Net Rent from
such Tranche II Property ("Oversight Fee"), which Oversight Fee shall be
payable by the tenant of such Tranche II Property, in accordance with the
terms as such tenant and Asset Manager may agree. Concurrently with the
reconciliation statement required above, the Asset Manager shall provide
to the Advisor and the Fund a written statement setting forth all
Oversight Fees paid to the Asset Manager during such fiscal year and the
Net Rents relating to such Tranche II Properties for such fiscal year.
Section 3.11 Other Duties and Obligations of the Manager.
(a) Company's Continued Existence. The Manager shall take all
reasonable actions which may be necessary or appropriate for the
continuation of the Company's valid existence as a limited liability
company under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the limited
liability of the Members or to enable the Company to conduct the business
in which it is engaged.
(b) Personal Liability. The Manager shall at all times use its
best efforts to conduct its affairs and the affairs of the Company in
such a manner that the Members shall not have any personal liability with
respect to any Company liability or obligation in excess of that portion
of their respective Tranche II Capital Commitments actually called by the
Manager pursuant to Section 5.1(a) and Section 5.1(b) hereof.
32
(c) "Unrelated Business Taxable Income". The Manager shall
prevent the Company from recognizing "unrelated business taxable income"
within the meaning of Sections 511 through and including 514 of the Code
("UBTI"); provided, that the Manager's obligations to avoid UBTI shall be
deemed to have been met with respect to a Tranche II LSL Property so long
as the transaction involving a Tranche II LSL Property meets the
requirements of Section 3.6(i) of this Agreement; and provided further,
that if the Manager determines at any time after the making of a Tranche
II LSL Loan that the Company must report interest payments received in
respect of any Tranche II LSL Loan as UBTI, then the Manager shall comply
with the following provisions of this Section 3.11(c) with regard to such
Tranche II LSL Loan. The Fund shall have the right, at the Company's
expense, to consult legal counsel in order to determine if the Company or
the Fund would recognize UBTI as a result of any property, business
venture or activity. If the Asset Manager, the Manager, LXP or the Fund
anticipates the recognition by the Company or the Fund of any UBTI, then
the Manager shall cause the Company to avoid the recognition of such
UBTI, including without limitation disposing of the Tranche II Property
or Tranche II Properties (or Tranche II LSL Loan) expected to generate
the UBTI. Notwithstanding any provision in this Agreement to the
contrary, the fees of the Company's and the Fund's legal counsel and the
costs incurred by the Company in connection with any action taken
pursuant to this Section 3.11(c) shall be borne by the Company.
(d) Partnership for Tax Purposes. The Manager shall take all
actions necessary to assure that the Company will be treated as a
partnership for federal and state income tax purposes and be governed by
the applicable provisions of Subchapter K of Chapter 1 of the Code. In
addition, the Members can elect that any Tranche II LSL Loan shall be
treated as a separate partnership for U.S. federal income tax purposes,
directly entered into by the Members, with separate Capital Accounts,
allocations, distributions, elections, and reporting, all to be conducted
in accordance with the principles set forth in this Agreement; provided,
however, that such separate partnership treatment shall not require the
Members to enter into a separate formal partnership or limited liability
company agreement or to hold any assets outside of the Company.
(e) Reasonable Reserves. The Manager shall establish and maintain
out of Company funds reasonable reserves for working capital, capital
expenditures and to pay other costs and expenses incident to ownership of
the Tranche II Properties and for such other Company purposes as the
Manager deems appropriate, all as provided for and in accordance with the
Annual Plan.
(f) Deviations from the Annual Budget. The Manager shall verbally
inform the Advisor as soon as practicable of any actual or potential
variance from any budget line item of the Annual Budget portion of the
Annual Plan for any fiscal year of the Company which (x) exceeds the
greater of Twenty Thousand Dollars ($20,000) or five percent (5%) of the
amount allocated to such budget line item or, (y) when added to all other
costs and expenses already exceeding their applicable budget line items
for such fiscal year, exceeds One Hundred Thousand Dollars ($100,000) for
a particular Tranche II Property or an average (taking into account all
Tranche II Properties then owned by the Company) of Fifty Thousand
Dollars ($50,000) per Tranche II Property.
33
(g) Time Devoted to the Company. The Manager and its officers and
key employees shall devote such time and attention to the Company
business as shall be necessary to supervise the Company's business and
affairs in accordance with the provisions of this Agreement.
(h) Fee Disclosure. Within 10 days after the date of this
Agreement, the Manager shall disclose in writing to the Fund (the "Fee
Disclosure") all fees, bonuses and other compensation paid by or on
behalf of the Manager to any placement agent, finder or other individual
or entity (other than the officers and employees of the Manager) in
connection with the purchase by the Fund of its interest in the Company.
The Manager may omit from the Fee Disclosure fees and expenses paid to
its counsel (Paul, Hastings, Janofsky & Walker LLP) in connection with
the organization of the Company, provided that such counsel has not also
represented the Fund in connection with the formation of the Company and
has not been involved in any form of solicitation relating to the
Company.
Notwithstanding anything to the contrary contained in this
Agreement or any subscription or other agreement relating hereto, the
Manager hereby agrees that the Fund may disclose the information
contained in the Fee Disclosure to the public.
The Manager represents and warrants that all information
contained in the Fee Disclosure will be true, correct and complete. In
the event that the Fund does not receive the Fee Disclosure within the
time period provided above, or the Fund determines that the Fee
Disclosure contains a material inaccuracy or omission, the Fund shall
have the option, in its sole discretion and without liability to the
Manager or any third party, to cease making the Fund's Tranche II Capital
Contributions to the Company (without being deemed to be a Defaulting
Member under this Agreement) and to pursue all remedies that may be
available to the Fund.
Section 3.12 Exculpation.
(a) LXP. None of LXP, the Asset Manager, any officer, director or
employee of LXP or the Asset Manager or any Affiliate of LXP shall be
liable, responsible or accountable in damages or otherwise to the Company
or any other Member for any act or omission on behalf of the Company, in
good faith and within the scope of the authority conferred on LXP as
Manager under this Agreement or otherwise under this Agreement or the
Asset Manager, as the case may be, or by law unless such act or failure
to act (a) is or results in a breach of any representation, warranty or
covenant of LXP contained in this Agreement, which breach had or has a
material adverse effect on the Company or the Fund and, if capable of
cure, is not cured within fifteen (15) days after notice thereof is
delivered to LXP by the Fund, (b) was fraudulent or committed in bad
faith or (c) constituted gross negligence or willful misconduct.
(b) Securities Exception. Notwithstanding the exculpation
contained in Section 3.12(a) above, LXP, and the Asset Manager, and all
Affiliates of LXP shall be liable, responsible and accountable in damages
or otherwise to the Company and the Fund for any act or omission on
behalf of the Company and within the scope of authority conferred on LXP
as Manager or the Asset Manager (i) which act or omission was
34
negligent (including any negligent misrepresentation) and violated any
law, statute, regulation or rule relating to Shares or any other security
of LXP or (ii) to the extent the Company or the Fund is charged with
liability for, or suffers or incurs loss, liability, cost or expense
(including reasonable attorneys' fees) as a result of, such act or
omission and such act or omission was negligent and related to Shares or
such other security of LXP.
(c) The Fund. None of the Fund, any officer, director or employee
of the Fund, or any Affiliate of the Fund shall be liable, responsible or
accountable in damages or otherwise to the Company or to any other Member
for any act or omission in the conduct of its duties as a Member, in good
faith and within the scope of authority conferred on the Fund under this
Agreement or by law unless such act or failure to act (a) is or results
in a breach of any representation, warranty or covenant of the Fund
contained in this Agreement, which breach had or has a material adverse
effect on the Company or LXP and, if capable of cure, is not cured within
fifteen (15) days after notice thereof is delivered to the Fund by LXP,
(b) was fraudulent or committed in bad faith or (c) constituted gross
negligence or willful misconduct.
(d) Survival. The provisions of this Section 3.12 shall survive
any termination of the Company or this Agreement.
Section 3.13 Indemnification.
(a) By the Company. The Company shall indemnify, defend and hold
harmless any Person (an "Indemnified Party") who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of any act or omission or alleged act or
omission arising out of such Indemnified Party's activities as (i) a
Member or an officer, director, employee or agent of the Member or (ii)
the Manager or the Asset Manager or an officer, director, employee or
agent of the Manager or the Asset Manager on behalf of the Company or in
furtherance of the interest of the Company, against personal liability,
claims, losses, damages and expenses for which such Indemnified Party has
not been reimbursed by insurance proceeds or otherwise (including
attorneys' fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by such Indemnified Party in connection
with such action, suit or proceeding and any appeal therefrom, unless
such Indemnified Party (A) acted fraudulently, in bad faith or with gross
negligence or willful misconduct or (B) by such act or failure to act
breached any representation, warranty or covenant contained in this
Agreement, which breach had or has a material adverse effect on the
Company or either Member and, if capable of cure, is not cured within
fifteen (15) days after notice thereof from the other Member. Any
indemnity by the Company under this Agreement shall be provided out of,
and to the extent of, Company revenues and assets only, and no Member
shall have any personal liability on account thereof. The indemnification
provided under this Section 3.13 shall (x) be in addition to, and shall
not limit or diminish, the coverage of the Members or any Affiliates
under any insurance maintained by the Company and (y) apply to any legal
action, suit or proceeding commenced by a Member or in the right of a
Member or the Company. The indemnification provided under this Section
3.13 shall be a contract right
35
and shall include the right to be reimbursed for reasonable expenses
incurred by any such Indemnified Party within thirty (30) days after such
expenses are incurred.
(b) By LXP. LXP shall indemnify and hold harmless the Fund from
and against any liabilities, claims, losses, damages and expenses
incurred by the Fund (including attorneys' fees, judgments, fines and
amounts paid in settlement) as a result of any act or omission by LXP or
the Asset Manager which (i) constitutes or results in a breach of any
representation, warranty or covenant of LXP contained in this Agreement,
which breach had or has a material adverse effect on the Company or the
Fund and, if capable of cure, is not cured within fifteen (15) days after
notice thereof from the Fund, (ii) was performed or omitted fraudulently
or in bad faith or (iii) constituted gross negligence or willful
misconduct.
Section 3.14 Fiduciary Responsibility. Subject to the provisions
set forth in Section 3.9 and Section 3.12(a) hereof, the Manager acknowledges
that it is under a common law fiduciary duty to conduct the affairs of the
Company in the best interests of the Company and the Fund and consequently must
exercise good faith and integrity in handling Company affairs.
ARTICLE IV
BOOKS AND RECORDS; REPORTS TO MEMBERS.
Section 4.1 Books. The Manager shall maintain or cause to be
maintained separate, full and accurate books and records of the Company, and any
Member or any authorized representative of any Member, including the Advisor,
shall have the right to inspect, examine and copy the same and to meet with
employees of the Manager responsible for preparing the same at reasonable times
during business hours and upon reasonable notice. All policies of the Company
with respect to the maintenance of such books and records shall be subject to
approval by all of the Members.
Section 4.2 Monthly and Quarterly Reports.
(a) Monthly Reports. The Manager shall prepare and distribute to
LXP and the Advisor within thirty-five (35) days after the last day of
each month a report with respect to the Company and each Tranche II
Property and each Tranche II LSL Loan (as applicable), including without
limitation (i) an operating statement for the monthly period and
year-to-date showing variances from the Annual Budget portion of the
Annual Plan, (ii) a schedule of aged accounts receivable and accounts
payable, (iii) an occupancy and leasing status report, (iv) a rent roll
and (v) a bank statement reconciliation report.
(b) Quarterly Reports. The Manager shall, within forty (40) days
after the last day of each fiscal quarter,
(i) prepare and distribute to LXP and the Advisor a
year-to-date consolidated report with respect to the Company, prepared in
accordance with generally accepted accounting principles, consistently
applied, including (a) a balance sheet, (b) a profit and loss statement,
(c) a statement of changes in the Members' Capital Accounts, (d) a cash
flow statement, (e) a report briefly describing each variance from the
applicable budget line item in the consolidated Annual Budget portion of
the Annual Plan
36
exceeding the greater of Twenty Thousand Dollars ($20,000) and five
percent (5%) of the amount allocated to such budget line item, (f) a
statement as to whether the total of all actual variances from all budget
line items in the consolidated Annual Budget portion of the Annual Plan
exceeds One Hundred Thousand Dollars ($100,000) for any particular
Tranche II Property or an average (taking into account all Tranche II
Properties then owned by the Company) of Fifty Thousand Dollars ($50,000)
per Tranche II Property, (g) calculations in sufficient detail to verify
the accuracy of all fees and other amounts paid or payable to the Asset
Manager under the Management Agreement and (h) such other reports as any
Member may reasonably request;
(ii) calculate and report to LXP and the Advisor the
AIMR Returns as set out on Schedule 6 hereto for such fiscal quarter and
distribute to LXP and the Advisor any and all financial materials and
reports necessary for such calculations to the extent such materials and
reports have not already been provided under this Section 4.2(b);
(iii) prepare and distribute to LXP and the Advisor
simultaneously with each quarterly report a report with respect to each
Tranche II Property and Tranche II LSL Loan, including an operating
statement for the quarter and year-to-date showing each variance from the
budget line items in the Annual Budget portion of the Annual Plan, and a
narrative describing material market changes (as determined in good faith
by the Manager or Asset Manager), and material changes in property
operations, physical condition, capital expenditures and leasing and
occupancy; and
(iv) complete and distribute to the Advisor the form of
IPC Questionnaire attached hereto as Exhibit C.
Section 4.3 Annual Reports. The Manager shall prepare and
distribute to LXP and the Advisor within ninety (90) days after the end of each
fiscal year financial statements with respect to the Company, which include the
items set forth in clauses (i) through (iv) of Section 4.2(b) above with respect
to such fiscal year. The ninety (90) day period referred to in the immediately
preceding sentence shall be extended by one (1) day for each day after February
15th that the Advisor fails to deliver to the Manager fair market value
information necessary for the preparation of such financial statements for the
previous fiscal year with respect to each Tranche II Property. Such financial
statements shall be prepared in accordance with generally accepted accounting
principles, consistently applied, and shall be audited at the Company's expense
by such nationally recognized firm of independent certified public accountants
selected by the Manager with the consent of the Members as provided in Section
4.9 hereof. All reports delivered pursuant to this Section 4.3 shall also
include unaudited calculations in sufficient detail to verify the accuracy of
all fees and other amounts paid or payable to the Asset Manager pursuant to the
terms of this Agreement and such other reports as any Member may reasonably
request.
Section 4.4 Appraisals; Additional Reports.
(a) Appraisals. The Manager shall cause each Tranche II Property
to be appraised (and shall cause each borrower under a Tranche II LSL
Loan to appraise each Tranche II LSL Property) by a nationally recognized
independent real estate appraiser
37
selected by the Manager and reasonably acceptable to the Members as
follows: (x) at calendar year end of the year in which the third (3rd)
anniversary of the date such Tranche II Property was acquired occurs and
(y) every third (3rd) calendar year end thereafter. The Manager shall
fully cooperate with such appraiser in connection with any such
appraisal, shall provide such information to the appraiser as is
reasonably requested by the appraiser and shall cause its employees to be
reasonably available to meet with and answer questions of the appraiser
so as to enable the appraiser to compete its appraisals in a timely
manner. The Manager shall have no liability with respect to any acts or
actions taken by an appraiser, including but not limited to appraisals,
provided that the Manager shall not have breached its duties in
connection with its management responsibilities.
(b) Additional Reports. The Manager shall prepare and distribute
to the Members such additional financial, property, investment and other
reports regarding the Company, the Tranche II Properties, the Tranche II
LSL Loans or any related matter as any Member may reasonably request,
including without limitation information necessary to enable the Advisor
to provide to the Fund a valuation of the Fund's Tranche II Percentage
Interest. To the extent any Member deems it appropriate or necessary, the
Manager agrees to reasonably cooperate in any audit or examination
conducted by such Member or its consultants of any of the information
contained in any report delivered pursuant to this Article IV.
Section 4.5 Accountants; Tax Returns. The Manager shall also
engage such nationally recognized firm of independent certified public
accountants approved by the Members as provided in Section 4.9 hereof to review,
or to sign as preparer, all federal, state and local tax returns which the
Company is required to file. The Manager will furnish to each Member within one
hundred (100) days after the end of each calendar year, or as soon thereafter as
is practicable, a Schedule K-1 or such other statement as is required by the
Internal Revenue Service which sets forth such Member's share of the profits or
losses and other relevant fiscal items of the Company for such fiscal year. The
Manager shall deliver to the Members copies of all federal, state and local
income tax returns and information returns, if any, which the Company is
required to file.
Section 4.6 Accounting and Fiscal Year. The Manager shall keep
the Company books and records on the accrual basis. The fiscal year of the
Company shall end on December 31.
Section 4.7 Company Funds.
(a) Generally. The funds of the Company shall be deposited into
such account or accounts as are designated by the Manager and reasonably
approved by the Members. All withdrawals from or charges against such
accounts shall be made by the Manager or by those Persons designated from
time to time by the Manager.
(b) Restrictions on Deposits. Pending distribution or expenditure
in accordance with the terms of this Agreement, funds of the Company may
be invested, in the reasonable discretion of the Manager, in United
States government obligations, insured
38
obligations which are rated not lower than AA by Standard & Poor's or
have a comparable rating from a nationally recognized rating agency,
collateralized bank time deposits, repurchase agreements, money market
funds, commercial paper which is rated not lower than P-1, certificates
of deposit which are rated not lower than AA by Standard & Poor's or have
a comparable rating from a nationally recognized rating agency, banker's
acceptances eligible for purchase by the Federal Reserve and bonds and
other evidences of indebtedness and preferred stock which are rated not
lower than AA by Standard & Poor's or are of a comparable credit quality.
Section 4.8 Insurance. The Manager shall cause the tenant or
tenants of each Tranche II Property to maintain insurance thereon of such types
and in such amounts that at a minimum are consistent with the standards approved
by the Members, a copy of which standards is attached hereto as Schedule 4.8.
The Fund may amend such standards from time to time upon written notice to the
Manager, and the Manager shall have sixty (60) days after receipt of such
written notice to cause the tenants of the Tranche II Properties to obtain, if
necessary, insurance that conforms with such revised standards, provided that
such revised standards are reasonable and based on industry standards. The
Manager shall cause the Company to obtain, at the Company's expense, such types
and amounts of insurance that the tenant or tenants of any Tranche II Property
have failed to maintain and that are included within the insurance standards
listed on Schedule 4.8 hereto, as may be revised from time to time pursuant
hereto.
Section 4.9 Attorneys and Accountants. The attorneys and
accountants for the Company shall be selected by the Manager and approved by the
Members, provided that (a) the Manager may engage local counsel as necessary in
connection with the business of the Company without the approval of the Members
provided such counsel's fees and the other terms and conditions of its
engagement are comparable to those of other law firms providing similar services
in such local area and no Member has previously notified the Manager that such
law firm is unacceptable and (b) the accounting firm shall be among the five (5)
largest accounting firms in the United States when chosen and shall provide
accounting services at market cost.
ARTICLE V
CONTRIBUTIONS
Section 5.1 Tranche II Capital Contributions.
(a) Generally; Tranche II Percentage Interests. Each Member shall
make an Initial Tranche II Capital Contribution to the Company in an
amount and at such time as the Members have agreed. Except as provided in
this Section 5.1, (i) no Member shall be obligated to make any Additional
Tranche II Capital Contribution or Extraordinary Funding to the Company,
(ii) any Additional Tranche II Capital Contribution or Extraordinary
Funding shall be made by the Members in proportion to their respective
Tranche II Percentage Interests as determined at the time of the Capital
Call or Extraordinary Call, (iii) no Additional Tranche II Capital
Contribution or Extraordinary Funding made by the Members in proportion
to their respective Tranche II Percentage Interests as determined at that
time shall change the Tranche II Percentage Interests of the Members and
(iv) each Member's share of a Tranche II LSL Capital Contribution shall
be determined in accordance with Schedule 3.6(i) hereto. The Members
shall have the
39
Tranche II Percentage Interests in the Company set forth opposite each
Member's name on Schedule 1 hereto, as may be adjusted from time to time
pursuant to Section 5.1(e) hereof.
(b) Additional Tranche II Capital Contributions. In the event the
Company requires capital to acquire an Approved Tranche II Property, the
Manager shall be entitled to require an additional Tranche II Capital
Contribution (an "Additional Tranche II Capital Contribution") from the
Members in an amount not in excess of the amount necessary to acquire
such Approved Tranche II Property plus all reasonable and customary costs
and expenses incurred by the Company for Third Parties retained in
connection with the Acquisition Activities; provided that (x) no Member
shall be required to contribute more than the amount determined by
multiplying such Member's Tranche II Percentage Interest by such
Additional Tranche II Capital Contribution and (y) no Member shall be
required to contribute the amount described in clause (x) above if such
amount, when added to the total of all of such Member's prior Tranche II
Capital Contributions, exceeds such Member's Tranche II Capital
Commitment. If the Manager shall provide to the Members a written notice
calling for an Additional Tranche II Capital Contribution (any such
notice, a "Capital Call") setting forth the total amount of such
Additional Tranche II Capital Contribution, the amount of each Member's
share of such Additional Tranche II Capital Contribution as determined
pursuant to clause (x) above, and the due date on which the Manager is
requiring that such Additional Tranche II Capital Contribution be
contributed to the Company, which due date shall be at least ten (10)
Business Days after the date on which the Members actually received the
Capital Call and not more than one (1) Business Day prior to the
scheduled closing of the acquisition of such Approved Tranche II
Property, each Member shall contribute its share of such Additional
Tranche II Capital Contribution in immediately available funds on or
before such due date. If the acquisition of an Approved Tranche II
Property fails to close and the Manager determines there will not be a
closing with fifteen (15) days of the date of the originally scheduled
closing, the Manager (x) shall inform the Members of such failure and
return each Member's share of the Additional Tranche II Capital
Contribution made with respect thereto and (y) each Member's Tranche II
Capital Contribution shall be restored to the level thereof immediately
prior to such Additional Tranche II Capital Contribution. If, at any time
after the Members have each contributed their entire Tranche II Capital
Commitment, the Members elect to contribute additional capital, the Fund
shall contribute three-quarters (3/4s) and LXP shall contribute
one-quarter (1/4th) of such additional capital. A Member may contribute
to the Company an equity interest in any Approved Tranche II Property and
satisfy such Member's obligation to make an Additional Tranche II Capital
Contribution with respect thereto, provided that the Fair Market Value of
such equity contribution determined at the time of such Member's
contribution thereof shall be equal to such Member's share of the
Additional Tranche II Capital Contribution required hereunder. If a
Member decides to satisfy its obligations hereunder by contributing an
equity share in the Approved Tranche II Property, (x) the other Member
shall contribute to the Company its share of the Additional Tranche II
Capital Contribution relating to such Approved Tranche II Property as
provided in this Section 5.1(b), which amount shall be applied to the
purchase of such Approved Tranche II Property, and (y) the
equity-contributing member shall convey fee title to such Approved
Tranche II Property at the scheduled closing of the acquisition thereof.
40
(c) Extraordinary Fundings. In the event the Company requires
additional funds to cover any costs and expenses for which the Company
has insufficient funds, the Manager may make a written request therefor
(any such request, an "Extraordinary Call") setting forth the amount
requested and the due date therefor, which due date shall be at least ten
(10) Business Days after the date on which the Members actually received
the Extraordinary Call. The Members shall have the right to approve or
disapprove any Extraordinary Call. If the Members elect to approve an
Extraordinary Call, then each Member shall be required to fund an amount
equal to the amount determined by multiplying such Member's Tranche II
Percentage Interest by the amount set forth in such approved
Extraordinary Call (each such Extraordinary Call required to be funded
hereunder, an "Extraordinary Funding"). If the Members elect not to
approve an Extraordinary Call, then no Member shall have any obligation
to fund such disapproved Extraordinary Call, and the Manager shall cover
such shortfall in funds by Company borrowings. An Extraordinary Funding
may be made by agreement of the Members either as a loan by the Members
to the Company (any such loan, an "Extraordinary Loan") or a
supplementary capital contribution by the Members to the Company (any
such contribution, an "Extraordinary Tranche II Capital Contribution").
Each Member shall contribute its share of such Extraordinary Tranche II
Capital Contribution or Extraordinary Loan, as the case may be, in
immediately available funds on or before the due date to which the
Members agreed in the Extraordinary Call. If the Members agree to make an
Extraordinary Loan, (x) each Member shall loan to the Company the amount
of such Member's share as determined above with interest equal to either
a rate agreed to by the Members or, if there is no such agreement, then
the 10-year treasury rate plus two percent (2%) per annum as of the date
the Extraordinary Loan is made, (y) the Annual Budget portion of the
Annual Plan shall be amended to reflect such loan, and (z) such loan
(including interest accrued thereon) shall be repaid from Net Cash Flow
from Operations or Net Cash from Sales or Refinancings. Any Net Cash Flow
from Operations or any Net Cash from Sales or Refinancings shall be
applied to each Member's unpaid Extraordinary Loan in proportion to each
Member's Tranche II Percentage Interest.
(d) Tranche II LSL Loans. In the event the Company requires
capital to make a Tranche II LSL Loan, the Manager shall be entitled to
require an additional capital contribution with respect thereto (an
"Tranche II LSL Capital Contribution") from the Members in an amount not
in excess of the amount of the Tranche II LSL Loan (determined in
accordance with Paragraph 3(c)(i) of Schedule 3.6(i)) hereto plus costs
attributable to the closing thereof in an amount not exceeding the
Company's proportionate share of such costs; provided that no Member
shall be required to contribute its share of the amount described above
if such amount, when added to the total of all of such Member's prior
Tranche II Capital Contributions, exceeds such Member's Tranche II
Capital Commitment. (The Members acknowledge that LXP's Tranche II
Capital Commitment shall be reduced on a dollar for dollar basis by all
amounts contributed by LXP to any LXP LLCs and applied to the costs of
acquiring Tranche II LSL Properties as required by Paragraph 4 of
Schedule 3.6(i) hereto.) If the Manager shall provide to the Members a
written notice calling for a Tranche II LSL Capital Contribution (any
such notice, a "Tranche II LSL Capital Call") setting forth the total
amount of such Tranche II LSL Capital Contribution, the amount of each
41
Member's share of such Tranche II LSL Capital Contribution as determined
in accordance with Paragraph 3(d) of Schedule 3.6(i) hereto, and the due
date on which the Manager is requiring that such Tranche II LSL Capital
Contribution be contributed to the Company, which due date shall be at
least ten (10) Business Days after the date on which the Members actually
received the Tranche II LSL Capital Call and not more than one (1)
Business Day prior to the scheduled closing of the acquisition of the
related Approved Tranche II Property by the Special Purpose LLC, each
Member shall contribute its share of such Tranche II LSL Capital
Contribution in immediately available funds on or before such due date.
If the acquisition of an Approved Tranche II Property by such Special
Purpose LLC fails to close and the Manager determines there will not be a
closing within fifteen (15) days of the date of the originally scheduled
closing, the Manager (x) shall inform the Members of such failure and
return each Member's share of the Tranche II LSL Capital Contribution
made with respect thereto and (y) each Member's Tranche II Capital
Contribution shall be restored to the level thereof immediately prior to
such Tranche II LSL Capital Contribution.
(e) Failure to Fund an Additional Tranche II Capital Contribution
or Extraordinary Funding. If any Member (a "Defaulting Member") fails to
make any Additional Tranche II Capital Contribution, Extraordinary
Funding or Tranche II LSL Capital Contribution which it is required to
make under this Section 5.1 by the due date therefor, then any
non-defaulting Member may, at its election, make an Additional Tranche II
Capital Contribution, Extraordinary Funding or Tranche II LSL Capital
Contribution to the Company in an amount equal to the amount ("Default
Amount") that the Defaulting Member failed to contribute. The Defaulting
Member shall be liable for interest equal to the 10-year treasury rate
plus two percent (2%) per annum as of the date the non-defaulting member
makes the Additional Tranche II Capital Contribution or Extraordinary
Funding or Tranche II LSL Capital Contribution of the Default Amount,
payable on the first Business Day of each month, on such Default Amount
to (x) the Company, if the non-defaulting Member fails to make an
Additional Tranche II Capital Contribution, Extraordinary Funding or
Tranche II LSL Capital Contribution equal to the Default Amount or (y)
the non-defaulting Member, if such Member makes an Additional Tranche II
Capital Contribution, Extraordinary Funding or Tranche II LSL Capital
Contribution equal to the Default Amount. If for ninety (90) days a
Defaulting Member shall fail to make an Additional Tranche II Capital
Contribution, Extraordinary Funding or Tranche II LSL Capital
Contribution or to pay to the Company or the non-defaulting Member (as
applicable) any interest that has accrued on such Default Amount, the
Tranche II Percentage Interest of the Defaulting Member shall be
adjusted, effective the day after the conclusion of such ninety (90) day
period, to equal: the Tranche II Percentage Interest of such Defaulting
Member (prior to adjustment hereunder) multiplied by a fraction, the
numerator of which is the Defaulting Member's total Tranche II Capital
Contribution, and the denominator of which is the product of 120%
multiplied by the sum of the Defaulting Member's total Tranche II Capital
Contribution, plus the amount of the Default Amount and any accrued and
unpaid interest on the Default Amount during such ninety (90) day period.
The adjustment of the Defaulting Member's Tranche II Percentage Interest
hereunder may also be expressed by the following formula:
42
a = b x c
--------------
(c+d+e) x 120%
Where a = new Tranche II Percentage Interest of Defaulting
Member after adjustment hereunder
b = old Tranche II Percentage Interest of Defaulting
Member prior to adjustment hereunder
c = Defaulting Member's total Tranche II Capital
Contribution
d = amount of Default Amount
e = accrued interest on Default Amount during ninety
(90) day period
The adjustment of the Tranche II Percentage Interest of the Defaulting Member
hereunder shall constitute satisfaction of the Default Amount including interest
thereon and shall cure the Defaulting Member's default hereunder and the Default
Amount, excluding accrued interest, shall constitute a Tranche II Capital
Contribution made by the non-defaulting Member and shall be credited to the
Capital Account of the non-defaulting Member. In addition, the Tranche II
Percentage Interest of the non-defaulting Member shall be increased by the
amount by which the Tranche II Percentage Interest of the Defaulting Member is
decreased. Notwithstanding the foregoing, the provisions of this Section 5.1(e)
shall not be applied against the Fund, as the Defaulting Member, during the
occurrence and continuance of any material default by LXP, in its capacity as
Manager, of its obligations under this Agreement, or by the Asset Manager, of
its obligations under the Management Agreement, and the Fund shall not be
obligated to make an Additional Tranche II Capital Contribution, Extraordinary
Funding or Tranche II LSL Capital Contribution to the Company pursuant hereto
unless and until any such material default by LXP, in its capacity as Manager,
or the Asset Manager, has been cured to the reasonable satisfaction of the Fund.
In addition, if LXP fails to make an Additional Tranche II Capital Contribution,
Extraordinary Funding or Tranche II LSL Capital Contribution for a period
exceeding ninety (90) days, LXP shall lose its right to be the Manager and the
Fund shall have the right in its sole and absolute discretion to replace LXP as
Manager in accordance with the provisions of Section 8.3 hereof.
Section 5.2 Return of Tranche II Capital Contribution. Except as
otherwise expressly provided in this Agreement, (a) the Tranche II Capital
Contribution of a Member will be returned to that Member only in the manner and
to the extent provided in Article VII and Article IX hereof and (b) no Member
shall have any right to demand or receive the return of its Tranche II Capital
Contribution. In the event the Company is required or compelled to return any
Tranche II Capital Contribution, no Member shall have the right to receive
property other than cash. No Member shall be entitled to interest on its Tranche
II Capital Contribution or Capital Account notwithstanding any disproportion
therein as between the Members.
Section 5.3 Liability of the Members. No Member shall have any
personal liability to the Company, to any Member, to the creditors of the
Company or to any other Person for any debt, liability or obligation of the
Company. No Member shall be required to contribute
43
funds or capital to the Company in excess of its Tranche II Capital Commitment
although Members may at their option contribute funds in excess of their
respective Tranche II Capital Commitments pursuant to Section 5.1(c) and Section
5.1(d) hereof.
Section 5.4 No Third Party Beneficiaries. The foregoing
provisions of this Article V are not intended to be for the benefit of any
creditor of the Company or any other Person, and no creditor of the Company or
any other Person may rely on the commitment of any Member to make any Tranche II
Capital Contribution. Additional Tranche II Capital Contributions and
Extraordinary Fundings are not payable unless and until the conditions set forth
in Section 5.1 hereof have been satisfied, and no creditor of the Company or any
other Person shall have, or be given, any right to cause a Capital Call or
Extraordinary Call to be given by the Manager.
ARTICLE VI
MAINTENANCE OF CAPITAL ACCOUNTS;
ALLOCATION OF PROFITS AND LOSSES
FOR BOOK AND TAX PURPOSES
-------------------------
Section 6.1 Capital Accounts.
(a) Generally: Credits to Capital Accounts. A Capital Account
shall be established and maintained for each Member. Initially, the
Capital Account of each Member shall be credited with each Member's
respective Initial Tranche II Capital Contribution. Thereafter, each
Member's Capital Account shall be credited with any Additional Tranche II
Capital Contributions, Extraordinary Tranche II Capital Contributions or
Tranche II LSL Capital Contributions made or contributed by such Member
and such Member's allocable share of Profits, any individual items of
income and gain allocated to such Member pursuant to the provisions of
this Article VI, and the amount of additional cash, or the Fair Market
Value of any Company asset (net of any liabilities assumed by the Company
and liabilities to which the asset is subject), contributed to the
Company by such Member or deemed contributed to the Company by such
Member in accordance with Regulations Section 1.704-1(b)(2)(iv)(c).
(b) Debits to Capital Account. The Capital Account of each Member
shall be debited with the Member's allocable share of Losses, any
individual items of expenses and loss allocated to such Member pursuant
to the provisions of this Article VI, the amount of any cash distributed
to such Member and the Fair Market Value of any Company asset (net of any
liabilities assumed by the Member and liabilities to which the asset is
subject) distributed to such Member or deemed distributed to such Member
in accordance with Regulations Section 1.704-1(b)(2)(iv)(c).
(c) Capital Account of Transferee. In the event that any Tranche
II Percentage Interest of a Member is transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
Tranche II Percentage Interest in such Member.
44
(d) Adjustments of Book Value. In the event that the Book Value
of any Company asset is adjusted as described in the definition of "Book
Value", the Capital Accounts of all Members shall be adjusted in
accordance with Regulation Section 1.704-1(b)(2)(iv)(f) or Regulation
Section 1.704-1(b)(2)(iv)(m), as applicable, to reflect such adjustment.
(e) Compliance with Regulations. The foregoing provisions and the
other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulation Section 1.704-1(b) and
shall be interpreted and applied in a manner consistent with such
Regulation. In the event that the Manager shall determine that it is
prudent to modify the manner in which the Capital Accounts, or any debits
or credits thereto, are computed in order to comply with such Regulation,
the Manager may make such modification; provided, however, that if such
modification constitutes a Material Modification, it shall become
effective only upon the consent of any Member to whom such modification
would constitute a Material Modification. The Manager also shall make any
appropriate modifications (A) necessary to comply with Regulation Section
1.704-1(b)(2)(iv)(g) and (B) in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulation Section
1.704-1(b).
Section 6.2 Profits and Losses.
(a) Allocation. With respect to the Profits or Losses
attributable to any Tranche II Property, such Profits or Losses for each
fiscal year of the Company shall be allocated to the Members in
accordance with their respective Tranche II Percentage Interests. With
respect to the Profits or Losses attributable to a Tranche II LSL Loan
(and any corresponding Put Option, Warrant or Tranche II LSL Property
underlying the Warrant), such Profits or Losses for each fiscal year of
the Company shall be allocated to the Members in accordance with their
respective Tranche II LSL Capital Contributions for such Tranche II LSL
Loan.
(b) Adjustments to "Profits" and "Losses". When used in this
Agreement, "Profits" and "Losses" shall mean , for each fiscal year or
other period, an amount equal to the Company's taxable income or loss for
such year or period, determined in accordance with Code Section 703(a)
(for this purpose, all items of income, gain, loss or deduction required
to be stated separately pursuant to Code Section 703(a)(1) shall be
included in taxable income or loss), and otherwise in accordance with the
methods of accounting followed by the Company for federal income tax
purposes, with the following adjustments:
(i) any income of the Company that is exempt from
federal income tax and not otherwise taken into account in computing
Profits or Losses shall be added to such taxable income or loss;
(ii) any items that are specially allocated pursuant to
this Agreement shall not be taken into account in computing Profits or
Losses;
45
(iii) any expenditure of the Company described in
Section 705 (a)(2)(B) of the Code (or treated as such under Regulation
Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in
computing Profits or Losses pursuant to this Definition shall be deducted
from such taxable income or loss;
(iv) any depreciation, amortization and/or cost recovery
deductions with respect to any asset shall be deemed to be equal to the
Book Depreciation available with respect to such asset;
(v) the computation of all items of income, gain, loss
and deduction shall be made without regard to any basis adjustment under
Section 743 of the Code;
(vi) in the event the Book Value of any Company asset is
adjusted pursuant to the definition of Book Value, the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;
and
(vii) gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Book Value of
the property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Book Value.
(c) Changes in Tranche II Percentage Interests. If any Member's
Tranche II Percentage Interest changes during any taxable year of the
Company in accordance with Section 5.1(e) hereof, then for that taxable
year the Company will effect a deemed closing of the books as of the date
of such change, and the Profits and Losses of the Company (and all items
of income, gain, loss, deduction or credit for federal income tax
purposes) for the period in such year ending on and including such date
(the "pre-change period") shall be allocated among the Members in
proportion to their respective Tranche II Percentage Interest as of the
first day of such pre-change period, and each Member's share of Profits
and Losses (and all items of income, gain, loss, deduction or credit for
federal income tax purposes) for the period following such date of change
(the "post-change period") shall be allocated among the Members in
proportion to their respective Tranche II Percentage Interest as of the
first date of such post-change period.
Section 6.3 Regulatory Allocations.
(a) Minimum Gain Chargeback. If there is a net decrease in
Partnership Minimum Gain during any fiscal year, each Member shall be
specially allocated items of Company income and gain for such fiscal year
(and, if necessary, subsequent fiscal years) in an amount equal to such
Member's share of the net decrease in Partnership Minimum Gain, as
determined under Regulations Section 1.704-2(g). Allocations pursuant to
the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Member pursuant thereto. The
items to be so allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3(a)
is intended to comply with the "minimum gain chargeback"
46
requirements of Regulations Section 1.704-2(f) and shall be interpreted
consistently therewith.
(b) Chargeback Attributable to Partner Nonrecourse Debt. If there
is a net decrease in Partner Nonrecourse Debt Minimum Gain during any
fiscal year attributable to a Partner Nonrecourse Debt, each Member with
a share of Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt at the beginning of such year shall be specially
allocated items of income and gain for such fiscal year (and, if
necessary, for subsequent fiscal years) in an amount equal to such
Member's share of the net decrease in Partner Nonrecourse Debt Minimum
Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulations Section 1.704-2(i)(4) and (5). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant
thereto. The items to be so allocated shall be determined in accordance
with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section
6.3(b) is intended to comply with the "minimum gain chargeback"
requirements of Regulations Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
(c) Qualified Income Offset. If any Member unexpectedly receives
any adjustment, allocation or distribution described in Regulations
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) which results in or increases
an Adjusted Capital Account Deficit for the Member, such Member shall be
allocated items of income and book gain in an amount and manner
sufficient to eliminate such Adjusted Capital Account Deficit or increase
therein as quickly as possible; provided, that an allocation pursuant to
this Section 6.3(c) shall be made if and only to the extent that such
Member would have an Adjusted Capital Account Deficit after all other
allocations provided in this Article VI have been tentatively made as if
this Section 6.3(c) were not in the Agreement. This Section 6.3(c) is
intended to constitute a "qualified income offset" as provided by
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
(d) Partner Nonrecourse Deductions. Items of Company loss,
deduction or Section 705(a)(2)(B) expenditures that are attributable to a
Partner Nonrecourse Debt ("Partner Nonrecourse Deductions") shall be
allocated among the Members who bear the Economic Risk of Loss for such
Partner Nonrecourse Debt in the ratio in which they share Economic Risk
of Loss for such Partner Nonrecourse Debt. This provision is to be
interpreted in a manner consistent with the requirements of Regulations
Section 1.704-2(b)(4) and (i)(1).
(e) Limitation on Allocation of Net Loss. To the extent any
allocation of Losses or other items of loss or deduction would cause or
increase an Adjusted Capital Account Deficit as to any Member, such
allocation shall be reallocated among the other Members in accordance
with their respective Tranche II Percentage Interests, subject to the
limitations hereof.
(f) Curative Allocation. The allocations set forth in this
Section 6.3 (the "Regulatory Allocations") are intended to comply with
certain requirements of the applicable Regulations promulgated under Code
Section 704(b). Notwithstanding any
47
other provision of this Article VI, the Regulatory Allocations shall be
taken into account in allocating other operating Profits, Losses and
other items of income, gain, loss and deduction to the Members for
Capital Account purposes so that, to the extent possible, the net amount
of such allocations of Profits, Losses and other items shall be equal to
the amount that would have been allocated to each Member if the
Regulatory Allocations had not occurred.
Section 6.4 Allocation of Tax Items for Tax Purposes.
(a) Generally. Subject to Sections 1.704-1(b)(4)(i) and
1.704-1(b)(2)(iv)(m) of the Regulations and Section 6.4(b), Section
6.4(c) and Section 6.4(e) hereof, allocations of income, gain, loss,
deduction and credit for federal, state and local tax purposes shall be
allocated to the Members in the same manner and amounts as the book items
corresponding to such tax items are allocated for Capital Account
purposes.
(b) Recapture Income. Notwithstanding Section 6.4(a) hereof, if
there is a gain on any sale, exchange or other disposition of Company
property and all or a portion of such gain is characterized as ordinary
income by virtue of the recapture rules of Code Section 1245 or 1250, or
under the corresponding recapture rules of state or local income tax law,
as the case may be, then, to the extent possible, such recapture income
for United States and state and local tax purposes shall be allocated to
the Members in the ratio that they were allocated Tax Depreciation
previously taken and allowed with respect to the Company property being
sold or otherwise disposed of.
(c) Section 754 Adjustments. Notwithstanding Section 6.4(a)
hereof, any increase or decrease in the amount of any items of income,
gain, loss, deduction or credit for tax purposes attributable to an
adjustment to the basis of Company assets made pursuant to a valid
election or deemed election under Sections 732(d), 734, 743, and 754 of
the Code, and any increase or decrease in the amount of any item of
credit or tax preference attributable to any such adjustment, shall be
allocated to those Members entitled thereto under such law. Such items
shall be excluded in determining the Capital Accounts of the Members,
except as otherwise provided by Section 1.704-1(b)(2)(iv)(m) of the
Regulations.
(d) Nonrecourse Deductions. Any "Nonrecourse Deductions" as
defined in Treasury Regulations Section 1.704-2(c) for any fiscal year or
other period shall be specially allocated as items of loss in the manner
provided in Treasury Regulations Section 1.704-2(j)(1)(ii).
(e) Sharing of Excess Nonrecourse Liabilities. For purposes of
determination of the Members' shares of the excess Nonrecourse
Liabilities of the Company for purposes of Section 1.752-3(a)(3) of the
Regulations, the Members' interests in profits as determined pursuant to
Section 1.752-3(a)(3) of the Regulations shall be in accordance with
their Tranche II Percentage Interests as adjusted from time to time.
(f) Section 704(c). Notwithstanding Section 6.4 hereof, if the
Company owns or acquires Section 704(c) Property, or if the Tax Matters
Member makes an election
48
referred to in the definition of "Book Value" herein, then, solely for
tax purposes and not for Capital Account purposes, Tax Depreciation, and
any gain or loss, attributable to such Section 704(c) Property shall be
allocated between or among the Members in a manner that takes into
account the variation between such Book Value and such adjusted tax
basis, in accordance with the principles of Code Section 704(c) and the
Regulations promulgated thereunder and such method set forth in
Regulations Section 1.704-3(b). Any elections or other decisions relating
to such allocations (including under Section 1.704-3 of the Regulations,
whether to use the traditional method, the traditional method with
curative allocations or the remedial method) shall be made by the Tax
Matters Member (as defined below) in any manner that reasonably reflects
the purpose and intention of this Agreement.
Section 6.5 Tax Matters Member. LXP is hereby designated as the
"tax matters partner" for the Company as such term is defined in Section
6231(a)(7) of the Code (the "Tax Matters Member"), and all federal, state and
local tax audits and litigation shall be conducted under the direction of LXP.
All expenses incurred with respect to any tax matter which does or may affect
the Company, including but not limited to expenses incurred by LXP acting in its
capacity as Tax Matters Member in connection with Company level administrative
or judicial tax proceedings, shall be paid out of Company assets, whether or not
included in an Annual Plan. If the Fund is permitted under the Code to
participate in Company level administrative or judicial tax proceedings and the
Fund chooses, in its sole discretion, to so participate, the Company shall be
responsible for all expenses incurred by the Fund in connection with such
participation, whether or not included in an Annual Plan. Without the consent of
the Fund, the Tax Matters Member shall have no right to extend the statute of
limitations for assessing or computing any tax liability against the Company or
the amount of any Company tax item or to settle any dispute with respect to any
income, or any other material, tax. The Tax Matters Member shall, promptly upon
receipt thereof, forward to each Member a copy of any correspondence relating to
the Company received from the Internal Revenue Service or any other tax
authority which relates to matters that are of material importance to the
Company and/or the Members. The Tax Matters Member shall promptly advise each
Member in writing of the substance of any material conversation held with any
representative of the Internal Revenue Service which relates to an audit or
administrative proceeding relating to a tax return of the Company.
Section 6.6 Adjustments.
(a) Generally. Except as otherwise provided in this Agreement,
all items of Company income, gain, loss and deduction and any other
allocations not otherwise provided for shall be divided among the Members
in the same proportions as they share Profits and Losses, as the case may
be, for the year.
(b) Upon Transfer or Change in Tranche II Percentage Interest. If
any Tranche II Percentage Interest is transferred in any fiscal year in
accordance with this Agreement, or if a Member's Tranche II Percentage
Interest changes during any fiscal year, all Profits and Losses
attributable to such Tranche II Percentage Interest for such fiscal year
shall be divided and allocated in accordance with an interim closing of
the books as of the date of a transfer or change.
49
(c) Amendments to this Article VI. The Manager is specifically
authorized, with the consent of the Members and upon the advice of the
accountants or legal counsel for the Company, to amend this Article VI to
comply with any Regulations with respect to the distributions and
allocations of the Company and any such amendment shall become effective
(including any regulations or amendments thereto under Sections 514 of
the Code (it being understood that it is the intention of the Members
that the Company satisfy the requirements of Section 514(c)(9)(B)(vi)(I)
or (II) of the Code) and 704 of the Code); provided, however, that if
such amendment constitutes a Material Modification for any Member, then
such amendment shall become effective only upon the express written
consent of such Member.
Section 6.7 Segregation of Funds. For purposes of determining
Profits and Losses from each Tranche II LSL Loan, Warrant and Put Option, the
Company shall use reasonable efforts to treat each Tranche II LSL Loan
separately, as if each Tranche II LSL Loan were made by an entity separate and
distinct from any other entity. Payments of principal and interest and any other
sums paid to Company in respect of a Tranche II LSL Loan shall be segregated and
handled separately from all other revenues of the Company, and such revenues in
respect of any Tranche II LSL Loan shall not be commingled with any other
revenues or other funds of the Company.
ARTICLE VII
DISTRIBUTIONS
Section 7.1 Cash Available for Distributions.
(a) Generally. The Manager shall cause the Company to distribute
all Distributable Cash attributable to any Tranche II Property to the
Members pro rata in accordance with their Tranche II Percentage Interests
not less frequently than quarterly. Except upon Liquidation, Net Cash
from Sales or Refinancings attributable to any Tranche II Property shall
be distributed to the Members pro rata in accordance with their Tranche
II Percentage Interests at such times as the Fund and LXP may determine
as soon as practicable after the receipt of such Net Cash from Sales or
Refinancings. The Manager shall cause the Company to distribute all
Distributable Cash attributable to each Tranche II LSL Loan to the
Members pro rata in accordance with their respective Tranche II LSL
Capital Contributions for such Tranche II LSL Loan not less frequently
than quarterly. Except upon Liquidation, Net Cash from Sales or
Refinancings with respect to each Tranche II LSL Loan, Put Option or
Warrant (or property underlying the Warrant) shall be distributed to the
Members pro rata in accordance with their respective Tranche II LSL
Capital Contributions for such Tranche II LSL Loan at such times as the
Fund and LXP may determine as soon as practicable after the receipt of
such Net Cash from Sales or Refinancings. Distributable Cash shall not be
used to acquire Tranche II Properties, make Tranche II LSL Loans or make
capital improvements on Tranche II Properties unless consented to in
writing in advance by the Members.
(b) Withholdings. The Manager is authorized to withhold from
distributions or allocations to any Member and to pay over to any
federal, state or local government any amounts required to be withheld
pursuant to the Code or any provisions of any other
50
federal, state or local law with respect to any payment, distribution or
allocation to the Company or such Member and shall allocate any such
amounts to such Member with respect to which such amount was withheld.
All amounts so withheld shall be treated as amounts distributed to such
Member, and will reduce the amount otherwise distributable to such
Member, pursuant to this Article VII for all purposes under this
Agreement.
(c) Restrictions on Distributions. Notwithstanding anything to
the contrary contained in this Section 7.1, the Company shall not make a
distribution to the extent that, at the time of such distribution and
after giving effect to such distribution, all liabilities of the Company
(other than liabilities to the Members on account of their Tranche II
Capital Contributions or liabilities for which the recourse of creditors
is limited to specific property of the Company) shall exceed the Fair
Market Value of the Company assets, except that the Fair Market Value of
Tranche II Property that is subject to a liability for which the recourse
of the creditors is limited shall be included in the Company assets only
to the extent that the Fair Market Value of such Tranche II Property
exceeds that liability.
ARTICLE VIII
TRANSFER; REMOVAL OF MANAGER
Section 8.1 Prohibition on Transfers and Withdrawals by Members.
The Members shall be prohibited from transferring or assigning their respective
interests (or any part of such interests) in the Company and any attempted
transfer shall be void ab initio. Except as provided in Section 11.1 and Section
11.2 hereof, the Members shall be prohibited from withdrawing from the Company.
If any Member voluntarily or involuntarily withdraws from the Company, it shall
be and remain liable for all obligations and liabilities incurred by it as a
Member, and shall be liable to the Company and the other Members for all
indemnifications set forth herein and for any liabilities, losses, claims,
damages, costs and expenses (including reasonable attorneys' fees) incurred by
the Company as a result of any withdrawal in breach of this Agreement.
Notwithstanding the foregoing, the Fund (but not LXP) may assign its right to
allocations and distributions with respect to a Tranche II Percentage Interest
in accordance with this Agreement, but an assignee of a Tranche II Percentage
Interest shall not be admitted as a substitute for the Fund, shall have no right
to any information or accounting of the affairs of the Company, shall not be
entitled to inspect the books or records of the Company, and shall not have any
of the rights of a Member under the Act or this Agreement.
Section 8.2 Prohibition on Transfers by and Resignation of
Manager. LXP may not transfer or assign its rights and obligations (or any
portion thereof) as the Manager and may not resign as Manager, except with the
prior written consent of the Fund which consent may be given or withheld in the
sole discretion of the Fund. If LXP voluntarily or involuntarily resigns as
Manager without consent by the Fund, LXP shall be and remain liable for all
obligations and liabilities incurred by it as Manager, and shall be liable to
the Company and the Fund for all indemnifications set forth herein and for any
liabilities, losses, claims, damages, costs and expenses (including reasonable
attorneys' fees) incurred by the Company as a result of any resignation in
breach of this Agreement. If the Fund approves a transfer or assignment by LXP
of its rights and obligations as Manager, any transferee or assignee thereof
shall execute a counterpart of this Agreement agreeing to be bound by all the
provisions of this Agreement as if
51
originally a party to this Agreement.
Section 8.3 Removal of the Manager.
(a) Generally. In the event of (i) a default by the Manager of
any of its obligations hereunder, or a default by the Asset Manager of
any of its obligations under the Management Agreement, which default
materially and adversely affects the Company or the Fund and which, if
capable of cure, remains uncured for thirty (30) days after written
notice thereof, (ii) gross negligence, willful misconduct or fraud in the
performance by the Manager of its obligations hereunder or by the Asset
Manager of its obligations under the Management Agreement, (iii) the
commission of a felony or misdemeanor involving embezzlement, theft or
acts of moral turpitude by the Manager or the Asset Manager or (iv)
failure by the Manager to make an Additional Tranche II Capital
Contribution or Extraordinary Funding for a period exceeding ninety (90)
days (any of the foregoing, "Cause"), the Fund shall have the right in
its sole and absolute discretion to remove the Manager (and, except in
the case of a failure to make an Additional Tranche II Capital
Contribution or Extraordinary Funding, to remove LXP as a Member if LXP
or any Affiliate of LXP is the Manager) by written notice to the Manager
(the "Removal Notice") and to appoint a new Manager. The Removal Notice
shall specifically set forth the act or failure to act of the Manager or
the Asset Manager upon which the Cause is based. Such removal of the
Manager shall be effective ten (10) Business Days after receipt of the
Removal Notice by the Manager (unless such removal is enjoined as
provided below). If LXP is the Manager, LXP shall have the right, in its
discretion, to sue the Fund to enjoin such removal. In order to enable
LXP to seek prompt injunctive relief in the event of a removal pursuant
hereto, the parties agree to seek expedited resolution of any lawsuit
brought with respect to such removal, and the Fund acknowledges that, for
purposes hereof only, in the event the Fund violated Section 8.3 hereof
by wrongfully removing LXP, the injury to LXP would be irreparable and
one for which there is no adequate remedy at law. In the event that the
Fund elects to remove the Manager (or LXP), any agreements between the
Company and the Manager (or LXP, or any Affiliate of LXP or the Asset
Manager) shall be terminated without cost or penalty as of the effective
date of the Manager's removal.
(b) Removal Amount Due LXP. Upon removal of LXP as a Member as
provided in Section 8.3(a) above, LXP shall be entitled to be paid an
amount (the "Removal Amount") equal to the difference between (i) the
amount LXP would receive if the Company were dissolved, the Tranche II
Properties sold for their Fair Market Values (determined pursuant to
Section 8.3(c) hereof) and the assets of the Company (including Tranche
II LSL Loans and Warrants (including Put Options)) were distributed in
liquidation in accordance with Section 9.2 hereof, minus (ii) any
liabilities, claims, losses, damages, costs or expenses incurred by the
Company or the Fund as a result of the Cause which led to LXP's removal
hereunder. The Company shall cause the Removal Amount to be paid out of
proceeds from liquidation or sales of Tranche II Properties and other
assets resulting from a liquidation performed in accordance with the
standards described in the first two sentences of Section 9.2(ii) hereof
in cash no later than two (2) years after effectiveness of the removal;
provided, that the Company may, but shall not be obligated to, pay the
Removal Amount without liquidating some or all of the Tranche
52
II Properties and other assets not later than two (2) years after the
effectiveness of the removal. Interest on the Removal Amount shall accrue
at a rate equal to the 10-year treasury rate plus two percent (2%) per
annum following the effectiveness of the removal, as provided in Section
8.3(a) hereof, and shall be payable in arrears out of proceeds from
liquidation of Tranche II Properties and other assets. The proceeds from
the liquidation or sale of a Tranche II Property shall be distributed to
LXP and the Fund pro rata in accordance with Section 9.2 hereof. If, due
to market conditions or the adverse effect of liquidation on the Fair
Market Value of the Tranche II Properties, liquidation cannot be
completed within two (2) years, the date for paying the Removal Amount in
full shall be extended for the length of time needed to accomplish
liquidation in accordance with Section 9.2.
(c) Determination of Fair Market Value. For purposes of
calculating the Removal Amount described above in Section 8.3(b), the
Fair Market Value of each Tranche II Property shall be (i) the net amount
obtained by liquidating such Tranche II Property in accordance with
Section 9.2 and applying the proceeds of sale to the payment of the debts
and obligations of the Company secured by or relating to such Tranche II
Property (including a prorata portion of the Company's debts and
obligations that are not secured by or do not relate to any particular
Tranche II Property) and to the expenses of liquidating such Tranche II
Property and to the setting up to any reserves in accordance with Section
9.2(iv)(B) hereof (but only with respect to such Tranche II Property), or
(ii) if the Company elects not to liquidate each such Tranche II
Property, determined by agreement between LXP and the Fund, or if
agreement cannot be reached within thirty (30) days after determination
that the Tranche II Property will not be liquidated, by an independent,
reputable and qualified real estate appraiser with at least ten (10)
years experience selected by the Fund and LXP. If LXP and the Fund cannot
agree on an appraiser, then each shall select an independent, qualified
and reputable real estate appraiser with at least ten (10) years
experience to determine the Fair Market Values of the Tranche II
Properties. If the appraisers agree on the Fair Market Values, then the
Fair Market Values of the Tranche II Properties shall be as determined by
the appraisers. If the appraisers do not agree, then each appraiser shall
set forth its determination of the Fair Market Value of each Tranche II
Property and, with respect to each Tranche II Property, if the higher
amount set forth in either appraisal is not more than 10% of the lower
amount, then the Fair Market Value of such Tranche II Property shall be
the average of the amount set forth in the two appraisals. If the higher
amount exceeds the lower amount of the appraisal of any Tranche II
Property by more than 10%, then the two appraisers shall designate a
third appraiser to determine the Fair Market Value of such Tranche II
Property. If the two appraisers cannot agree upon the designation of the
third appraiser, then the third appraiser shall be appointed by the
American Arbitration Association in the City of New York. The third
appraiser shall conduct such investigations as it shall deem appropriate
and within 30 days after its date of designation shall choose, with
respect to each Tranche II Property as to which a Fair Market Value has
not been determined pursuant to the second preceding sentence, the
appraisal of the Fund's appraiser or the appraisal of LXP's appraiser and
no other amount as the Fair Market Value of each Tranche II Property. The
decision of the third appraiser shall be in writing and shall be binding
on LXP and the Fund. If LXP and the Fund agree on an appraiser, then the
Company shall pay the fees and expenses of such appraiser. If LXP
53
and the Fund each select an appraiser, then LXP and the Fund shall each
pay the fees and expenses of the appraiser selected by it, and the
Company shall pay the fees and expenses of any third appraiser designated
by such appraisers or by the American Arbitration Association.
(d) Removal not Wrongful. In addition to the foregoing, after
removal of LXP as a Member and, if LXP sues to enjoin the removal, a
final determination by a court of competent jurisdiction that such
removal was not wrongful, the Fund shall have the right to cause the
dissolution and liquidation of the Company in accordance with Article IX
hereof.
ARTICLE IX
TERMINATION
Section 9.1 Dissolution. The Company shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following
(collectively, the "Liquidating Events"):
(i) the reduction to cash or cash equivalents (other
than purchase money notes obtained by the Company from the sale of
Tranche II Property) of the last remaining Tranche II Property;
(ii) the agreement in writing by LXP and the Fund to
dissolve the Company;
(iii) the termination of the term of the Company
pursuant to Section 2.5 hereof;
(iv) the entry of a decree of judicial dissolution of
the Company pursuant to Section 18-802 of the Act;
(v) the election of the Fund to dissolve the Company
pursuant to Section 8.3(d) hereof;
(vi) all of the Tranche II Properties have been sold to
one or the other Member pursuant to the exercise of the Buy/Sell as
provided in Section 11.1 hereof;
(vii) the Bankruptcy, insolvency, dissolution or
withdrawal from the Company of LXP or the Fund, provided that the
bankruptcy of LXP shall not constitute a Liquidating Event if the Company
is continued pursuant to this Section 9.1; or
(viii) the election of any Member to dissolve the
Company after the breach by any other Member of any representation,
warranty or covenant contained in this Agreement, which breach had or has
a material adverse effect on the Company or such other Member, and, if
capable of cure, is not cured within fifteen (15) days after notice
thereof from such other Member.
54
The Members hereby agree that, notwithstanding any provision of the Act, the
Company shall not dissolve prior to the occurrence of a Liquidating Event. Upon
the occurrence of the events described in Section 9.1(v) or Section 9.1(vii)
above (relating to the status of LXP), the Company shall not be dissolved or
required to be wound up if within ninety (90) days after such event the Fund
elects, in its sole and absolute discretion, to continue the business of the
Company and to appoint, effective as of the date of such event, a successor
Manager.
Section 9.2 Termination. In all cases of dissolution of the
Company, the business of the Company shall be wound up and the Company
terminated as promptly as practicable thereafter, and each of the following
shall be accomplished:
(i) The Liquidator shall cause to be prepared a
statement setting forth the assets and liabilities of the Company as of
the date of dissolution, a copy of which statement shall be furnished to
all of the Members;
(ii) The Tranche II Properties and assets of the Company
(including Tranche II LSL Loans and Warrants (including Put Options))
shall be liquidated by the Liquidator as promptly as possible, but in an
orderly and businesslike and commercially reasonable manner, consistent
with maximizing the price to be received. The Liquidator in its
reasonable discretion and with the consent of the Fund shall determine
whether to sell any Tranche II Property at a public or private sale, for
what price and on what terms. The Liquidator may, in the exercise of its
good faith business judgment and if commercially reasonable and if
acceptable to the Fund, determine not to sell a portion of the Tranche II
Properties and assets of the Company, in which event such Tranche II
Properties and assets shall be distributed in kind pursuant to clause
(iv) below;
(iii) Any Profit or Loss realized by the Company upon
the sale or other disposition of its property pursuant to Section 9.2(ii)
above shall be allocated to the Members as required by Article VI hereof;
and
(iv) The proceeds of sale and all other assets of the
Company shall be applied and distributed as follows and in the following
order of priority; provided, that if LXP has been removed as a Member and
has received payment in full of the Removal Amount pursuant to Section
8.3 hereof, then LXP shall not be paid any portion of such proceeds of
sale and other assets of the Company:
(A) To the payment of the debts and liabilities of
the Company and the expenses of liquidation;
(B) To the setting up of any reserves which the
Liquidator shall reasonably determine to be necessary for
contingent, unliquidated or unforeseen liabilities or obligations
of the Company or the Members arising out of or in connection
with the Company. Such reserves may, in the discretion of the
Liquidator, be paid over to a national bank or national title
company selected by it and authorized to conduct business as an
escrowee to be held by such bank or title company as escrowee for
the purposes of disbursing such reserves to satisfy the
liabilities and obligations described above, and at the
expiration of such period as
55
the Liquidator may reasonably deem advisable, distribute any
remaining balance in the manner set forth below;
(C) To pay each Member the amount standing to such
Member's credit in such Member's Capital Account; and
(D) The balance, if any, to the Members pari passu
in accordance with their respective Tranche II Percentage
Interest.
No payment or distribution in any of the foregoing categories shall be
made until all payments in each prior category shall have been made in
full. If the payments due to be made in any of the foregoing categories
exceed the remaining assets available for such purpose, such payment
shall be made to the Persons entitled to receive the same pro rata in
accordance with the respective amount due them.
Payments described in clause (iv) above must be made in cash. The Members
shall continue to share profits, losses and other tax items during the
period of liquidation in the same proportions as before dissolution.
Section 9.3 Certificate of Cancellation. Upon completion of the
distribution of the Company's assets as provided in this Article IX and the
completion of the winding-up of the affairs of the Company, the Company shall be
terminated, and the Liquidator shall cause the filing of a Certificate of
Cancellation of the Certificate of Formation in the office of the Secretary of
State of the State of Delaware in accordance with the Act and shall take all
such other actions as may be necessary to terminate the Company in accordance
with the Act and shall take such other actions as may be necessary to terminate
the Company's registration in any other jurisdictions where the Company is
registered or qualified to do business.
Section 9.4 Acts in Furtherance of Liquidation. Each Member or
former Member, upon the request of the Liquidator, shall promptly execute,
acknowledge and deliver all documents and other instruments as the Liquidator
shall reasonably request to effectuate the proper dissolution and termination of
the Company, including the winding up of the business of the Company.
ARTICLE X
REPRESENTATIONS OF THE MEMBERS
Section 10.1 Representations of the Fund. The Fund hereby
represents and warrants to LXP and the Company as follows:
(i) This Agreement constitutes the valid and binding agreement of
the Fund, enforceable against the Fund in accordance with its terms,
subject as to enforcement of bankruptcy, insolvency and other similar
laws affecting the rights of creditors and to general principles of
equity;
(ii) The Fund has all requisite power and authority to enter into
this Agreement, to carry out the provisions and conditions hereof and to
perform all acts necessary or appropriate to consummate all of the
transactions contemplated hereby and
56
no further action by the Fund is necessary to authorize the execution or
delivery of this Agreement;
(iii) This Agreement has been duly and validly executed and
delivered by the Fund and the execution, delivery and performance hereof
by the Fund does not and will not (i) require the approval of any other
Person, or (ii) contravene or result in any breach of or constitute any
default under, or result in the creation of any lien upon the Fund's
assets under, any indenture, mortgage, loan agreement, lease or other
agreement or instrument to which the Fund is a party or by which the Fund
or any of its properties is bound;
(iv) To the Fund's knowledge, there has been no material adverse
change in the economic condition of the Fund since the last public report
thereof;
(v) No finder's, broker's or similar fee or commission has been
paid or shall be paid by the Fund to any individual or organization in
connection with the formation of the Company except for fees payable to
the Advisor;
(vi) There is no action, suit or proceeding pending or, to its
knowledge, threatened against the Fund that questions the validity or
enforceability of this Agreement or, if determined adversely to it, would
materially adversely affect the ability to the Fund to perform its
obligations hereunder;
(vii) The Fund is not the subject of any bankruptcy, insolvency
or reorganization proceeding;
(viii) To the Fund's knowledge, the Fund has not received from
any governmental agency any notice of violation of any law, statute or
regulation which would have a material adverse effect on the Company; and
(ix) To the Fund's knowledge, the Fund is not in default in the
performance or observation of any obligation under any agreement or
instrument to which it is a party or by which it or any of its properties
is bound, which default would individually or in the aggregate with other
defaults materially adversely affect the business or financial condition
of the Company.
Section 10.2 Representations of LXP. LXP represents and warrants
to the Fund and the Company as follows:
(i) This Agreement constitutes the valid and binding agreement of
LXP enforceable against LXP in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency and other similar laws affecting
the rights of creditors and to general principles of equity;
(ii) LXP has been duly formed and is validly existing as a real
estate investment trust in good standing under the laws of the State of
Maryland, with all requisite power and authority to enter into this
Agreement, to carry out the provisions and conditions hereof and to
perform all acts necessary or appropriate to consummate all of
57
the transactions contemplated hereby. Except as set out on Schedule
10.2(ii) attached hereto, LXP is duly qualified as a foreign corporation
in each jurisdiction in which the ownership of its assets or the conduct
of its business requires such qualification, except where the failure to
so qualify would not have a material adverse effect on the business or
financial condition of the Company or LXP;
(iii) This Agreement has been duly and validly executed and
delivered by LXP and the execution, delivery and performance hereof by
LXP does not and will not (x) require the approval of any other Person or
(y) contravene or result in any breach of or constitute any default
under, or result in the creation of any lien upon LXP's assets under, any
indenture, mortgage, loan agreement, lease or other agreement or
instrument to which LXP or any of its Affiliates is a party or by which
LXP or any of its properties is bound;
(iv) To LXP's knowledge, LXP is not in default in the performance
or observation of any obligation under any agreement or instrument to
which it is a party or by which it or any of its properties is bound,
which default would individually or in the aggregate with other defaults
materially adversely affect the business or financial condition of LXP;
(v) The formation of the Company did not and the consummation of
the transactions contemplated herein does not and will not result in any
violation of the declaration of trust or by-laws of LXP;
(vi) No finder's, broker's or similar fee or commission has been
paid or shall be paid to any individual or organization in connection
with the formation of the Company except for fees payable to the Advisor;
(vii) There is no action, suit or proceeding pending or, to its
knowledge, threatened against LXP that questions the validity or
enforceability of this Agreement or, if determined adversely to it, would
materially adversely affect the ability to LXP to perform its obligations
hereunder;
(viii) Except as set forth in Schedule 10.2(viii) attached hereto
and made a part hereof, there has been no material adverse change in the
circumstances or condition, financial or otherwise, of LXP since the date
of the last filing by LXP with the United States Securities and Exchange
Commission;
(ix) LXP is not the subject of any bankruptcy, insolvency or
reorganization proceeding;
(x) LXP is a "real estate investment trust" (a "REIT") within the
meaning of Section 856 of the Code (and any Regulations promulgated
thereunder);
(xi) To LXP's knowledge, LXP has not received from any
governmental agency any notice of violation of any law, statute or
regulation which would have a material adverse effect on the financial
condition of either LXP or of the Company;
58
(xii) The informational materials that have been publicly
disseminated to the shareholders of the LXP are true, complete and
correct in all material respects as of the date of such informational
materials, provided that with respect to any forecasts or financial
projections contained in such publicly-disseminated informational
materials, LXP represents and warrants only that such forecasts and
financial projections represent LXP's best estimates of future
performance;
(xiii) Financial statements for LXP previously delivered to the
Advisor or the Fund present fairly the financial position of LXP as of
the date of such financial statements;
(xiv) All information contained in the Fee Disclosure will be
true, correct and complete, as of the date of such disclosure.
ARTICLE XI
SPECIAL MEMBER RIGHTS AND OBLIGATIONS
Section 11.1 Buy/Sell.
(a) Generally. After the Tranche II Rights Trigger Date, any
Member, and, as provided in Section 11.1(e) and Section 11.1(f) below,
the Member specified therein (the "Offering Member") may provide the
other Member (the "Responding Member") notice (the "Offer Notice") of a
price (the "Offer Price") that the Offering Member is willing to pay to
purchase (A) those Tranche II Properties and/or Tranche II LSL Loans and
related Warrants (including Put Options) which the Offering Member
desires to purchase if the Offering Member desires to purchase less than
all of the Tranche II Properties and/or Tranche II LSL Loans and Warrants
from the Company, or (B) all of the Tranche II Properties and Tranche II
LSL Loans and Warrants (including Put Options) if the Offering Member
desires to purchase all of the Tranche II Properties and Tranche II LSL
Loans and Warrants, (provided that an offer to purchase all of the
Tranche II Properties and Tranche II LSL Loans and Warrants shall be
implemented as a purchase of the Tranche II Percentage Interest of the
other Member from the other Member) (such Tranche II Properties and
Tranche II LSL Loans and Warrants (including Put Options), collectively,
or such Tranche II Percentage Interest, as the case may be, the "Tranche
II Buy/Sell Property"), such Offer Notice to include, as an attachment
thereto, a bona fide proposed purchase and sale agreement on terms
reasonably customary for the sale of real property or for the sale of
notes secured by pledges of equity interests and of warrants or for the
sale of membership interests in a limited liability company that owns
primarily real property (the "Offered Agreement"). Upon receipt of the
Offer Notice, the Responding Member shall have thirty (30) days to
provide to the Offering Member a notice (the "Response Notice")
specifying the Responding Member's election either, (i) if the Tranche II
Buy/Sell Property comprises less than all of the Tranche II Properties
and/or Tranche II LSL Loans and related Warrants, to cause the Company to
sell the Tranche II Buy/Sell Property to the Offering Member at the Offer
Price pursuant to the Offered Agreement, (ii) if the Tranche II Buy/Sell
Property comprises less than all of the Tranche II Properties and/or
Tranche II LSL Loans and related Warrants, to purchase the Tranche II
Buy/Sell Property from the
59
Company for a purchase price equal to the Offer Price and on
substantially the same terms and conditions as provided in the Offered
Agreement, or, (iii) if the Tranche II Buy/Sell Property comprises all of
the Tranche II Properties and Tranche II LSL Loans and Warrants, purchase
the Tranche II Percentage Interest of the Offering Member or sell its
Tranche II Percentage Interest to the Offering Member for cash in an
amount equal to the amount of cash the Offering Member would receive
under Section 9.2 hereof if the Company assets were sold for cash at the
Offer Price and the Company liquidated and dissolved (the "Interest
Price"). In determining the amount of the Interest Price, it will be
assumed that no reserves will be required under Section 9.2 hereof. Any
Offer Notice made with respect to all of the Tranche II Properties in
connection with a dispute among the Members concerning more than fifty
percent (50%) of the Tranche II Properties and Tranche II LSL Loans and
Warrants or concerning the governance or management of the Company shall
supersede and render of no further effect any Offer Notice (x) made with
respect to less than all of the Tranche II Properties and Tranche II LSL
Loans and Warrants and (y) to which no Response Notice has been provided
to the Offering Member of such Offer Notice.
(b) Responding Member's Election to Purchase. If the Responding
Member timely delivers a Response Notice that specifies the Responding
Member's election to purchase the Tranche II Buy/Sell Property, as
described in Section 11.1(a) above, then the Responding Member shall have
up to one hundred and twenty (120) days to close the purchase of the
Tranche II Buy/Sell Property on substantially the same terms and
conditions as contained in the Offered Agreement.
(c) Responding Member's Election not to Purchase. If the
Responding Member delivers a timely Response Notice that specifies the
Responding Member's election not to purchase the Tranche II Buy/Sell
Property, as described in Section 11.1(a) above, then the Manager shall
cause the Company to sell the Tranche II Buy/Sell Property to the
Offering Member, or if the Responding Member fails to deliver a timely
Response Notice, then the Offering Member must elect either, (i) if the
Tranche II Buy/Sell Property comprises less than all of the Tranche II
Properties, to proceed to close the acquisition of the Tranche II
Buy/Sell Property at the Offer Price in accordance with the terms and
conditions of the Offered Agreement, provided, however, that such closing
must take place within the ninety (90) day period beginning on the
earlier of (x) the date of delivery of the Response Notice, or (y) the
expiration of the thirty (30) day period during which the Responding
Member is required to deliver a Response Notice, or, (ii) if the Tranche
II Buy/Sell Property comprises all of the Tranche II Properties and
Tranche II LSL Loans and Warrants, to purchase the Tranche II Percentage
Interest of the Responding Member, within the ninety (90) day period
described in clause (i) above, for cash in an amount equal to the amount
the Responding Member would receive under Section 9.2 hereof if the
Company assets were sold at the Offer Price and the Company were
liquidated and dissolved (the "Responding Interest Price"). In
determining the amount of the Responding Interest Price, it will be
assumed that no reserves will be required pursuant to Section 9.2 hereof.
(d) Challenge to Buy/Sell. If any Member (the "Challenging
Member") initiates a legal action with respect to any exercise of the
other Member's rights under this Section
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11.1 and such legal action is not resolved in the Challenging Member's
favor by a court of competent jurisdiction, the Challenging Member shall
pay all attorneys' fees and court costs arising in connection with the
Challenging Member's legal action.
(e) Buy/Sell Upon Default or Dispute. Prior to the Tranche II
Rights Trigger Date, any Member may exercise as the Offering Member its
buy/sell right as provided in Section 11.1(a) above in the event of a
material default of this Agreement by any other Member, or a material
dispute among the Members.
(f) Buy/Sell Upon Change of Control in LXP. In the event there is
any change in the control or management of LXP without the consent of the
Fund while LXP is the Manager, the Fund may exercise the buy-sell
provided in this Section 11.1. For the purposes hereof, (x) a change in
control shall be deemed to occur upon any Person (and its Affiliates)
becoming the beneficial owner, directly or indirectly, of thirty-three
percent (33%) or more of the outstanding shares of Common Stock of LXP on
a fully diluted basis (including any outstanding interests in Leperq
Corporate Income Fund, L.P. and Leperq Corporate Income Fund II, L.P. and
any other entity, that can be converted into shares of Common Stock of
LXP) and (y) a change in management shall be deemed to occur either upon
the resignation or removal of both E. Robert Roskind and T. Wilson Eglin
from the management of LXP or the replacement of a majority of the
members of the Board of Trustees of LXP over a one-year period.
(g) Due Diligence and Other Costs. Each Member shall bear its own
costs, such as due diligence expenses and consultants' and attorneys'
fees, incurred in connection with its exercise of, or response to,
buy/sell rights.
Section 11.2 Convertibility.
(a) Grant of Tranche II Redemption Rights. The Fund will have the
right (the "Tranche II Redemption Right") to require LXP to acquire all
or a portion of the Fund's Tranche II Percentage Interest in the Company
for either, at LXP's sole option, (i) a number of Shares of the Shares of
LXP equal to the Share Purchase Price or (ii) a cash amount equal to the
Cash Purchase Price, both in accordance with the Tranche II Redemption
Rights Schedule attached hereto as Schedule 5 and made a part hereof. Any
Shares issued pursuant to this Section 11.2 will not be registered under
any federal or state securities laws but shall be subject to the terms of
the registration rights agreement attached hereto as Schedule 7 and made
a part hereof to be entered into by LXP and the Fund at the time of
issuance of such Shares. Notwithstanding anything in this Agreement to
the contrary, in the event the shareholders of LXP are required by law,
regulation or otherwise to approve the issuance of Shares to the Fund but
do not approve the issuance of Shares to the Fund as provided in this
Agreement, which failure to approve prevents the Fund from being able to
receive the Share Purchase Price upon exercise of the Tranche II
Redemption Right, LXP shall satisfy the Fund's Tranche II Redemption
Right by paying the Cash Purchase Price to the Fund pursuant to Section
11.2(c) below.
(b) Conditions to Exercise of Tranche II Redemption Right. The
Tranche II Redemption Right shall be subject to the following conditions:
61
(i) The Fund may exercise the Tranche II Redemption Right at any
time on and after the earlier to occur of (x) the Tranche II Rights
Trigger Date or (y) the date on which the Company has invested at least
One Hundred Twenty-Five Million Dollars ($125,000,000) of its equity
capital through the purchase of Tranche II Properties;
(ii) The Fund may exercise the Tranche II Redemption Right only
if all of the Tranche II Properties and the Tranche II LSL Properties
have a remaining lease maturity of at least the lesser of (x) 70% of the
original lengths of the terms of the leases or (y) an average of seven
years. If all of the Tranche II Properties and the Tranche II LSL
Properties do not qualify under either (x) or (y) of the preceding
sentence, then the Fund shall have the right to exclude Tranche II
Properties and the Tranche II LSL Properties (the "Retained Tranche II
Properties") that it shall designate from the calculation of lease
maturity so as to make the remaining Tranche II Properties and remaining
Tranche II LSL Properties (the "Proposed Tendered Tranche II Properties")
satisfy the minimum lease maturity standard; and
(iii) LXP (x) may exclude (A) any Proposed Tendered Tranche II
Property leased in whole or in part to any Investment Grade Tenant that
has experienced a downgrade of its credit rating since such Proposed
Tendered Tranche II Property was acquired by the Company or by a Special
Purpose LLC or (B) any Proposed Tendered Tranche II Property leased in
whole or in part to any Non-Investment Grade Tenant that has experienced
a material adverse change in its financial condition (including a
downgrading of its credit rating since such Proposed Tendered Tranche II
Property was acquired by the Company or by a Special Purpose LLC) if (y)
(i) the aggregate Fair Market Values of the Proposed Tendered Tranche II
Properties (plus the unpaid principal balance and accrued interest on
each Tranche II LSL Loan corresponding to a Proposed Tendered Tranche II
Property and the value of the Warrants (including Put Options) relating
thereto) described above in clauses (A) and (B) is greater than an amount
equal to seven and one-half percent (7 1/2%) of the Fair Market Values of
all of the Proposed Tendered Tranche II Properties (plus the unpaid
principal balance and accrued interest on each Tranche II LSL Loan
corresponding to a Proposed Tendered Tranche II Property and the value of
the Warrants (including Put Options) relating thereto) and (ii) the
aggregate Fair Market Values of all of the Proposed Tendered Tranche II
Properties (plus the unpaid principal balance and accrued interest on
each Tranche II LSL Loan corresponding to a Proposed Tendered Tranche II
Property and the value of the Warrants (including Put Options) relating
thereto) equals or exceeds Twenty Million Dollars ($20,000,000). The
Proposed Tendered Tranche II Properties excluded by LXP as provided in
this Section 11.2(b)(iii) shall be added to and become a part of the
Retained Tranche II Properties, and the Tranche II Redemption Right shall
apply only to the remaining Proposed Tendered Tranche II Properties (the
remaining Proposed Tendered Tranche II Properties, together with the
Tranche II LSL Loans corresponding to a remaining Proposed Tendered
Tranche II Properties together with the Warrants (including Put Options)
related thereto, are collectively referred to as the "Tendered Tranche II
Properties").
62
(c) Cash Purchase Price. LXP shall have a right in its sole and
absolute discretion to satisfy the Fund's Tranche II Redemption Right by
paying the Cash Purchase Price to the Fund. The Cash Purchase Price (the
"Cash Purchase Price") shall be a cash price equal to the Fund's Tranche
II Percentage Interest multiplied by One Hundred Ten Percent (110%) of
the sum of (i) the Fair Market Values of all of the Tendered Tranche II
Properties that are not Tranche II LSL Properties plus (ii) the unpaid
principal balance and accrued interest of each Tranche II LSL Loan that
corresponds to a Tendered Tranche II Property plus (iii) the fair market
value of all outstanding Warrants (including the related Put Options)
relating to the Tendered Tranche II Properties.
(d) The Fund's Retained Tranche II Properties. If the Fund elects
to exclude the Retained Tranche II Properties in accordance with Section
11.2(b) above, the Fund shall identify the Retained Tranche II Properties
in its Exercise Notice, and the Retained Tranche II Properties shall be
dealt with as set forth in Paragraph 13 of Schedule 5.
(e) LXP's Retained Tranche II Properties. If LXP elects to
exclude any of the Retained Tranche II Properties in accordance with
Section 11.2(b) above, LXP shall identify the Retained Tranche II
Properties in its Election Notice, and the Retained Tranche II Properties
shall be dealt with as set forth in Paragraph 13 of Schedule 5.
Section 11.3 Remuneration To Members. No Member is entitled to
remuneration for acting on behalf of the Company. Except as otherwise authorized
in this Agreement, including but not limited to Sections 3.6 and 3.10, no Member
is entitled to remuneration for acting in the Company business.
Section 11.4 Equality of Shares. LXP covenants that: (x) the
Shares issuable upon the Fund's exercise of the Tranche II Redemption Right (the
"Redemption Right Shares") shall have rights, privileges, powers and immunities
identical to the Shares then outstanding, including without limitation full
voting rights and any rights (whether or not then exercisable) to purchase or
subscribe for other securities; (y) LXP shall not issue securities of any class
entitled to vote in the election of trustees of LXP unless fair consideration is
transferred to LXP in exchange therefor and the proportionate voting power of
such class does not exceed the proportion of the total capital of the Company
represented by such consideration; and (z) LXP shall not amend its organic
documents, adopt or amend any plan, or issue or suffer to remain outstanding any
securities, the terms or effect of which is (or upon the occurrence of any event
would become) inconsistent with the foregoing clauses (x) and (y) or would
subject the Redemption Right Shares to any disability or deny the Redemption
Right Shares any benefit not shared equally with all other Shares then
outstanding. If LXP shall breach the covenants contained in this Section 11.4,
then the Fund shall have all remedies hereunder or under applicable law,
including without limitation if the Fund exercises the Tranche II Redemption
Right as provided Section 11.2 hereof the Fund shall have the option of
requiring LXP either (x) to pay the Cash Purchase Price or (y) to pay the Share
Purchase Price plus damages in an amount equal to the total of (i) one hundred
and ten percent (110%) of the difference, if any, between the value that the
Shares received by the Fund would have had had such dilution not occurred and
the value of such Shares as diluted and (ii) any other damages suffered by the
Fund as the result of such breach.
63
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 Notices.
(a) Generally. All notices, demands, approvals, consents or
requests provided for or permitted to be given pursuant to this Agreement
must be in writing.
(b) Manner of Notice. All notices, demands, approvals, consents
and requests to be sent to the Company, LXP or the Fund pursuant to the
terms hereof shall be deemed to have been properly given or served, if
personally delivered, sent by recognized messenger or next day courier
service, or sent by United States mail, telex or facsimile transmission
to the addresses or facsimile numbers listed below, and will be deemed
received, unless earlier received: (a) if sent by express, certified or
registered mail, return receipt requested, when actually received or
delivery refused; (b) if sent by messenger or courier, when actually
received; (c) if sent by telex or facsimile transmission, on the date
sent, so long as a confirming notice is sent by messenger or courier or
by express, certified, registered, or first-class mail; (d) if delivered
by hand, on the date of delivery; and (e) if sent by first-class mail,
seven days after it was mailed. Rejection or other refusal to accept or
the inability to deliver because of changed address of which no notice
was given shall be deemed to be receipt of the notice, demand or request
sent.
If to the Company: Lexington Acquiport Company II, LLC
c/o Lexington Corporate Properties Trust
355 Lexington Avenue
New York, New York 10017-6603
Attention: Chief Executive Officer
Telephone No.: (212) 692-7200
Fax No. (212) 986-6972
with a copy to: The Comptroller of the State of
New York, as Trustee of the
Common Retirement Fund
633 Third Avenue, 31st floor
New York, New York 10017-6754
Attention: Assistant Counsel for
Real Estate Investments
and
Assistant Deputy Comptroller
for Real Estate Investments
Telephone No.: (212) 681-4489
Fax No.: (212) 681-4485
64
and a copy to: Clarion Partners
335 Madison Avenue
New York, New York 10017
Attention: Mr. Frank L. Sullivan, Jr.
Telephone No.: (212) 883-2503
Fax No.: (212) 883-2803
If to LXP: Lexington Corporate Properties Trust
355 Lexington Avenue
New York, New York 10017-6603
Attention: Chief Executive Officer
Telephone No.: (212) 692-7200
Fax No.: (212) 986-6972
with a copy of
any notice specified
in Section 12.1(d)
below to: Paul, Hastings, Janofsky & Walker LLP
399 Park Avenue, 31st floor
New York, New York 10022-4697
Attention: Barry A. Brooks, Esq.
Telephone No.: (212) 318-6000
Fax No.: (212) 319-4090
If to the Fund: The Comptroller of the State of
New York, as Trustee of the
Common Retirement Fund
633 Third Avenue, 31st floor
New York, New York 10017-6754
Attention: Assistant Counsel for
Real Estate Investments
and
Assistant Deputy Comptroller for
Real Estate Investments
Telephone No.: (212) 681-4489
Fax No. (212) 681-4485
with a copy to: Clarion Partners
335 Madison Avenue
New York, New York 10017
Attention: Mr. Frank L. Sullivan, Jr.
Telephone No.: (212) 883-2503
Fax No.: (212) 883-2803
65
and a copy of any
notices of default to: O'Melveny & Myers LLP
153 East 53rd Street
New York, New York 10022
Attention: Francis J. Burgweger, Jr., Esq.
Telephone No.: (212) 326-2000
Fax No.: (212) 326-2061
(c) Right to Change Addresses. A Member shall have the right from
time to time and at any time during the term of this Agreement to change
its notice address or addresses by giving to the other Member at least
ten (10) Business Days' prior written notice thereof in the manner
provided by this Section 12.1. The Fund shall have the right from time to
time and at any time during the term of this Agreement to designate a
successor to Clarion Partners as Advisor by giving to the other Member at
least ten (10) Business Days' prior written notice thereof in the manner
provided by this Section 12.1.
(d) Notices to Paul, Hastings, Janofsky & Walker LLP. Copies of
the following notices shall be provided to Paul, Hastings, Janofsky and
Walker LLP at the address listed in Section 12.1(b) above: notices made
in connection with Section 11.1 and Section 11.2 hereof, notices of
default and any notice made in connection with the exercise by a Member
of any right hereunder not in the ordinary course of the Company's
business.
Section 12.2 Governing Laws. This Agreement and the obligations
of the Members hereunder shall be interpreted, construed and enforced in
accordance with the laws of the State of Delaware without regard to its choice
of law provisions. Except as otherwise provided herein, the rights and
obligations of the Members and the administration and termination of the Company
shall be governed by the Act.
Section 12.3 Entire Agreement. This Agreement contains the entire
agreement between the parties, supercedes any prior agreements or understandings
between them and may not be modified or amended in any manner other than
pursuant to Section 12.12 hereof.
Section 12.4 Waiver. No consent or waiver, express or implied, by
any Member to or of any breach or default by any other Member in the performance
by the other Member of its obligations hereunder shall be deemed or construed to
be a consent or waiver to or of any other breach or default in the performance
by such other Member of the same or any other obligations of such other Member
hereunder. Failure on the part of any Member to complain of any act or failure
to act of any of the other Members or to declare any of the other Members in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Member of its rights hereunder. No custom, practice or course of
dealings arising among the Members in the administration hereof shall be
construed as a waiver or diminution of the right of any Member to insist upon
the strict performance by any other Member of the terms, covenants, agreements
and conditions herein contained.
Section 12.5 Validity. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the
66
remainder of this Agreement and the application of such provisions to other
Persons or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
Section 12.6 Terminology; Captions. All personal pronouns used in
this Agreement, whether used in the masculine, feminine, or neuter gender, shall
include all other genders; the singular shall include the plural, and vice versa
and shall refer solely to the parties signatory hereto except where otherwise
specifically provided. Titles of Articles, Sections, Subsections, Schedules and
Exhibits are for convenience only, and neither limit nor amplify the provisions
of the Agreement itself, and all references herein to Articles, Sections,
Subsections, Schedules and Exhibits shall refer to the corresponding Articles,
Sections, Subsections, Schedules and Exhibits of this Agreement unless specific
reference is made to such Articles, Sections, Subsections, Schedules and
Exhibits of another document or instrument. Any use of the word "including"
herein shall, unless the context otherwise requires, be deemed to mean
"including without limitation".
Section 12.7 Remedies Not Exclusive. Except as otherwise provided
herein, the rights and remedies of the Company and of the Members hereunder
shall not be mutually exclusive, i.e., the exercise of one or more of the
provisions hereof shall not preclude the exercise of any other provisions
hereof. Each of the Members confirms that damages at law may be an inadequate
remedy for a breach or threatened breach of this Agreement and agrees that in
the event of a breach or threatened breach of any provision hereof, the
respective rights and obligations hereunder shall be enforceable by specific
performance, injunction or other equitable remedy but nothing herein contained
is intended to, nor shall it, limit or affect any rights or rights at law or by
statute or otherwise of any party aggrieved as against the other for breach or
threatened breach of any provision hereof, it being the intention by this
section to make clear the agreement of the Members that the respective rights
and obligations of the Members hereunder shall be enforceable in equity as well
as at law or otherwise.
Section 12.8 Action by the Members. No approval, consent,
designation or other action by a Member shall be binding upon such Member unless
the same is in writing and executed on behalf of such Member by a duly
authorized representative of such Member.
Section 12.9 Further Assurances. Each of the Members shall
hereafter execute and deliver such further instruments and do such further acts
and things as may be required or useful to carry out the intent and purpose of
this Agreement and as are not inconsistent with the terms hereof.
Section 12.10 Liability of the Members. Each Member's exposure to
liabilities hereunder is limited to its interest in the Company. No Member shall
be personally liable for the expenses, liabilities, debts, or obligations of the
Company.
Section 12.11 Binding Effect. Except as otherwise provided in
this Agreement, every covenant, term, and provision of this Agreement shall be
binding upon and inure to the benefit of the Members and their respective
successors, transferees, and assigns.
67
Section 12.12 Amendments. Except as otherwise provided in this
Agreement, this Agreement may not be amended without the written consent of all
the Members.
Section 12.13 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original, but all such counterparts together shall constitute but one and the
same instrument; signature and acknowledgment pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature and acknowledgement pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and delivery to each of the
Members of a fully executed original counterpart of this Agreement.
Section 12.14 Waiver of Partition. Each of the Members hereby
irrevocably waives any and all rights (if any) that it may have to maintain any
action for partition of any of the Tranche II Properties to be acquired.
Section 12.15 No Third Party Beneficiaries. Supplementing Section
5.4 hereof, nothing in this Agreement, expressed or implied, is intended to
confer any rights or remedies upon any Person, other than the Members and,
subject to the restrictions on assignment contained herein, their respective
successors and assigns.
Section 12.16 Affirmative Action Policy. The Members recognize
the need to take affirmative action to ensure that minority and women-owned
business enterprises and minority and women employees and principals are given
the opportunity to participate in the performance of contracts entered into by
the Company. This opportunity for full participation in our free enterprise
system by persons traditionally, socially and economically disadvantaged is
essential to obtain social and economic equality. Accordingly, it is the policy
of the Company to foster and promote the participation of such individuals and
business enterprises in its contracts. It is the intention of the Members that
the contractors selected for this undertaking shall seek to comply with the
social policy herein stated and will be expected to exert a good faith effort to
solicit the participation of such individuals and firms, partners, joint
venturers, subcontractors, suppliers, and employees. In this regard , the
Company expects such contractors to undertake programs of affirmative action to
ensure that minority group members and women are afforded equal employment
opportunities without discrimination.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
68
IN WITNESS WHEREOF, this Agreement is executed effective as of
the date first set forth above.
LXP
---
LEXINGTON CORPORATE PROPERTIES TRUST
By: /s/ Patrick Carroll
------------------------
Name: Patrick Carroll
Title: Chief Financial Officer
THE FUND
--------
COMPTROLLER OF THE STATE OF NEW YORK, AS
TRUSTEE OF THE COMMON RETIREMENT FUND
By: /s/ John E. Hull
-----------------------
Name: John E. Hull
Title: Deputy Comptroller, Division of
Investments and Cash Management
S-1
Schedules and Exhibits
----------------------
Schedule 1: Names and Tranche II Capital Commitments of Members
- ----------
Schedule 2: Acquisition Parameters Checklist
- ----------
Schedule 3: Form of Acquisition Memorandum
- ----------
Schedule 3.5: Model of an Annual Plan
- ------------
Schedule 3.6(i): Leveraged Sale/Leaseback Transactions
- ---------------
Schedule 4.8: Insurance Standards
- ------------
Schedule 5: Tranche II Redemption Rights
- ----------
Schedule 6: AIMR Returns
- ----------
Schedule 7: Registration Rights Agreement
- ----------
Schedule 10.2(ii): LXP Non-qualified Jurisdictions
- -----------------
Schedule 10.2(viii): Exceptions to No Material Adverse Change
- -------------------
Exhibit A: Form of Annual Budget
- ---------
Exhibit B: Form of Agreement between Company and Asset Manager
- ---------
Exhibit C: Form of IPC Questionnaire
- ---------
SCHEDULE 1
Names and Tranche II Capital Commitments of Members
---------------------------------------------------
Tranche II Percentage
---------------------
Member Name Tranche II Capital Commitment Interest
----------- ----------------------------- --------
Lexington Corporate Properties Trust $50,000,000 25%
Comptroller of the State of New
York, as Trustee of the Common $150,000,000 75%
Retirement Fund
Schedule 1-1
SCHEDULE 2
Acquisition Parameters
----------------------
(IDENTIFY PROPERTY) (DATE)
-------------------------- -----------
- --------------------------------------------------------------------------------
Parameters Yes No
- --------------------------------------------------------------------------------
1. Proposed Tranche II Properties as to which the answers to
all of Questions 1.1 through 1.9 are "Yes" satisfy or
comply with the Acquisition Parameters of this Part 1.
Proposed Tranche II Properties as to which the answer to
any of Questions 1.1 through 1.9 is "No" may also be
proposed for acquisition, but each "No" answer shall be
explained on a separate sheet.
- --------------------------------------------------------------------------------
1.1 Is the tenant of the Proposed Tranche II Property
an Investment Grade Tenant?
- --------------------------------------------------------------------------------
1.2 Is the Proposed Tranche II Property well located
in a major metropolitan area or, in the case of
bulk industrial, on a major interstate highway?
- --------------------------------------------------------------------------------
1.3 Is the Proposed Tranche II Property consistent
with competitive properties in its market with
respect to its floor plate, size, space
configuration, layout or otherwise?
- --------------------------------------------------------------------------------
1.4 Is the Proposed Tranche II Property net leased to
a single tenant? If no, how many tenants are
there?
- --------------------------------------------------------------------------------
1.5 Is the term of the net lease on the Proposed
Tranche II Property 10 years or more?
- --------------------------------------------------------------------------------
1.6 Will the purchase of the Proposed Tranche II
Property result in an average tenant credit rating
for all tenants in all Tranche II Properties of at
least "BBB-" or higher?
- --------------------------------------------------------------------------------
1.7 Has the seller of the Proposed Tranche II Property
agreed to accept cash (as opposed to O.P. Units)?
- --------------------------------------------------------------------------------
1.8 Is it true that there are no operating issues or
costs that are currently anticipated by the
Manager to materially impair the long-term
predictability of income attributable to the
Proposed Tranche II Property?
- --------------------------------------------------------------------------------
1.9 Will each Member contribute cash to the Company in
order to acquire the Proposed Tranche II Property?
- --------------------------------------------------------------------------------
2. The following Acquisition Parameters must all be answered
in the negative for the Fund to consider the acquisition
of the Proposed Tranche II Property.
- --------------------------------------------------------------------------------
2.1 Is the Proposed Tranche II Property to be used
primarily for agricultural, horticultural, ranch,
mining, recreational, amusement or club purposes?
- --------------------------------------------------------------------------------
2.2 Does the Proposed Tranche II Property have any
material "recognized environmental conditions" as
such term is defined in Paragraph 1.1.1 of the
current ASTM Standard Practice for Environmental
Site Assessments, E1527?
- --------------------------------------------------------------------------------
2.3 Will any capital repairs or improvements to the
physical plant other than tenant improvements be
required?
- --------------------------------------------------------------------------------
2.4 If the Proposed Tranche II Property is to be
financed simultaneously with its acquisition, will
such financing result in the total liabilities of
the Company exceeding the lesser of (x) 65% of the
Company's current total capitalization and (y)
$371,700,000?
- --------------------------------------------------------------------------------
2.5 Will the ownership or operation of the Proposed
Tranche II Property give rise to UBTI?
- --------------------------------------------------------------------------------
Schedule 2 (1 of 2 pages)
- --------------------------------------------------------------------------------
2.6 Is the amount of time for paying any indebtedness
on or related to the property dependent upon any
revenue derived from the property?*
- --------------------------------------------------------------------------------
2.7 Is the Proposed Tranche II Property located
somewhere other than in the United States?
- --------------------------------------------------------------------------------
2.8 Is any component of the projected internal rate of
return dependent on development of the property?
- --------------------------------------------------------------------------------
3. The following Acquisition Parameters must be answered in
the affirmative for the Fund to consider the acquisition
of the Proposed Tranche II Property.
- --------------------------------------------------------------------------------
3.1 Will the acquisition price of the property be a
fixed amount on the date of the acquisition?*
- --------------------------------------------------------------------------------
3.2 Does the property qualify as real property of a
qualified organization within the meaning of
Section 514(c)(9) of the Internal Revenue Code
(and any Regulations promulgated thereunder)? *
- --------------------------------------------------------------------------------
4. If the answer to either of the following questions is
"No," the Proposed Tranche II Property complies with the
Acquisition Parameters and may be acquired by the
Company. If both answers to the following questions are
"Yes," the Proposed Tranche II Property does not comply
with the Acquisition Parameters and the Company may not
directly acquire the Proposed Tranche II Property, but
the Company may make a Tranche II LSL Loan to finance a
part of the cost of acquiring the Proposed Tranche II
Property in accordance with Section 3.6(i) of the
Agreement.
- --------------------------------------------------------------------------------
4.1 Is the Proposed Tranche II Property to be acquired
with "acquisition indebtedness" as such term is
defined in Section 514(c)(9) of the Code?
- --------------------------------------------------------------------------------
4.2 Is the Proposed Tranche II Property being leased
back to the seller thereof or to any person who
bears a relationship to the seller described in
Section 267(b) or Section 707(b) of the Code and
the regulations promulgated thereunder?
- --------------------------------------------------------------------------------
5. If the Company is to make a Tranche II LSL Loan to
finance a part of the cost of acquiring a Tranche II LSL
Property in accordance with Section 3.6(i) of the
Agreement, the answers to each of the following questions
must be "Yes".
- --------------------------------------------------------------------------------
5.1 Will the Company, the LXP LLC and LXP each treat
the Tranche II LSL Note as a debt obligation owed
to the Company, and not as equity, for all
corporate, business, regulatory, financial,
accounting, reporting, tax and any other purposes
based on the requirements of GAAP or applicable
tax laws in effect at the time of the completion
of this Schedule 2?
- --------------------------------------------------------------------------------
5.2 Will the payment of the Tranche II LSL Note be
superior to all other corporate creditors of the
LXP LLC, and will the rights of the other
corporate creditors of the member of the LXP LLC
be structurally subordinated to the payment of the
Tranche II LSL Note?
- --------------------------------------------------------------------------------
5.3 Will the Disposition Fee to be paid by the Special
Purpose LLC to the Asset Manager in the event of
the disposition of the Tranche II LSL Property not
exceed an amount that could be charged as an arm's
length fee for the services to be rendered to the
Special Purpose LLC by the Asset Manager in
connection with such disposition?
- --------------------------------------------------------------------------------
- ----------------------
* The acquisition parameters set out in Item 2.6, Item 3.1 and Item 3.2 of this
Schedule 2 apply only to Proposed Properties that are to be acquired with
"acquisition indebtedness" as such term is defined in Section 514(c)(9) of the
Code.
Schedule 2 (2 of 2 pages)
- --------------------------------------------------------------------------------
5.4 Based on a market analysis of the Tranche II LSL
Property, will it be reasonable to expect that
repayment when due of the full principal amount of
the Tranche II LSL Loan will be possible from
either a refinancing of the Tranche II LSL
Property or a sale of the Tranche II LSL Property?
- --------------------------------------------------------------------------------
5.5 Based on a cash flow analysis of the Tranche II
LSL Property, will it be reasonable to expect that
the Net Cash Flow from Operations from the Tranche
II LSL Property will be sufficient to pay the
interest on the Tranche II LSL Note when due?
- --------------------------------------------------------------------------------
Schedule 2 (2 of 2 pages)
SCHEDULE 3
Form of Acquisition Memorandum
------------------------------
ACQUISITION MEMORANDUM FOR
LEXINGTON ACQUIPORT COMPANY II, LLC
------------------------------------------
[TRANCHE II PROPERTY NAME]
-------------------------------------------------------
[TRANCHE II PROPERTY ADDRESS]
---------------------------
[DATE]
Sched. 3-1
Table Of Contents
-----------------
SECTION Page
I. INVESTMENT SUMMARY................................................1
II. INVESTMENT STRUCTURE & RETURNS....................................2
III. PROPERTY PROFILE..................................................3
IV. TENANCY...........................................................4
V. MARKET ANALYSIS...................................................5
VI. COMPETITION......................................................11
VII. FINANCIAL ANALYSIS...............................................12
Return Summary...........................................................12
Assumptions to Financial Projections.....................................13
Replacement Cost Analysis................................................14
VIII. EXHIBITS.........................................................16
A. LOCATION MAPS....................................................16
B. FLOOR PLANS......................................................16
C. LEASE ABSTRACT...................................................16
D. ACQUISITION PARAMETERS CHECKLIST.................................16
Sched. 3-2
I. INVESTMENT SUMMARY
[General description of property, location, tenancy, metropolitan market and
competitive submarket]
Sched. 3-3
II. INVESTMENT STRUCTURE & RETURNS
[Description of deal structure, purchase price, closing costs, financing
considerations, relationship of acquisition cost/sf to replacement cost, etc.]
Returns
- --------------------------------------------------------------------------------
Investment Yields Unleveraged Leveraged
- --------------------------------------------------------------------------------
Investment Amount
Per Square Foot
Initial Return
5-Year Average Return
10-Year Average Return
IRR (X-year hold) - Nominal
IRR (X-year hold) - Real
- --------------------------------------------------------------------------------
Sched. 3-4
III. PROPERTY PROFILE
Location & Access
Project History and Ownership
Site and Land Area
Building Description and Size
Parking
Foundations/Flooring
Exterior Walls
Vertical Transportation Systems
HVAC Systems
Electrical
Life Safety
Roofs
Compliance with Americans with Disabilities Act (ADA)
Environmental Inspection
Physical Conditions Report
Five-year Capital Improvements and Major Repairs Budget
Sched. 3-5
IV. TENANCY
Corporate Overview
Tenant Improvement Allowance
Financial Highlights
Description of Divisions
Sched. 3-6
V. MARKET ANALYSIS
Market Overview
[Analysis, supported by statistical data (see tables) of metropolitan, county
and city historical population, projections for future absorption, employment
growth, construction and occupancy]
TABLE 1
Metropolitan CITY Office Market Trends, 1980-Mid 2000
(000 Square Feet)
- -------------------------------------------------------------------------------------------------
Total Vacancy Net
Year-End Inventory Occupied Area Rate % Absorption
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
1986-1990
Avg. Absorption
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
1991-2000
Avg. Absorption
- -------------------------------------------------------------------------------------------------
1980-2000
Avg. Absorption
- -------------------------------------------------------------------------------------------------
Source:
Sched. 3-7
TABLE 5
Metropolitan CITY Employment Trends and Projections, 1980-2005 (000)
- -------------------------------------------------------------------------------------------------
Compounded Annual
Growth
---------------------------
Business & FIRE &
Professional All Total Business
Year FIRE Services Subtotal Other Total Employment Services
- -------------------------------------------------------------------------------------------------
1980
- -------------------------------------------------------------------------------------------------
1985
- -------------------------------------------------------------------------------------------------
1990
- -------------------------------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------------------------------
2000
- -------------------------------------------------------------------------------------------------
2005
- -------------------------------------------------------------------------------------------------
Source: DRI/McGraw-Hill
TABLE 6
Major Private Employers in Metropolitan CITY
- --------------------------------------------------------------------------------
Company Number of Employees in
Metropolitan CITY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sched. 3-8
TABLE 7
Historical and Projected Metropolitan CITY Office Demand, 1980-2000
(000 Square Feet)
- -------------------------------------------------------------------------------------------------
Year-End Occupied Square FIRE and Square Footage Occupied Square
Footage Business Per Employee Footage Per
Services (Average) Incremental
Employment Employee
- -------------------------------------------------------------------------------------------------
1980
- -------------------------------------------------------------------------------------------------
1985
- -------------------------------------------------------------------------------------------------
1990
- -------------------------------------------------------------------------------------------------
1995
- -------------------------------------------------------------------------------------------------
2000
- -------------------------------------------------------------------------------------------------
Average Annual Absorption 1980-1998
- -------------------------------------------------------------------------------------------------
Average Annual Absorption 1999-2000
- -------------------------------------------------------------------------------------------------
1999-2000 / 1980-1998
Average Annual Absorption
- -------------------------------------------------------------------------------------------------
Source:
TABLE 8
Estimated and Projected Metropolitan CITY Office Market Trends, 2000-2002
(000 Square Feet)
- -----------------------------------------------------------------------------------------------------
Year-End Total SF Occupied SF Occupancy Projected Projected
Absorption Construction
Rate
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Average Annual 2000-2002
- -----------------------------------------------------------------------------------------------------
Source:
TABLE 9
New and Planned Multi-Tenant Office Buildings for Metropolitan CITY, 2001-2003
- -----------------------------------------------------------------------------------------------------
Project Address Submarket Owner/Developer SF Year
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Total:
- -----------------------------------------------------------------------------------------------------
Source:
Sched. 3-9
TABLE 10
Expected Multi-Tenant Office Building Construction for Metropolitan CITY,
by Submarket, 2001-2004
- -----------------------------------------------------------------------------------------------------
Submarket 2001 2002 2003 2004 Total
- -----------------------------------------------------------------------------------------------------
CBD
- -----------------------------------------------------------------------------------------------------
Submarket:
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Total Metropolitan CITY
- -----------------------------------------------------------------------------------------------------
Source:
TABLE 11
Historical County Market Trends, 1980-2000
(000 Square Feet)
- -----------------------------------------------------------------------------------------------------
Year-End Total Square Occupied Square Occupancy Average Annual
Feet Feet Rate Absorption
- -----------------------------------------------------------------------------------------------------
1980
- -----------------------------------------------------------------------------------------------------
1990
- -----------------------------------------------------------------------------------------------------
2000
- -----------------------------------------------------------------------------------------------------
Average Annual Absorption 1980-2000
- -----------------------------------------------------------------------------------------------------
Source:
TABLE 12
County Share of Metropolitan CITY Absorption, 1980-2000
(000 Square Feet)
- ------------------------------------------------------------------------------------------------
County Share
---------------------------------------------
Metropolitan CITY Avg. Average Annual Net
Time Period Annual Absorption Absorption Percent
- ------------------------------------------------------------------------------------------------
1980-1990
- ------------------------------------------------------------------------------------------------
1990-2000
- ------------------------------------------------------------------------------------------------
1980-2000
- ------------------------------------------------------------------------------------------------
Source:
Sched. 3-10
TABLE 13
County Office Space by Class, June 2000
(000 Square Feet)
- -------------------------------------------------------------------------------------------
Class A Class B & C
- -------------------------------------------------------------------------------------------
Total Square Occupied Occupancy Total Square Occupied Occupancy
Feet Square Feet Rate Feet Square Feet Rate
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Source:
TABLE 14
Historical and Projected Office Using Employment in County, 1980-2005
(000 Employees)
- -------------------------------------------------------------------------------------------
Compounded Annual Growth
--------------------------------
Business & FIRE & Business
Professional All Total & Professional
Year FIRE Services Subtotal Other Total Employment Services
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Source: DRI/McGraw-Hill
TABLE 15
Historical and Projected County Office Employment Trends 1980-2002
(000 Square Feet)
- --------------------------------------------------------------------------------------------
FIRE and
Business & Occupied Square
Professional Square Footage Footage per
Occupied Square Services Per Employee Incremental
Year-End Footage Employment Average Employee
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Average Annual Absorption 1980-1998
- --------------------------------------------------------------------------------------------
Average Annual Absorption 1998-2002
- --------------------------------------------------------------------------------------------
1980-1998/1998-2002
- --------------------------------------------------------------------------------------------
Source:
Sched. 3-11
TABLE 16
Estimated and Projected County Office Market Trends, 2000-2002
(000 Square Feet)
- --------------------------------------------------------------------------------------------
Total
Square Occupied Occupancy Projected Projected
Year-End Feet Square Feet Rate Absorption Construction
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Average Annual 2000-2002
- --------------------------------------------------------------------------------------------
Source:
Sched. 3-12
VI. COMPETITION
Market Synopsis
New Construction
Investment Sales
- ------------------------------------------------------------------------------------------------
Purchase Square Price ($ in
Name Date Footage MM) Price/SF Buyer
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Competitive Position
Competitive Project Analysis
- ------------------------------------------------------------------------------------------------
Current Number
Total Square Occupancy of Year Current Asking
Building Class Feet Rate Floors Built Rents - 2001
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Source:
Sched. 3-13
VII. FINANCIAL ANALYSIS
[Return Summary]
Sched. 3-14
Assumptions to Financial Projections
Projection Period:
Residual Cap rate:
Residual Calculation:
Sales Cost:
Market Rents:
Tenant Option:
Expense Recoveries:
Expense Growth:
Operating Expenses:
Real Estate Taxes:
Management Fee:
Vacancy Allowance:
Renewal Probability:
Downtime:
Tenant Improvements:
Leasing Commissions:
Capital Improvements: Year: Item Estimated Amount
---- --------------- -----------------
2002
2003
2004
2005
2006
Total
Capital Reserve:
Sched. 3-15
Replacement Cost Analysis:
- --------------------------------------------------------------------------------
$/SF
- --------------------------------------------------------------------------------
Land Acquisition Cost
Building Shell & Core
Site Improvements/Parking
Tenant Improvements
Contingencies (5%)
Total Hard Costs
Architectural & Engineering
Legal/Permits
Real Estate Taxes
Marketing/Advertising
Leasing Commissions
Constr. Period Taxes & Insurance
Financing Fees (1%)
Developer's Fee & Overhead (6%)
Interest Carry
Total Soft Costs
- --------------------------------------------------------------------------------
Total Development Cost
Operating Profit/Loss
Net Development Cost
- --------------------------------------------------------------------------------
Sched. 3-16
Estimated Required Gross Effective Rent
- --------------------------------------------------------------------------------
Assumption $/SF
- --------------------------------------------------------------------------------
Required Return/Net Rent
Operating Expenses/Taxes
Less Parking Income
Gross Effective Rent
Vacancy Factor
- --------------------------------------------------------------------------------
Required Gross Effective Rent
- --------------------------------------------------------------------------------
Sched. 3-17
VIII. EXHIBITS
A. LOCATION MAPS
B. FLOOR PLANS
C. LEASE ABSTRACT
D. ACQUISITION PARAMETERS CHECKLIST
Sched. 3-18
SCHEDULE 3.5
Model of an Annual Plan
-----------------------
[SCHEDULE BEGINS ON THE FOLLOWING PAGE.]
Sched. 3.5-1
LEXINGTON ACQUIPORT COMPANY, LLC
2000 BUSINESS PLAN
PROPERTY 1
PROPERTY 2
PROPERTY 3
PROPERTY 4
PROPERTY 5
November 1999
LEXINGTON ACQUIPORT COMPANY, LLC
2000 BUSINESS PLAN
TABLE OF CONTENTS
-----------------
o Investment Description
o Portfolio Description
o Operating Trends
o Portfolio Market Value and Geographic Composition
o Portfolio Objectives
o Investment Recommendations
o Market Commentary
Economic Review
Capital Markets Review
Office Market Considerations
o Portfolio Financial Information
1999 Forecast vs. 1999 Budget
1999 Forecast vs. 2000 Budget
Five Year Capital Budget
o Insurance
o Property Management
2000 Business Plans
o Property 1
o Property 2
o Property 3
o Property 4
o Property 5
Executive Summary
o Investment Description
The LEXINGTON ACQUIPORT COMPANY, LLC (the "Company") acquired its first
investment in MM/YY and consists of X properties with a gross market value of
$XXX million for the period ending December 31, 2000. The Company holds a XX%
equity interest in all investments utilizing Section 501 title holding company
investment vehicles.
o Portfolio Description
The 2000 portfolio of assets managed by the Company includes x buildings
representing x sf located in City 1, City 2, City 3, City 4, City 5. The Company
holds a x% equity interest in all these properties.
Portfolio Diversification based on Net Real Estate Value (Investment in Real
Estate Less Mortgages) of $XXX.X million as of December 31, 2000 is as follows:
Segmentation by Geographic Region Segmentation by Property Type
[GRAPHIC OMITTED]
o Operating Trends
Portfolio occupancy at year-end 2000 is forecasted to be --%, and is budgeted to
rise to __% at year-end 2000. Net operating income is budgeted to be $__million
in 2000, which represents a --% increase over forecasted net operating income
during 1999. Net income is budgeted to produce a --% income yield on the
Company's equity investment in 2000.
o Operating Trends (CONT.)
The portfolio's budgeted income return for 2000 is --%, which is _% lower than
the 1999 forecasted returns, due to the forecasted sale of Property 1 and
Property 2 in the third quarter of 2000. The forecasted total return, before
fees, in 1999 is --%, representing net operating income return of --% and an
appreciation return of --%.
Company Return 1999 FY2000 FY2000 2000
Highlights(1) Actual Forecast Budget Plan
Income Return % % % %
Appreciation Return % % N/A N/A
Total Return Before Fees % % N/A N/A
Total Return After Fees % % N/A N/A
(1) Returns are presented in accordance with AIMR standards, and were
calculated on a quarterly compounded basis.
Annualized Returns as of September 30, 1999 compared to NCREIF benchmark
- ------------------------------------------------------------------------
[GRAPHIC OMITTED]
Annual Returns
- --------------
[GRAPHIC OMITTED]
Portfolio Market Value and Geographic Composition
December 31, 1999
Property Name/Location Square Feet Acquisition Book Value Gross Market Value
% of Portfolio Date % of Portfolio % of Portfolio 1999
---------------------------- Appreciation
1998 1999 % of Portfolio
- -----------------------------------------------------------------------------------------------------------------
Industrial Properties
Property 1 892,943 x $ 31,072,586 $ 32,500,000 $ 33,000,000 $ 500,000
Property 1 Location 51.8% 25.0% 24.0% 23.7% 14._%
Retail Properties
Property 2 358,815 x $ 28,016,295 $ 34,000,000 $ 35,000,000 $ 1,000,000
Property 2 Location 20.8% 22.5% 25.1% 25.2% 29._%
Office Properties
Property 3 328,724 x $ 34,555,371 $ 36,100,000 $ 37,000,000 $ 900,000
Property 3 Location 19.1% 27.8% 26.6% 26.6% 26._%
Property 4 142,903 x $ 30,716,156 $ 33,000,000 $ 34,000,000 $ 1,000,000
Property 4 Location 8.3% 24.7% 24.3% 24.5% 29._%
1,723,385 $124,360,408 $135,600,000 $139,000,000 $ 3,400,000
100.0% 100.0% 100.0% 100.0% 100.0%
o Portfolio Objectives
The Company's portfolio objectives for 2000 are as follows:
o Sale of Property 1 and Property 2.
o Acquisition of Property 6 and Property 7 in first quarter 2000.
o Total equity investment of $x million by year-end 2000.
o Re-finance Property 3.
o Investment Recommendations
HOLD
- ----
- - -Property 3:
[Discussion]
- - Property 4:
[Discussion]
- - Property 5:
[Discussion]
SELL
- ----
- - Property 1
[Discussion]
- - Property 2
[Discussion]
BUY
- ---
- - Property 6
[Discussion]
- - Property 7
[Discussion]
o Market Commentary
- - Economic Review
Economic expansion has continued throughout the US year-to-date, with
unemployment dropping to 4.3% in May 1999, a 28 year record low. This has not
hindered economic expansion, as businesses continued to add new jobs across all
regions and all industries. This expansion has continued without inflationary
worries, despite recent wage increases. The impact on the national office market
has been a contraction of available space, resulting in record low vacancy rates
in many metropolitan areas. Low vacancy rates have contributed to rising rent
levels approaching replacement cost, in many areas. New construction has begun
in earnest, with the real threat of overbuilding in some markets.
Looking forward, we project sustained growth, albeit at a slower rate of growth
than that experienced over the past five years.
Company Portfolio
Market Data
Table 1 - Population Trends
Property 1 Property 2 Property 3 Property 4
---------- ---------- ---------- ----------
Year USA MSA County MSA County MSA County MSA County
- ---------------------------------------------------------------------------------------------------------------------
1980 227,420,000 8,280,000 259,700 2,252,000 595,000 4,000,000 1,651,000 938,000 775,900
1990 249,770,000 8,542,000 265,400 2,988,000 655,000 5,000,000 1,947,400 1,011,000 829,100
1998 270,280,000 8,616,000 277,200 3,720,000 736,900 6,000,000 2,125,500 1,095,000 879,700
2005 286,260,000 8,637,000 291,800 4,230,000 797,500 6,500,000 2,282,100 1,148,000 909,900
Annual Change
- -------------
1980-1990 0.9% 0.3% 0.2% 2.9% 1.0% 2.3% 1.7% 0.8% 0.7%
1990-1998 1.0% 0.1% 0.5% 2.8% 1.5% 2.3% 1.1% 1.0% 0.7%
1998-2005 0.8% 0.0% 0.7% 1.9% 1.1% 1.2% 1.0% 0.7% 0.5%
MSA Historic and Projected Population Trends, 1980-2005 County Historic and Projected Population Trends, 1980-2005
[GRAPIC OMITTED]
Source
Company Portfolio
Market Data
Table 2 - Employment Trends
Property 1 Property 2 Property 3 Property 4
---------- ---------- ---------- ----------
Year United States MSA 1 County MSA 2 County MSA 3 County MSA 4 County
- ---------------------------------------------------------------------------------------------------------------------
1980 90,867,000 3,747,800 82,000 2,252,000 595,000 4,000,000 730,600 362,400 330,500
1990 109,679,000 4,094,000 101,000 2,988,000 655,000 5,000,000 881,400 478,300 433,700
1998 125,690,500 3,977,800 102,500 3,720,000 736,900 5,000,000 985,700 564,800 504,100
2005 136,783,000 4,122,600 114,400 4,230,000 797,500 6,000,000 1,091,600 607,200 537,100
Annual Change
- -------------
1980-1990 1.9% 0.9% 2.1% 2.9% 1.0% 2.3% 1.9% 2.8% 2.8%
1990-1998 1.7% -0.4% 0.2% 2.8% 1.5% 0.0% 1.4% 2.1% 1.9%
1998-2005 1.2% 0.5% 1.6% 1.9% 1.1% 2.6% 1.5% 1.0% 0.9%
MSA Historic and Projected Population Trends, 1980-2005 County Historic and Projected Population Trends, 1980-2005
[GRAPHIC OMITTED]
Source
UMWA Portfolio
Market Data
Table 3 - Employment by Major Industry in the United States, 1980-2005
Annual % Growth
Industry Groups 1980 1990 1998 2005 1980-1990 1990-1998 1998-2005
- ---------------------------------------------------------------------------------------------------------------------
Manufacturing 20,366,000 19,114,575 18,795,400 18,482,000 -0.6% -0.2% -0.6%
Mining 1,037,000 706,993 582,300 494,500 -3.8% -2.7% -5.3%
Construction 4,315,000 4,999,498 5,876,200 6,243,600 1.5% 2.3% 2.0%
Transportation & Utilities 5,129,000 5,788,403 6,521,300 6,753,900 1.2% 1.7% 1.2%
FIRE 5,159,000 6,692,003 7,236,300 7,722,200 2.6% 1.1% 2.2%
Trade 20,386,000 25,866,245 29,270,400 31,373,700 2.4% 1.8% 2.3%
Services 17,881,000 27,876,076 37,304,800 43,486,000 4.5% 4.3% 5.2%
Government 16,589,000 18,641,392 20,103,800 22,233,100 1.2% 1.1% 3.4%
TOTAL 90,862,000 109,685,185 125,690,500 136,789,000 1.9% 2.0% 2.9%
Employment by Major Industry in the United States, 1980-2005 Employment by Major Industry in the United States, 1980-2005
[GRAPHIC OMITTED]
Source
- - Capital Markets Review
Real estate capital market indices point to continued upward pressure on real
estate values. Capital flows to real estate in 1996 increased the estimated size
of the institutional real estate capital market to almost $1.5 trillion--$83
billion (or 5.9%) larger than it was at year-end 1995. This capital market grew
by another $21.5 billion (or 1.4%) during the first quarter of 1997.
- --------------------------------------------------------------------------------------------------------------------
Table A
SIZE OF THE INSTITUTIONAL REAL ESTATE MARKET, YEAR-END 1993 - 1996
(In $Billions)
- --------------------------------------------------------------------------------------------------------------------
Annual
Year-end Year-end Growth Rate Growth Rate
-------- -------- ----------- -----------
1993 1995 1996 12/93-12/96 12/95-12/96
Private Equity
- --------------------------------------------------------------------------------------------------------------------
Pension Funds $93.3 $107.9 $122.5 9.5% 13.5%
- --------------------------------------------------------------------------------------------------------------------
Foreign Investor 28.6 28.6 28.5 -0.1% -0.3%
- --------------------------------------------------------------------------------------------------------------------
Private Financial Inst. 37.7 20.2 16.8 -23.6% -16.8%
- --------------------------------------------------------------------------------------------------------------------
Life Insurance Companies 36.1 36.2 35.4 -0.7 -2.2%
- --------------------------------------------------------------------------------------------------------------------
Private Investors 221.1 218.9 227.1 0.9% 3.7%
- --------------------------------------------------------------------------------------------------------------------
Subtotal $416.8 $411.8 $430.3 1.1% 4.5%
- --------------------------------------------------------------------------------------------------------------------
Public Equity
- --------------------------------------------------------------------------------------------------------------------
REITs $28.2 $54.1 $84.0 48.9% 55.3%
- --------------------------------------------------------------------------------------------------------------------
Public Limited
Partnerships 15.4 9.0 5.9 -27.3% -34.4%
- --------------------------------------------------------------------------------------------------------------------
Subtotal $43.6 $63.1 $89.9 27.3% 42.5%
- --------------------------------------------------------------------------------------------------------------------
Total Equity $460.4 $474.9 $520.2 4.2% 9.5%
- --------------------------------------------------------------------------------------------------------------------
Private Debt
- --------------------------------------------------------------------------------------------------------------------
Life Insur. Co.'s $207.0 $196.4 $183.2 -4.0% -6.3%
- --------------------------------------------------------------------------------------------------------------------
Banks & Mortgage 374.3 407.8 432.4 4.9% 6.0%
- --------------------------------------------------------------------------------------------------------------------
S&Ls & Mutual Savings 119.0 102.9 102.8 -4.8% -0.1%
- --------------------------------------------------------------------------------------------------------------------
Pension Funds 23.3 27.0 26.9 4.9% -0.4%
- --------------------------------------------------------------------------------------------------------------------
Subtotal $723.6 $734.1 $745.3 1.0% 1.5%
- --------------------------------------------------------------------------------------------------------------------
Public Debt
- --------------------------------------------------------------------------------------------------------------------
Government Credit
Agencies $115.8 $105.2 $105.3 -3.1% 0.1%
- --------------------------------------------------------------------------------------------------------------------
Common Mortgage Sec. 56.0 88.4 113.9 26.7% 28.8%
- --------------------------------------------------------------------------------------------------------------------
Mortgage REITs 3.3 3.4 4.8 13.3% 41.2%
- --------------------------------------------------------------------------------------------------------------------
Public R.E. Ltd. Part. 2.9 2.3 1.9 -13.1% -17.4%
- --------------------------------------------------------------------------------------------------------------------
Subtotal $178.0 $199.3 $225.9 8.3% 13.3%
- --------------------------------------------------------------------------------------------------------------------
Total Debt $901.6 933.4 971.2 2.5% 4.0%
- --------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL $1,362.0 $l,408.3 $1,491.4 3.1% 5.9%
- --------------------------------------------------------------------------------------------------------------------
Source: Institutional Real Estate, Inc./Roulac Group and Clarion Partners
The largest growth is occurring among equity REITS, whose equity grew by 55.3%
during 1996 and whose three-year growth rate between year-end 1993 and year-end
1996 was 48.9%. Pension fund equity grew by $14.6 billion (or 13.5%) during 1996
and added $7.4 billion during the first quarter of 1997.
The result of this capital flow has been sharpened competition for product, a
decline in yield expectations and a rise in prices. In the public markets,
shareholder interest in REITs (influenced by the Dow Jones 1.8% dividend yield)
has led to steady reduction in most REIT dividend yields (see Table B) and to a
consequent ability of REITs to bid aggressively for product.
- -------------------------------------------------------------------------------
Table B
REIT DIVIDEND YIELDS BY SELECTED COMPANY OR PROPERTY TYPE
MAY 5,1997 and OCTOBER 28,1997
- -------------------------------------------------------------------------------
Dividend Yields 1997
- -------------------------------------------------------------------------------
Company/Property Type May 5 October 28
- -------------------------------------------------------------------------------
Apartment 7.1% 6.5%
- -------------------------------------------------------------------------------
Regional Mall 7.7% 7.0%
- -------------------------------------------------------------------------------
Office/Industrial 5.8% 6.2%
- -------------------------------------------------------------------------------
Hotel 5.5% 5.3%
- -------------------------------------------------------------------------------
- ----------------
Source: Merrill Lynch Comparative Valuation REIT Weekly
As a result, in almost all property types investors are expecting lower cap
rates and IRRs today than they were expecting a year ago, resulting in capital
appreciation for most investment-worthy real estate nationwide. (See Table C.)
- -------------------------------------------------------------------------------
Table C
REAL ESTATE YIELD INDICES,
3rd QUARTER 1996 AND 3rd QUARTER 1997
- -------------------------------------------------------------------------------
Overall Cap Rate IRR
---------------- ---
Property Type 3rd Q 1996 3rd Q 1997 3rd Q 1996 3rd Q 1997
- -------------------------------------------------------------------------------
Retail
- -------------------------------------------------------------------------------
Regional Mall 8.6% 8.3% 11.6% 11.5%
- -------------------------------------------------------------------------------
Power Centers 9.5% 9.6% 11.3% 11.3%
- -------------------------------------------------------------------------------
Strip Centers 9.8% 9.8% 11.5% 11.5%
- -------------------------------------------------------------------------------
Office
- -------------------------------------------------------------------------------
Downtown 9.5% 9.3% 11.9% 11.7%
- -------------------------------------------------------------------------------
Suburban 9.4% 9.2% 11.7% 11.4%
- -------------------------------------------------------------------------------
Apartments 9.0% 8.9% 11.3% 11.2%
- -------------------------------------------------------------------------------
Industrial 9.2% 9.0% 11.2% 11.1%
- -------------------------------------------------------------------------------
Hotel
- -------------------------------------------------------------------------------
Full Service 10.5% 10.2% 14.4% 13.7%
- -------------------------------------------------------------------------------
Limited Service 12.8% 11.7% 16.2% 14.7%
- -------------------------------------------------------------------------------
Luxury 10.4% 8.8% 13.0% 12.8%
- -------------------------------------------------------------------------------
- -------------------
Source: Korpacz Real Estate Investor Survey, 3rd Quarter 1997
This capital appreciation, in combination with the revenue/NOI growth currently
experienced by most property types (though not all) in most markets, is
generating asset value growth today.
The 350 + bp spread between the Dow Jones dividend yield and most REIT yields
suggests that investors will continue to invest money into REITs and that REIT
dividend yields can drop even lower than today's level, enhancing REITs' ability
to compete for product and reducing further the NOI cap rates at which they can
buy real estate assets. All this suggests that investment grade real estate
values can rise further - barring over-enthusiastic levels of new construction.
A second factor suggests that capital will continue to flow to REITs and to
pension fund real estate investors: the aging of the baby boom generation.
Between 1995 and 2000, the number of U.S. households headed by a person 45 years
old or more will rise by 7,000,000 - a growth rate of 2.2% per year or double
the growth rate of households in total. The age cohorts include those with the
highest income and net worth and greatest potential for saving and investing.
REITs are continuing to move aggressively to acquire office buildings; pension
funds are investing private equity more cautiously, eyeing the possibility of
overbuilding, followed by softness in rents and capital appreciation. Suburban
markets generally are exhibiting only moderate vacancies while CBDs are more
uneven - some doing very well (Boston, San Francisco), others improving (Midtown
Manhattan, Chicago), while others lag (Atlanta, Los Angeles).
- - Office Market Considerations
- - Industrial Market Considerations
- - Retail Market Considerations
o Portfolio Financial Information
- - 1999 Forecast vs. 1999 Budget
1999
----------------------------------
Budget Forecast
-------------- ---------------
REVENUE
Base Rent: $ 9,369,833 $ 9,364,832
Expense Recoveries 1,506,240 1,264,783
Interest and Other 119,479 148,383
----------- -----------
Gross Revenue 10,995,552 10,777,998
----------- -----------
EXPENSES
Recoverable Expenses 3,228,281 3,276,756
Non-Recoverable Expenses 1,259,253 846,295
----------- -----------
Total Expenses 4,487,534 4,123,051
----------- -----------
Net Operating Income 6,508,018 6,654,947
DEBT SERVICE
Interest Expense 3,083,010 3,082,586
Ground Rent 176,232 176,235
----------- -----------
Total Debt Service 3,259,242 3,258,821
----------- -----------
Net Property Income $ 3,248,776 $ 3,396,126
=========== ===========
Capital Expenditures $ 1,834,640 $ 2,081,262
=========== ===========
Analysis of Book Value:
- ----------------------
R.E. Book Value - Beginning of Period $ 76,333,465 $ 76,333,465
Building Improvements 975,521 855,890
Tenant Improvements 348,213 480,000
Leasing Commissions 143,966 371,600
Other 34,630 41,441
----------- -----------
Gross R.E. Book Value - End of Period $ 77,835,795 $ 78,082,396
Mortgage Balance Beg. of Period 34,012,798 34,012,798
Mortgage Amortization 332,310 332,331
----------- -----------
Mortgage Balance End of Period 33,680,488 33,680,467
----------- -----------
Net R.E. Book Value - End of Period $ 44,155,307 $ 44,401,929
=========== ===========
Comparison of 1999 Budget to 1999 Forecast
- ------------------------------------------
Net property income forecasted for 1999 is $X million, or x% ahead of budget.
This favorable variance was primarily due to timing differences in budgeted
capital projects.
o Portfolio Financial Information (CONT.)
- - 1999 Forecast vs. 2000 Budget
2000 1999
Budget Forecast
-------------- ---------------
REVENUE
Base Rent: $ 9,369,833 $ 9,364,832
Expense Recoveries 1,506,240 1,264,783
Interest and Other 119,479 148,383
----------- -----------
Gross Revenue 10,995,552 10,777,998
----------- -----------
EXPENSES
Recoverable Expenses 3,228,281 3,276,756
Non-Recoverable Expenses 1,259,253 846,295
----------- -----------
Total Expenses 4,487,534 4,123,051
----------- -----------
Net Operating Income 6,508,018 6,654,947
DEBT SERVICE
Interest Expense 3,083,010 3,082,586
Ground Rent 176,232 176,235
----------- -----------
Total Debt Service 3,259,242 3,258,821
----------- -----------
Net Property Income $ 3,248,776 $ 3,396,126
=========== ===========
Capital Expenditures $ 1,834,640 $ 2,081,262
=========== ===========
Analysis of Book Value:
- ----------------------
R.E. Book Value - Beginning of Period $76,333,465 $76,333,465
Building Improvements 975,521 855,890
Tenant Improvements 348,213 480,000
Leasing Commissions 143,966 371,600
Other 34,630 41,441
----------- -----------
Gross R.E. Book Value - End of Period $77,835,795 $78,082,396
Mortgage Balance Beg. of Period 34,012,798 34,012,798
Mortgage Amortization 332,310 332,331
----------- -----------
Mortgage Balance End of Period 33,680,488 33,680,467
----------- -----------
Net R.E. Book Value - End of Period $44,155,307 $44,401,929
=========== ===========
Notes to 1999 Forecast vs. 2000 Budget:
- --------------------------------------
The 2000 operating plan includes the following expenditures: $- ($/property) for
a financial audit of each ownership entity's tax returns and year-end audits.
Financial statements will be issued in March 2000.
All properties are in compliance with the access requirements of the Americans
with Disabilities Act ("ADA").There are no known environmental conditions at any
of the properties. There is currently no significant litigation involving the
portfolio or any of its assets.
o Portfolio Financial Information (CONT.)
- - Five Year Capital Budget
Over the next five years, $-- million is projected to be expended on leasing
costs and building improvements. Of this amount, $-- million, or x%, represents
the recommended capital budget for 2000. The largest capital project planned for
2000 is the renovation of Property 3, a project that will take approximately 6
months to complete, but which will be accrued for in 2000.
1999 1999 2000 2001-2004 Total
---- ----- ---- --------- -----
Budget Forecasted Budget
------ ---------- ------
LEASING
Tenant Improvements(incl. Legal) $ 382,843 $ 521,441 $ 1,056,221 $ 3,097,109 $ 4,153,330
Leasing Commissions 143,966 371,600 67,660 1,586,945 1,654,605
--------- --------- ----------- ----------- -----------
BUILDING IMPROVEMENTS
Property 1
Property 2
Property 3
Property 4
Property 5
Notes to Five Year Capital Budget:
- ---------------------------------
o Insurance
All properties are insured under the Company's master program under a one year
term commencing June 30, 1999. Primary insurance carriers have a Best's rating
of at least A XII. Coverages for each property are as follows:
[insert chart for coverages for all properties]
o Property Management
Properties 1, 2 and 3 are managed by the Company. Management fees are equal to
X% of NOI for each of these properties, pursuant to the Management Agreement
dated ________.
Properties 4 and 5 are managed by Corporation X pursuant to the Agreement dated
________. Annual management fees are equal to X% NOI for each of these
properties.
TAB 2
2000 BUSINESS PLAN
PROPERTY 1
CITY, STATE
2000 Business Plan
o Summary
- Description (See Exhibit A)
Property 1 is a 12-story, 218,894 sf office building with retail on the
ground level (14,307 sf) and four levels of underground parking. The
offices are fully leased to Tenant 1 under a lease expiring [date 1].
It is located on Avenue in the heart of the Central Business District
("CBD") of City, State and offers proximity to numerous restaurants,
shopping and other amenities. The Company has a 100% fee interest in
Property 1.
- Operating Trends
Net Operating Income ("NOI") increased from $-- million at year-end
1998 to $-- million forecast at year-end 1999, primarily due to
contractual step-up in Tenant's rent commencing June 1999. Our estimate
of the value of the Company's interest in Property 1 is $X, an increase
of X% from a year ago. NOI is budgeted to increase in 2000 to $--
million (an increase of --%), due primarily to the -----. The forecast
total return for 1999 is ---%, representing an income return of ---%
and capital appreciation of ---%.
- Objectives
The objective for 2000 is to sell the Property at the highest
achievable price. In order to accomplish this goal, the Company will:
o Engage an exclusive broker to oversee the investment sales process
and ensure maximum exposure of the Property to the investment
community.
- Investment Recommendation
Market the property for sale in 2000.
3
MARKET COMMENTARY
- -----------------
o Competitive Properties (See Exhibit -)
o Market Rental Growth
Over xx million sf of new space (both new construction and redevelopment) is
slated for completion by the end of 1999. This sharp increase in new
construction is not expected to have a significant impact on vacancy however, as
approximately 76% of the space under construction is already pre-leased. Asking
full-service rental rates at the new (or redeveloped) properties range from
$28-$30/sf at 1401 K Street to $38-$40/sf at 1717 Pennsylvania Avenue.
Given current tenant demand and the lack of contiguous blocks of high quality
office space available to large users, the supply of new office space scheduled
for delivery in the City is expected to have a minimal effect on the market.
Accordingly, the Company projects that the vacancy rate will remain at its
current level of 10% in 2000 and market rates will grow approximately 3% p.a.
Property Status and 2000 Operating Plan
(Tab)
10
PROPERTY STATUS AND 2000 OPERATING PLAN
- ---------------------------------------
o Management
LA Company, a division of Lexington Properties Trust, manages the Property
for an annual management fee of X% of base rent collections, under a
contract expiring April 30, 2000. In anticipation of a sale in 2000, this
contract will not be extended.
o Marketing
In light of the recommended sale of the Property, $X is budgeted for
marketing expenses.
o Operations
Property 1 is leased on a triple net lease basis, therefore all operating
contracts are held directly by the Tenant.
o Real Estate Taxes
The assessment for the 2000 Tax Year (10/l/98 through 9/30/99) remains
unchanged from last year's assessed value of $X. The Company has determined
that an appeal of this assessed value is not warranted. The budgeted tax
rate is expected to remain at $2.15/$100 of value for tax year 2000.
The 2000 budgeted amount for Real Estate Taxes is $X and includes $X
($.X/sf) for the newly created Business Improvement District ("BID").
o Capital Improvements
---------------------------------------------------------------------------
Project Amount Description
---------------------------------------------------------------------------
---------------------------------------------------------------------------
14
FINANCIAL INFORMATION (CONT.)
- -----------------------------
o 1999 Forecast and 2000 Operating Budget
1999 2000 2000
Forecast Budget Budget/sf
----------- ------------ -----------
REVENUE
- -------
Base Rent $ 5,537,967 $ 6,225,995 $ 28.47
Operating Expense 39,942 102,612 0.47
Real Estate Tax Recoveries 52,425 39,384 0.18
Utilities Recoveries 95,364 96,042 0.44
Parking 350,789 355,800 1.63
Storage & Other 35,801 30,346 0.14
Interest Income 87,112 36,228 0.17
----------- ------------ -----------
Gross Revenue 6,199,400 6,886,407 31.49
----------- ------------ -----------
EXPENSES
- --------
Repairs & Maintenance 351,744 291,276 1.33
Utilities 208,184 260,324 1.19
Security 124,204 151,364 0.69
Cleaning 241,351 247,279 1.13
General & Administrative 87,545 86,236 0.39
Management Fee 93,986 102,110 0.47
----------- ------------ -----------
Total Operating Expenses 1,107,014 1,138,589 5.21
Real Estate Taxes 844,132 788,627 3.61
Insurance 22,362 19,248 0.09
Tenant Utilities 99,921 96,041 0.44
Advertising & Marketing 21,955 25,545 0.12
Parking 3,719 12,040 0.06
Bad Debt Expense 16,714 33,516 0.15
Professional 18,726 26,088 0.12
Leasing Expense - - 0.00
Miscellaneous 41,262 22,785 0.10
----------- ------------ -----------
Total Expenses 2,175,805 2,162,479 9.89
----------- ------------ -----------
Net Operating Income $ 4,023,595 $ 4,723,928 $ 21.60
=========== ============ ===========
Net Property Income $ 4,023,595 $ 4,723,928
=========== ============
CAPITAL EXPENDITURES
- --------------------
Building Improvements $ 379,078 $ 142,000
Tenant Improvements 325,847 714,140
Leasing Commissions 102,442 324,569
Other 35,054 30,472
----------- ------------
Total Capital Expenditures $ 842,421 $ 1,211,181
----------- ------------
=========== ============
14
FINANCIAL INFORMATION (CONT.)
- -----------------------------
o Comparison of 1999 Proforma to Forecast
REVENUE
Base Rent
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$5,537,967 $6,225,995 $688,028 12%
The 1999 budget is greater than forecast due to ATMI's rent being partially
abated in 1997 ($400,509). Additionally, all vacant space is projected to be
leased in 1999.
Operating Expense Recoveries
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$39,942 $102,612 $62,670 157%
The 1997 forecast is less than the 1999 budget due to real estate tax appeal
refunds from 1993, 1994, and 1995 being passed through to the tenants in 1997.
The refund, totaling $133,600, was underestimated in 1996.
Interest Income
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$87,112 $36,228 ($50,884) (58%)
The 1997 forecast includes $46,300 in interest from the 1993 and 1994 real
estate tax appeal refunds.
EXPENSES
Repairs & Maintenance
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$351,744 $291,276 ($60,468) (17%)
The 1997 forecast is greater than budget due to the building management system
cost being partially incurred in 1997 instead of 1996 as budgeted ($22,700).
One-time building, landscaping, and electrical repairs were incurred in 1997
($36,400).
15
FINANCIAL INFORMATION
- ---------------------
o 1999 Forecast vs. Budget
Utilities
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$208,184 $260,324 $52,140 25%
The budget exceeds forecast due to higher occupancy.
Security
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$124,204 $151,364 $27,160 22%
The 1999 budget exceeds forecast due to the increase of security service to
twenty-four hours a day.
CAPITAL EXPENDITURES
Building Improvements
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$379,078 $142,000 ($237,078) (63%)
The 1997 forecast includes the elevator control modernization ($181,434)
and lobby renovation project ($87,500). In 1999, recaulking of the building
exterior and replacement of the sidewalk pavers are projected to occur.
Tenant Improvements
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$325,847 $714,140 $388,293 119%
The 1999 budget exceeds forecast due to the anticipated lease-up of 5,825
sf on the fourth floor, 4,284 sf on the fifth, and 7,585 sf on the sixth
floor.
Leasing Commissions
1997 1999 $ %
Forecast Budget Change Change
-------- ------ ------ ------
$102,442 $324,569 $222,127 217%
The 1999 budget exceeds forecast due to the anticipated lease-up of vacant
space on the fourth, fifth, and sixth floors.
15
o FINANCIAL ANALYSIS AND STRATEGY
Present Value Estimate
We estimate the present value of Property 1 to be $X ($X/sf), with the 2000
budget showing a net operating income yield of X% on that market value. Our
present value estimate was derived from the Base Case financial projections
utilizing a ten-year net present value ("NPV") analysis, contained in
Exhibit -.
16
FINANCIAL ANALYSIS AND STRATEGY (CONT.)
Hold-Sell Analysis (Exhibit -)
To evaluate the merits of a sell in 2000 strategy, we have prepared cash
flow projections under three scenarios (Base, Optimistic and Pessimistic
Cases), with a 10 year holding period assumed in each. The Base Case
projection assumes that the Tenant exercises its option to extend its
leases for an additional 5 years commencing ______, and also assumes
continued recovery of the City market with modest new
construction/redevelopment over the next five years. The Optimistic Case
assumes greater than projected tenant demand for Class A office product in
the City, while the Pessimistic Case assumes that the Tenant does not
exercise its option to extend and vacates the Property at lease expiration.
The primary assumptions underlying these scenarios are as follows:
Base Optimistic Pessimistic
Case Case Case
---- ---- ----
Market Rent
Rent Growth
Operating Expense Growth
Real Estate Tax Growth
Renewal Probability
New Tenant Improvements
Renewal Tenant
Improvements
Standard Lease Term
Downtime at Lease
Expiration
Weighted Average
Downtime
Capital Reserve (2000 $)
Terminal Capitalization Rate
Discount Rate
17
FINANCIAL ANALYSIS AND STRATEGY (CONT.)
- ---------------------------------------
The following table summarizes the foregoing analysis:
NPV IRR on Terminal Average
at 12/31/9 $X Value NOI Yield
---------- -- ----- ---------
Base Case $X X% $X X%
Optimistic Case $X X% $X X%
Pessimistic Case $X X% $X X%
EXHIBITS
A. Summary Information
B. Market Data - Competitive Properties (at 9/30/99)
C. Floor Plans
D. Financial Projections
E. Major Lease Abstracts
Exhibit A
Summary Information
PROPERTY 1
City, State
EXHIBIT A
---------
Summary Information
-------------------
Location:
Type of Property:
Ownership Interest:
Land Area:
Building Rentable Area:
Major Tenants (SF)
6/30/98
No. of Floors:
Parking:
Date Completed:
Occupancy Rate:
(6/30/99)
Asking Rent:
Add-on Factor:
Acquisition Date:
Exhibit D
Financial Projections
Base Case
Optimistic Case
Pessimistic Case
SCHEDULE 3.6(i)
Leveraged Sale/Leaseback Transactions
-------------------------------------
If the Members elect to utilize leverage in the acquisition of an
Approved Tranche II Property that could be purchased by the Company and leased
back to the seller (a "Tranche II LSL Property"), such transaction will be
accomplished in accordance with the requirements of this Schedule 3.6(i). Any
Acquisition Fee earned in connection with such transaction shall be paid by the
Company pursuant to the terms of the Agreement.
1. Formation of LXP LLC and Special Purpose LLC. For each
Tranche II LSL Property, LXP will form a separate, bankruptcy remote, special
purpose Delaware limited liability company of which LXP shall be the sole member
(each, a "LXP LLC"). Also, for each Tranche II LSL Property, the LXP LLC will
form a separate bankruptcy remote, special purpose Delaware limited liability
company, of which the LXP LLC shall be the sole member (each a "Special Purpose
LLC"), to acquire that Tranche II LSL Property and to lease it back to the
seller pursuant to a net lease (a "Tranche II LSL Lease"). Each LXP LLC shall be
authorized under the terms of its limited liability company operating agreement
to receive from the Company the Tranche II LSL Loan applicable to that Tranche
II LSL Property and to hold only the membership interests in the Special Purpose
LLC formed for that Tranche II LSL Property. Each Special Purpose LLC shall be
authorized under the terms of its limited liability company operating agreement
to acquire and leaseback only that Tranche II LSL Property.
2. Acquisition of Tranche II LSL Property. Such Special Purpose
LLC shall acquire such Tranche II LSL Property in accordance with the
acquisition agreement applicable thereto.
3. Structure of Financing. The acquisition of Tranche II LSL
Properties by the Special Purpose LLCs shall be financed as follows:
(a) LXP will contribute to the LXP LLC an amount equal to at
least five percent (5%) of the cost of acquiring the Tranche II LSL Property
(the "LXP Tranche II LSL Contribution"), and the LXP LLC will contribute an
amount equal to the LXP Tranche II LSL Contribution to the Special Purpose LLC
as a capital contribution. That amount will be applied to acquire the Tranche II
LSL Property.
(b) A portion of the acquisition cost of each Tranche II LSL
Property acquired by a Special Purpose LLC shall be financed (and may be
refinanced) by a nonrecourse (excepting customary non-recourse carveouts), first
mortgage loan (such loan, and any extension, renewal and refinancings thereof, a
"First Mortgage Loan") made to such Special Purpose LLC by an unrelated third
party mortgage lender in an amount not to exceed an amount that, when added to
the aggregate principal amount of all first mortgage loans made to the other
Special Purpose LLCs plus the aggregate outstanding principal amount of all
financings of Approved Tranche II Properties by the Company, is equal to the
lesser of (x) 65% of the sum of the Company's current total capitalization
(assuming for the purposes of this calculation only that all of the Special
Purpose LLCs then in existence have been consolidated with the Company), and (y)
$371,700,000.
Sched. 3.6(i)-1
(c) If the terms of the first mortgage loan for a particular
Tranche II LSL Property are acceptable to the Members, then the Company will
make a recourse loan (a "Tranche II LSL Loan") to the LXP LLC to finance a
portion of the cost of acquiring that particular Tranche II LSL Property (i) in
an amount equal to the acquisition cost less the amount of the First Mortgage
Loan and less the LXP Tranche II LSL Contribution and (ii) upon the terms set
forth in Paragraph 7 below. Each Tranche II LSL Loan will be evidenced by a
separate promissory note (an "Tranche II LSL Note"). The LXP LLC shall
contribute the amount of the Tranche II LSL Loan to the Special Purpose LLC to
pay the balance of the purchase price for that particular Tranche II LSL
Property.
(d) The Fund's share of any Tranche II LSL Capital Contribution
required by the Company to fund a Tranche II LSL Loan approved by the Members
shall be equal to the product of three-quarter (3/4) multiplied by the sum total
of (A) the Tranche II LSL Loan Amount and (B) the LXP Tranche II LSL
Contribution. LXP's share of such Tranche II LSL Capital Contribution shall be
equal to (x) the product of one-quarter (1/4) multiplied by the sum total of (A)
the Tranche II LSL Loan Amount and (B) the LXP Tranche II LSL Contribution, less
(y) the LXP Tranche II LSL Contribution.
(e) The loan to value ratio for each Tranche II LSL Property may
not exceed 95%.
4. Reduction in Tranche II Capital Commitment. All amounts
contributed by LXP to any LXP LLCs pursuant to Paragraph 3(a) above and applied
to the costs of acquiring a Tranche II LSL Property shall be deducted on a
dollar for dollar basis from LXP's Tranche II Capital Commitment.
5. Disposition of Tranche II LSL Properties; Disposition Fee.
Upon the closing of any sale of a Tranche II LSL Property to an unrelated and
unaffiliated third party (or to Net 1 L.P. and Net 2 L.P.), the Asset Manager
shall be paid by the Special Purpose LLC a fee (the "Disposition Fee") equal to
a percentage of the gross sale price. The Disposition Fee in each case shall be
agreed upon by the Members at the time the decision to make a Tranche II LSL
Loan is made by the Company and shall not in any case exceed two and one-half
percent (2.5%) of the gross sales price. No Disposition Fee will be paid in the
event of foreclosure on the Tranche II LSL Note by the Company or termination of
the services of the Asset Manager.
6. Application of Net Cash Flow After Payment of First Mortgage
Loan. Each Special Purpose LLC will distribute Net Cash Flow (defined below in
Paragraph 11) available after the Special Purpose LLC makes payments of
principal and interest on the First Mortgage Loan to the LXP LLC as equity
distributions and/or loan repayments.
7. Terms of Tranche II LSL Loans. Each Tranche II LSL Loan will
be made upon the following terms and conditions:
(a) The Tranche II LSL Loan will be evidenced by a Tranche II
LSL Note which shall be substantially in the form attached hereto as Appendix A
and made a part hereof.
(b) The term of each Tranche II LSL Loan will be as agreed upon
by the Members. If the Members cannot agree, then such term shall be the greater
of (i) the term of the
Sched. 3.6(i)-2
corresponding Tranche II LSL Lease plus two years, and (ii) the term of the
applicable First Mortgage Loan.
(c) Each Tranche II LSL Loan shall be recourse to the LXP LLC
and shall be secured by a pledge of all of the membership interests of the LXP
LLC in the Special Purpose LLC. Each pledge (a "Pledge") shall be substantially
in the form attached hereto as Appendix B and made a part hereof.
(d) The principal amount of each Tranche II LSL Loan shall be
paid in a single balloon payment at the end of the term of such Tranche II LSL
Loan.
(e) The principal amount of each Tranche II LSL Loan shall be
prepaid upon the earliest to occur of the following events:
(i) a call by the Company for prepayment of the Tranche
II LSL Loan which call may be made on at least six months' prior written
notice;
(ii) the sale, exchange or other disposition of the
Tranche II LSL Property applicable to such Tranche II LSL Loan;
(iii) the dissolution of either the LXP LLC or the
applicable Special Purpose LLC and the liquidation of its assets, in
which case prepayment shall occur not later than concurrently with
distribution of Net Sale Proceeds (defined below in Paragraph 11) to the
members of the LXP LLC or the applicable Special Purpose LLC;
(iv) the default by the Special Purpose LLC in the
performance of its obligations in respect of the First Mortgage Loan,
and the exercise of remedies by the lender thereof.
(f) In the event of an event of default under any Tranche II LSL
Loan, the Manager shall notify the Members and the Members shall determine
whether or not to have the Company declare that Tranche II LSL Loan in default
and to accelerate the indebtedness evidenced thereby.
(g) Each LXP LLC shall pay interest on the applicable Tranche II
LSL Loan in installments and at rates to be determined in accordance with the
following principles:
(i) Interest only shall be paid in periodic
installments. The length of the period shall be agreed upon by the
Members. If the Members cannot agree, the interest payments shall be
made quarterly. Principal shall be paid in a balloon payment at the end
of the term of the Tranche II LSL Loan or at mandatory prepayment.
(ii) Each periodic payment of interest payable on each
Tranche II LSL Note will consist of (A) an installment calculated by
multiplying the principal amount of the Tranche II LSL Loan by an
interest rate ("Base Interest"), and (B) an installment ("Cash Flow
Interest") calculated by subtracting from the Net Cash Flow the amount
of the Base Interest and then multiplying the result of such subtraction
by fifty percent (50%). If the projected Net Cash Flow increases or
decreases from one
Sched. 3.6(i)-3
period to another due to increases or decreases in rental income or for
any other reason, installments of Base Interest and Cash Flow Interest
will be separately calculated for each periodic increase or decrease in
projected Net Cash Flow.
(iii) The total projected amount (the "Total Interest
Amount" or "TIA") of each periodic installment of Base Interest (the
"Base Interest Amount" or "BIA") and Cash Flow Interest (the "Cash Flow
Interest Amount" or "CFIA") on each Tranche II LSL Loan will be equal to
a percentage of projected Net Cash Flow for such period; such percentage
(the "Participation Percentage" or "PP%") to equal the percentage
derived by dividing (A) the principal amount of the Tranche II LSL Loan
by (B) the sum of the principal amount of the Tranche II LSL Loan plus
the amount of the LXP Tranche II LSL Contribution. If the projected Net
Cash Flow will increase or decrease from one period to another due to
increases or decreases in rental income under the terms of the
corresponding Tranche II LSL Lease, such changes shall be taken into
account on a present value basis in determining the Total Interest
Amount or TIA, the Base Interest Amount or BIA, the Cash Flow Interest
Amount or CFIA, and the Participation Percentage or PP% at the time the
Tranche II LSL Loan is made.
(iv) The Base Interest Amount will be that amount that,
when added to the Cash Flow Interest Amount, will equal the projected
Total Interest Amount. The calculation is demonstrated on Appendix
3.6(i)-A attached to this Schedule 3.6(i) and made a part hereof.
(v) The total of Base Interest and Cash Flow Interest
will be capped at 17% per annum.
(vi) Installments of Cash Flow Interest for any period
for which there is no positive Net Cash Flow shall be excused, and,
during the last twenty-four (24) months of the term of the Tranche II
LSL Loan, periodic payments of Base Interest for each payment period
within such 24-month period shall be deferred to the Maturity Date (or
the date of any earlier prepayment) to the extent that the amount of Net
Cash Flow for any period is insufficient to pay the full amount of Base
Interest due for such Period. The amount of deferred Base Interest shall
be paid in full on the Maturity Date or on the date of any earlier
prepayment of the Tranche II LSL Loan. Deferred Base Interest shall not
bear interest.
(h) Net Cash Flow received by a LXP LLC from a Special Purpose
LLC in respect of any Tranche II LSL Property in excess of the amount of the
periodic payment of Base Interest and Cash Flow Interest for the corresponding
Tranche II LSL Note shall be available for distribution to the member of the LXP
LLC.
(i) The Company shall have the right as lender under the terms
of the Tranche II LSL Loan to approve the property or asset manager and the
property or asset management agreement with respect to the related Tranche II
LSL Property. The Members hereby agree that (x) Lexington Realty Advisors, Inc.
is acceptable to the Company as a property or asset manager with respect to any
Tranche II LSL Property, (y) the form of management agreement attached as
Exhibit B to the Agreement (including the management fee payable thereunder) is
acceptable to
Sched. 3.6(i)-4
the Company as a property or asset management agreement with respect to any
Tranche II LSL Property, and (z) a management fee in an amount equal to the fee
paid by the Company to the Manager or Asset Manager for property management
services is acceptable to the Company.
(j) Under the terms of each Tranche II LSL Loan, the applicable
LXP LLC shall cause its subsidiary Special Purpose LLC to obtain the approval by
the Company, as lender, of the construction by such Special Purpose LLC of any
capital improvements and capital alterations at any Tranche II LSL Property,
other than such work required by any lease of the Tranche II LSL Property.
8. Application by the Special Purpose LLC of Net Sale Proceeds.
Net Sale Proceeds from the sale of any Tranche II LSL Property shall be applied
as follows:
(a) First, proceeds shall be applied to pay any closing,
transaction and other costs incurred by the Special Purpose LLC in connection
with such sale.
(b) Second, proceeds shall be applied to pay the First Mortgage
Loan applicable to such Tranche II LSL Property.
(c) Third, proceeds shall be applied to pay the Disposition Fee
for such Tranche II LSL Property.
(d) Fourth, proceeds shall be distributed to the member(s) of
the Special Purpose LLC.
9. Application by the LXP LLC of Net Sale Proceeds. Proceeds
distributed by the Special Purpose LLC to the LXP LLC from the Net Sale Proceeds
of the corresponding Tranche II LSL Property shall be applied as follows:
(a) First, proceeds shall be applied to pay all principal and
all accrued but unpaid interest on the Tranche II LSL Note applicable to that
Tranche II LSL Property.
(b) The remainder is available for distribution to the member(s)
of the LXP LLC.
10. Warrant.
(a) Concurrently with the making of a Tranche II LSL Loan by the
Company in respect of a LXP LLC, the Company will purchase from such LXP LLC a
warrant (a "Warrant") to purchase a percentage of the membership interests in
the Special Purpose LLC. The percentage interest shall be agreed upon by the
Members. If the Members are unable to agree, the percentage interest shall be
determined as follows:
The percentage interest (the "Special Purpose LLC Tranche II
Percentage Interest") shall equal the percentage derived by dividing (a) the
principal amount of the corresponding Tranche II LSL Loan by (b) the sum of the
principal amount of the Tranche II LSL Loan plus the amount of the LXP Tranche
II LSL Contribution.
Sched. 3.6(i)-5
The price of the Warrant will be a percentage of the principal amount of the
Tranche II LSL Loan, but the principal amount of the Tranche II LSL Loan will
not be reduced by the amount of the funds transferred by the Company to the LXP
LLC that are allocable to the Warrant. The price for the Warrant shall be agreed
upon by the Members. If the Members are unable to agree, the price shall be not
more than 0.2% of the principal amount of the Tranche II LSL Loan. The Warrant
shall be substantially in the form attached hereto as Appendix C and made a part
hereof.
(b) The Warrant will be exercisable at any of the following
times ("Warrant Exercise Period"):
(i) Within thirty (30) days after a Transfer of the
Tranche II LSL Property, (provided, that the LXP LLC or the Special
Purpose LLC shall have notified the Company of the sale or other
Transfer pursuant to the Warrant);
(ii) Within three (3) years after the date (through and
including the third anniversary of such date) of any refinancing,
prepayment or payment of the Tranche II LSL Note, except a prepayment in
conjunction with a Transfer pursuant to Clause 10(b)(i) above (provided
that nothing in this Clause 10(b)(ii) shall be construed to allow any
prepayment of the Tranche II LSL Note other than in accordance with the
terms of the Tranche II LSL Note).
Upon exercise of the Warrant, the LXP LLC will sell the Special
Purpose LLC Tranche II Percentage Interest to the Company, and the Company will
pay the Exercise Price (defined below) to the LXP LLC.
(c) The price payable by the Company to the LXP LLC for the
Special Purpose LLC Tranche II Percentage Interest in such Special Purpose LLC
(the "Exercise Price") shall be agreed upon by the Company and the LXP LLC. If
the Company and the LXP LLC are unable to agree upon the Exercise Price, the
Exercise Price will be determined as follows:
The Exercise Price will be fixed, equal to the value of the
Special Purpose LLC upon formation, multiplied by the Special Purpose LLC
Tranche II Percentage Interest. The value of the Special Purpose LLC upon
formation shall be (i) the purchase price of the Tranche II LSL Property held by
the Special Purpose LLC, minus (ii) any First Mortgage Loan indebtedness of the
Special Purpose LLC incurred at the time of the purchase of the Tranche II LSL
Property.
(d) The warrant will contain a put option (the "Put Option")
exercisable at any of the following times ("Put Exercise Period"):
(i) Within thirty (30) days after a Transfer of the
Tranche II LSL Property, (provided, that the LXP LLC or the Special
Purpose LLC shall have notified the Company of the Transfer pursuant to
the Warrant);
(ii) Within three (3) years after the date (through and
including the third anniversary of such date) of any refinancing,
prepayment or payment of the Tranche II LSL Note, except a prepayment in
conjunction with a Transfer pursuant to Clause 10(d)(i) above (provided
that nothing in this Clause 10(d)(ii) shall be construed to
Sched. 3.6(i)-6
allow any prepayment of the Tranche II LSL Note other than in accordance
with the terms of the Tranche II LSL Note).
The Put Option will allow the Company to require the LXP LLC to
purchase the warrant in the event of a Transfer of the Tranche II LSL Property
or in the event of a refinancing, prepayment or payment of the Tranche II LSL
Loan at a price (the "Put Price") equal to the value of the Special Purpose LLC
immediately prior to a sale of the Tranche II LSL Property (or refinancing,
prepayment or payment of the Tranche II LSL Loan), times the Special Purpose LLC
Tranche II Percentage Interest minus the Exercise Price for the Warrant. The
value of the Special Purpose LLC shall be determined based on the (i) sale price
(in the case of a sale) or Fair Market Value (in the case of a refinancing,
prepayment or payment) of the Tranche II LSL Property held by the Special
Purpose LLC (excluding, for the purpose of determining the Fair Market Value,
the First Mortgage Loan) minus (ii) closing costs and the Disposition Fee (in
the case of a sale), minus (iii) any remaining unpaid First Mortgage Loan
indebtedness of the Special Purpose LLC.
11. Definitions. Terms and phrases not defined in this Schedule
3.6(i) shall have the meanings set forth in the Agreement. The following terms
and phrases shall, for purposes of this Schedule and the Agreement, have the
meanings set forth below:
"Net Cash Flow" means the gross proceeds from the
operations of the Special Purpose LLC (excluding sales or other
dispositions or refinancings of the Tranche II LSL Property) less any
portion thereof used to pay Special Purpose Operating Expenses, capital
improvements or replacements or payments of interest and principal in
respect of the First Mortgage Loan, any management fees or acquisition
fees payable to a member of the Special Purpose LLC or to the Asset
Manager or to the Manager or to establish reasonable reserves for
Special Purpose Operating Expenses, capital improvements, replacements,
payments of interest and principal in respect of the First Mortgage Loan
and contingencies, as such reserves are calculated by the member of the
Special Purpose LLC or the Asset Manager. "Net Cash Flow" shall not be
reduced by real estate depreciation or by cost amortization, cost
recovery deductions or similar allowances, but shall be increased by any
reduction of reserves previously deducted in the calculation of Net Cash
Flow.
"Net Sale Proceeds" means the gross cash proceeds from
the sale or other disposition of a Tranche II LSL Property, less (a) any
closing, transaction and other costs incurred by the Special Purpose LLC
in connection with such sale or other disposition or refinancing; (b)
the amount required to retire the First Mortgage Loan outstanding
against such Tranche II LSL Property; and (c) any amounts required to
fund any related reserves up to the levels required by the Annual Plan,
as calculated by the Manager. Net Sale Proceeds shall be increased by
reductions of reserves originally funded from Net Sale Proceeds. "Net
Sale Proceeds" shall include all principal and interest payments made
with respect to any note or other obligation received by the Special
Purpose LLC in connection with the sale or other disposition of any
Tranche II LSL Property.
"Special Purpose Operating Expenses" means (x) all
reasonable and customary costs and expenses of Third Parties retained in
connection with the ownership,
Sched. 3.6(i)-7
leasing, operation, repair, maintenance and management of the Tranche II
LSL Property and (y) real estate taxes, insurance premiums, utility
charges, rent collection and lease enforcement costs, brokerage
commissions to the extent applicable to the period in question (but
excluding any Acquisition Fee payable to the Manager or the Asset
Manager under the Agreement), maintenance expenses, costs of repairs and
replacements (which, under generally accepted accounting principles
consistently applied, may be expensed during the period when made) (but
excluding any management fees payable to a member of the Special Purpose
LLC or to the Asset Manager) in connection with the ownership, leasing,
operation, repair, maintenance and management of the Tranche II LSL
Property. Special Purpose Operating Expenses shall not include general
and administrative costs and overhead of the Special Purpose LLC and
debt payments.
"Transfer" shall mean any sale or exchange or other
transfer by any Special Purpose LLC of the corresponding Tranche II LSL
Property or any substantial part thereof or any interest therein in any
manner whatsoever, in one transaction or a series of transactions,
whether directly or indirectly or voluntarily or involuntarily,
excluding a net lease of the Tranche II LSL Property, but including (i)
any merger, consolidation, dissolution or syndication involving or
affecting the Special Purpose LLC, or (ii) any transfer of 10% or more
of the membership interests in the Special Purpose LLC in one
transaction or a series of transactions, or (iii) the sale or other
transfer of all or substantially all of the assets of the LXP LLC which
is the member of the Special Purpose LLC; or (iv) the sale or other
transfer of any membership interests in such LXP LLC.
12. LXP's Representations. With respect to each Tranche II LSL
Loan that the Company makes and the corresponding Tranche II LSL Property, LXP
shall represent to the Company and the Fund as follows:
(a) Reporting. The Company, the LXP LLC and LXP will each treat
the Tranche II LSL Note as a debt obligation owed to the Company, and not as
equity, for all corporate, business, regulatory, financial, accounting,
reporting, tax and any other purposes, except to the extent a change in GAAP
requires the Company, the LXP LLC or LXP to do otherwise.
(b) Priority of Tranche II LSL Note. The payment of the Tranche
II LSL Note will be superior to all other corporate creditors of the LXP LLC,
and the rights of the corporate creditors of the member of the LXP LLC shall be
structurally subordinated to the payment of the Tranche II LSL Note. Further,
the payment of the Tranche II LSL Note will be superior to all claims of LXP
against the LXP LLC.
13. Memorandum of Understanding. After the Members have
determined the terms of each Tranche II LSL Loan, the Manager shall prepare a
memorandum of understanding setting forth such terms (including the percentage
of the gross sale price constituting the Disposition Fee) which shall be signed
by the Members or their designees.
Sched. 3.6(i)-8
Appendix 3.6(i)-A
Hypothetical
------------
Assume that the purchase price for the Tranche II LSL Property is $2,000,000,
the amount of the First Mortgage Loan is $1,200,000, the amount of the Tranche
II LSL Loan is $700,000, the amount of the LXP Tranche II LSL Contribution is
$100,000 and the projected annual Net Cash Flow is $96,000 or $8,000 monthly
(there are no increases or decreases in projected Net Cash Flow).
With the amount of the Tranche II LSL Loan at $700,000 and the LXP Tranche II
LSL Contribution at $100,000, the lenders of the Tranche II LSL Loan have
provided 7/8ths or 87.5% of the non-mortgage capitalization and the LXP LLC has
provided 1/8ths or 12.5% of the non-mortgage capitalization.
The total amount of each installment of interest for a month (the "Total
Interest Amount" or "TIA") will be equal to a percentage (the "Participation
Percentage" or "PP%") of projected Net Cash Flow ("NCF") for that month. The
Participation Percentage is derived by dividing (A) the principal amount of the
Tranche II LSL Loan by (B) the sum of the principal amount of the Tranche II LSL
Loan plus the amount of the LXP Tranche II LSL Contribution.
The Total Interest Amount or TIA will have two components: (1) an amount of Base
Interest (the "Base Interest Amount" or "BIA") calculated by multiplying the Net
Cash Flow by the Base Interest Rate (the "Base Interest Rate" or "BI%"); and (2)
an amount of Cash Flow Interest (the "Cash Flow Interest Amount" or "CFI
Amount") calculated by subtracting the Base Interest Amount from the Net Cash
Flow and then multiplying that result by 50%. The Base Interest Rate or BI% is
determined by first calculating the percentage of Net Cash Flow that is
attributable to Base Interest (the "Base Interest Amount Percentage" or "BIA%")
and then solving for the Base Interest Rate. The TIA can be expressed by the
following formula:
Total Interest Amount equals the sum of the Base Interest Amount plus
the Cash Flow Interest Amount.
NCF x PP% = (NCF x BIA%) + (0.5 x (NCF -[NCF x BIA%])
8,000 x .875 = (8,000 x BIA%) + (0.5 x (8,000 - [8,000 x BIA%])
7,000 = 8,000BIA% + 4,000 -4,000BIA%
3,000 = 4,000BIA%
BIA% = 75%
BI% = (BIA% x NCF x 12) / Tranche II LSL Loan Amount
BI% = (0.75 x 8,000 x 12) / 700,000
App. 3.6(i)-A
BI% = 72,000 / 700,000
BI% = 10.286%
To check the calculations -
o The Base Interest Rate is 10.286%.
o The Annual Base Interest Amount is [$700,000 x 10.286] = $72,002
(rounded to $72,000).
o The Monthly Base Interest Amount is $6,000.
o The Cash Flow Interest Amount is 50% of the result of Net Cash
Flow minus the Base Interest Amount or
>> 0.5 x (8,000 - $6,000) or 0.5 x $2,000 = $1,000.
o Total Interest Amount is $6,000 + $1,000 = $7,000.
The Total Interest Amount should equal 87.5% of Net Cash Flow, or $7,000. The
Cash Flow Interest Amount of $1,000 plus the Base Interest Amount of $6,000
together equal $7,000.
App. 3.6(i)-A-2
SCHEDULE 4.8
Insurance Standards
-------------------
GENERAL
o Minimum A.M. Best's rating for all insurance carriers: AX.
o Insurance carriers must be authorized to do business in the state which
the property is located.
o The Company, the Fund and LXP are to be named as additional named
insureds (or additional insureds and loss payees, if applicable) on all
policies.
o All policies are to provide the Company, the Fund and LXP with 30 days
written notice of cancellation or any material change in coverage.
GENERAL LIABILITY INSURANCE
Combined
Single Limit
Coverage Per Property
o General aggregate other than Products/Completed Operations $2,000,000
o Products/Completed Operations aggregate 1,000,000
o Personal and advertising injury (any one person) 1,000,000
o Each occurrence 1,000,000
o Fire/explosion damage legal liability (any one fire/explosion) 100,000
o Medical expense (any one person) 10,000
Extensions
o Aggregate must be on a per location basis
o Notice of occurrence
o Knowledge of occurrence
o Unintentional errors and omissions
o Pollution from hostile fire
o Cross liability
o Delete contractual exclusion on personal injury coverage part
Sched. 4.8-1
Requirements for Excess Liability
Coverage
o Coverage must be written on an umbrella form for the lead carrier. All
excess layers (if any) should be written on a follow form basis.
Limits
o Minimum acceptable limit is $25 million.
PROPERTY/CASUALTY INSURANCE
Coverage
o "All Risk" on real property, personal property, loss of income (rents)
and extra expense, signs (if applicable), fences (if applicable).
Extensions
o Flood, including back up of sewers and drains and surface water
o Earthquake
o Increased cost of construction
o Building ordinance or law
o Demolition
o Pollution clean up
o Extended period of indemnity, 180 days
o Joint loss clause (if boiler written separately)
Valuation Clauses
o Replacement cost of real and personal property
o Actual loss sustained on loss of rents, extra expense
Limits
o Must reflect valuation clauses; if written on a blanket basis, blanket
limit must reflect total values at risk.
Sched. 4.8-2
Deductibles
Maximum deductibles
"All Risk" $25,000
Flood $50,000 (in a flood zone higher deductibles are acceptable, up
to the maximum that can be bought back in Federal Flood
Program.)
Earthquake $50,000 (no greater than 5% of total insurable value for
properties located in California, Washington state and
the "New Madrid Fault")
Windstorm 2% in Florida and Texas
BOILER AND MACHINERY INSURANCE
Coverage
o Coverage must be provided for direct damage and loss of income due to
any accident to boiler and/or air conditioning equipment.
Extensions
o Water damage
o Expediting expenses
o Ammonia contamination
o Building ordinance
o Joint loss clause
o Hazardous substance clean up
Valuation
o Replacement cost of property
o Actual loss sustained on business income
Deductibles
Maximum deductibles
o Direct damage - $10,000
o Loss of income - 24 hours
Sched. 4.8-3
SCHEDULE 5
Tranche II Redemption Rights
----------------------------
The Tranche II Redemption Right granted to the Fund pursuant to
Section 11.2 of the Agreement shall be implemented pursuant to, and subject to,
the following terms and conditions:
1. Definitions. The following terms and phrases shall, for
purposes of this Schedule and the Agreement, have the meanings set forth below:
"Cash Purchase Price" is defined in Section 11.2(c) of the
Agreement.
"Common Stock" shall mean the common shares of beneficial
interest, par value $.0001 per share, of LXP.
"Computation Date" shall mean the date on which the Exercise
Notice from the Fund is received by LXP or, if such date is not a Business Day,
the first Business Day thereafter.
"Conversion Factor" shall mean 100%, provided that such factor
shall be adjusted in accordance with Paragraph 8 of this Schedule 5.
"Election Notice" shall mean the written notice to be given by
LXP to the Fund in response to the receipt by LXP of an Exercise Notice from the
Fund, by which LXP elects to pay either the Cash Purchase Price or the Share
Purchase Price, and identifies any Proposed Tendered Tranche II Properties
excluded by LXP pursuant to Section 11.2(b) of the Agreement.
"Equity Equivalent" shall mean the rights to acquire one share of
Common Stock by purchase or exchange, by conversion or exchange of preferred
stock, by conversion or exchange of partnership or other interests in Leperq
Corporate Income Fund, L.P. or in Leperq Corporate Income Fund II, L.P. or in
any other entity, by exchange of redeemable secured notes or other instruments,
pursuant to a stock purchase agreement, by exercise of a warrant or option, or
otherwise.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor statute.
"Exercise Notice" shall mean a written notice delivered by the
Fund to LXP pursuant to Paragraph 2 of this Schedule 5, by which the Fund
exercises the Tranche II Redemption Right, and identifies any Retained Tranche
II Properties excluded by the Fund pursuant to Section 11.2(b) of the Agreement.
"LXP Reorganization" is defined in Paragraph 11 of this Schedule
5.
"Offered Interest" shall mean the Tranche II Percentage Interest
of the Fund in the Company offered by the Fund for redemption. The Offered
Interest shall be that portion of the Fund's entire Tranche II Percentage
Interest in the Company attributable to the Tendered Tranche II Properties.
Sched. 5-1
"Purchase Price" shall mean the Cash Purchase Price or the Share
Purchase Price.
"Registration Rights Agreement" shall mean an agreement to be
executed and delivered by LXP and the Company as a part of the delivery of the
Share Purchase Price, which agreement shall be substantially in the form of
Schedule 7 attached to the Agreement.
"Retained Tranche II Properties" is defined in Section
11.2(b)(ii) of the Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor statute.
"Share" shall mean a share of Common Stock.
"Share Purchase Price" shall mean the number of Shares of LXP
determined pursuant to Paragraph 12(a) of this Schedule 5. In the event LXP
issues to all holders of Shares rights, options, warrants or convertible or
exchangeable securities entitling the shareholders to subscribe for or purchase
Shares, or any other securities or property (collectively, "Rights") then the
Share Purchase Price shall also include such Rights that a holder of that number
of Shares as calculated pursuant to Paragraph 12(a) of this Schedule 5 would be
entitled to receive.
"Surviving Member" is defined in Paragraph 11 of this Schedule 5.
2. Due Diligence; Delivery of Exercise Notice.
(a) The Fund shall have the right at any time and from
time to time to perform such due diligence as the Fund deems necessary and
appropriate to evaluate LXP in connection with the Conversion Right. LXP shall
cooperate with the Fund with respect to the Fund's above-referenced due
diligence efforts and shall make its books and records and its employees
available to the Advisor and the Fund and the agents, representatives and
employees of the Fund and of the Advisor upon ten (10) Business Days notice by
the Fund or the Advisor, as the case may be. In connection with such due
diligence, the Fund shall pay its own out-of-pocket costs and expenses and the
costs of expenses of consultants and experts retained by the Fund.
(b) The Fund may, subject to the conditions set forth in
Section 11.2(b) of the Agreement, deliver to LXP written notice pursuant to
which the Fund elects to exercise the Tranche II Redemption Right and to exclude
any Retained Tranche II Properties (the "Exercise Notice"). If the Fund elects
not to deliver the Exercise Notice after completing the due diligence efforts
described in this Section 2, the Fund shall retain its right to perform again
such due diligence from time to time thereafter.
3. Closing, Delivery of Election Notice. LXP shall, within
fifteen (15) Business Days after the receipt by LXP of an Exercise Notice from
the Fund, deliver to the Fund an Election Notice, which Election Notice shall
specify whether the Purchase Price will be paid in the form of the Cash Purchase
Price or the Share Purchase Price, shall set forth the
Sched. 5-2
computation of the Purchase Price and shall specify the date, time and location
for completion of the purchase and sale of the Offered Interest, which date
shall in no event be more than (i) twenty (20) days after delivery by LXP of the
Election Notice for the Offered Interest if LXP has elected to pay the Share
Purchase Price or (ii) sixty (60) days after the date of receipt by LXP of the
Exercise Notice for the Offered Interest if LXP has elected to pay the Cash
Purchase Price. The Election Notice shall also identify any Retained Tranche II
Properties that LXP elects to exclude pursuant to Section 11.2(b)(iii) of the
Agreement. If LXP fails to deliver the Election Notice within such fifteen (15)
Business Day period, it shall be deemed to have given an Election Notice on the
last day of such period specifying that LXP will redeem the Offered Interest,
for the Share Purchase Price, at the Company's principal office, at 10 a.m.
local time on the twenty (20th) day thereafter (or if such 20th day is not a
Business Day, on the first Business Day following such 10th day).
Notwithstanding the foregoing, LXP and the Fund agree to use their best efforts
to cause the closing of the acquisition of the Offered Interest hereunder to
occur as quickly as reasonably possible.
4. Closing Deliveries. At the closing of the redemption of the
Offered Interest, payment of the Purchase Price (and if LXP elects to pay the
Share Purchase Price, the execution and delivery of the Registration Rights
Agreement attached as Schedule 7 to the Agreement) shall be accompanied by
proper instruments of transfer and assignment and by the delivery of (i)
representations and warranties of (A) the Fund that (x) the Offered Interest is
free and clear of all liens, and (y) the Fund is an "accredited investor", as
such term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act, and (B) LXP that the acquisition of the Offered Interest and the
execution, delivery and performance of the Registration Rights Agreement have
been duly authorized, and (ii) to the extent that any Shares and Rights are
issued to the Fund, (A) an opinion of counsel for LXP, reasonably satisfactory
to the Fund, to the effect that LXP is a real estate investment trust duly
organized and validly existing under the laws of the State of Maryland and is
taxed as a REIT under Section 856 of the Code, that such Shares and Rights have
been duly authorized, are validly issued, fully-paid and nonassessable, and that
the Registration Rights Agreement is a valid and legally binding obligation of
LXP, and (B) a certificate or certificates evidencing the Shares and Rights to
be issued and registered in the name of the Fund or its designee. If LXP has
elected to pay the Cash Purchase Price, the Cash Purchase Price shall be paid by
wire transfer of immediately available funds, as LXP is directed in writing by
the Fund.
5. Term of Tranche II Redemption Right. The Tranche II Redemption
Right shall continue in full force and effect for the term of the Company.
6. Representations and Covenants of LXP. LXP represents,
covenants and agrees as follows:
(a) Available Shares. LXP shall at all times reserve for
issuance and keep available, free from preemptive rights, out of its authorized
but unissued Shares, such number of Shares as may be necessary to enable LXP to
issue Shares in full satisfaction of the Fund's Tranche II Redemption Right
(assuming that LXP elected to pay the Share Purchase Price with respect to the
Tranche II Redemption Right).
Sched. 5-3
(b) SEC Filings. As long as LXP shall be obligated to file
periodic reports under the Exchange Act, LXP will timely file such reports in
such manner as shall enable any recipient of Shares issued to the Fund hereunder
in reliance upon an exemption from registration provided by Rule 144 under the
Securities Act to continue to be eligible to utilize such exemption, or any
successor rule or regulation or statute thereunder, for the resale thereof.
(c) SEC Reports. LXP shall furnish to the Fund in a timely
manner all reports filed by LXP with the SEC and all other communications
transmitted from time to time by LXP to its shareholders generally.
(d) Fully Paid Shares. LXP shall ensure that all Shares
which are issued in respect of the Purchase Price for the Offered Interest will
upon issue be fully paid and non-assessable and LXP will pay all taxes
(including all state or local transfer taxes but excluding all foreign, federal
or state income, franchise, property, estate, inheritance, gift or similar
taxes), charges and liens with respect to the issue thereof. LXP shall not,
however, be required to pay any tax that may be payable by the transferee or
transferor in respect of any subsequent transfer of the Shares.
(e) Excess Shares Provisions. The organizational documents
of LXP contain an excess share provision limiting the percentage of Shares that
any Person may directly or indirectly hold or own to nine and eight-tenths
percent (9.8%) on a non-diluted basis. Prior to the acquisition of the first
Tranche II Property by the Company, LXP shall obtain LXP Board approval for the
Fund to acquire the percentage represented by the number of Shares that will be
the Share Purchase Price if LXP elects to pay the Share Purchase Price.
(f) Pension-Held REIT Status. LXP is and will continue to
be a REIT. LXP is not currently a pension-held REIT and, in the event of the
Fund's exercise of the Tranche II Redemption Right and LXP's payment of the
Share Purchase Price, will not become a pension-held REIT as defined by Section
856(h)(3)(D) of the Internal Revenue Code and the regulations thereunder. If LXP
is a pension-held REIT at the time the Fund exercises the Tranche II Redemption
Right, LXP shall take such steps as are necessary for LXP to cease being a
pension-held REIT. If LXP breaches its covenants contained in the preceding two
sentences, and if the Fund's exercise of the Tranche II Redemption Right and
LXP's payment of the Share Purchase Price would result in the Fund's owning a
percentage of LXP's Common Stock sufficient to cause LXP to become a
pension-held REIT, then, among the remedies that the Fund may have for such
breach, the Fund shall have the right to reduce the amount of Common Stock to be
issued to the Fund to the greatest percentage that the Fund could own without
LXP becoming a pension-held REIT, and in addition to any other damages, LXP
shall pay the Cash Purchase Price for the Fund's remaining Tranche II Percentage
Interest. This Paragraph 6(f) shall survive the Fund's exercise of the
Conversion Right and LXP's payment of the Share Purchase Price.
(g) Section 514(c)(9) of the Code. None of the Tranche II
Properties (x) now owned, directly or indirectly, or hereafter acquired by the
Company and (y) financed, refinanced, mortgaged or otherwise used as collateral
for borrowings made by the Company, shall fail to qualify as real property of a
qualified organization within the meaning of Section 514(c)(9) of the Code (and
any Regulations promulgated thereunder) by virtue of the application
Sched. 5-4
of any of the exceptions contained in subparagraph (B) thereof, including, but
not limited to, (i) the acquisition price of such Tranche II Property not being
a fixed amount determined as of the date of the acquisition, (ii) the amount or
time for paying any indebtedness on or related to such Tranche II Property being
dependent upon any revenue derived from such Tranche II Property, or (iii) such
Tranche II Property being leased back to the seller (or any related person) of
such Tranche II Property. Additionally, if any Tranche II Property now owned or
hereafter acquired by LXP is subject to any leases, such leases will be treated
as "true leases," for federal income tax purposes.
7. The Fund's Covenants. The Fund covenants and agrees
with LXP that the Offered Interest tendered to LXP in accordance with the
exercise of the Tranche II Redemption Right shall be delivered to LXP free and
clear of all liens.
8. Anti-dilution Provisions.
(a) No-Dilution without Adjustment. LXP shall not (x)
issue or sell any Shares or other equity securities or any instrument
convertible into any equity security (and shall not permit or suffer Leperq
Corporate Income Fund L.P. or Leperq Corporate Income Fund II L.P. or any other
entity to issue or sell partnership or other interests convertible into Shares
or other equity securities), for a consideration less than the fair value of
such Shares or other equity security, as determined in each case by the LXP
Board, (y) under any circumstance declare any stock dividend, stock split, stock
distribution or the like or distribute to holders of its Shares evidences of its
indebtedness, shares of any class, or non-cash assets (including securities) or
undertake any reclassification of the Shares into securities other than the
Shares (except for reclassification upon a consolidation or merger to which
Paragraph 11 of this Schedule 5 applies) unless (i) an adjustment is made
pursuant to Paragraph 8(b) hereof or (ii) in case this Paragraph 8 does not
provide for an adjustment, other fair and equitable arrangements are provided,
to the extent necessary, to fully adjust, and to avoid any dilution in, the
rights of the Fund with respect to the Share Purchase Price under the Tranche II
Redemption Right. If any dilutive action described in this Paragraph 8 is taken
any time after the Share Purchase Price has been determined, the Conversion
Factor shall be adjusted in accordance therewith. If any such dilutive action is
taken prior to the closing of the purchase and sale of the Offered Interest, an
appropriate adjustment shall be made in the number of Shares and Rights to be
issued (if the Share Purchase Price is to be paid) to the Fund based on the
adjustment to the Conversion Factor called for by this Paragraph 8.
Notwithstanding anything to the contrary contained in this Paragraph 8, LXP may
declare (x) dividends or distributions that are paid exclusively in cash and (y)
such other dividends or distributions that are made in accordance with the
provisions of any preferred stock existing on the date hereof.
(b) Adjustment for Dilution. The Conversion Factor shall
be subject to adjustment from time to time as hereinafter provided and shall be
expressed as a percentage, calculated to the nearest one-thousandth of one
percent (.001%):
(i) Dividends and Distributions in Shares; Subdivisions
and Combinations. If, after determination of the Share Purchase Price,
LXP (i) declares or pays a dividend on its outstanding Shares in Shares,
or makes a distribution to all holders of its outstanding Shares in
Shares, (ii) subdivides its outstanding Shares, or (iii)
Sched. 5-5
combines its outstanding Shares into a smaller number of Shares, then
the Conversion Factor shall be adjusted by multiplying the Conversion
Factor by a fraction, the numerator of which shall be the number of
Shares issued and outstanding on the record date for such dividend,
distribution, subdivision or combination (assuming for the purposes of
such calculation 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 (assuming for the purposes of such
calculation that such dividend, distribution, subdivision or combination
has not yet occurred as of such time) issued and outstanding on the
record date for such dividend, distribution, subdivision or combination.
Any such adjustment to the Conversion Factor shall become effective
immediately upon the effective date of such event retroactive to the
record date, if any, for such event. For the purposes of the
calculations to be made under this Paragraph 8, the number of Shares at
any time outstanding shall not include Shares held in the treasury of
LXP, but shall include Shares issuable in respect of scrip certificates
issued in lieu of fractions of Shares. LXP shall not pay any dividend or
make any distribution on Shares held in the treasury of LXP.
(ii) Minimum Adjustments. No adjustment in the Conversion
Factor shall be required unless such adjustment would require an
increase or decrease of at least one-thousandth of one percent (.001%)
in such Conversion Factor; provided, however, that any adjustment which
by reason of this subparagraph (b)(ii) is not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
(iii) Certain Discretionary Adjustments. In addition to
the adjustments in Conversion Factor required above in this Paragraph 8,
LXP may from time to time in its good faith, reasonable discretion make
such increases in the Conversion Factor as it considers to be advisable
in order to avoid or diminish any Federal income tax to any holders of
the Shares resulting from any dividend or distribution of Shares or
issuance of Rights or Equity Equivalents to purchase or subscribe for
Shares or from any event treated as such for Federal income tax
purposes.
9. Fractions of Shares. No fractional Shares shall be issued in
respect of the Share Purchase Price. Instead, LXP shall pay, on the closing date
of the acquisition of the Offered Interest, a cash adjustment in respect of any
fraction of a Share that would otherwise be issuable in respect of such Share
Purchase Price. Such cash adjustment shall be in an amount equal to the same
fraction multiplied by the adjusted Share Price determined in accordance with
Paragraph 12 below, computed as of the Computation Date.
10. Requests for Computation of Purchase Price. The Fund shall be
entitled to request, from time to time, that LXP compute the Purchase Price then
in effect by delivering written notice to LXP requesting such computation,
provided, however, that the Fund may not request such computation more than
thrice during any calendar year. Upon its receipt of any such request, LXP shall
compute the Purchase Price, and shall prepare and promptly deliver to the
Advisor a certificate signed by the chief financial officer or treasurer of LXP
stating, to the best of such person's knowledge, the Purchase Price and the date
as of which the same was calculated. LXP shall cooperate with the Advisor during
the Advisor's review of any such computation of the Purchase Price.
Sched. 5-6
11. Provisions in Case of Consolidation, Merger or Sale of
Assets. In the event of any consolidation of LXP with, or merger of LXP into,
any other Person, any merger or consolidation of another Person into LXP (other
than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding Shares of LXP), or the transfer of LXP's
Tranche II Percentage Interest, which transfer does not constitute a violation
of the Agreement or is otherwise consented to in writing by the Fund
(collectively, a "LXP Reorganization"), the Person formed by such consolidation
or resulting from such merger or which acquires such Tranche II Percentage
Interest and other assets of LXP, as the case may be (the "Surviving Member"),
shall have the right and the duty to amend this Agreement as set forth below in
this Paragraph 11. The Surviving Member and the Fund shall in good faith
negotiate to arrive at a new method for the calculation of the Share Purchase
Price for the Offered Interest after any such LXP Reorganization so as to
approximate the existing method for such calculation as closely as reasonably
possible. Such calculation shall take into account, among other things, the kind
and amount of securities, cash and other property that was receivable upon such
LXP Reorganization by a holder of the number of Shares and Rights in exchange
for which a Tranche II Percentage Interest in the Company could have been
acquired by LXP immediately prior to the consummation of such LXP
Reorganization. Such amendment to this Agreement shall provide for adjustments
to such method of calculation which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Schedule with respect to the
Conversion Factor. If the Surviving Member and the Fund cannot arrive at a new
method for the calculation of the Share Purchase Price, an accounting firm that
is among the five (5) largest accounting firms in the United States when chosen
shall be selected by the Fund and shall be reasonably acceptable to the
Surviving Member. Such accounting firm shall arrive at a method for the
calculation of the Share Purchase Price that satisfies the requirements of this
Paragraph 11 and such method shall replace the calculation method set forth in
Paragraph 12 hereof. The Surviving Member and the Fund shall have the right to
present to such accounting firm such information and argument as each shall
desire, and such accounting firm shall receive and consider such information and
argument in good faith and shall use its good faith, best efforts to comply with
this Paragraph. The Surviving Member and the Fund shall each be bound by the
calculation method at which such accounting firm arrived. The above provisions
of this Paragraph 11 shall similarly apply to successive LXP Reorganizations
permitted or consented to hereunder.
12. Calculation of Purchase Price.
(a) Calculation of Share Purchase Price.
(i) The Share Purchase Price shall be calculated as
follows: multiply the Company's adjusted proforma funds from operations
("AVFFO") by LXP's FFO multiple ("LFM"), both as calculated for the preceding
12-month period, and then divide the product by the adjusted LXP share price as
defined in subparagraph 12(a)(ii) below ("ASP"). The result will then be
multiplied by the Fund's Tranche II Percentage Interest in the Company ("Fund%")
to determine the number of shares of Common Stock that will be issued to the
Fund. This calculation can be represented by the following formula, subject to
subparagraphs 12(a)(ii) through subparagraph 12(a)(vii):
Sched. 5-7
AVFFO x LFM
------------- x [Fund%]
ASP
(ii) For the purpose of the preceding calculation,
LXP's adjusted share price ("ASP") will equal the greater of (x) the closing
price per share of Common Stock on the date of such calculation, as quoted on
the securities exchange on which Common Stock is then traded, (y) LXP's FFO for
the preceding 12-month period multiplied by 8.5, or (z) $15.20.
(iii) The calculation of the adjusted pro forma FFO
for the Company ("AVFFO") is intended to reflect the fact that the Company may
have a level of leverage that varies from that of LXP. As a result, it is agreed
that the Company's actual FFO for the preceding 12-month period will be adjusted
to reflect (x) the interest expense that would have been payable on the
Company's debt if such debt were adjusted to LXP's leverage level, and (y) the
increased or decreased revenues that would have been earned if either the
Company could not have invested its excess debt in properties or if the Company
could have invested increased debt in additional properties. Therefore, AVFFO
will equal adjusted Company revenue ("AVR") less Company expenses ("VE") less
adjusted Company interest expense ("AVI"), all as calculated for the preceding
12-month period. This calculation can be represented by the following formula:
AVFFO = [AVR-VE-AVI]
(iv) The calculation of adjusted Company interest
expense ("AVI") shall be made by first calculating adjusted Company leverage.
This calculation can be represented by the following formula ("AVL"), and then
multiplying by the Company's average interest rate over the previous 12-month
period ("VLIR"). AVL will equal actual Company leverage ("VL") multiplied by the
ratio of LXP leverage percentage ("LL%") to Company leverage percentage ("VL%").
This calculation can be represented by the following formula:
AVL = VL x [LL%/VL%]
To calculate the leverage percentage of both LXP and the Company, each entity's
actual leverage will be divided by its capitalization, which will be deemed to
equal its EBITDA for the preceding 12 months times 10.0.
(v) The calculation of AVR will be made by adding
to or subtracting from its actual revenue ("VR"), the adjustment in debt level
("VLA") multiplied by the Company's average revenue percentage it earns on its
assets ("VR%). The VLA (adjustment in debt level) is simply actual venture
leverage minus adjusted venture leverage from above (VLA = VL-AVL), while VR%
equals VR divided by the original purchase price ("VPP") for the assets
contributing to VR. These calculations can be represented by the following
formulas:
AVR = VR-[VLA x VR%] where VR%=VR/VPP
Sched. 5-8
(vi) For the purposes of these calculations, values
related to the Company's assets and performance will be fairly adjusted to
accommodate the exclusion of Retained Tranche II Properties, as defined in
Section 11.2(b)(ii) of the Agreement.
(vii) For the purposes of these calculations, (x)
LXP's properties shall be deemed to include properties owned directly by LXP or
indirectly through partnerships and entities other than the Company, (y) LXP's
properties shall be deemed to exclude LXP's interest in the Company and (z)
Shares shall be deemed to be fully diluted.
(b) Cash Purchase Price. The Cash Purchase Price shall be the sum
of (i) the Fair Market Values of all of the Tendered Tranche II Properties that
are not Tranche II LSL Properties, plus (ii) the unpaid principal balance and
accrued interest of each Tranche II LSL Loan that corresponds to a Tendered
Tranche II Property, plus (iii) the fair market value of all outstanding
Warrants (including the related Put Options) relating to the Tendered Tranche II
Properties; multiplied by (iv) the Fund's Tranche II Percentage Interest,
multiplied by (v) One Hundred Ten Percent (110%).
13. Disposition of Retained Tranche II Properties. If any of the
Company's Tranche II Properties are excluded pursuant to Sections 11.2(b)(ii)
and (iii) of the Agreement, then as soon as is commercially reasonable, either
(i) the Manager shall sell the Retained Tranche II Properties (including Tranche
II LSL Loans and Warrants and Put Options), and the proceeds of sale shall be
distributed pursuant to Section 9.2(iv) of the Agreement provided that
references in Section 9.2(iv) to Tranche II Percentage Interests shall mea
Tranche II Percentage Interests as they existed prior to LXP's purchase of the
Offered Interest), or (ii) the Company shall form a Delaware limited liability
company on the same terms that apply to the Company (except there shall be no
Tranche II Redemption Right), and in which the Fund and LXP shall have the same
Tranche II Percentage Interests as they each have in the Company prior to LXP's
purchase of the Offered Interest, the Retained Tranche II Properties shall be
contributed to the newly formed limited liability company, and the Members shall
continue to own indirectly the Retained Tranche II Properties through their
Tranche II Percentage Interests in the newly formed limited liability company.
The buy/sell provisions of Section 11.1 shall apply to the Retained Tranche II
Properties, whether or not the Tranche II Rights Trigger Date has occurred, and
any Member may be the Offering Member.
Sched. 5-9
APPENDIX 1 TO
SCHEDULE 5 (Tranche II Redemption Rights)
----------------------------
This Appendix 1 contains an illustrative calculation of the Share
Purchase Price using numbers rather than variables. The calculation beginning on
the next page is provided for illustration purposes only. Nothing in this
Appendix 1 is intended by the Fund or LXP to be an estimate or approximation of
the value of the Share Purchase Price upon the Fund's exercise of the Tranche II
Redemption Right.
[ILLUSTRATIVE CALCULATION BEGINS ON THE FOLLOWING PAGE.]
Sched. 5-10
SCHEDULE 6
AIMR Returns
------------
Income Return:
- --------------
I = Income before asset management
fee
I
-----------------------------------
E(t-1) + TWC - TWD E(t-1)= Equity (Net Assets) at the
beginning of period
MV(t) = Net market value of real
Capital Return: estate at end of period
- ---------------
MV(t-1) = Net market value of real
MV(t) - MV(t-1) - C estate at beginning of period
-----------------------------------
E(t-1) + TWC - TWD
TWC = Time Weighted Contributions,
By Number of Days in the
Total Return: Quarter
- -------------
TWD = Time Weighted Distributions,
By Number of Days out of the
I + (MV(t) - MV(t-1) - C) Quarter
-----------------------------------
E(t-1) + TWC - TWD C = Capital Expenditures During the
Current Year
Source: Association of Investment Management and Research
Sched. 6
SCHEDULE 7
Registration Rights Agreement
-----------------------------
[SCHEDULE BEGINS ON THE FOLLOWING PAGE.]
Sched. 7-1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT, dated as of [__________], between
Lexington Corporate Properties Trust, a Maryland real estate investment trust
(the "Company"), and the Comptroller of the State of New York, as Trustee of the
Common Retirement Fund (the "Investor"), for the benefit of the Investor and any
Holder (as hereinafter defined).
This Agreement is executed pursuant to the Operating Agreement of
Lexington Acquiport Company II, L.L.C., dated as of December 5, 2001, between
the Company and the Investor (the "Operating Agreement"). In order to induce the
Investor to enter into the Operating Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
The following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, (a) any member of
the Immediate Family of such Person or a trust established for the
benefit of such member, (b) any beneficiary of a trust described in (a),
(c) any Entity which, directly or indirectly through one or more
intermediaries, is deemed to be the beneficial owner of 10% or more of
the voting equity of the Person for the purposes of Section 13(d) of the
Exchange Act, (d) any officer of the Person or any member of the Board
of Directors of the Person or (e) any Entity which, directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, such Person, including such Person
or Persons referred to in the preceding clauses (a) or (d); provided,
however, that none of the Investor, or its Affiliates, nor any of their
respective officers, directors, partners, or members shall be considered
an Affiliate of the Company or any of its Subsidiaries for the purposes
of this Agreement.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday which is not a day on which banking institutions in New York City
are authorized or obligated by law or executive order to close.
"Commission" means the Securities and Exchange Commission or any
successor regulatory authority responsible for enforcement and oversight
of the federal securities laws.
"Common Stock" means the common shares of beneficial interest,
par value $.00l per share, of the Company.
"Entity" means any general partnership, limited partnership,
corporation, joint venture, trust, business trust, real estate
investment trust, limited liability company, cooperative or association.
"equity security" means common stock, preferred stock and any
other security that is treated as an equity security either under the
Exchange Act or under generally accepted accounting principles by the
issuer thereof or any other security convertible into, exercisable into,
or exchangeable for any equity security.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Governmental Body" means any foreign, federal, state, municipal
or other government, or any department, commission, investigative body,
board, bureau, agency, public authority or instrumentality thereof or
any court, mediator, arbitrator or other tribunal.
"Holder" and "Holders" means a Person or Persons who is, or are,
the owner of record of Registrable Securities.
"Immediate Family" means, with respect to any Person, such
Person's spouse, parents, parents-in-law, descendants, nephews, nieces,
brothers, sisters, brothers-in-law, sisters-in-law, stepchildren,
sons-in-law and daughters-in-law.
"Majority Holders" means the Holder or Holders at the relevant
time (excluding the Company or any of its Subsidiaries) of more than 50%
of the Registrable Securities then outstanding.
"Person" means any individual or Entity.
"Prospectus" means the Prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
Securities covered by such Registration Statement and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference in such
Prospectus.
"Registrable Securities" means (i) all shares of Common Stock
that have been issued to the Investor pursuant to the Operating
Agreement, and (ii) any other securities into which or for which any of
the securities described in clause (i) above may be or have been
converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise, until such time as
(a) they have been effectively registered pursuant to this Agreement and
sold under the Securities Act, or (b) they are distributed to the public
pursuant to Rule 144 (or any similar provisions then in force) under the
Securities Act and are not subject to any stop transfer order delivered
by or on behalf of the Company and no other restriction on transfer
exists under any federal securities law.
"Registration Statement" means any registration statement of the
Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus, amendments and
supplements to such Registration Statement,
-2-
including post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Underwriters Maximum Number" means for any underwritten Demand
Registration, Piggyback Registration or other registration, that number
of shares of securities to which such registration should, in the
written opinion of the managing underwriter or underwriters of such
registration in light of market factors, be limited.
"underwritten registration" or "underwritten offering" means a
registration in which securities of the Company are sold to an
underwriter for reoffering to the public.
2. DEMAND REGISTRATION
2.1 Right to Demand Registration. (a) Subject to Section 2.5 hereof,
at any time, the Majority Holders may make a written request to the Company for
registration with the Commission (a "Demand Registration") under and in
accordance with the provisions of the Securities Act of all or part of its
Registrable Securities; provided, however, that the Company (i) shall be
required to effect no more than one such Demand Registration pursuant to this
Section 2 (other than the "shelf" registration provided for under Section
2.1(c)) and (ii) shall not be required to effect a Demand Registration if less
than $5 million in market value of Registrable Securities would be registered.
The Shelf Registration (as defined under Section 2. 1(c)) shall qualify as the
Demand Registration to which the Holders are entitled hereunder if the Shelf
Registration (i) subject to Section 2.5, is maintained effective continuously
for a three (3) year period or until all such shares have been distributed
thereunder and (ii) contemplates distributions through at least one underwritten
offering in which the Holders have exclusive priority as to the inclusion of
Registrable Securities.
(b) Each Demand Registration shall be in the form of an underwritten
offering managed by an underwriter or underwriters selected by the Company.
(c) At the election of the Majority Holders (in their sole
discretion), the Company shall promptly file with the Commission a "shelf"
registration statement with respect to all of their Registrable Securities, on
an appropriate Form, pursuant to Rule 415 under the Securities Act or any
similar rule that may be adopted by the Commission (the "Shelf Registration").
The Company shall use its reasonable best efforts to have the Shelf Registration
declared effective as soon as practicable after such filing and, notwithstanding
anything to the contrary herein, shall use reasonable best efforts to keep the
Shelf Registration continuously effective for a period of three years from the
date such Shelf Registration is declared effective (to the extent permitted by
the Commission) or until all shares registered on such "shelf" registration
statement have been sold. Such "shelf" registration may provide for
distributions other than through underwritten offerings. Any Holder shall be
-3-
required to comply with the rules of the New York Stock Exchange or any other
stock exchange on which the Common Stock is then listed. In no event shall the
Company be required to file more than one Shelf Registration Statement at the
request of the Majority Holders.
(d) Within ten days after receipt of any request by the Majority
Holders under Section 2.1(a) or under Section 2.1(c), the Company will give
written notice (the "Other Holders Notice") of such registration request to all
other Holders, if any, and, subject to Section 2.3, shall include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein from the Holders thereof within
15 days after such notice by the Company.
2.2 Effective Registration and Expenses. A registration will qualify
as a Demand Registration or a Shelf Registration when it has become effective;
provided, however, that (i) if the Majority Holders withdraw their Registrable
Securities after the filing with the Commission of the initial Registration
Statement related thereto, such demand will count as a Demand Registration or a
Shelf Registration unless such Majority Holders agree severally to pay all of
the Registration Expenses of the Company incurred through the date that notice
of such withdrawal is given and (ii) an effective Demand Registration will not
count as the sole Demand Registration if the Majority Holders have not been
permitted to register and sell all of the Registrable Securities requested to be
included in such registration by such Majority Holders.
2.3 Priority on Underwritten Demand Registrations. Subject to the
rights granted pursuant to the agreements set forth on Schedule 10.2 or as
otherwise contemplated by Section 4.1(b), if the managing underwriter or
underwriters of any underwritten Demand Registration advise the Company and the
Holders in writing of an Underwriters Maximum Number, the Company will be
obligated and required to include in such registration (i) first, the
Registrable Securities requested to be included in such Demand Registration by
the Holders, pro rata in proportion to the number of Registrable Securities
requested to be included in such registration by each of them until all such
Registrable Securities have been so included, (ii) second, the Registrable
Securities requested to be included in such Demand Registration by the Company
and other Persons having contractual rights thereto, in accordance with the
priorities that exist among them, and (iii) third, any other securities of the
Company to be registered on behalf of any other Person. Neither the Company nor
any of its securityholders (other than Holders of Registrable Securities) shall
be entitled to include any securities in any Demand Registration unless the
Company or such securityholders (as the case may be) shall have agreed in
writing to sell such securities on the same terms and conditions as shall apply
to the Registrable Securities to be included in such Demand Registration.
2.4 Selection of Underwriters. The managing underwriter and any
additional investment bankers and managers for use in connection with any
underwritten Demand Registration will be selected by the Company from a list of
five choices provided by the Investor; provided, that the Investor shall be
required to select such five firms from the list attached hereto as Schedule
2.4; provided, further that in the event the Company desires to make a selection
other than from the list
-4-
of five choices provided by the Investor, the Investor shall have the right to
approve such selection, which approval shall not be unreasonably withheld.
2.5 Limitations Regarding Registration at the Request of Holders. (a)
The Company shall not be required to effect a Demand Registration or a Shelf
Registration under Section 2.1 and the Holders of Registrable Securities will
discontinue the disposition of their securities covered by a Shelf Registration
during any Blackout Period (as defined below) (i) if the Board of Directors of
the Company determines in good faith that effecting such a registration or
continuing such disposition at such time would have a material adverse effect
upon a proposed sale of all (or substantially all) of the assets of the Company
or a merger, reorganization, recapitalization or similar current transaction
materially affecting the capital structure or equity ownership of the Company,
(ii) if the Company is in possession of material information which the Board of
Directors of the Company determines in good faith it is not in the best
interests of the Company to disclose in a registration statement at such time,
or (iii) if the Company has delivered a notice pursuant to Section 3.1 that it
is undertaking an underwritten offering in which the Holders will be entitled to
exercise their piggyback rights; provided, however, that the Company may only
delay a Demand Registration or the filing of a new Shelf Registration pursuant
to this Section 2.5 by delivery of a Blackout Notice (as defined below) within
thirty (30) days of delivery of the notice requesting a Demand Registration or
such new Shelf Registration and, in any case, only for a period not exceeding
three (3) months (or until such earlier time as such transaction is consummated
or no longer proposed or the material information has been made public) (the
"Blackout Period"). There shall not be more than one Blackout Period in any
twelve (12) month period.
(b) The Company shall promptly notify the Holders in writing (a
"Blackout Notice") of any decision not to effect a Demand Registration or a
Shelf Registration or to discontinue sales of Registrable Securities pursuant to
this Section 2.5, which notice shall set forth the reason for such decision (but
not disclosing any nonpublic material information) and shall include an
undertaking by the Company promptly to notify the Holders as soon as a Demand
Registration or a Shelf Registration may be effected or sales may resume.
(c) The Company shall not be required to effect a Demand Registration
or Shelf Registration under Section 2.1 during any period the Company is
restricted from filing a registration statement or from making any public sale
or distribution of its equity securities pursuant to any agreement on Schedule
10.2 or as contemplated by Section 4.1(b).
3. PIGGYBACK REGISTRATIQN
3.1 Right to Include Registrable Securities. Subject to Section 3.3,
if the Company or any other issuer of Registrable Securities at any time or from
time to time proposes to register shares of its equity securities or Registrable
Securities under the Securities Act (other than in a registration on Form S-4 or
S-8 or any successor form to such forms or in connection with an exchange offer
or an offering of securities solely to the existing stockholders or employees of
the Company and other than in connection with a "roll-up" of partnerships which
are Affiliates of the Company), whether
-5-
or not for sale for its own account, the Company shall deliver prompt written
notice to all Holders of Registrable Securities of its intention to undertake
such registration and of such Holders' rights to participate in such
registration under this Section 3 as hereinafter provided. The Company shall use
its reasonable best efforts to effect the registration under the Securities Act
of all Registrable Securities with respect to which the Company receives a
request for registration from the Holders thereof by written notice to the
Company within 30 days after the date of the Company's notice to Holders of its
intended registration (which notice by Holders shall specify the amount of
Registrable Securities to be registered and the intended method of disposition
thereof), to the extent necessary to permit the disposition in accordance with
the intended methods thereof of all such Registrable Securities by including
such Registrable Securities in the registration statement pursuant to which the
Company proposes to register the shares of Common Stock (a "Piggyback
Registration"); provided, however, that if such registration involves an
underwritten offering, all Holders requesting inclusion in the registration
shall be required to sell their Registrable Securities to the underwriters
selected by the Company at the same price and on the same terms of underwriting
applicable to the Company and any other Persons selling shares of Common Stock.
The Holders requesting inclusion in a registration pursuant to this Section 3
may, at any time prior to the effective date of the registration statement
relating to such registration, revoke such request by delivering written notice
to the Company revoking such requested inclusion. All requests for Piggyback
Registration under this Section 3 shall be without prejudice to the rights of
the Holders to request, and shall not be counted, as the sole Demand
Registration or Shelf Registration under Section 2 above.
3.2 Priority in Piggyback Registration. Subject to any rights granted
pursuant to the agreements set forth on Schedule 10.2 or contemplated by Section
4.1(b), if any of the Registrable Securities registered pursuant to any
Piggyback Registration are to be sold in one or more firm commitment
underwritten offerings, and the managing underwriters advise in writing the
Company and the Holders of such Registrable Securities of an Underwriters
Maximum Number, or, in the case of a Piggyback Registration not being
underwritten, the Company shall reasonably determine (and notify the Holders of
Registrable Securities of such determination), after consultation with an
investment banker of nationally recognized standing, that the number of shares
of Common Stock (including Registrable Securities) proposed to be sold in such
offering exceeds the number of shares of Common Stock which can be sold in such
offering within a price range acceptable to the Company, the Company shall
include in such registration only such number of shares of Common Stock
(including Registrable Securities) which in the opinion of such underwriter or
underwriters or the Company, as the case may be, can be sold within such price
range, selected in the following order of priority: (i) first, all of the shares
of Common Stock that the Company proposes to register, and the shares requested
by any other Person having demand registration rights and having made demand for
the subject registration, (ii) second, the Registrable Securities requested to
be included in such registration by Holders that have requested their
Registrable Securities to be included therein, pro rata in proportion to the
number of Registrable Securities requested to be included in such registration
by each of them, (iii) third, other Registrable Securities requested to be
included in such registration by any other Persons, and (iv) fourth, other
securities of the Company to be registered on behalf of any other Person.
-6-
3.3 Limitations Regarding Piggyback Registrations. If the Company, at
any time after giving written notice under Section 3.1 of its intention to
register Common Stock and prior to the effectiveness of the registration
statement filed in connection with such registration, determines for any reason
consistent herewith either not to effect such registration or to delay such
registration, the Company may, at its election, by the delivery of written
notice to each Holder, (i) in the case of a determination not to effect
registration, relieve itself of its obligation to register the Registrable
Securities in connection with such registration, or (ii) in the case of a
determination to delay the registration, delay the registration of such
Registrable Securities for the same period as the delay in the registration of
such other shares of Common Stock.
4. HOLD-BACK AGREEMENTS
4.1 Restrictions on Public Sale by Holder of Registrable Securities.
(a) Each Holder of Registrable Securities agrees, if requested by the managing
underwriter or underwriters in an underwritten offering of any Registrable
Securities, not to effect any public sale or distribution or any other sale
pursuant to the exemption from the registration requirements of the Securities
Act, of its remaining equity securities of the Company, including a sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act (except as part of such underwritten registration), during the
14-day period prior to, and during the 90-day period (or such shorter period as
may be agreed to by the parties hereto) beginning on, the effective date of such
Registration Statement, to the extent timely notified in writing by the Company
or the managing underwriter or underwriters, unless the underwriters managing
the registered offering and the Company otherwise agree.
(b) Each Holder of Registrable Securities agrees by acquisition of
such Registrable Securities not to effect any public sale or distribution or any
other sale pursuant to any exemption from the registration requirements of the
Securities Act of any equity securities of the Company, including a sale
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act (except as part of such underwritten registration), during the
period that a holder of securities registrable under any of the agreements set
forth on Schedule 10.2 or any agreement entered into in accordance with the
terms provided pursuant to Section 4.2(ii) hereunder is prohibited from making
any such sale or distribution as a result of a underwritten public offering
pursuant to such agreement.
4.2 Restriction on Public Sale by the Company. The Company agrees (i)
not to effect any public sale or distribution of any of its equity securities
(for its own account or the account of any third party) during the 14-day period
prior to, and during the 90-day period beginning on, the effective date of a
Registration Statement filed pursuant to underwritten offering under Section 2
or Section 3 or such longer periods as may be required in the reasonable
judgment of the managing underwriter or underwriters (except as part of such
underwritten registration or pursuant to registrations on Forms S-4 or S-8 or
any successor form to such forms or in connection with an exchange offer or an
offering of securities solely to the existing stockholders or employees of the
Company or upon conversion of outstanding securities), and (ii) that it will use
its reasonable best efforts to cause each holder of equity securities of the
Company purchased from the Company at any
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time after the date of this Agreement (other than in a registered public
offering) who as a result of such purchase, owns more than 5% of the Common
Stock on a fully diluted basis, to agree not to effect any public sale or
distribution or any other sale pursuant to the exemption from the registration
requirements of the Securities Act available for private placements, of any such
securities during such period, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such underwritten registration, if permitted).
5. REGISTRATION PROCEDURES
Upon the Company incurring registration obligations under Section 2 or 3
and subject thereto, the Company will use its reasonable best efforts to effect
such registrations to permit the sale of such Registrable Securities in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will, at its expense, as expeditiously as
reasonably possible:
(a) prepare and file with the Commission a Registration Statement
relating to such registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Registrable Securities by the
Holders thereof in accordance with the intended method or methods of
distribution thereof, and use its reasonable best efforts to cause such
Registration Statement to become effective; provided, however, that before
filing a Registration Statement or Prospectus, the Company will furnish to the
Holders of the Registrable Securities covered by such Registration Statement,
their counsel and the underwriters, if any, copies of all such documents
proposed to be filed sufficiently in advance of filing to provide them with a
reasonable opportunity to review such documents and comment thereon;
(b) prepare and file with the Commission such amendments and
post-effective amendments to a Registration Statement as may be necessary to
keep such Registration Statement effective for a period of not less than 180
days (or such shorter period which shall terminate when all Registrable
Securities covered by such Registration Statement have been sold or withdrawn,
but not prior to the expiration of the 90-day period referred to in Section 4(3)
of the Securities Act and Rule 174 thereunder, if applicable); cause the related
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to it with respect
to the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement or
supplement to such Prospectus.
(c) notify each Holder of Registrable Securities included in the
Registration Statement, their counsel and the managing underwriters, if any, at
any time when a Prospectus relating thereto is required to be delivered under
the Securities Act, promptly, and (if requested by any such Person) confirm such
notice in writing, (1) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(2) of any request by the Commission for
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amendments or supplements to a Registration Statement or related Prospectus or
for additional information, (3) of the issuance by the Commission of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (4) if at any time the representations and
warranties of the Company contained in agreements contemplated by Section 5(n)
cease to be true and correct in all material respects, (5) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (6) of the
happening of any event as a result of which the Prospectus included in the
Registration Statement (as then in effect) contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein (in the case of the Prospectus or
any preliminary Prospectus, in light of the circumstances under which they were
made) not misleading and (7) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate or
that there exist circumstances not yet disclosed to the public which make
further sales under such Registration Statement inadvisable pending such
disclosure and post-effective amendment;
(d) at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, upon the occurrence of any event
contemplated by Section 5(c)(2)-(7), prepare a supplement or post-effective
amendment to the Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable Securities being
sold thereunder, which Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading in light of the circumstances under which they
were made;
(e) use reasonable best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement, or the lifting of
any suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction required pursuant to Section 5(i), as soon as
reasonably possible;
(f) if requested by a managing underwriter or any Holder of
Registrable Securities, immediately incorporate in a prospectus supplement or
post-effective amendment such information concerning such Holder of Registrable
Securities, the managing underwriter or underwriters or the intended method of
distribution as the managing underwriter or underwriters or the Holder of
Registrable Securities reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company, including, without
limitation, information with respect to the number of shares of the Registrable
Securities being sold to such underwriter or underwriters, the purchase price
being paid therefor by such underwriter or underwriters and with respect to any
other terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; make all required filings of
such Prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment;
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(g) furnish to each Holder of Registrable Securities included in such
Registration Statement and each managing underwriter, if any, without charge,
one copy of the Registration Statement and any post-effective amendments
thereto, including financial statements and schedules, and, upon request, all
documents incorporated therein by reference and all exhibits (including those
incorporated by reference);
(h) deliver to each Holder of Registrable Securities included in such
Registration Statement, their counsel and the underwriters, if any, without
charge, as many copies of the Prospectus or Prospectuses (including each
preliminary Prospectus) and any amendment or supplement thereto as such Persons
may reasonably request; the Company consents to the use of such Prospectus or
any amendment or supplement thereto by each Holder of Registrable Securities
included in the Registration Statement and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto;
(i) prior to any public offering of Registrable Securities use its
reasonable best efforts to register or qualify, or cooperate with the Holders of
Registrable Securities included in the Registration Statement, the underwriters,
if any, and their respective counsel in connection with the registration or
qualification of, such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any Holder or underwriter
reasonably requests in writing; use its reasonable best efforts to keep each
such registration or qualification effective, including through new filings or
amendments or renewals, during the period such Registration Statement is
required to be kept effective and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided, however,
that the Company will not be required to qualify to do business or take any
action that would subject it to taxation or general service of process in any
jurisdiction where it is not then so qualified or subject;
(j) cooperate with the Holders of Registrable Securities included in
the Registration Statement and the managing underwriter or underwriters, if any,
to facilitate, at the election of the Majority Holders, (x) the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be sold under the Registration Statement
or (y) the timely transfer of beneficial ownership of such Registrable
Securities in machine book-entry fashion under the auspices of The Depository
Trust Company, or other similar organization; and cause such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriter or underwriters, if any, or such Holders may request at
least two business days prior to any sale of Registrable Securities;
(k) use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such Governmental Bodies consistent with the provisions of Section
5(i) as may be necessary to enable the seller or sellers thereof or the managing
underwriter or underwriters, if any, to consummate the disposition of such
Registrable Securities;
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(l) cause all Registrable Securities included in such Registration
Statement to be (1) listed, by the date of first sale of Registrable Securities
pursuant to such Registration Statement, on each securities exchange on which
the Common Stock is then listed or proposed to be listed thereon, if any, or (2)
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or the National Market System of NASDAQ if the Common Stock is
then quoted thereon.
(m) provide a transfer agent and registrar for the Registrable
Securities not later than the effective date of such Registration Statement;
(n) enter into such agreements and take all such other reasonable
actions in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities and in such connection, in the case
of an underwritten offering, (1) enter into an underwriting agreement in form,
scope and substance as is customary in underwritten offerings by such
underwriter and use its reasonable best efforts to obtain opinions of counsel to
the Company and updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing underwriter or
underwriters) addressed to each selling Holder and the underwriters, if any,
covering the matters customarily covered in opinions requested in underwritten
offerings and such other related matters as may be reasonably requested by such
Holders and underwriters, (2) use its reasonable best efforts to obtain a "cold
comfort" letter and updates thereof from the Company's independent certified
public accountants addressed to each Holder of Registrable Securities included
in the Registration Statement (to the extent permitted by applicable accounting
standards) and the underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort" letters
given by accountants in connection with underwritten offerings, (3) the
underwriting agreement shall set forth in full the indemnification provisions
and procedures of Section 7 with respect to all parties to be indemnified
pursuant to said Section (or such other indemnification provisions as the
underwriter may request and which is reasonably acceptable to the Holders
included in such registration), and (4) the Company shall deliver such documents
and certificates as may be reasonably requested by the managing underwriter or
underwriters, if any, to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent required thereunder;
(o) make available for inspection by a representative of the Holders
of Registrable Securities included in the Registration Statement, any
underwriter participating in any disposition pursuant to such Registration
Statement and any lawyer, accountant or other advisors retained by such selling
Holders or underwriter, all pertinent financial and other records, pertinent
corporate documents and properties of the Company as they may reasonably
request, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
lawyer, accountant or other advisors in connection with such Registration
Statement, provided, however, that any records, information or documents that
are furnished by the Company and that are non-public shall be used only in
connection with such
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registration and shall be kept confidential by such Persons except to the extent
disclosure of such records, information or documents is required by law; and
(p) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission and make generally available
to its security holders earnings statements satisfying the provisions of Section
11(a) of the Securities Act, no later than 90 days after the end of any 12-month
period (1) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwritten
offering and (2) beginning with the first day of the Company's first fiscal
quarter next succeeding each sale of Registrable Securities after the effective
date of a Registration Statement, which statements shall cover said 12-month
periods.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish promptly to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that (i) such Holder will sell its securities covered by
any Registration Statement in accordance with the plan of distribution provided
for therein and (ii) upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(2)-(7), such Holder
will forthwith discontinue disposition of Registrable Securities covered by such
Registration Statement or Prospectus until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 5(d), or until
it is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in such Prospectus,
and, if so directed by the Company, such Holder will, or will request the
managing underwriter or underwriters, if any, to, deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such securities current at the
time of receipt of such notice. In the event the Company shall give any such
notice, the time period mentioned in Section 5(b) during which a Registration
Statement is required to be kept effective shall be extended by the number of
days during the time period from and including the date of the giving of such
notice pursuant to Section 5(c) to and including the date when each seller of
Registrable Securities covered by such Registration Statement shall have
received the copies of the supplemented or amended Prospectus contemplated by
Section 5(d). The Company shall be obligated to use its reasonable best efforts
to cause such Registration Statement and Prospectus to conform to all legal
requirements and to notify the Holders that the use of the applicable Prospectus
may be resumed. Nothing in this paragraph shall limit the obligations of the
Company under Section 2.5 of this Agreement.
6. REGISTRATION EXPENSES
All expenses incident to the Company's performance of or compliance with
this Agreement, including, without limitation, all registration and filing fees,
fees and expense of compliance with state securities or blue sky laws, including
reasonable fees and disbursements of counsel for the underwriters or one counsel
for the selling Holders in connection with blue sky qualifications of the
Registrable Securities under the laws of such jurisdictions as the managing
underwriter or underwriters or Holders of a majority of the shares of the
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Registrable Securities being sold may reasonably designate, printing expenses,
messenger, telephone and delivery expenses, and fees and disbursements of
counsel for the Company and one counsel for the Holders and of all independent
certified public accountants of the Company (including the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), and of underwriters (to the extent that the Company and/or the
selling Holders are required to bear such expense), but excluding the following
expenses none of which shall be paid by the Company: transfer taxes, discounts,
commissions or fees of underwriters, selling brokers, dealer managers or similar
securities industry professionals relating to the distribution of the
Registrable Securities and securities acts liability insurance if the Company so
desires (all such expenses other than the expenses expressly excluded being
herein called "Registration Expenses") will, subject to Section 2.2, be borne by
the Company whether or not the Registration Statement becomes effective. The
Company will, in any event, pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange on which similar securities issued by the
Company are then listed and the fees and expenses of any Person, including
special experts, retained by the Company.
7. INDEMNIFICATION
7.1 Indemnification by the Company. The Company agrees to indemnify,
defend, exonerate and hold harmless, to the full extent permitted by law, each
Holder of Registrable Securities registered pursuant to any registration
hereunder and each of its Affiliates or partners, each of their respective
members, officers, directors, employees, agents, representatives, successors and
assigns and each Person who controls such Holder, Affiliate or partner (within
the meaning of the Securities Act) against any and all actions, causes of
action, suits, losses, liabilities, obligations, damages, deficiencies, demands,
claims, judgments, taxes, assessments, settlement costs, court costs and other
costs and expenses, including, without limitation, interest, penalties, fines,
costs of investigation, discovery, case preparation, defense or appeal, expert
witness fees and expenses and reasonable attorneys' and paralegal fees and
disbursements (collectively, "Losses") incurred by any such Person in any
capacity and caused by any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary Prospectus or any omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in the case of a Prospectus or any preliminary
Prospectus, in the light of the circumstances under which they were made) not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Holder or its
representative expressly for use therein. The Company will also indemnify
underwriters, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the Holders; provided,
however, that if pursuant to an underwritten public offering of Registrable
Securities, the Company and any underwriters enter into an underwriting or
purchase agreement relating to such offering which contains provisions relating
to indemnification and contribution between the Company and such underwriters,
such provisions
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shall be deemed to govern indemnification and contribution as between the
Company and such underwriters.
7.2 Indemnification by Holders. In connection with any registration
hereunder, each Holder participating in such registration will promptly furnish
to the Company in writing such information and affidavits with respect to such
Holder as the Company reasonably requests for use in connection with any
Registration Statement or Prospectus (limited, in each case, to such Holder's
identity, organization, domicile, securities of the Company held and intended
method of distribution) and agrees to indemnify, defend, exonerate and hold
harmless, to the full extent permitted by law, the Company, its directors,
officers, employees, agents and representatives and each Person who controls the
Company (within the meaning of the Securities Act) against any Losses incurred
by any such Person in any capacity and caused by any untrue statement of a
material fact or any omission of a material fact required to be stated in any
Registration Statement or Prospectus or preliminary Prospectus or necessary to
make the statements therein (in the case of a Prospectus or any preliminary
Prospectus, in the light of the circumstances under which they were made) not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information or affidavit with respect to such
Holder so furnished in writing by such Holder or its representatives to the
Company specifically for inclusion in such Registration Statement or Prospectus.
The Company shall be entitled to receive indemnities from underwriters to the
same extent as provided above with respect to information so furnished in
writing by such persons or their representatives to the Company specifically for
inclusion in any Prospectus or Registration Statement. In no event shall the
liability of any selling Holder hereunder be greater in amount than the net
dollar amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
7.3 Conduct of Indemnification Proceeding. Any Person entitled to
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
(provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under this
Section 7, except to the extent that the indemnifying party is prejudiced by
such failure to give notice), and (ii) permit such indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Notwithstanding the foregoing, any Person entitled to
indemnification hereunder shall have the right to employ separate counsel and to
participate in the defense of such claim, but the reasonable fees and expenses
of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed in writing to pay such fees or expenses, (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) a conflict of
interest may exist between such Person and the indemnifying party (as confirmed
in writing by counsel to such Person) or such Person is entitled to a defense
not permitted to be used by the indemnifying party with respect to such claims
(as confirmed in writing by counsel to such Person) (it being understood that
(x) in the case of each of (a), (b) and (c) above, the reasonable fees and
expenses of such separate counsel to such Person shall be paid by the
indemnifying party and (y) in the case of (c) above, if the Person notifies the
indemnifying party in writing that such Person elects to employ separate counsel
at the expense of
-14-
the indemnifying party, the indemnifying party shall not have the right to
assume the defense of such claim on behalf of such Person). If such defense is
not assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld or delayed). No indemnifying party
will be required to consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the indemnified party of a release from all
liability in respect to such claim or litigation. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the reasonable 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, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels. The Company may not enter into any settlement of any claim relating
to the offer and sale of Registrable Securities that does not provide for the
complete and unconditional release of such Person.
7.4 Contribution. If the indemnification provided for in this Section
7 from the indemnifying party is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expense referred to
therein, then the indemnifying party in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action; provided,
however, that in no event shall the liability of any selling Holder hereunder be
greater in amount than the difference between the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities giving rise
to such contribution obligation and all amounts previously contributed by such
Holder with respect to such losses, claims, damages, liabilities and expenses.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.4 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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8. COVENANTS AND UNDERTAKINGS
8.1 Rule 144. The Company will use its reasonable best efforts to
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the Commission thereunder,
and it will take such further action as any Holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any Holder of Registrable Securities, the Company will deliver to such Holder
a written statement as to whether it has complied with such information and
requirements.
9. EFFECTIVENESS. This Agreement shall be effective upon the execution and
delivery of a counterpart by each of the parties hereto.
10. MISCELLANEOUS
10.1 No Adequate Remedy at Law. In the event of a breach by the
Company of its obligations under this Agreement, each Holder, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages may not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
10.2 No Inconsistent Agreement. Except for the registration rights
contained in the agreements set forth on Schedule 10.2 hereto, the Company has
not previously entered into any agreement with respect to its capital stock
granting any registration rights to any Person.
10.3 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Majority Holders. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter which relates exclusively to
the rights of Holders of Registrable Securities whose securities are being sold
pursuant to a Registration Statement and which does not directly or indirectly
affect the rights of other Holders may be given by Holders owning a majority of
the shares of the Registrable Securities being sold by such Holders, provided
that the provisions of this sentence may not be amended, modified, or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
10.4 Notices. Any notice or other communication required or permitted
hereunder shall be deemed to be delivered if in writing (or in the form of a
telecopy) addressed as provided below
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and if either (a) actually delivered or telecopied to said address, (b) in the
case of overnight delivery of a notice, the next business day after properly
posted with postage prepaid, or (c) in the case of a letter, 3 business days
shall have elapsed after the same shall have been deposited in the United States
mails, postage prepaid and registered or certified: If to the Company, then to
Lexington Corporate Properties, Inc., 355 Lexington Avenue, New York, New York
10017, Attention: President, or such other address or addresses of which the
Investor shall have been given notice, with a copy to Barry A. Brooks, Esq.,
Paul, Hastings, Janofsky & Walker LLP, 399 Park Avenue, New York, New York
10022; if to any Holder of Registrable Securities, to it at its address set
forth on the books and records of the Company.
The failure to deliver a copy of any notice to any party's
counsel shall not affect the validity of such notice.
10.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, including, without limitation, subsequent Holders of Registrable
Securities agreeing to be bound by all of the terms and conditions of this
Agreement.
10.6 Counterparts. This Agreement and any amendments, waivers,
consents or supplements may be executed in two or more 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 instrument. This Agreement shall become effective upon the
execution of a counterpart by each of the parties hereto.
10.7 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
10.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State.
10.9 Consent to Jurisdiction; Waiver of Jury Trial. (a) Any action,
suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby may be instituted in any federal court of the
Southern District of New York or any state court located in New York County,
State of New York, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such court, that the action,
suit or proceeding is brought in an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court. The parties irrevocably
submit to the exclusive jurisdiction of such court in any such action, suit or
proceeding. Any and all service of process and any other notice in any such
action, suit or proceeding shall be effective against any party if given
personally or by registered or certified mail, return receipt requested, or by
any other means of mail
-17-
that requires a signed receipt, postage prepaid, mailed to such party as herein
provided. Nothing herein contained shall be deemed to affect the right of any
party to serve process in any manner permitted by law or to commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgments obtained in any action, suit or proceeding
brought pursuant to this Section 10.9.
(b) Each of the parties hereby irrevocably waives trial by jury in
any action, suit, proceeding or counterclaim, whether at law or equity, brought
by either of them in connection with this Agreement or the transactions
contemplated hereby.
10.10 Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Agreement shall
not affect or impair the validity, legality and enforceability of the remaining
provisions or obligations under this Agreement or of such provision or
obligation in any other jurisdiction.
10.11 Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein, other than the provisions of any other
documents specifically referred to herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
10.12 Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to its reasonable costs and expenses and
any other available remedy.
10.13 Construction. The Company and the Investor acknowledge that each
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by the Company and the
Investor.
-18-
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
LEXINGTON CORPORATE PROPERTIES TRUST
By:___________________________________
Name:
Title:
COMPTROLLER OF THE STATE OF NEW YORK,
AS TRUSTEE OF THE COMMON RETIREMENT FUND
By:___________________________________
Name:
Title:
-19-
SCHEDULE 2.4
------------
LIST OF UNDERWRITER CHOICES
---------------------------
A.G. Edwards, Inc.
Bear Steams & Co. Inc.
CS First Boston Corporation
Deutsche Banc Alex. Brown
Furman Selz Incorporated
Goldman Sachs & Co.
JP Morgan Chase & Co.
Lehman Brothers
Merrill Lynch
Montgomery Securities
Morgan Stanley Dean Witter
NatWest Securities
Nomura Securities
Paine Webber
Prudential Securities
Robertson Stephens
Salomon Smith Barney
SunTrust Robinson Humphrey
SCHEDULE 10.2
-------------
REGISTRATION RIGHTS
-------------------
[to be provided]
SCHEDULE 10.2(ii)
LXP Non-Qualified Jurisdictions
-------------------------------
Representatives of each of the following states have informed LXP that their
respective states do not recognize trusts as legal entities and therefore only
LXP's predecessor, Lexington Corporate Properties, Inc. is qualified to do
business in such states:
Alabama
Georgia
North Carolina and
Tennessee.
Sched. 10.2(ii)
SCHEDULE 10.2(viii)
Exceptions to No Material Adverse Change
----------------------------------------
None.
Sched. 10.2(viii)-1
EXHIBIT A
Form of Annual Budget
---------------------
[EXHIBIT BEGINS ON THE FOLLOWING PAGE]
Exh. A-1
Lexington Acquiport II LLC Attachment 1
Property
-----------------------------------
1 2 3 4 etc. Total
--- --- --- --- ---- -----
Rental Income xx xx xx xx xx xx
Interest Expense x x x x x x
Amortization - non real estate x x x x x x
Property operating (attachment 2) x x x x x x
Attachment 2
Lexington Acquiport II LLC
Form of Operating Budget
Property
-------------------------------------------
Property Operating 1 2 3 4 etc.
- ------------------ --- --- --- --- ----
Taxes x x x x x
Electric x x x x x
Repairs x x x x x
General maintenance x x x x x
HVAC x x x x x
Insurance x x x x x
Management fees x x x x x
Attachment 3
Lexington Acquiport II LLC
Form of Operating Budget
General and administrative
Accounting $x
Tax x
Insurance x
Legal x
Engineering x
Miscellaneous x
Lexington Acquiport II LLC
Form of Operating Budget
Revenues:
Rental Income (attachment 1) $xx
Interest & other xx
Expenses:
Interest (attachment 1) xx
Amortization - non real estate (attachment 1) xx
Property operating (attachment 1) xx
General and administrative (attachment 1) xx
--
Net Income $xx
==
EXHIBIT B
Form of Management Agreement
----------------------------
THIS MANAGEMENT AGREEMENT (this "Management Agreement") is dated
as of December __, 2001 and entered into by and between Lexington Acquiport
Company II, LLC, a Delaware limited liability company (the "Company"), and
Lexington Realty Advisors, Inc., a Delaware corporation (the "Asset Manager").
WHEREAS, the Company owns or will own net-leased real estate
properties in the United States of America (collectively, the "Tranche II
Properties") and owns or will own loans ("Tranche II LSL Loans") made to one or
more limited liability companies (each, an "LXP LLC") to finance a part of the
purchase price for net-leased real estate properties (each an "Tranche II LSL
Property") in the United States of America being acquired by limited liability
companies (each, a "Special Purpose LLC") the sole member of which is a LXP LLC;
and
WHEREAS, the Company desires to have the Asset Manager undertake
the duties and responsibilities hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the Company and the Asset
Manager agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized
terms used in this Management Agreement shall have the meanings ascribed to such
terms in that certain Operating Agreement of Lexington Acquiport Company II, LLC
dated as of even date herewith between Lexington Corporate Properties Trust, a
Maryland real estate investment trust, as a managing member ("LXP"), and The
Comptroller of the State of New York, as Trustee of the Common Retirement Fund,
as a non-managing member (the "Fund") (as such Operating Agreement may be
amended, restated, supplemented or otherwise modified from time to time in
accordance with the terms thereof, the "Operating Agreement").
2. Obligations of the Asset Manager. The Asset Manager shall
perform on behalf of the Company those duties and responsibilities of the
Manager in respect of the evaluation of Proposed Tranche II Properties and the
acquisition of Approved Tranche II Properties, and the evaluation of Tranche II
LSL Properties and the making of Tranche II LSL Loans, as contemplated by
Section 3.6 of the Operating Agreement, and in respect of the management of the
Tranche II Properties and Tranche II LSL Loans, that may be delegated to the
Asset Manager pursuant to Section 3.1(b) of the Operating Agreement. With
respect to the management of the Tranche II Properties, the Asset Manager shall
perform the duties and responsibilities described in Appendix 1 attached hereto
and made a part hereof. With respect to the management of the Tranche II LSL
Loans, the Asset Manager shall perform the duties and responsibilities described
in Appendix 1 attached hereto and made a part hereof. Additionally, the Asset
Manager shall prepare or cause to be prepared reports and statements as is, and
in the manner, required by the Operating Agreement. The Asset Manager shall
maintain appropriate books of account and records relating to services performed
pursuant hereto, which books of account and records shall be available for
inspection by representatives of the Company upon
Exh. B-1
reasonable notice during normal business hours, and from time to time or at any
time requested by the Company, make reports to the Company of the Asset
Manager's performance of the foregoing services. In performing the foregoing
services, the Asset Manager shall not, and shall have no power or authority to,
(i) bind the Company, or to enter into any contract or other agreement in the
name of or on behalf of the Company, unless specifically authorized in writing
to do so by the Company, (ii) amend, cancel or alter any of the organizational
documents of the Company, or (iii) do any act not authorized pursuant to this
Management Agreement, unless specifically authorized to do so in writing by the
Company or specifically authorized to do so by the Operating Agreement. Any and
all approvals required from the Company pursuant to this Management Agreement
may be given or withheld by the Company in its absolute and sole discretion.
3. No Partnership or Joint Venture. The Company and the Asset
Manager are not partners or joint venturers with each other and the terms of
this Management Agreement shall not be construed so as to make them such
partners or joint venturers or impose any liability as such on either of them.
4. Employees of Asset Manager. All persons engaged in the
performance of the services to be performed by the Asset Manager hereunder shall
be employees of LXP; provided, however, that, employees and officers of LXP may
also be employees and officers of the Company. All of the Asset Manager's
employees shall be covered by workers' compensation insurance in the manner
required by law.
5. Limitation on the Asset Manager's Liability.
(a) Except as provided in Section 5(b) below, the Asset Manager
and its directors, officers and employees shall not be liable,
responsible or accountable in damages or otherwise to the Company or
either Member for (a) any loss or liability arising out of any act or
omission by the Asset Manager so long as any such act or omission did
not constitute (i) a breach of this Management Agreement or of the
Operating Agreement which breach had or has a material adverse effect on
the Company and, if capable of cure, is not cured within fifteen (15)
days after notice thereof is delivered to the Asset Manager by the
Company, (ii) gross negligence or willful misconduct or (iii) fraud or
bad faith on the part of the Asset Manager or (b) any acts or omissions
by third parties selected by the Asset Manager in good faith and with
reasonable care to perform services for the Company.
(b) Notwithstanding the limitation contained in Section 5(a)
above, the Asset Manager shall be liable, responsible and accountable in
damages or otherwise to the Company and the Fund for any act or omission
on behalf of the Company and within the scope of authority conferred on
the Asset Manager (i) which act or omission was negligent (including any
negligent misrepresentation) and violated any law, statute, regulation
or rule relating to Shares or any other security of LXP or (ii) to the
extent the Company or the Fund is charged with liability for, or suffers
or incurs loss, liability, cost or expense (including reasonable
attorneys' fees) as a result of, such act or omission and such act or
omission was negligent and related to Shares or such other security of
LXP.
Exh. B-2
6. Company's Professional Services. The Company may independently
retain legal counsel and accountants to provide such legal and accounting advice
and services as the Company shall deem necessary or appropriate.
7. Expenses of the Asset Manager and the Company.
(a) The Asset Manager shall pay, without reimbursement by the
Company (i) the salaries of all of its officers and regular employees
and all employment expenses related thereto, (ii) general overhead
expenses, (iii) record-keeping expenses, (iv) the costs of the office
space and facilities which it requires, (v) the costs of such office
space and facilities as the Company reasonably requires, (vi) all out of
pocket costs and expenses incurred in connection with the management of
the Tranche II Properties and the Company (other than reasonable and
customary costs and expenses of Third Parties retained in connection
with the management of the Tranche II Properties and the Company) and
(vii) costs and expenses relating to Acquisition Activities as set forth
in and limited by Section 3.6(f) of the Agreement.
(b) The Asset Manager shall either pay directly from a Company
account or pay from its own account and be reimbursed by the Company for
the following Company costs and expenses that are incurred by the
Company or by the Asset Manager in the performance of its duties under
this Management Agreement or the Operating Agreement:
(i) Permitted Expenses;
(ii) all reasonable and customary costs and
expenses relating to Third Parties retained in connection with a
Proposed Tranche II Property or an Approved Tranche II Property
or a Tranche II LSL Loan as provided in Section 3.6(f) of the
Operating Agreement provided, that if for any reason the Asset
Manager, or any Affiliate of LXP or the Asset Manager (instead of
the Company or an SP Subsidiary) acquires title to any Proposed
Tranche II Property or Approved Tranche II Property, the Asset
Manager shall pay all of the costs and expenses incurred or to be
incurred in connection with such Proposed Tranche II Property or
Approved Tranche II Property.
The Asset Manager shall not pay or be reimbursed by the Company for any
other cost or expense.
(c) Except as expressly otherwise provided in this Management
Agreement or the Operating Agreement, the Company shall directly pay all
of its own expenses, and without limiting the generality of the
foregoing, it is specifically agreed that the following expenses shall
be borne directly by the Company and not be paid by the Asset Manager:
(i) interest, principal or any other cost of money
borrowed by the Company;
Exh. B-3
(ii) fees and expenses paid to independent
contractors, appraisers, consultants and other agents retained by
or on behalf of the Company and expenses directly connected with
the financing, refinancing and disposition of real estate
interests or other property (including insurance premiums, legal
services, brokerage and sales commissions, maintenance, repair
and improvement costs and expenses related to the Tranche II
Properties); and
(iii) insurance as required by the Company.
8. Indemnification by the Company. The Company shall indemnify,
defend and hold harmless the Asset Manager by reason of any act or omission or
alleged act or omission arising out of the Asset Manager's activities as the
Asset Manager on behalf of the Company, against personal liability, claims,
losses, damages and expenses for which the Asset Manager has not otherwise been
reimbursed by insurance proceeds or otherwise (including attorneys' fees,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred by the Asset Manager in connection with such action, suit or proceeding
and any appeal therefrom, unless the Asset Manager (A) acted fraudulently, in
bad faith or with gross negligence or willful misconduct or (B) by such act or
failure to act breached any covenant contained in this Management Agreement,
which breach had or has a material adverse effect on the Company or either
Member and, if capable of cure, is not cured within fifteen (15) days after
notice thereof from the Company. Any indemnity by the Company under this
Management Agreement shall be provided out of, and to the extent of, Company
revenues and assets only, and no Member shall have any personal liability on
account thereof. The indemnification provided under this Section 8 shall (x) be
in addition to, and shall not limit or diminish, the coverage of the Asset
Manager under any insurance maintained by the Company and (y) apply to any legal
action, suit or proceeding commenced by a Member or in the right of a Member or
the Company. The indemnification provided under this Section 8 shall be a
contract right and shall include the right to be reimbursed for reasonable
expenses incurred by the Asset Manager within thirty (30) days after such
expenses are incurred.
9. Terms and Termination. This Management Agreement shall remain
in force until terminated in accordance herewith. At the sole option of the
Company, exercisable in the Company's sole and arbitrary discretion, this
Management Agreement may be terminated at any time and for any reason
immediately upon notice of termination from the Company to the Asset Manager.
This Management Agreement shall automatically expire upon the completion of
dissolution or winding up of the Company pursuant to Section 9.2 of the
Operating Agreement or the removal or resignation of LXP as Manager. This
Management Agreement shall also terminate upon any of the following:
(a) The Asset Manager shall be adjudged bankrupt or insolvent
by a court of competent jurisdiction or an order shall be made by a
court of competent jurisdiction for the appointment of a receiver,
liquidator or trustee of the Asset Manager or of all or substantially
all of its property by reason of the foregoing, or approving any
petition filed against the Asset Manager for reorganization, and such
adjudication or order shall remain in force and unstayed for a period of
30 days.
Exh. B-4
(b) The Asset Manager shall institute proceedings for
voluntary bankruptcy or shall file a petition seeking reorganization
under the Federal Bankruptcy Code, for relief under any law for relief
of debtors, or shall consent to the appointment of a receiver for itself
or for all or substantially all of its property, or shall make a general
assignment for the benefit of its creditors, or shall admit in writing
its inability to pay its debts generally as they become due.
10. Action Upon Termination. After the expiration or termination
of this Management Agreement, the Asset Manager shall:
(a) Promptly pay to the Company or any person legally entitled
thereto all monies collected and held for the account of the Company
pursuant to this Management Agreement, after deducting any compensation
and reimbursement for its expenses which it is then entitled to receive
pursuant to the terms of this Management Agreement.
(b) Within 90 days deliver to the Company a full account,
including a statement showing all amounts collected by the Asset Manager
and a statement of all monies disbursed by it, covering the period
following the date of the last accounting furnished to the Company.
(c) Within ten (10) days deliver to the Company all property
and documents of the Company then in the custody of the Asset Manager.
Upon termination of this Management Agreement, the Asset Manager shall be
entitled to receive payment for any expenses and fees (including without
limitation the management fee which shall be prorated on a daily basis and
acquisition fees) as to which at the time of termination it has not yet received
payment or reimbursement, as applicable, pursuant to Section 7 and Section 11
hereof, less any damages to the Company caused by the Asset Manager.
11. Acquisition Fee and Management Fee.
(a) Upon the acquisition of any Approved Tranche II Property
acquired by the Company or by an SP Subsidiary pursuant to Section 3.6
of the Operating Agreement (including any Approved Tranche II Property
acquired by the Company or by an SP Subsidiary contributed in whole or
in part by LXP as contemplated by the last two sentences of Section
5.1(b) of the Operating Agreement), or upon the making by the Company of
a Tranche II LSL Loan to an LXP LLC pursuant to Section 3.6 of the
Operating Agreement (including any Tranche II LSL Loan related to a
Tranche II LSL Property acquired by a Special Purpose LLC from LXP), the
Company shall pay the Asset Manager an acquisition fee equal to (x) the
purchase price of such acquired Approved Tranche II Property multiplied
by (y) three quarters of one percent (0.75%). If the Manager shall
arrange financing for the purchase of an Approved Tranche II Property
without the use of a third-party broker, then the Company shall pay the
Manager a fee equal to one half of one percent (0.50%) of the loan
amount arranged.
(b) The Company shall pay to the Asset Manager an annual
management fee equal to two percent (2%) of Net Rents, payable monthly.
Such fee shall be calculated
Exh. B-5
monthly, based on Net Rents received by the Company for such month, and
adjusted as provided in this Section 11(b). Within thirty (30) days of
the Company's receipt of the annual reports described in Section 4.3 of
the Operating Agreement for a fiscal year, the Asset Manager shall
provide to the Company a written statement of reconciliation setting
forth (a) the Net Rents for such fiscal year and the management fee
payable to the Asset Manager in connection therewith, pursuant to this
Management Agreement, (b) the management fee already paid by the Company
to the Asset Manager during such fiscal year, and (c) either the amount
owed to the Asset Manager by the Company (which shall be the excess, if
any, of the management fee payable to the Asset Manager for such fiscal
year pursuant to this Agreement over the management fee actually paid by
the Company to the Asset Manager for such fiscal year) or the amount
owed to the Company by the Asset Manager (which shall be the excess, if
any, of the management fee actually paid by the Company to the Asset
Manager for such fiscal year over the management fee payable to the
Asset Manager for such fiscal year pursuant to this Agreement). The
Asset Manager or the Company, as the case may be, shall pay to the other
the amount owed pursuant to clause (c) above within five (5) Business
Days of the receipt by the Advisor and the Fund of the written statement
of reconciliation described in this Section 11. In addition, in those
cases in which a tenant of any Tranche II Property requests that the
Company provide property management services at such tenant's expense,
Asset Manager shall be entitled to an oversight fee for such property
management services for the tenant of such Tranche II Property equal to
one half of one percent (0.50%) of the Net Rent from such Tranche II
Property ("Oversight Fee"), which Oversight Fee shall be payable by the
tenant of such Tranche II Property, in accordance with the terms as such
tenant and Asset Manager may agree. Concurrently with the reconciliation
statement required above, the Asset Manager shall provide to the Advisor
and the Fund a written statement setting forth all Oversight Fees paid
to the Asset Manager during such fiscal year and the Net Rents relating
to such Tranche II Properties for such fiscal year.
12. Assignment. The Asset Manager may not assign or delegate any
of its rights or obligations hereunder.
13. Notices. Unless otherwise specifically provided herein, any
notice or other communication required herein shall be given in accordance with
the Operating Agreement.
14. Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Management Agreement shall in any
event be effective without the written concurrence of the Company. Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given.
15. Governing Law. THIS MANAGEMENT AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
Exh. B-6
16. Entire Agreement. This Management Agreement embodies the
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements, written and oral, relating to the subject
matter hereof.
17. Severability. In case any provision in or obligation under
this Management Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
18. No Waiver, etc. No waiver by the Company of any default
hereunder shall be effective unless such waiver is in writing and executed by
the Company nor shall any such written waiver operate as a waiver of any other
default or of the same default on a subsequent occasion. Furthermore, the
Company shall not, by any act, delay, omission or otherwise, be deemed to have
waived any of its rights, privileges and/or remedies hereunder, and the failure
or forbearance of the Company on one occasion shall not prejudice or be deemed
or considered to have prejudiced its right to demand such compliance on any
other occasion.
19. No Third Party Beneficiary. The Asset Manager is not a third
party beneficiary of the Operating Agreement and shall have no rights or
remedies thereunder, and the parties to the Operating Agreement can amend,
modify or terminate the Operating Agreement at any time without the Asset
Manager's consent and without any liability to the Asset Manager.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
Exh. B-7
IN WITNESS WHEREOF, the parties hereto have caused this
Management Agreement to be duly executed and delivered by their respective
officers thereunto duly authorized as of the date first written above.
COMPANY LEXINGTON ACQUIPORT COMPANY II,
LLC, a Delaware limited liability company
By: LEXINGTON PROPERTIES CORPORATE
TRUST, a Maryland real estate investment trust,
the managing member
By:
------------------------------------------
Name:
Its:
ASSET MANAGER LEXINGTON REALTY ADVISORS, INC.
By:
------------------------------------------
Name:
Its:
Exh. B-8
APPENDIX 1 TO THE
EXHIBIT B (Form of Management Agreement)
----------------------------
PROPERTY MANAGEMENT RESPONSIBILITIES
------------------------------------
A. The Asset Manager shall perform its duties and obligations under
Section 2 of the Management Agreement with respect to the management of the
Tranche II Properties in accordance with the following standards:
1. Management of the Tranche II Properties. Asset Manager shall devote
its commercially reasonable efforts, consistent with first class professional
management, to manage the Tranche II Properties, and shall perform its duties
with respect thereto under the Management Agreement in accordance with the
Operating Agreement and Annual Plan and in a reasonable, diligent and careful
manner so as to manage and supervise the operation, maintenance, leasing and
servicing of each Tranche II Property in a manner that is comparable to similar
properties in the market area in which such Tranche II Property is located. The
services of Asset Manager hereunder are to be of a scope and quality not less
than those generally performed by professional managers of other similarly
situated properties in the market area in which each Tranche II Property is
located. Asset Manager shall make available to the Company the full benefit of
the judgment, experience and advice of the members of Asset Manager's
organization and staff with respect to the policies to be pursued by the Company
in operating the Tranche II Properties, and will perform such services as may be
requested by the Company within the scope of the Management Agreement in
operating, maintaining, leasing, and servicing each Tranche II Property.
2. Specific Duties of Asset Manager. Without limiting the duties and
obligations of Asset Manager under any other provisions of the Management
Agreement, Asset Manager shall have the following duties and perform the
following services with respect to management of the Tranche II Properties:
2.1 Repairs and Maintenance. In accordance with and subject to
the Operating Agreement and the Annual Plan, Asset Manager shall cause to be
made, or ensure that the tenant makes, all repairs and shall cause to be
performed, or ensure that the tenant performs, all maintenance on the buildings,
appurtenances and grounds of each Tranche II Property as are required to
maintain each Tranche II Property in such condition and repair (and in
compliance with applicable codes) that is comparable to similarly situated
properties in the market area in which such Tranche II Property is located, and
such other repairs as may be required to be made under the leases governing each
Tranche II Property. Asset Manager shall to the extent it deems necessary
arrange for periodic inspections of the Tranche II Properties by independent
contractors.
2.2 Leasing Supervision Activities.
------------------------------
Exh. B-9
(a) Leasing Supervision. Asset Manager shall supervise all
leasing activities, for the purpose of leasing the available space in the
Tranche II Properties to tenants upon such terms and conditions as shall be
consistent with the Operating Agreement and the Annual Plan.
(b) Generally. In the performance of Asset Manager's duties under
this Section 2.2, Asset Manager shall (i) develop and coordinate advertising,
marketing and leasing plans for space at each Tranche II Property that is vacant
or anticipated to become vacant; (ii) cooperate and communicate with leasing
specialists, consultants and third-party brokers in the market, and solicit
their assistance with respect to new tenant procurement; and (iii) notify the
Company in writing of all offers for tenancy at each Tranche II Property which
Asset Manager believes are made in good faith, including the identification and
fee schedules of procuring brokers, if any.
(c) Negotiation of Leases. Asset Manager shall negotiate all
tenant leases, extensions, expansions and other amendments and related
documentation on the Company's behalf in accordance with the Operating Agreement
and the Annual Plan. All such documentation shall be prepared at the Company's
expense by counsel acceptable to or designated by the Company, and shall be
executed by the Company. The terms of all such documentation are to be approved
by the Company pursuant to such reasonable procedures as may be requested by the
Company from time to time. Notwithstanding the foregoing, (x) Asset Manager
shall not, for any reason, have the power or authority to execute any such
documentation on behalf of the Company or otherwise bind the Company without the
Company's prior written consent, and (y) the Company reserves the right to deal
with any prospective tenant to procure any such lease, extension, expansion or
other amendment or related documentation.
(d) Third Party Brokers. Asset Manager shall encourage
third-party real estate brokers to secure tenants for the Tranche II Properties,
and periodically notify such brokers of the spaces within the Tranche II
Properties that are available for lease.
(e) Compensation for Third-Party Brokers. Asset Manager shall
negotiate and enter into on behalf of the Company a commission agreement with
third party brokers providing for a leasing commission to be paid at prevailing
market rates, subject to prevailing market terms and conditions. Such leasing
commission shall be paid by the Company.
2.3 Rents, Billings and Collections. Asset Manager shall be
responsible for the monthly billing of rents and all other charges due from
tenants to the Company with respect to each Tranche II Property. Asset Manager
shall use its commercially reasonable efforts to collect all such rents and
other charges when due. Asset Manager shall notify the Company and the Advisor
of all tenant defaults as soon as reasonably practicable after occurrence, and
shall provide the Company and the Advisor with Asset Manager's best judgment of
the appropriate course of action in remedying such tenant defaults.
2.4 Obligations Under Leases. Asset Manager shall supervise and
use its commercially reasonable efforts to cause the Company to perform and
comply, duly and
Exh. B-10
punctually, with all of the obligations required to be performed or complied
with by the Company under all leases and all laws, statutes, ordinances, rules,
permits and certificates of occupancy relating to the operation, leasing,
maintenance and servicing of the Tranche II Properties, including, without
limitation, the timely payment by the Company of all sums required to be paid
thereunder.
2.5 The Company's Insurance. If requested by the Company, the
Asset Manager shall cause to be placed and kept in force all forms of insurance
required by the Operating Agreement and the Annual Plan or required by any
mortgage, deed of trust or other security agreement covering all or any part of
any Tranche II Property. The Asset Manager is to be named as an additional
insured on the general liability policies in its capacity as managing agent. All
such insurance coverage shall be placed through insurance companies and brokers
selected or approved by the Company, with limits, values and deductibles
established by the Company and with such beneficial interests appearing therein
as shall be acceptable to the Company and otherwise be in conformity with the
requirements of the Operating Agreement and the Annual Plan. Should the Company
elect to place such insurance coverage directly, the Asset Manager shall be
named as an additional insured on the general liability policies in its capacity
as managing agent and the Company will provide the Asset Manager with a
certificate of insurance evidencing such coverage. If requested to do so by the
Company, the Asset Manager shall duly and punctually pay on behalf of the
Company with funds provided by the Company all premiums with respect thereto,
prior to the time the policy would lapse due to nonpayment. If any lease
requires that a tenant maintain any insurance coverage, the Asset Manager shall
use its commercially reasonable efforts to obtain insurance certificates
annually, or more frequently, as required pursuant to the applicable leases,
from each such tenant and review the certificates for compliance with the lease
terms. If any lease requires the Company to provide insurance certificates to
tenants thereunder, the Asset Manager shall obtain such insurance certificates
from the Company, review the certificates for compliance with the lease terms,
and provide a copy thereof to tenants in accordance with their respective
leases. The Asset Manager shall promptly investigate and make a full and timely
written report to the insurance broker, with a copy to the Company, as to all
accidents, claims or damage of which the Asset Manager has knowledge relating to
the operation and maintenance of each Tranche II Property, any damage or
destruction to each Tranche II Property, and the estimated cost of repair
thereof, and shall prepare any and all reports required by any insurance company
in connection therewith. All such reports shall be filed timely with the
insurance broker as required under the terms of the insurance policy involved.
The Asset Manager shall have no right to settle, compromise or otherwise dispose
of any claims, demands or liabilities, whether or not covered by insurance,
without the prior written consent of the Company, which consent may be withheld
by the Company in its sole discretion.
2.6 Asset Manager's Insurance. The Asset Manager or the Manager
or LXP will obtain and maintain on the Asset Manager's behalf, at the Asset
Manager's or the Manager's or LXP's expense, the following insurance:
(a) Commercial general liability on an occurrence form for bodily
injury and property damage with limits of One Million Dollars ($1,000,000)
combined single limit each occurrence and Two Million Dollars ($2,000,000) from
the aggregate of all occurrences within each policy year, including but not
limited to Premises-Operation, Products/Completed
Exh. B-11
Operations, Hazard and Contractual Coverage (including coverage for the
indemnity clause provided under the Management Agreement) for claims arising out
of actions beyond the scope of Asset Manager's duties or authority under the
Management Agreement.
(b) Comprehensive form automobile liability covering hired and
non-owned vehicles with limits of One Million Dollars ($1,000,000) combined
single limit per occurrence.
(c) Employer's liability insurance in an amount not less than
Five Hundred Thousand Dollars ($500,000).
(d) Excess liability (umbrella) insurance on the above with
limits of Two Million Dollars ($2,000,000).
(e) Workers' compensation insurance in accordance with the laws
of the state with jurisdiction.
(f) Either (x) blanket crime coverage protecting the Asset
Manager against fraudulent or dishonest acts of its employees, whether acting
alone or with others, with limits of liability of not less than One Million
Dollars ($1,000,000) per occurrence (any loss within any deductible shall be
borne by the Asset Manager) or (y) a fidelity or financial institution bond in
an amount no less than One Million Dollars ($1,000,000.00) bonding the employees
of the Asset Manager who handle or who are responsible for funds belonging to
the Company.
(g) Professional liability insurance covering the activities of
the Asset Manager written on a "claim made" basis with limits of at least One
Million Dollars ($1,000,000). Any loss within any deductible shall be borne by
the Asset Manager. Coverage shall be maintained in effect during the period of
the Management Agreement and for not less than two (2) years after termination
of the Management Agreement.
Each of the above policies will contain provisions giving the
Company and the Advisor at least thirty (30) days' prior written notice of
cancellation of coverage. The policies referred to in items (a) and (d) above
will name the Company and the Advisor as additional insureds, and the policies
referred to in item (f) above will name the Company as loss payee. The Asset
Manager will provide the Company and the Advisor with evidence of all required
coverages.
Such insurance shall be placed with reputable insurance companies
licensed or authorized to do business in the states in which the Tranche II
Properties are located with a minimum Best's rating of AX.
The Company and the Asset Manager agree that the insurance
policies summarized on Appendix 2 to this Exhibit B (Form of Management
Agreement) are consistent with the standards listed above with respect to the
types and amounts of insurance the Asset Manager is required to obtain.
2.7 Compliance with Insurance Policies; Compliance by Tenants
with Tenant Leases. Asset Manager shall use its commercially reasonable efforts
to prevent the use
Exh. B-12
of each Tranche II Property for any purpose that might void any policy of
insurance held by the Company, or any tenant at each Tranche II Property, that
might render any loss insured thereunder uncollectible or that would be in
violation of any governmental restriction or the provisions of any lease. Asset
Manager shall use its commercially reasonable efforts to secure full compliance
by the tenants with the terms and conditions of their respective leases,
including, but not limited to, periodic maintenance of all building systems,
including individual tenant's heating, ventilation and air conditioning systems.
2.8 Intentionally Omitted.
2.9 Tenant Relations. Asset Manager will maintain reasonable
contact with the tenants of the Tranche II Properties and keep the Company and
the Advisor informed of the tenants' concerns, expansion or contraction plans,
changes in occupancy or use, and other matters that could have a material
bearing upon the leasing, operation or ownership of each Tranche II Property.
2.10 Compliance with Laws. Asset Manager shall use its
commercially reasonable efforts to determine such action that may be necessary,
inform the Company of action as may be necessary and, when authorized by the
Company, take such action that may be necessary to cause the Tranche II
Properties to comply with all current and future laws, rules, regulations, or
ordinances affecting the ownership, use or operation of each Tranche II
Property; provided, however, that Asset Manager need not obtain the prior
authorization of the Company to take action in case of an emergency or any
threat to life, safety or property, so long as Asset Manager shall give the
Company prompt notice of any such action taken.
2.11 Cooperation. Should any claims, demands, suits, or other
legal proceedings be made or instituted by any third party against the Company
that arise out of any matters relating to a Tranche II Property or the
Management Agreement or Asset Manager's performance hereunder, Asset Manager
shall promptly give the Company all pertinent information and assistance in the
defense or other disposition thereof; provided, however, in the event the
foregoing requires Asset Manager to incur any expenses beyond the ordinary cost
of performing its obligations under the Management Agreement, the Company shall
pay for any such out-of-pocket costs of which the Company has been advised in
writing.
2.12 Notice of Complaints, Violations and Fire Damage. Asset
Manager shall respond to complaints and requests from tenants within thirty (30)
days of Asset Manager's having received any material complaint made by a tenant
or any alleged landlord default under any lease. Additionally, Asset Manager
shall notify the Company and Advisor as soon as is reasonably practical (such
notice to be accompanied by copies of supporting documentation) of each of the
following: any notice of any governmental requirements received by Asset
Manager; upon becoming aware of any material defect in a Tranche II Property;
and upon becoming aware of any fire or other material damage to any Tranche II
Property. In the case of any fire or other material damage to a Tranche II
Property, Asset Manager shall also notify the Company's insurance broker
telephonically, so that an insurance adjuster has an opportunity to view the
damage before repairs are started, and complete customary loss reports in
connection with fire or other damage to a Tranche II Property.
Exh. B-13
2.13 Notice of Damages and Suits; Settlement of Claims. Asset
Manager shall notify the Company's general liability insurance broker and the
Company as soon as is reasonably practical of the occurrence of any bodily
injury or property damage occurring to or claimed by any tenant or third party
on or with respect to a Tranche II Property, and promptly forward to the broker,
with copies to the Company and the Advisor, any summons, subpoena or other like
legal documents served upon Asset Manager relating to actual or alleged
potential liability of the Company, Asset Manager or a Tranche II Property.
Notwithstanding the foregoing, Asset Manager shall not be authorized to accept
service of process on behalf of the Company, unless such authority is otherwise
imputed by law. The Asset Manager shall have no right to settle, compromise or
otherwise dispose of any claims, demands, or liabilities, whether or not covered
by insurance, without the prior written consent of the Company, which consent
may be withheld by the Company in its sole discretion.
2.14 Enforcement of Leases. The Asset Manager shall enforce
compliance by tenants with each and all of the terms and provisions of the
leases, provided, however, that Asset Manager shall not, without the prior
written consent of the Company in each instance, which consent may be withheld
by the Company in its sole discretion, institute legal proceedings in the name
of the Company to enforce leases, collect income and rent or dispossess tenants
or others occupying a Tranche II Property or any portion thereof, or terminate
any lease, lock out a tenant, or engage counsel or institute any proceedings for
recovery of possession of a Tranche II Property if any such action by the Asset
Manager would constitute a Major Decision.
2.15 Environmental.
(a) Notice. The Asset Manager shall promptly advise the Company
and the Advisor in writing of any evidence of non-compliance with any
Environmental Laws, which Asset Manager is aware of, together with a written
report of the nature and of the non-compliance and the potential threat, if any,
to the health and safety of persons and/or damage to each Tranche II Property or
the property adjacent to or surrounding each Tranche II Property. The Company
acknowledges that (A) Asset Manager is not an environmental engineer and does
not have any special expertise in the Environmental Laws, (B) Asset Manager's
duties under this Section 2.15 are limited to the quality of reasonable
commercial care and diligence customarily applied to property managers of triple
net leased properties.
(b) Rights; Limitations. Without limiting any other provision
contained herein and subject to Section 2.14, Asset Manager shall use
commercially reasonable efforts to enforce the Company's rights under the leases
insofar as any tenant's compliance with Environmental Laws are concerned;
provided, however, Asset Manager shall hold in confidence all information
bearing on Environmental Laws and hazardous materials, except to the extent
expressly instructed otherwise in writing by the Company, or except to the
extent necessary to protect against the imminent threat to the life and safety
of persons and/or damage to a Tranche II Property or damage to the property
adjacent to or surrounding such Tranche II Property, or except to the extent
such disclosure is required by Environmental Laws, other laws, or court order.
Exh. B-14
2.16 Monitoring of Tenant Improvements. The Asset Manager shall
monitor the construction and installation of material tenant improvements
undertaken by the tenant under any lease and act as the Company's liaison with
such tenant's construction managers and contractors (or other supervisors of a
tenant's build-out).
Tranche II LSL LOAN MANAGEMENT RESPONSIBILITIES
-----------------------------------------------
B. The Asset Manager shall perform its duties and obligations under
Section 2 of the Management Agreement with respect to the management of the
Tranche II LSL Loans in accordance with the following standards:
1. Management of the Tranche II LSL Loans. The Asset Manager
shall devote its commercially reasonable efforts, consistent with first class
professional management, to manage the Tranche II LSL Loans, and shall perform
its duties with respect thereto under the Management Agreement in accordance
with the Operating Agreement and Annual Plan and in a reasonable, diligent and
careful manner so as to (i) monitor compliance by each borrower and its
subsidiary Special Purpose LLC with the requirements of the Tranche II LSL Loan,
including without limitation compliance with and performance of their
obligations under, the applicable Tranche II LSL Note, the Pledge and the
Warrant (collectively, the "Tranche II LSL Loan Docpuments"); (ii) collect and
account for all sums payable in respect of the Tranche II LSL Loan; and (iii)
take such steps as may be necessary to enforce the provisions of the Tranche II
LSL Loan Documents. The services of Asset Manager hereunder are to be of a scope
and quality not less than those generally performed by professional managers of
other similarly situated assets in the market area in which each Tranche II LSL
Property is located. Asset Manager shall make available to the Company the full
benefit of the judgment, experience and advice of the members of Asset Manager's
organization and staff with respect to the policies to be pursued by the Company
in managing the Tranche II LSL Loans, and will perform such services as may be
requested by the Company within the scope of the Management Agreement in
managing each Tranche II LSL Loan.
2. Collection and Accounting of Funds. The Asset Manager shall be
responsible for the monthly collection of interest, principal (if any) and other
sums due from LXP LLCs with respect to each Tranche II LSL Loan. The Asset
Manager shall use its commercially reasonable efforts to collect all such
amounts when due. The Asset Manager shall notify the Company and the Advisor of
all LXP LLC defaults as soon as reasonably practicable after occurrence, and
shall provide the Company and the Advisor with the Asset Manager's best judgment
of the appropriate course of action in remedying such defaults.
3. Obligations Under Loan Documents. The Asset Manager shall
supervise and use its commercially reasonable efforts to cause each LXP LLC and
each subsidiary Special Purpose LLC to perform and comply, duly and punctually,
with all of the obligations required to be performed or complied with by each
LXP LLC and each subsidiary Special Purpose LLC under all Tranche II LSL Loan
Documents.
Exh. B-15
4. Personnel. The Asset Manager or the Manager or LXP will obtain
and maintain on the Asset Manager's behalf, at the Asset Manager's or the
Manager's or LXP's expense, either (x) blanket crime coverage protecting Asset
Manager against fraudulent or dishonest acts of its employees, whether acting
alone or with others, with limits of liability of not less than One Million
Dollars ($1,000,000) per occurrence (any loss within any deductible shall be
borne by Asset Manager) or (y) a fidelity or financial institution bond in an
amount no less than One Million Dollars ($1,000,000.00) bonding the employees of
Asset Manager who handle or who are responsible for funds belonging to the
Company. The Company and Asset Manager agree that the financial institution bond
summarized on Appendix 2 to this Exhibit B (Form of Management Agreement) is
consistent with the standards contained in this Paragraph B.4. Satisfying the
requirements of Section A.2.6 of this Appendix 1 to Exhibit B (Form of
Management Agreement) will satisfy the requirements of this Section.
5. Cooperation. Should any claims, demands, suits, or other legal
proceedings be made or instituted by any third party against the Company that
arise out of any matters relating to a Tranche II LSL Loan or any Tranche II LSL
Property or the Management Agreement or Asset Manager's performance hereunder,
Asset Manager shall promptly give the Company all pertinent information and
assistance in the defense or other disposition thereof; provided, however, in
the event the foregoing requires Asset Manager to incur any expenses beyond the
ordinary cost of performing its obligations under the Management Agreement, the
Company shall pay for any such out-of-pocket costs of which the Company has been
advised in writing.
6. Notice of Complaints, Violations and Fire Damage. The Asset
Manager shall respond to complaints and requests from LXP LLCs within thirty
(30) days of Asset Manager's having received any material complaint made by a
LXP LLC under any Tranche II LSL Loan Document. Additionally, Asset Manager
shall notify the Company and Advisor as soon as is reasonably practical (such
notice to be accompanied by copies of supporting documentation) of each of the
following: any notice of any governmental requirements received by Asset
Manager; upon becoming aware of any material defect in a Tranche II LSL
Property; and upon becoming aware of any fire or other material damage to any
Tranche II LSL Property. In the case of any fire or other material damage to a
Tranche II LSL Property, Asset Manager shall also notify the Company's insurance
broker telephonically, so that an insurance adjuster has an opportunity to view
the damage before repairs are started, and complete customary loss reports in
connection with fire or other damage to a Property.
7. Notice of Damages and Suits; Settlement of Claims. The Asset
Manager shall notify the Company's general liability insurance broker and the
Company as soon as is reasonably practical of the occurrence of any bodily
injury or property damage occurring to or claimed by any LXP LLC or Special
Purpose LLC or third party on or with respect to a Tranche II LSL Property, and
promptly forward to the broker, with copies to the Company and the Advisor, any
summons, subpoena or other like legal documents served upon Asset Manager
relating to actual or alleged potential liability of the Company, Asset Manager
or a Tranche II LSL Property. Notwithstanding the foregoing, Asset Manager shall
not be authorized to accept service of process on behalf of the Company, unless
such authority is otherwise imputed by law. Asset Manager shall have no right to
settle, compromise or otherwise dispose of any claims,
Exh. B-16
demands, or liabilities, whether or not covered by insurance, without the prior
written consent of the Company, which consent may be withheld by the Company in
its sole discretion.
8. Enforcement of Tranche II LSL Loan Documents. The Asset
Manager shall enforce compliance by LXP LLCs and by Special Purpose LLCs with
each and all of the terms and provisions of the Tranche II LSL Loan Documents,
provided, however, that Asset Manager shall not, without the prior written
consent of the Company in each instance, which consent may be withheld by the
Company in its sole discretion, institute legal proceedings in the name of the
Company to enforce the Tranche II LSL Loan Documents, if such action by the
Asset Manager would constitute a Major Decision.
9. Environmental.
(a) Notice. Asset Manager shall promptly advise the Company and
the Advisor in writing of any evidence of non-compliance with any Environmental
Laws, which Asset Manager is aware of, together with a written report of the
nature and of the non-compliance and the potential threat, if any, to the health
and safety of persons and/or damage to each Tranche II LSL Property or the
property adjacent to or surrounding each Tranche II LSL Property. The Company
acknowledges that (A) Asset Manager is not an environmental engineer and does
not have any special expertise in the Environmental Laws, (B) Asset Manager's
duties under this Section B.9 are limited to the quality of reasonable
commercial care and diligence customarily applied to managers of loans made to
owners of triple net leased properties.
(b) Rights; Limitations. Without limiting any other provision
contained herein and subject to Section B.8, Asset Manager shall use
commercially reasonable efforts to enforce the Company's rights under the
Tranche II LSL Loan Documents insofar as any LXP LLC's or any Special Purpose
LLC's compliance with Environmental Laws are concerned; provided, however, Asset
Manager shall hold in confidence all information bearing on Environmental Laws
and hazardous materials, except to the extent expressly instructed otherwise in
writing by the Company, or except to the extent such disclosure is required by
Environmental Laws, other laws, or court order.
Exh. B-17
APPENDIX 2 TO THE
EXHIBIT B (Form of Management Agreement)
----------------------------
SUMMARY OF LXP INSURANCE POLICIES
---------------------------------
[APPENDIX BEGINS ON THE FOLLOWING PAGE]
Exh. B-18
INSURED:
Lexington Corporate Properties Trust
355 Lexington Avenue
New York, NY 10017
SCHEDULE OF INSURANCE
- --------------------------------------------------------------------------------
Type of Policy/Plan Term Policy # Expiration Company
- --------------------------------------------------------------------------------
GENERAL LIABILITY 1 Year 3530-93-52 1/1/00 Chubb/Aon Enterprise
General Aggregate Limit
(other than Products/
Completed Operations
Aggregate Limit $ 2,000,000
Products/Completed
Operations Aggregate
Limit $ 1,000,000
Personal & Advertising
Injury Limit $ 1,000,000
Each Occurrence Limit $ 3,000,000
Medical Expense Limit $ 10,000
Fire Damage Legal
Liability $ 100,000
Non-Owned & Hired
Automobile Liability $ 1,000,000
Employee Benefit
Liability $ 1,000,000
Deductible $ 1,000
UMBRELLA LIABILITY 1 Year 7974-09-55 1/1/00 Chubb/Aon Enterprise
Limits of Liability
- ------------------
Each Occurrence $ 5,000,000
General Aggregate $ 5,000,000
Products/Completed
Operations Aggregate $ 5,000,000
Retained Limit $ 10,000
Page 1
SCHEDULE OF INSURANCE
- ------------------------------------------------------------------------------------------------------
Type of Policy/Plan Term Policy # Expiration Company
- ------------------------------------------------------------------------------------------------------
WORKERS' COMPENSATION 1 Year 7BG 063-988-0 1/1/00 Kemper/Aon Enterprise
Workers Compensation -
Statutory Coverage
Employer Liability Limits:
- -------------------------
Bodily Injury
by Accident $ 500,000 Each Accident
Bodily Injury
by Disease $ 500,000 Each Employee
Bodily Injury
by Disease $ 500,000 Policy Limit
Exposure Basis:
- --------------
State Code Class Payroll
- -------------------------------------------------------------------
New York 8810 Clerical-NY $ 684,125
New York 8809 Executive Officers $ 491,400
Page 2
SCHEDULE OF INSURANCE
- -----------------------------------------------------------------------------------------------------------------
Type of Policy/Plan Term Policy # Expiration Company
- -----------------------------------------------------------------------------------------------------------------
FINANCIAL INSTITUTION
BOND 1 Year 856-29-98 6/3/00 National Union Fire Insurance Co
Limit Deductible
----- ----------
Aggregate Limit $1,000,000 $ -
Basic Bond Coverage $1,000,000 $ 25,000
Insuring Agreement D $1,000,000 $ 25,000
(Forgery or
Alteration)
Insuring Agreement E - $1,000,000 $ 25,000
Securities
Profession Liability
Insurance* (claims
made basis)
Aggregate Limit $1,000,000
* Currently obtaining quotes from insurance broker
Page 3
EXHIBIT C
Form of IPC Questionnaire
-------------------------
Investor Name: New York State Common Retirement Fund
Portfolio Name: Lexington Acquiport Company II, LLC
Property Name:
Managing Member: Lexington Corporate Properties Trust
Contact Name: ______________________________
Telephone No: ______________________________
NYSCRF Share 100%
------------ ----------
Beginning of Quarter Net Assets [ date ] _____________ ___________
Tranche II Capital Contributions _____________ ___________
Operating Flows
Current Qtr Income _____________ _____________
Current Qtr Expense _____________ _____________
Current Qtr Net Income _____________ _____________
Mortgage Investments: Net Investment Income
Cash Distributions
Common _____________ _____________
Preferred _____________ _____________
Contributions Operations _____________ _____________
Appreciation/Depreciation
_____________ _____________
End of Quarter Net Assets [ date ] ____________ ___________
Current Quarter Investment Performance (Unannualized):
Net Income Return ____________ ____________
Appreciation Return ____________ ____________
Total Net Return ____________ ____________
Total Gross Return ____________ ____________
Financial Summary:
- -----------------
Gross Real Estate Assets ____________ ____________
Cash ____________ ____________
Other Assets ____________ ____________
Total assets ____________ ____________
Mortgages ____________ ____________
Other Liabilities ____________ ____________
Total Liabilities ____________ ____________
Net Assets ____________ ____________
Exh. C-1
Leasing Activity:
During the quarter _____ leases were executed representing
_______ sf. Another ____ leases representing ______ sf are out
for signature of which ____ are lease renewals (______ sf), and
one is a ground lease (________ sf).
Leasing Status:
Lease Maturation % for 2001 ____%
Lease Maturation % for 2002 ____%
Lease Maturation % for 2003 ____%
Lease Maturation % for 2004 ____%
Lease Maturation % for 2005 ____%
Net Rental Square Feet _________ Mall Tenants
_________ Anchors & Ground Leases
Physical Occupancy (%) Including Anchor ____% ____% Mall Tenants
and Ground Leases ____% Anchors & Ground Leases
NYSCRF Share 100%
------------ --------
Property Cash Flow Analysis Y-T-D Actual
Revenue _____________ __________
Expenses _____________ __________
NOI _____________ __________
Debt Service _____________ __________
Capital Expenditures _____________ __________
Asset Dispositions (Net of Debt) _____________ __________
Property Cash Flow _____________ __________
Advisor Fees _____________ __________
Cash Flow After Fees _____________ __________
Property Cash Flow Analysis Y-T-D Budget
Revenue _____________ __________
Expenses _____________ __________
NOI _____________ __________
Debt Service _____________ __________
Capital Expenditures _____________ __________
Asset Dispositions (Net of Debt) _____________ __________
Property Cash Flow _____________ __________
Advisor Fees _____________ __________
Cash Flow After Fees _____________ __________
Date of Anticipated Funding of Unfunded Commitment: No additional funding anticipated for __________
Investment Structure:
Other:
Exh. C-2
LEXINGTON ACQUIPORT COMPANY II, LLC
PORTFOLIO SUMMARY
_______ QUARTER REVIEW
-----
Property Performance Measurements
After Fees
For The Quarter Ended ___________
AMOUNT DATE AMOUNT DATE
------------- ------------- ------------- -------------
ORIGINAL INVESTMENT DISTRIBUTIONS (CONTRIBUTIONS) DURING THE QUARTER:
------- -------- ------- -------
------- -------- ------- -------
------- -------- ------- -------
------- -------- ------- -------
------- -------- ------- -------
------- -------- ------- -------
------- -------- ------- -------
Contributions since TOTAL DISTRIBUTIONS
inception ========= =========
CURRENT QUARTER HISTORICAL CASH FLOWS HISTORICAL RETURNS
- --------------------------------- ------------------------------------------------ ---------------------------------- -------
QUARTER TOTAL QUARTER TOTAL
ENDED CONTRIBUTION DISTRIBUTION CASH FLOWS ENDED INCOME APPRECIATION RETURN
------------------------------------------------ ---------------------------------- -------
NET INVESTMENT INCOME
------- ------------
BEGINNING PERIOD NET ASSETS % % %
------- ------------- ------------ ------------- --------- -------- ----------- -----
TIME WEIGHTED CONTRIBUTION (DIST.) % % %
--- ------- ------------- ------------ ------------- --------- -------- ----------- -----
% % %
--- ------- ------------- ------------ ------------- --------- -------- ----------- -----
INCOME RETURN % % %
--- ------- ------------- ------------ ------------- --------- -------- ----------- -----
% % %
------- ------------- ------------ ------------- --------- -------- ----------- -----
% % %
------- ------------- ------------ ------------- --------- -------- ----------- -----
BEGINNING REAL ESTATE VALUE (2) % % %
------- ------------- ------------ ------------- --------- -------- ----------- -----
ENDING REAL ESTATE VALUE (2) % % %
------- ------------- ------------ ------------- --------- -------- ----------- -----
CAPITAL IMPROVEMENTS % % %
--- ------- ------------- ------------ ------------- --------- -------- ----------- -----
REALIZED GAIN (LOSS) AFTER FEES % % %
--- ------- ------------- ------------ ------------- --------- -------- ----------- ------
UNREALIZED GAIN OR LOSS - Stock
--- ------- ------------- ------------ -------------
APPRECIATION RETURN ===
TOTAL RETURN ===
CASH FLOW RETURN ===
TIME WEIGHTED RETURNS
---------------------
CALENDAR YTD
LAST 4 QUARTERS
SINCE INCEPTION
(1)
Cash flow return in based on operating distributions-contribution made
during the current quarter
(2) Computation based on equity method of accounting for joint ventures. Equals
real estate value plus investment in Joint venture less debt
Exh. C-3